(Registrant’s telephone number, including area code): ~~(215)~~ (215) 826-2800

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. Yes☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes☒ No ☐

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," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

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. ☐

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

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☐

The number of shares of the registrant’s common stock outstanding at August 10, ~~2021~~2022 was ~~118,011,766.~~118,752,924.


	June 30,			December 31,			June 30,			December 31,
	2021			2020			2022			2021
Assets
Current assets:
Cash and cash equivalents, excluding restricted cash	$	90,398		$	39,244		$	71,238		$	83,882
Restricted cash		16,575			20,846			12,021			16,415
Accounts receivable, net of allowance		58,661			57,869			65,106			62,220
Prepaid expenses		6,911			5,290			8,073			6,971
Assets held for sale		—			28,575
Other current assets		15,178			16,884			12,788			11,459
Total current assets		187,723			168,708			169,226			180,947

Long-term accounts receivable, net of allowance		76,599			75,301			76,769			72,309
Cemetery property		296,529			299,526			299,549			296,758
Property and equipment, net of accumulated depreciation		80,392			83,496			89,346			82,610
Merchandise trusts, restricted, at fair value		544,268			501,453			604,760			567,853
Perpetual care trusts, restricted, at fair value		326,958			312,228			349,150			339,138
Deferred selling and obtaining costs		120,229			116,900			127,927			124,023
Deferred tax assets		7			9			3			21
Goodwill								6,774			—
Intangible assets, net		54,559			55,094			51,902			54,023
Other assets		24,924			22,248			22,629			23,462
Total assets	$	1,712,188		$	1,634,963		$	1,798,035		$	1,741,144

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities	$	45,943		$	51,718		$	55,953		$	44,704
Liabilities held for sale		—			23,406
Accrued interest		4,722			95			4,344			4,344
Current portion, long-term debt		1,859			317			2,576			762
Total current liabilities		52,524			75,536			62,873			49,810

Long-term debt, net of deferred financing costs		389,559			320,715			390,033			389,401
Deferred revenues		1,013,653			949,164			1,118,208			1,056,260
Deferred tax liabilities		18,127			29,652			11,093			10,878
Perpetual care trust corpus		326,958			312,228			349,150			339,138
Other long-term liabilities		42,776			40,081			41,343			41,399
Total liabilities		1,843,597			1,727,376			1,972,700			1,886,886
Commitments and contingencies

Stockholders' equity:
Common stock, par value $0.01 per share, 200,000,000 shares authorized, 117,964,891 and 117,871,141 shares issued and outstanding, respectively		1,180			1,178
Common stock, par value $0.01 per share, 200,000,000 shares authorized, 118,723,067 and 118,290,600 shares issued and outstanding, respectively								1,187			1,182
Paid-in capital in excess of par value		(84,221	)		(85,232	)		(82,719	)		(83,286	)
Accumulated deficit		(48,368	)		(8,359	)		(93,133	)		(63,638	)
Total stockholders' equity		(131,409	)		(92,413	)		(174,665	)		(145,742	)
Total liabilities and stockholders' equity	$	1,712,188		$	1,634,963		$	1,798,035		$	1,741,144

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020			2022			2021			2022			2021
Revenues:
Cemetery:
Interments	$	22,906		$	16,467		$	43,425		$	31,226		$	22,136		$	22,906		$	43,291		$	43,425
Merchandise		17,787			14,591			34,069			28,969			19,744			17,787			34,600			34,069
Services		17,698			16,551			34,979			31,578			18,370			17,698			35,228			34,979
Investment and other		13,737			9,254			26,635			19,887			10,204			13,737			26,832			26,635
Funeral home:
Merchandise		5,449			4,825			11,422			10,211			5,040			5,449			11,085			11,422
Services		5,404			4,913			10,764			9,832			4,553			5,404			9,988			10,764
Total revenues		82,981			66,601			161,294			131,703			80,047			82,981			161,024			161,294
Costs and Expenses:
Cost of goods sold		12,435			9,269			23,619			18,683			12,519			12,435			24,058			23,619
Cemetery expense		18,090			17,229			36,251			34,177			21,634			18,090			43,813			36,251
Selling expense		14,776			12,206			28,983			24,257			17,289			14,776			32,862			28,983
General and administrative expense		10,650			9,130			20,843			18,645			12,250			10,650			23,003			20,843
Corporate overhead		9,534			8,756			19,075			17,257			12,806			9,534			24,619			19,075
Depreciation and amortization		2,027			2,293			4,129			4,607			2,018			2,027			4,079			4,129
Funeral home expenses:
Merchandise		1,478			1,364			3,139			2,700			1,389			1,478			3,021			3,139
Services		4,477			4,425			9,138			8,819			4,700			4,477			9,457			9,138
Other		3,239			2,490			6,258			5,250			3,185			3,239			6,571			6,258
Total costs and expenses		76,706			67,162			151,435			134,395			87,790			76,706			171,483			151,435

Loss on sale of business and other impairments		(2,220	)		—			(2,220	)		—
Other gains		69			—			69			—
Operating income (loss)		4,124			(561	)		7,708			(2,692	)
Loss on sale of businesses and other impairments														(43	)		(2,220	)		(43	)		(2,220	)
Other (losses) gains														(15	)		69			(15	)		69
Operating (loss) income														(7,801	)		4,124			(10,517	)		7,708
Interest expense		(9,977	)		(11,729	)		(20,450	)		(23,082	)		(9,279	)		(9,977	)		(18,565	)		(20,450	)
Loss on debt extinguishment		(40,128	)		—			(40,128	)		—			—			(40,128	)		—			(40,128	)
Loss from continuing operations before income taxes		(45,981	)		(12,290	)		(52,870	)		(25,774	)		(17,080	)		(45,981	)		(29,082	)		(52,870	)
Income tax benefit		9,736			3,492			11,412			2,204
Income tax (expense) benefit														(181	)		9,736			(413	)		11,412
Net loss from continuing operations		(36,245	)		(8,798	)		(41,458	)		(23,570	)		(17,261	)		(36,245	)		(29,495	)		(41,458	)
Discontinued operations (Note 2):
Income from operations of discontinued businesses		860			4,884			1,449			28,659			—			860			—			1,449
Income tax expense		—			—			—			—			—			—			—			—
Net income from discontinued operations		860			4,884			1,449			28,659			—			860			—			1,449
Net (loss) income	$	(35,385	)	$	(3,914	)	$	(40,009	)	$	5,089
Net loss													$	(17,261	)	$	(35,385	)	$	(29,495	)	$	(40,009	)

Net loss from continuing operations per common share (basic)	$	(0.31	)	$	(0.09	)	$	(0.35	)	$	(0.25	)	$	(0.15	)	$	(0.31	)	$	(0.25	)	$	(0.35	)
Net income from discontinued operations per common share (basic)		0.01			0.05			0.01			0.30			—			0.01			—			0.01
Net (loss) income per common share (basic)	$	(0.30	)	$	(0.04	)	$	(0.34	)	$	0.05
Net loss per common share (basic)													$	(0.15	)	$	(0.30	)	$	(0.25	)	$	(0.34	)

Net loss from continuing operations per common share (diluted)	$	(0.31	)	$	(0.09	)	$	(0.35	)	$	(0.25	)	$	(0.15	)	$	(0.31	)	$	(0.25	)	$	(0.35	)
Net income from discontinued operations per common share (diluted)		0.01			0.05			0.01			0.30			—			0.01			—			0.01
Net (loss) income per common share (diluted)	$	(0.30	)	$	(0.04	)	$	(0.34	)	$	0.05
Net loss per common share (diluted)													$	(0.15	)	$	(0.30	)	$	(0.25	)	$	(0.34	)
Weighted average number of common shares outstanding - basic		117,956			97,572			117,933			96,022			118,476			117,956			118,402			117,933
Weighted average number of common shares outstanding - diluted		117,956			97,572			117,933			96,022			118,476			117,956			118,402			117,933

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

Series A Preferred Stock

Common Stock

Number of Series A Preferred Shares

Par Value of Series A Preferred Shares

Number of Common Shares

Par Value of Common Shares

Paid-in Capital in Excess of Par Value

Retained Earnings

Total

Three Months Ended March 31, 2020

December 31, 2019

—

$
—

94,447,356

$
944

$
(103,434
)

$
—

$
(102,490
)
Common stock awards under incentive
  plans

—

—

29,746

—

375

—

375

Net income

—

—

—

—

—

9,003

9,003

March 31, 2020

—

$
—

94,477,102

$
944

$
(103,059
)

$
9,003

$
(93,112
)

Three Months Ended June 30, 2020

March 31, 2020

—

$
—

94,477,102

$
944

$
(103,059
)

$
9,003

$
(93,112
)
Issuance of Series A Preferred Stock

176

—

—

—

8,800

—

8,800

Exchange of Series A Preferred Stock for
  Common Stock

(176
)

—

12,054,795

121

(121
)

—

—

Issuance of Common Stock

—

—

11,232,877

112

8,088

—

8,200

Common stock awards under incentive
  plans

—

—

29,746

—

317

—

317

Net loss

—

—

—

—

—

(3,914
)

(3,914
)
June 30, 2020

—

$
—

117,794,520

$
1,177

$
(85,975
)

$
5,089

$
(79,709
)

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.


	Six Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2022			2021
Cash Flows From Operating Activities:
Net (loss) income	$	(40,009	)	$	5,089
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Net loss							$	(29,495	)	$	(40,009	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Cost of lots sold		3,651			2,843			3,179			3,651
Depreciation and amortization		4,169			4,793			4,079			4,169
Provision for bad debt		3,519			3,807			2,883			3,519
Non-cash compensation expense		1,013			727			1,007			1,013
Loss on debt extinguishment		40,128			—			—			40,128
Non-cash interest expense		3,160			10,506			1,208			3,160
Loss (gain) on sale of businesses		1,353			(28,951	)
Other gains		(69	)		—
Loss on sale of businesses								43			1,353
Other losses (gains)								15			(69	)
Changes in assets and liabilities:
Payment of paid-in-kind interest		(18,440	)		—			—			(18,440	)
Accounts receivable, net of allowance		(11,522	)		(8,234	)		(13,073	)		(11,522	)
Merchandise trust fund		(17,378	)		(2,242	)		(22,568	)		(17,378	)
Other assets		(2,942	)		4,746			955			(2,942	)
Deferred selling and obtaining costs		(4,229	)		(2,968	)		(4,928	)		(4,229	)
Deferred revenues		45,652			19,663			51,761			45,652
Deferred taxes, net		(11,523	)		(2,340	)		233			(11,523	)
Payables and other liabilities		1,900			(6,238	)		11,252			1,900
Net cash (used in) provided by operating activities		(1,567	)		1,201
Net cash provided by (used in) operating activities								6,551			(1,567	)
Cash Flows From Investing Activities:
Cash paid for acquisitions								(18,295	)		—
Proceeds from divestitures								173			6,578
Cash paid for capital expenditures		(3,361	)		(3,791	)		(6,144	)		(3,361	)
Proceeds from divestitures		6,578			48,336
Net cash provided by investing activities		3,217			44,545
Net cash (used in) provided by investing activities								(24,266	)		3,217
Cash Flows From Financing Activities:
Proceeds from issuance of Series A Preferred Stock		—			8,800
Proceeds from issuance of Common Stock		—			8,200
Proceeds from borrowings		404,433			2,639			6,001			404,433
Repayments of debt		(329,294	)		(53,572	)		(3,897	)		(329,294	)
Principal payment on finance leases		(796	)		(749	)		(616	)		(796	)
Early redemption premium		(18,478	)		—			—			(18,478	)
Cost of financing activities		(10,632	)		(4,236	)		(376	)		(10,632	)
Shares repurchased related to share-based compensation		—			(35	)		(435	)		—
Net cash provided by (used in) financing activities		45,233			(38,953	)
Net increase in cash, cash equivalents and restricted cash		46,883			6,793
Net cash provided by financing activities								677			45,233
Net (decrease) increase in cash, cash equivalents and restricted cash								(17,038	)		46,883
Cash, cash equivalents and restricted cash—Beginning of period		60,090			56,767			100,297			60,090
Cash, cash equivalents and restricted cash—End of period	$	106,973		$	63,560		$	83,259		$	106,973
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	31,141		$	13,675		$	17,206		$	31,141
Cash paid during the period for income taxes		1,989			—			2,498			1,989
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	961		$	1,611		$	836		$	961
Operating cash flows from finance leases		166			225			153			166
Financing cash flows from finance leases		796			749			616			796
Non-cash investing and financing activities:
Accrued paid-in-kind interest on 2024 Notes	$	—		$	7,077
Right of use assets obtained in exchange for new operating lease liabilities							$	47		$	3,277
Right of use assets obtained in exchange for new finance lease liabilities								197			105

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

GENERAL

~~GENERAL~~

As used in this Quarterly Report on Form 10-Q (the “Quarterly Report”), unless the context otherwise requires, references to the terms the “Company,” “StoneMor,” “we,” “us,” and “our” refer to StoneMor Inc. and its consolidated subsidiaries.

Nature of Operations

The Company is a provider of funeral and cemetery products and services in the death care industry in the United States. As of June 30, ~~2021,~~2022, the Company operated ~~301~~304 cemeteries in 24 states and Puerto Rico, of which ~~271~~275 were owned and 3029 were operated under lease, management or operating agreements. As of June 30, ~~2021,~~2022, the Company also owned and operated 7072 funeral homes, including 3334 located on the grounds of cemetery properties that the Company owned, in 15 states and Puerto Rico.

The Company’s cemeteries provide cemetery property interment rights, such as burial lots, lawn and mausoleum crypts, and cremation niches. Cemetery merchandise is comprised of burial vaults, caskets, grave markers and memorials. Cemetery services include the installation of this merchandise and other service items. The Company sells these products and services both at the time of death, which is referred to as at-need, and prior to the time of death, which is referred to as pre-need.

The Company’s funeral home services include family consultation, the removal and preparation of remains, insurance products and the use of funeral home facilities for visitation and memorial services.

Basis of Presentation and Principles of Consolidation

The accompanying condensed consolidated financial statements, which are unaudited, have been prepared in accordance with the requirements of the Quarterly Report on Form 10-Q and Generally Accepted Accounting Principles (“GAAP”) for interim reporting. They do not include all disclosures normally made in financial statements contained in Annual Reports on Form 10-K. In management’s opinion, all adjustments necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the periods disclosed have been made. The balance sheet atas of December 31, ~~2020~~2021 has been derived from the audited consolidated financial statement as of December 31, ~~2020,~~2021, as presented in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, which was filed with Securities and Exchange Commission ~~("SEC"~~(“SEC”) on March ~~25, 2021~~31, 2022 (the “Annual Report”). The interim unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and the related notes thereto presented in the Annual Report. The results of operations for the six months ended June 30, ~~2021~~2022 may not necessarily be indicative of the results of operations for the full year ending December 31, ~~2021.~~2022.

The unaudited condensed consolidated financial statements include the accounts of each of the Company’s ~~100%~~100% owned subsidiaries. These statements also include the accounts of the merchandise and perpetual care trusts in which the Company has a variable interest and is the primary beneficiary. The Company operates 3029 cemeteries under long-term leases, operating agreements and management agreements. The operations of 16 of these managed cemeteries have been consolidated.

The Company operates 1413 cemeteries under long-term leases and other agreements that do not qualify as acquisitions for accounting purposes. As a result, the Company did not consolidate all of the existing assets and liabilities related to these cemeteries. The Company has consolidated the existing assets and liabilities of the merchandise and perpetual care trusts associated with these cemeteries as variable interest entities, since the Company controls and receives the benefits and absorbs any losses from operating these trusts. Under the long-term leases, and other agreements associated with these properties, which are subject to certain termination provisions, the Company is the exclusive operator of these cemeteries and earns revenues related to sales of merchandise, services and interment rights and incurs expenses related to such sales, including the maintenance and upkeep of these cemeteries. Upon termination of these agreements, the Company will retain all of the benefits and related contractual obligations incurred from sales generated during the agreement period. The Company has also recognized the existing customer contract-related performance obligations that it assumed as part of these agreements.

On May 11, 2021, the Company issued $400.0 million aggregate principal amount of 8.500% Senior Secured Notes due 2029 (the “2029 Notes”). The gross proceeds from the sale of the 2029 Notes was $389.9 million, less advisor fees, legal fees, mortgage costs and other closing expenses. The 2029 Notes were issued pursuant to an indenture (the “2029 Indenture”), dated as of May 11, 2021, by and among the Company, the guarantors named therein and Wilmington Trust, National Association, as

trustee and collateral agent. Substantially concurrently with the closing of the offering of the 2029 Notes, StoneMor Partners L.P. (the “Partnership”) and Cornerstone Family Services of West Virginia Subsidiary, Inc. (collectively, the “2024 Issuers”) deposited from the net cash proceeds from the offering of the 2029 Notes an amount sufficient to fund the full redemption of the outstanding 9.875%/11.500% Senior Secured PIK Toggle Notes due 2024 (the “2024 Notes”) with Wilmington Trust, National Association (the “2024 Trustee”) as trustee under the Indenture, dated as of June 27, 2019 (as amended, the “2024 Indenture”), among the 2024 Issuers, the guarantors party thereto and the 2024 Trustee governing the 2024 Notes. Upon deposit of such funds with the 2024 Trustee, the 2024 Indenture was satisfied and discharged in accordance with its terms. As a result of the satisfaction and discharge of the 2024 Indenture, the 2024 Issuers and the guarantors of the 2024 Notes, including the Company, have been released from their obligations with respect to the 2024 Indenture and the 2024 Notes, except with respect to those provisions of the 2024 Indenture that, by their terms, survive the satisfaction and discharge of the 2024 Indenture. Refer to Note 8 ~~Long-Term Debt~~ ~~for more detailed information.~~

COVID-19 Pandemic

In December 2019, an outbreak of a novel strain of coronavirus (“COVID-19”) spread worldwide posing public health risks that reached pandemic proportions ~~(the~~(including the effect of variants that have developed, the “COVID-19 Pandemic”). The COVID-19 Pandemic poses a significant threat to the health and economic wellbeing of the Company’s employees, customers and vendors. The Company’s operations are deemed essential by the state and local governments in which it operates, with the exception of Puerto Rico, and the Company has been working with federal, state and local government officials to ensure that it continues to satisfy their requirements for offering the Company’s essential services.

The Company’s top priority is the health and safety of its employees and the families it serves. Since the start of the outbreak in the U.S., the Company’s senior management team has taken actions to protect its employees and the families it serves, and to support its field locations as they adapt and adjust to the circumstances resulting from the COVID-19 Pandemic. The operation of all of the Company’s facilities is critically dependent on the employees who staff these locations. To ensure the wellbeing of the Company’s employees and their families, the Company provided all of its employees with detailed health and safety literature on COVID-19, such as the industry-specific guidelines from the Centers for Disease Control and Prevention (the “CDC”) for working with the deceased who were or may have been infected with COVID-19. In addition, the Company’s procurement and safety teams have consistently secured and distributed supplies to ensure that the Company’s locations have appropriate personal protective equipment (“PPE”) and cleaning supplies to provide its essential services, as well as updated and developed new safety-oriented guidelines to support daily field operations. These guidelines include reducing the number of staff present for a service and restricting the number of attendees. The Company also implemented additional safety and precautionary measures as it concerns the businesses’ day-to-day interaction with the families and communities it serves. The Company’s corporate office employees began working from home in March 2020 consistent with CDC guidance to reduce the risks of exposure to COVID-19 while still supporting the field operations. The Company has not experienced any significant disruptions to its business as a result of the work from home policies in its corporate office. The Company monitors the CDC guidance on a regular basis, continually reviews and updates its processes and procedures and provides updates to its employees as needed to comply with regulatory guidelines.

The Company’s marketing and sales team quickly responded to the sales challenges presented by the COVID-19 Pandemic by implementing virtual meeting options using a variety of web-based tools to ensure that the Company can continue to connect with and meet its customers’ needs in a safe, effective and productive manner. Some of the Company’s locations provide live video streaming of their funeral and burial services to its customers or provide other alternatives that respect social distancing, so that family and friends can connect during their time of grief.

Like most businesses world-wide, the COVID-19 Pandemic has impacted the Company financially. At the start of the ~~Covid-19~~COVID-19 Pandemic in early 2020, the Company saw its pre-need sales and at-need sales activity decline as Americans practiced social distancing and crowd size restrictions were put in place. However, since May 2020, the Company experienced at-need sales growth, and since late 2020, it has experienced pre-need sales growth. The Company believes the implementation of its virtual meeting tools isearly on in the COVID-19 Pandemic was one of several key steps that ~~has~~had mitigated this disruption. Throughout the COVID-19 Pandemic, the Company’s cemeteries and funeral homes have largely remained open and available to serve its families in all the locations in which it operates to the extent permitted by local authorities ~~with the exception of Puerto Rico,~~ and the Company expects that this will continue. The Company has leveraged the relationships it has made with the families it has served during its response to the COVID-19 Pandemic, which has directly resulted in new sales leads and ~~increased~~the increase in pre-need sales activity. In addition, as community restrictions have eased and the COVID-19 vaccine became more widely available, the Company has experienced ~~record~~ growth in its pre-need cemetery sales. However, the Company had experienced limited location closures due to COVID-19 cases, required quarantines and cleanings. During the year ended December 31, 2020, the Company incurred costs of approximately $1.0 million related to the implementation of prescribed safety protocols related to the COVID-19 Pandemic.

~~Table of Contents~~

The Company expects the COVID-19 Pandemic could have an adverse effect on its future results of operations and cash flows depending on COVID-19 variants and ~~increased~~ case counts. However, the Company cannot presently predict the likely scope and severity of that impact. ~~The Company may incur additional costs related to the implementation of prescribed safety protocols related to the COVID-19 Pandemic.~~ In the event there are confirmed diagnoses of COVID-19 within a significant number of its facilities, the Company may incur additional costs related to the closing and subsequent cleaning of these facilities and the ability to adequately staff the impacted sites. In addition, the Company’s pre-need customers with installment contracts could default on their installment contracts due to lost work or other financial stresses arising from the COVID-19 Pandemic.

~~Sources~~ Alternatively, in the event that COVID-19 case counts continue to normalize and ~~Uses of Liquidity~~

~~The Company’s primary sources of liquidity are cash generated from operations, proceeds from asset sales~~variants become less severe, we would expect to see a reduction in the demand for at-need products and the remaining proceeds from the sale of the 2029 Notes. The Company’s primary cash requirements, in addition to normal operating expenses, are for capital expenditures, net contributions to the merchandise and perpetual care trust funds and debt service. Amounts contributed to the merchandise trust funds will be withdrawn at the time of the delivery of the product or service sold to which the contribution related (see “Summary of Significant Accounting Policies” section below regarding revenue recognition), which will reduce the amount of additional borrowings or asset sales needed. Based on the Company's forecasted operating performance, the issuance of the 2029 Notes and the redemption of the 2024 Notes, the Company believes that it will be able to continueservices as well as a ~~going concern for the next twelve-month period.~~ reduction in pre-need turning to at-need.

Refer to Note 1 General to the Company’s audited consolidated financial statements included in Item 8 of its Annual Report for the complete summary of significant accounting policies.

Use of Estimates

The preparation of the Company’s unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions as described in its Annual Report. These estimates and assumptions may affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. As a result, actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less from the time they are acquired to be cash equivalents. Cash and Cash Equivalents was ~~$90.4~~$71.2 million and ~~$39.2~~$83.9 million as of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

Restricted Cash

Cash that is restricted from withdrawal or use under the terms of certain contractual agreements is recorded as restricted cash. Restricted cash was ~~$16.6~~$12.0 million and ~~$20.8~~$16.4 million as of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively, which primarily related to cash collateralization of the Company’s letters of credit and surety bonds.

Revenue

~~Revenue~~

The Company's revenues are derived from contracts with customers through sale and delivery of death care products and services. Primary sources of revenue are derived from (1) cemetery and funeral home operations generated both at-need and pre-need, which are classified on the unaudited condensed consolidated statements of operations as Interments, Merchandise and Services, (2) investment income, which includes income earned on assets maintained in perpetual care and merchandise trusts related to pre-need sales of cemetery and funeral home merchandise and services that are required to be maintained in the trust by state law and (3) interest earned on pre-need installment contracts. Investment income is presented within Investment and other for Cemetery revenue and Services for Funeral home revenue. Revenue is measured based on the consideration specified in a contract with a customer and is net of any sales incentives and amounts collected on behalf of third parties. Pre-need contracts are price guaranteed, providing for future merchandise and services at prices prevailing when the agreements are signed.

Investment income is earned on certain payments received from customers on pre-need contracts, which are required by law to be deposited into the merchandise and service trusts. Amounts are withdrawn from the merchandise trusts when the Company

~~Table of Contents~~

fulfills the performance obligations. Earnings on these trust funds, which are specifically identifiable for each performance obligation, are also included in total transaction price. Pre-need contracts are generally subject to financing arrangements on an installment basis, with a contractual term not to exceed 60 ~~months.~~months. Interest income is recognized utilizing the effective interest method. For those contracts that do not bear a market rate of interest, the Company imputes such interest based upon the prime rate at the time of origination plus 375 basis points in order to segregate the principal and interest component of the total contract value. The Company has elected to not adjust the transaction price for the effects of a significant financing component for contracts that have payment terms under one year.

At the time of a non-cancellable pre-need sale, the Company records an account receivable in an amount equal to the total contract value less unearned finance income and any cash deposit paid. The revenue from both the sales and interest income from trusted funds are deferred until the merchandise is delivered or the services are performed. For a sale in a cancellable state, an account receivable is only recorded to the extent control has transferred to the customer for interment rights, merchandise or services for which the Company has not collected cash. The amounts collected from customers in states in which pre-need contracts are cancellable may be subject to refund provisions. The Company estimates the fair value of its refund obligation under such contracts on a quarterly basis and records such obligations within other long-term liabilities line item on its consolidated balance sheets.

In accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”), the Company recognizes revenue in the amount to which the Company ~~expect~~expects to be entitled to when it satisfies a performance obligation by transferring control over a product or service to a customer. The Company only recognizes amounts due from a customer for unfulfilled performance obligations on a cancellable pre-need contract to the extent that control has transferred to the customer for interments, merchandise or services for which the Company has not collected cash. The Company defers the recognition of any nonrefundable up-front fees and incremental direct selling costs associated with its sales contracts with a customer (i.e., commissions and bonuses) until the underlying goods or services have been delivered to the customer if the amortization period associated with the deferred nonrefundable up-front fees and incremental direct selling is greater than a year; otherwise, these nonrefundable up-front fees and incremental direct selling costs are expensed immediately. Incremental direct selling costs are recognized by specific identification. The Company calculates the deferred selling costs asset by dividing total deferred selling and obtaining expenses by total deferrable revenues and multiplying such percentage by the periodic change in gross deferred revenues. Such costs are recognized when the associated performance obligation is fulfilled based upon the net change in deferred revenues. All other selling costs are expensed as incurred.

In addition, the Company maintains a reserve representing the fair value of the refund obligation that may arise due to state law provisions that include a guarantee of customer funds collected on unfulfilled performance obligations and maintained in trust to the extent that the funds are refundable upon a customer’s exercise of any cancellation rights.

Table of Contents

Sales taxes assessed by governmental authorities are excluded from revenue. Any shipping and handling costs that are incurred after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of goods sold.

Nature of Goods and Services

The following is a description of the principal activities within the Company’s 2 reportable segments from which the Company generates its revenue.

Cemetery Operations

The Company generates revenues in its Cemetery Operations segment principally from (1) providing rights to inter remains in a specific cemetery property inventory space such as burial lots and constructed mausoleum crypts (“Interments”), (2) sales of cemetery merchandise which includes markers (i.e., method of identifying a deceased person in a burial space, crypt or niche), base (i.e., the substrate upon which a marker is placed), vault (i.e., a container installed in the burial lot in which the casket is placed), caskets, cremation niches and other cemetery related items and (3) service revenues, including opening and closing, a service of digging and refilling burial spaces to install the burial vault and place the casket into the vault, cremation services and fees for installation of cemetery merchandise. Products and services may be sold separately or in packages. For packages, the Company accounts for individual products and services separately as they are distinct (i.e., the product or service is separately identifiable from other items in the package and the customer can benefit from it on its own or with other resources that are readily available to the customer). The consideration (including any discounts) is allocated among separate products and services in a package based on their relative stand-alone selling prices. The stand-alone selling price is determined by management based upon local market conditions and reasonable ranges for both merchandise and services which is the best estimate of the stand-alone price. For items that are not sold separately (e.g., second interment rights), the Company estimates stand-alone selling prices using the best estimate of market value, using inputs such as average selling price and list price

~~Table of Contents~~

broken down by each geographic location. Additionally, the Company considers typical sales promotions that could have impacted the stand-alone selling price estimates.

Interments revenue is recognized when control transfers, which is when the property is available for use by the customer. For pre-construction mausoleum contracts, the Company only recognizes revenue once the property is constructed and the customer has obtained substantially all of the remaining benefits of the property.

Merchandise revenue and deferred investment earnings on merchandise trusts are recognized when a customer obtains control of the product. This usually occurs when the customer takes possession of the product (title has transferred to the customer and the merchandise is either installed or stored, at the direction of the customer, at the vendor’s warehouse or a third-party warehouse at no additional cost to the Company). The amount of revenue recognized is adjusted for expected refunds, which are estimated based on applicable law, general business practices and historical experience observed specific to the respective performance obligation. The estimate of the refund obligation is reevaluated on a quarterly basis. In addition, the Company is entitled to retain, in certain jurisdictions, a portion of collected customer payments when a customer cancels a pre-need contract; these amounts are also recognized in revenue at the time the contract is cancelled.

Service revenue is recognized when the services are performed, and the performance obligation is thereby satisfied.

The cost of goods sold related to merchandise and services reflects the actual cost of purchasing products and performing services and the value of cemetery property depleted through the recognized sales of interment rights. The costs related to the sales of lots and crypts are determined systematically using a specific identification method under which the total value of the underlying cemetery property and the lots available to be sold at the location are used to determine the cost per lot.

Table of Contents

Funeral Home Operations

The Company generates revenues in its Funeral Home Operations segment principally from (1) sales of funeral home merchandise which includes caskets and other funeral related items and (2) service revenues, which includes services such as family consultation, the removal of and preparation of remains and the use of funeral home facilities for visitation and services of remembrance. The Funeral Home Operations segment also include revenues related to the sale of term and whole life insurance on an agency basis, in which the Company earns a commission from the sales of these policies. Insurance commission revenue is reported within service revenues. Products and services may be sold separately or in packages. For packages, the Company accounts for individual products and services separately as they are distinct (i.e., the product or service is separately identifiable from other items in the package and the customer can benefit from it on its own or with other resources that are readily available to the customer). The consideration (including any discounts) is allocated among separate products and services based on their relative stand-alone selling prices. The relative stand-alone selling price is determined by management's best estimate of the stand-alone price based upon the list price at each location. The revenue generated by the Company through its Funeral Home Operations segment is principally derived from at-need sales.

Merchandise revenue is recognized when a customer obtains control of the product. This usually occurs when the customer takes possession of the product (title has transferred to the customer and the merchandise is either installed or stored, at the direction of the customer, at the vendor’s warehouse or a third-party warehouse). The amount of revenue recognized is adjusted for expected refunds, which are estimated based on applicable law, general business practices and historical experience observed specific to the respective performance obligations. The estimate of the refund obligation is reevaluated on a quarterly basis.

Service revenue is recognized when the services are performed and the performance obligation is thereby satisfied.

Costs related to the delivery or performance of merchandise and services are charged to expense when merchandise is delivered or services are performed.

Deferred Revenues

Revenues from the sale of services and merchandise as well as any investment income from the merchandise trusts is deferred until such time that the services are performed or the merchandise is delivered. In addition, for amounts deferred on new contracts and investment income and unrealized gains on our merchandise trusts, deferred revenues include deferred revenues from pre-need sales that were entered into by entities prior to the Company’s acquisition of those entities or the assets of those entities. The Company provides for a profit margin for these deferred revenues to account for the projected future costs of delivering products and providing services on pre-need contracts that the Company acquired through acquisition. These revenues and their associated costs are recognized when the related merchandise is delivered or services are performed and are presented on a gross basis on the unaudited condensed consolidated statements of operations.

~~Table of Contents~~

Accounts Receivable, Net of Allowance

The Company sells pre-need cemetery contracts whereby the customer enters into arrangements for future pre-need merchandise and services. These sales are usually made using interest-bearing installment contracts not to exceed 60 ~~months.~~months. The interest income is recorded as revenue when the interest amount is considered realizable and collectible, which typically coincides with cash payment. Interest income is not recognized until payments are collected in accordance with the contract. At the time of a pre-need sale, the Company records an account receivable in an amount equal to the total contract value less unearned finance income, unfulfilled performance obligations on cancellable contracts and any cash deposit paid. The Company recognizes an allowance for doubtful accounts by applying a cancellation rate to amounts included in accounts receivable, which is recorded as a reduction in accounts receivable and a corresponding offset to deferred revenues. The cancellation rate is based on a five year average rate by each specific location. Management evaluates customer receivables for impairment based upon historical experience, including the age of the receivables and customers’ payment histories.

Leases

The Company leases a variety of assets throughout its organization, such as office space, funeral homes, warehouses and equipment. The Company has both operating and finance leases. The Company’s operating leases primarily include office space, funeral homes and equipment. The Company’s finance leases primarily consist of vehicles and certain IT equipment. The Company determines whether an arrangement is or contains a lease at the inception of the arrangement based on the facts and circumstances in each contract. Leases with an initial term of 12 months or less are not recorded on the balance sheet, and the Company recognizes lease expense for these leases on a straight-line basis over the lease term. For lease agreements with an initial term in excess of 12 months, the Company records the lease liability and Right of Use (“ROU”) asset at commencement date based upon the present value of the sum of the remaining minimum rental payments, which exclude executory costs. Certain adjustments to the ROU asset may be required for items such as initial direct costs paid or incentives received.

Certain leases provide the Company with the option to renew for additional periods, with renewal terms that can extend the lease term for periods ranging from 1 to 30 ~~years.~~years. Where leases contain escalation clauses, rent abatements and/or concessions, the Company applies them in the determination of lease expense. The exercise of lease renewal options is at the Company’s sole discretion, and the Company is only including the renewal option in the lease term when the Company can be reasonably certain that the Company will exercise the additional options.

As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The Company evaluates the term of the lease, type of asset and its weighted average cost of capital to determine its incremental borrowing rate used to measure the ROU asset and lease liability.

The Company calculates operating lease expense ratably over the lease term plus any reasonably assured renewal periods. The Company considers reasonably assured renewal options, fixed escalation provisions and residual value guarantees in its calculation. Leasehold improvements are amortized over the shorter of the lease term or asset life, which may include renewal periods where the renewal is reasonably assured, and are included in the determination of straight-line rent expense. The depreciable life of assets and leasehold improvements are generally limited by the expected lease term.

The Company’s leases also typically have lease and non-lease components, which are generally accounted for separately and not included in the measurement of the ROU asset and lease liability.

Business Combinations

Tangible and intangible assets acquired and liabilities assumed are recorded at their estimated fair value and goodwill or bargain gain is recognized for any difference between the purchase price of the acquisition and the Company's fair value estimation. To the extent that new information is obtained during the measurement period about facts and circumstances that existed at the closing date, the Company may adjust goodwill, intangible assets, assets or liabilities associated with the acquisition. The measurement period is no longer than one year from the date of acquisition. Acquisition-related expenses are recognized separately from the business combination and are expensed as incurred.

Goodwill

Goodwill resulting from the acquisitions completed during the six months ended June 30, 2022, which is preliminary and subject to change, represents the excess of purchase price over the fair market value of net assets acquired, based on their respective fair values at the date of acquisition.

The Company will test goodwill for impairment at least annually or if impairment indicators arise by comparing its reporting units’ estimated fair values to carrying values. Because quoted market prices for the reporting units are not available, the Company’s management must apply judgment in determining the estimated fair value of these reporting units. The Company’s management will use all available information to make these fair value determinations, including the present values of expected future cash flows using discount rates commensurate with the risks involved in the Company’s assets and the available market data of the industry group.

Income Taxes

The Company is subject to U.S. federal income taxes and certain state income and franchise taxes in the states in which it operates. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and tax carryforwards, if applicable. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date.

The Company records 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.

~~Table of Contents~~

Income tax expense during interim periods is based on ~~our~~the Company’s forecasted annual effective tax rate plus any discrete items on an estimated basis, 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.

For the three months ended June 30, 2022 and 2021, the Company had income tax expense of $0.2 million and ~~2020, we had~~ an income tax benefit of ~~$9.7~~$9.7 million, respectively. For the six months ended June 30, 2022 and 2021, the Company had income tax expense of $0.4 million and ~~$3.5~~an income tax benefit of $11.4 million, respectively. The Company’s effective tax rate before discrete items was 1.1% and 21.6% for the three months ended June 30, 2022 and 2021, respectively, and1.4% and 22.2% for the six months ended June 30, 2022 and 2021, ~~and 2020, we had an income tax benefit of $11.4 million and $2.2 million,~~ respectively. Our operating tax rate before discrete items was 21.6% and 47.2% for the three months ended June 30, 2021 and 2020, respectively, and 22.2% and 76.4% for the six months ended June 30, 2021 and 2020, respectively.

Stock-Based Compensation

The Company has a long-term incentive plan under which it is authorized to grant stock-based compensation awards, such as restricted stock or restricted units to be settled in common stock and non-qualified stock options (“stock options”). The Company recognizes compensation expense in an amount equal to the fair value of the stock-based awards on the date of grant over the requisite service period. The fair value of restricted stock awards and restricted stock unit awards is determined based on the number of restricted stock or restricted stock units granted and the closing price of the Company’s common stock on the date of grant. The fair value of stock options is determined by applying the Black-Scholes model to the grant-date market value of the underlying common stock of the Company. The Company has elected to recognize forfeiture credits for these stock-based compensation awards as they are incurred, as this method best reflects actual stock-based compensation expense.

Tax deductions on the stock-based compensation awards are not realized until the ~~stock-based compensation~~related income is recognized, which is generally when the awards are vested or exercised. The Company recognizes deferred tax assets for stock-based compensation awards that will result in future deductions on its income tax returns, based on the amount of stock-based compensation recognized at the statutory tax rate in the jurisdiction in which the Company will receive a tax deduction. If the tax deduction for a stock-based compensation award is greater than the cumulative GAAP compensation expense for that stock-based compensation award upon realization of a tax deduction, an excess tax benefit will be recognized and recorded as a favorable impact on the effective tax rate. If the tax deduction for a stock-based compensation award is less than the cumulative GAAP compensation expense for that stock-based compensation award upon realization of the tax deduction, a tax shortfall will be recognized and recorded as an unfavorable impact on the effective tax rate. Any excess tax benefits or shortfalls will be recorded discretely in the period in which they occur. The cash flows resulting from any excess tax benefit will be classified as financing cash flows in the Company’s consolidated statements of cash flows.

The Company provides its employees with the election to settle the income tax obligations arising from the vesting of their restricted stock-based compensation awards by the Company withholding stock equal to such income tax obligations. However, employees who are subject to Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are required to have stock withheld to satisfy such income tax obligations unless the Company’s Compensation, Nominating and Governance Committee provides that the employee must pay cash in lieu of having stock withheld. Shares of stock acquired from employees in connection with the settlement of the employees’ income tax obligations on these stock-based compensation awards are accounted for as treasury shares that are subsequently retired. Restricted stock awards, restricted stock units and stock options are not considered issued and outstanding for purposes of earnings per share calculations until ~~vested.~~vested or exercised.

Net Income (Loss) per Common Share (Basic and Diluted)

Basic net income (loss) per common share is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per common share is calculated by dividing net income (loss) attributable to common shares by the sum of the weighted-average number of outstanding common shares and the dilutive effect of share-based awards, as calculated by the treasury stock or if converted methods, as applicable. These awards consist of common shares that are contingently issuable upon the satisfaction of certain vesting conditions for stock awards granted under the Company’s long-term incentive plan.

~~Table of Contents~~

The following table sets forth the reconciliation of the Company’s weighted-average number of outstanding common shares for the three and six months ended June 30, ~~2021~~2022 and ~~2020~~2021 used to compute basic net income (loss) attributable to common shares to those used to compute diluted net income (loss) per common share (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Weighted average number of outstanding common shares—basic		118,476		117,956		118,402		117,933
Plus effect of dilutive incentive awards(1):
Restricted shares		—		—		—		—
Stock options		—		—		—		—
Weighted average number of outstanding common shares—diluted		118,476		117,956		118,402		117,933

Three Months Ended June 30,

Six Months Ended June 30,

2021

2020

2021

2020

Weighted average number of outstanding common shares—basic

117,956

97,572

117,933

96,022

Plus effect of dilutive incentive awards⁽¹⁾:

Restricted shares

—

—

—

—

Stock options

—

—

—

—

Weighted average number of outstanding common shares—diluted

117,956

97,572

117,933

96,022

(1)

For the three months ended June 30, 2022 and 2021, the diluted weighted-average number of outstanding common shares does not include 874,182 and 366,641 shares issuable upon the exercise of outstanding options, respectively, and 248,470 and 414,412 restricted common shares, respectively, as their effects would have been anti-dilutive. For the six months ended June 30, 2022 and 2021, the diluted weighted-average number of outstanding common shares does not include 881,803 and 592,046 shares issuable upon the exercise of outstanding options, respectively, and 240,694 and 438,718 restricted common shares, respectively, as their effects would have been anti-dilutive.

⁽¹⁾

For the three and six months ended June 30, 2021, the diluted weighted-average number of outstanding common shares does not include 366,641 and 592,046 shares issuable upon the exercise of outstanding options, respectively, and 414,412 and 438,718 restricted common shares, respectively, as their effects would have been anti-dilutive. For the three and six months ended June 30, 2020, the diluted weighted-average number of outstanding common shares does not include 5,275,000 and 3,364,392 shares issuable upon the exercise of outstanding options, respectively, and 421,875 restricted common shares, as their effects would have been anti-dilutive.

In June 2016, the FASB issued ASU No. 2016-13, Credit Losses (Topic 326) ("ASU 2016-13"). The core principle of ASU 2016-13 is that all assets measured at amortized cost basis should be presented at the net amount expected to be collected using historical experience, current conditions and reasonable and supportable forecasts as a basis for credit loss estimates, instead of the probable initial recognition threshold used under current GAAP. In November 2018, FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses (“ASU 2018-09”), which clarified that receivables arising from operating leases are not within the scope of Accounting Standards Codification (“ASC”) 326-20, Financial Instruments-Credit Losses-Measured at Amortized Cost, and should be accounted for in accordance with ASC 842, Leases. In April 2019, FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments (“ASU 2019-04”), which includes clarifications to the amendments issued in ASU 2016-13. In May 2019, FASB issued ASU No. 2019-05, Financial Instruments-Credit Losses (Topic 326), which provides entities that have certain instruments within the scope of ASC 326-20 with an option to irrevocably elect the fair value option in ASC 825, Financial Instruments, upon adoption of ASU 2016-13. In November 2019, FASB issued ASU No. 2019-10, Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) (“ASU 2019-10”), which modifies the effective dates for ASU 2016-13, ASU 2017-12 and ASU 2016-02 to reflect the FASB’s new policy of staggering effective dates between larger public companies and all other companies. With the issuance of ASU 2019-10, the Company’s effective date for adopting all amendments related to the new credit loss standard has been extended to January 1, 2023. In November 2019, FASB issued ASU No. 2019-11, Codification Improvements to Topic 326, Financial Instruments-Credit Losses (“ASU 2019-11”), which includes clarifications to and addresses specific stakeholders’ issues concerning the amendments issued in ASU 2016-13. In February 2020, FASB issued ASU No, 2020-02, Financial Instruments-Credit Losses (Topic 326) and Leases (Topic 842) and in March 2020 issued ASU No. 2020-03, Codification Improvements to Financial Instruments, both of which also provide updates and clarification. The Company plans to adopt the requirements of these amendments upon their effective date of January 1, 2023, using the modified-retrospective method and is evaluating the potential impact of the adoption on its financial position, results of operations and related disclosures.

~~In March 2020, FASB issued ASU No. 2020-04,~~ ~~Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting~~14 (“ASU 2020-04”). In order to ease the potential burden in accounting for reference rate reform, ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform, if certain criteria are met. ASU 2020-04 applies only to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued. The amendment was effective beginning on March 12, 2020 and may be applied prospectively through December 31, 2022. In January 2021, FASB issued ASU No. 2021-01, ~~Reference Rate Reform (Topic 848): Scope, to clarify the scope of the guidance.~~

ACQUISITIONS AND DIVESTITURES

Acquisitions

~~The~~On January 31, 2022, the Company ~~does not have hedging relationships or contracts that reference LIBOR or another reference rate expected~~acquired 2 cemeteries in Virginia for cash consideration of $5.1 million and on May 10, 2022 the Company acquired 2 cemeteries in North Carolina for cash consideration of $0.3 million, pursuant to ~~be discontinued, and it does not expect to utilize the optional expedients and exceptions provided by ASU 2020-04.~~

2.	~~ACQUISITIONS AND DIVESTITURES~~

Ona definitive agreement signed on March 23, 2021 ~~the Company signed a definitive agreement~~with Daly Seven, Inc. to acquire the 4 cemeteries ~~located within its East Coast geographic footprint~~ for a total purchase price of ~~$5.4~~$5.4 million, subject to customary working capital adjustments. ~~The transaction is expected to close by late fall~~

On March 1, 2022, the Company acquired 1 funeral home in Florida for cash consideration of ~~2021,~~$1.7 million, subject to customary ~~due diligence and regulatory approval.~~working capital adjustments, pursuant to a definitive agreement signed on March 1, 2022 with MacDonald Funeral Home & Cremation, Inc.

~~In the fourth quarter of 2019,~~On March 15, 2022, the Company ~~launched an asset sale program designed~~acquired 1 combination cemetery and funeral home, a separate cemetery and a separate funeral home in West Virginia for cash consideration of $11.3 million, subject to ~~divest assets at attractive multiples, reduce debt levels~~customary working capital adjustments, pursuant to a definitive agreement signed on February 4, 2022 with Roselawn Acquisition Group LLC, Monte Vista Park LLC, CPJ LLC, and ~~improve cash flow and liquidity.~~ WV Memorial Properties LLC.

The ~~following divestitures have resulted from this program.~~

~~On January 3, 2020,~~Company accounted for these transactions under the acquisition method of accounting. Accordingly, the Company ~~sold substantially all~~recorded the identifiable assets acquired and liabilities assumed at their respective acquisition date fair values. Costs associated with the acquisition of the assets ~~of Oakmont Memorial Park, Oakmont Funeral Home, Redwood Chapel, Inspiration Chapel~~noted were expensed as incurred. For the three and Oakmont Crematory located in California pursuant to the terms of an asset sale agreement (the “Oakmont Agreement”) with Carriage Funeral Holdings, Inc. for an aggregate cash purchase price of $33.0six months ended June 30, 2022, acquisition costs were $0.1 million ~~(the “Oakmont Sale”). The divested assets consisted of 1 cemetery, 1 funeral home~~ and ~~certain related assets. The Oakmont Sale resulted in a gain of $24.4~~$0.9 million, ~~for the Company, which is~~respectively, and were included in corporate overhead on the ~~accompanying~~ condensed consolidated statement of ~~operations~~operations. The following table summarizes the preliminary estimated fair values assigned to the assets acquired and liabilities assumed in the acquisitions at the respective acquisition dates (in thousands):


Assets:
Accounts receivable	$	1,250
Cemetery property		4,438
Property and equipment		6,857
Merchandise trusts, restricted		5,706
Perpetual care trusts, restricted		5,013
Trade names		165
Total assets		23,429
Liabilities:
Deferred revenues		6,795
Perpetual care trust corpus		5,013
Total liabilities		11,808
Fair value of net assets acquired		11,621
Cash consideration paid		18,295
Deferred cash consideration		100
Total consideration		18,395
Goodwill from purchase	$	6,774

The Company recorded goodwill of $5.5 million and $1.3 million in the Cemetery Operations reporting segment and the Funeral Home Operations reporting segment, respectively, for the ~~nine~~properties acquired, which is deductible for tax purposes. The goodwill recorded for the acquisitions mainly reflects the strategic fit and synergies expected from the acquisitions.

The estimated fair values of assets acquired and liabilities assumed presented above are provisional and are based on the information that was available as of the acquisition dates to estimate the fair value of assets acquired and liabilities assumed, including property and building values and deferred revenues. The Company believes the information provides a reasonable basis for estimating the fair values but the Company is waiting for additional information necessary to finalize those amounts. Therefore, the provisional measurements of fair value reflected are preliminary and subject to change, and such change could be significant. The Company expects to finalize the valuation and complete the purchase price allocation as soon as practicable, but no later than one year from the respective acquisition dates.

Revenue related to the assets acquired was $0.9 million and $1.2 million for the three and six months ended ~~September~~June 30, ~~2020. Net proceeds from~~2022, respectively, and net income related to the ~~sale were used to redeem an aggregate $30.3 million principal amount~~assets acquired was not considered material.

Table of ~~the 2024 Notes.~~Contents

Divestitures

On April ~~7, 2020~~,22, 2022, the Company completed the sale of ~~substantially all of the assets of the~~2 cemetery ~~funeral establishment and crematory commonly known as Olivet Memorial Park, Olivet Funeral and Cremation Services and Olivet Memorial Park & Crematory pursuant to the terms of an asset sale agreement~~properties located in Rhode Island (the ~~“Olivet Agreement”~~“Rhode Island Sale”) ~~with Cypress Lawn Cemetery Association~~ for ~~an aggregate~~a total cash ~~purchase~~ price of ~~$25.0~~$0.2 million, ~~subject to certain adjustments (the “Olivet Sale”), and the assumption of certain liabilities, including~~ ~~$17.1 million in land purchase obligations. The Olivet Sale resulted~~resulting in a ~~gain~~loss on sale of ~~$7.2 million~~$43,000 for the ~~Company, which is included in the accompanying condensed consolidated statements of operations for the nine~~three and six months ended ~~September~~June 30, ~~2020.~~ ~~The Company used net proceeds of $20.5 million to redeem additional 2024 Notes as required by the 2024 Indenture.~~2022.

On ~~November 3, 2020,~~May 24, 2021, the Company completed the sale of ~~substantially all of the Company’s remaining California~~3 cemetery properties ~~consisting of 5 cemeteries, 6 funeral establishments and 4 crematories~~located in Missouri (the ~~“Remaining California Assets”~~“Missouri Sale”) ~~pursuant to the terms of an asset sale agreement (the “California Agreement”) with certain entities owned by John Yeatman and Guy Saxton~~ for a total cash ~~purchase~~ price of ~~$7.1~~$0.7 million, ~~subject to certain closing adjustments (the “Remaining California Sale”~~resulting in a loss on sale of $1.7 million for the three and ~~together with the Olivet Sale, the “Total California Sale”). The Company used net proceeds of $5.7 million to redeem $5.6 million in principal amount of additional 2024 Notes as required by the 2024 Indenture.~~six months ended June 30, 2021.

On April 2, 2021, the Company completed the sale of substantially all of the Company’s assets in Oregon and Washington, consisting of 9 cemeteries, 10 funeral establishments and 4 crematories (the “Clearstone Assets”) pursuant to the terms of an asset sale agreement entered into on November 6, 2020 (the “Clearstone Agreement”) with Clearstone Memorial Partners, LLC for a net cash purchase price of ~~$6.2~~$6.2 million, subject to certain adjustments (the “Clearstone Sale”). The ~~Company redeemed $6.7 million in principal amount of additional 2024 Notes as required by the 2024 Indenture.~~

~~The~~ Clearstone Agreement to sell the Clearstone Assets, together with ~~the~~ other divestitures completed in 2020, ~~described above,~~ represented a strategic exit from the ~~West Coast.~~west coast. Therefore, the results of operations of the Clearstone Assets ~~and of the businesses sold in 2020 for the period before their respective sales,~~ have been presented as discontinued operations on the accompanying consolidated ~~statements~~statement of operations for the six months ended June 30, 2021 and the three and six months ended June 30, 2020. Additionally, all of the assets and liabilities associated with the Clearstone Assets have been classified as held for sale on the accompanying consolidated balance sheets at December 31, 2020.2021.

~~Table of Contents~~

The following table summarizes the results of discontinued operations ~~for the three and six months ended June 30, 2021 and 2020~~ (in thousands):


	Three Months Ended June 30,		Six Months Ended June 30,
	2021		2021
Cemetery revenues	$	—	$	1,142
Funeral home revenues		—		1,146
Cost of goods sold		—		(191	)
Cemetery expense		—		(233	)
Selling expense		—		(231	)
General and administrative expense		—		(151	)
Depreciation and amortization		—		(40	)
Funeral home expenses		—		(694	)
Interest expense		—		(166	)
Income from discontinued operations before income taxes		—		582
Net gain on sale of businesses		860		867
Income tax expense		—		—
Net income from discontinued operations	$	860	$	1,449

Three Months Ended June 30,

Six Months Ended June 30,

2021

2020

2021

2020

Cemetery revenues

$
—

$
2,069

$
1,142

$
5,338

Funeral home revenues

—

2,037

1,146

4,911

Cost of goods sold

—

(293
)

(191
)

(804
)
Cemetery expense

—

(678
)

(233
)

(1,578
)
Selling expense

—

(403
)

(231
)

(1,401
)
General and administrative expense

—

(665
)

(151
)

(1,466
)
Depreciation and amortization

—

(41
)

(40
)

(186
)
Funeral home expenses

—

(1,641
)

(694
)

(3,809
)
Interest expense

—

(366
)

(166
)

(1,297
)
Income (loss) from discontinued operations before income taxes

—

19

582

(292
)
Net gain on sale of businesses

860

4,865

867

28,951

Income tax expense

—

—

—

—

Net income from discontinued operations

$
860

$
4,884

$
1,449

$
28,659

The following table summarizes the major classes of assets and liabilities that have been classified as held for sale on the Company’s unaudited condensed consolidated balance sheets at December 31, 2020:

December 31, 2020

Clearstone

Other

Total

Assets

Current assets:

Accounts receivable, net of allowance

$
230

$
—

$
230

Prepaid expenses and other current assets

104

—

104

Total current assets held for sale

334

—

334

Long-term accounts receivable, net of allowance

193

—

193

Cemetery property

3,492

350

3,842

Property and equipment, net of accumulated depreciation

2,529

—

2,529

Merchandise trusts, restricted, at fair value

14,831

—

14,831

Perpetual care trusts, restricted, at fair value

4,518

—

4,518

Deferred selling and obtaining costs

1,865

—

1,865

Other assets

463

—

463

Total assets held for sale

$
28,225

$
350

$
28,575

Liabilities

Current liabilities:

Accounts payable and accrued liabilities

$
51

$
—

$
51

Other current liabilities

—

—

—

Total current liabilities held for sale

51

—

51

Deferred revenues

18,456

—

18,456

Perpetual care trust corpus

4,518

—

4,518

Other long-term liabilities

381

—

381

Total liabilities held for sale

$
23,406

$
—

$
23,406

~~Table of Contents~~

The following table presents the depreciation and amortization, capital expenditures, sale proceeds and ~~significant~~ operating noncash items of the discontinued operations ~~for the six months ended June 30, 2021 and 2020~~ (in thousands):


	Six Months Ended June 30,
	2021
Cash flows from discontinued operating activities:
Depreciation and amortization	$	40
Gain on sales of discontinued operations businesses		867

Cash flows from discontinued investing activities:
Capital expenditures	$	10
Proceeds from sales of discontinued businesses		5,898

Management evaluates customer receivables for impairment based upon its historical experience, including the age of the receivables and the customers’ payment histories.

CEMETERY PROPERTY

~~CEMETERY PROPERTY~~

Cemetery property consisted of the following at the dates indicated (in thousands):

~~Table of Contents~~5.

PROPERTY AND EQUIPMENT

~~PROPERTY AND EQUIPMENT~~

Property and equipment consisted of the following at the dates indicated (in thousands):


	June 30, 2021			December 31, 2020			June 30, 2022			December 31, 2021
Buildings and improvements	$	112,903		$	112,345		$	122,789		$	115,141
Furniture and equipment		52,745			53,199			54,836			54,099
Funeral home land		11,005			11,005			11,745			10,932
Property and equipment, gross		176,653			176,549			189,370			180,172
Less: Accumulated depreciation		(96,261	)		(93,053	)		(100,024	)		(97,562	)
Property and equipment, net of accumulated depreciation	$	80,392		$	83,496		$	89,346		$	82,610

~~At June 30, 2021, property and equipment, net included $0.3 million of assets held for sale.~~

Depreciation expense was ~~$1.7~~$1.8 million and ~~$2.0~~$1.7 million for the three months ended June 30, ~~2021~~2022 and ~~2020~~,2021, respectively, and ~~$3.6~~$3.6 million and ~~$4.0~~$3.6 million for the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

At June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company’s merchandise trusts consisted of investments in debt and equity marketable securities and cash equivalents, both directly and through mutual and investment funds. All of these investments are carried at fair value. All of these investments are subject to the fair value hierarchy and considered either Level 1 or Level 2 assets pursuant to the three-level hierarchy described in Note 13 Fair Value of Financial Instruments. There were no Level 3 assets. When the Company receives a payment from a pre-need customer, the Company deposits the amount required by law into the merchandise trusts that may be subject to cancellation on demand by the pre-need customer. The Company’s merchandise trusts related to states in which pre-need customers may cancel contracts with the Company ~~comprises 48.2%~~comprised 47.6% of the total merchandise trust as of June 30, ~~2021.~~2022. The merchandise trusts are variable interest entities (“VIE”) of which the Company is deemed the primary beneficiary. The assets held in the merchandise trusts are required to be used to purchase the merchandise and provide the services to which they relate. If the value of these assets falls below the cost of purchasing such merchandise and providing such services, the Company may be required to fund this shortfall.

The Company included ~~$10.4~~$9.4 million and ~~$10.0~~$10.3 million of investments held in trust as required by law by the West Virginia Funeral Directors Association at June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively, in its merchandise trust assets. These trusts are recognized at their account value, which approximates fair value.

A reconciliation of the Company’s merchandise trust activities for the six months ended June 30, ~~2021~~2022 and ~~2020~~2021 is presented below (in thousands):


	Six months ended June 30,
	2022			2021
Balance—beginning of period	$	567,853		$	516,284
Contributions		39,038			28,574
Distributions		(36,629	)		(53,020	)
Interest and dividends		23,259			20,429
Capital gain distributions		2,181			1,650
Realized gains and losses, net		675			3,031
Other than temporary impairment		—			(136	)
Taxes		(581	)		(14	)
Fees		(4,121	)		(3,062	)
Unrealized change in fair value		13,085			30,532
Balance—end of period	$	604,760		$	544,268

During the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, purchases of available for sale securities were approximately ~~$36.6~~$39.8 million and ~~$23.0~~$36.6 million, respectively. During the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, sales, maturities and paydowns of available for sale securities were approximately ~~$32.6~~$14.0 million and ~~$25.5~~$32.6 million, respectively. Cash flows from pre-need contracts are presented as operating cash flows in the Company’s unaudited condensed consolidated statements of cash flows.

The cost and market value associated with the assets held in the merchandise trusts as of June 30, ~~2021~~2022 and December 31, ~~2020~~2021 were as follows (in thousands):


June 30, 2022	Fair Value Hierarchy Level	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Short-term investments	1	$	33,580	$	—	$	—		$	33,580
Fixed maturities:
U.S. governmental securities	2		1		—		—			1
Corporate debt securities	2		—		—		—			—
Other debt securities	2		—		—		—			—
Total fixed maturities			1		—		—			1
Mutual funds—debt securities	1		6,097		—		(647	)		5,450
Mutual funds—equity securities	1		1,022		31		(7	)		1,046
Other investment funds(1)			496,349		42,859		(4,530	)		534,678
Equity securities	1		14,687		3,863		(2,040	)		16,510
Other invested assets	2		4,053		68		—			4,121
Total investments			555,789		46,821		(7,224	)		595,386
West Virginia Trust Receivable			10,284		—		(910	)		9,374
Total		$	566,073	$	46,821	$	(8,134	)	$	604,760

June 30, 2021

Fair Value
Hierarchy
Level

Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

Short-term investments

1

$
61,256

$
—

$
—

$
61,256

Fixed maturities:

U.S. governmental securities

2

1

—

—

1

Corporate debt securities

2

2,709

897

—

3,606

Other debt securities

2

—

—

—

—

Total fixed maturities

2,710

897

—

3,607

Mutual funds—debt securities

1

6,097

206

—

6,303

Mutual funds—equity securities

1

26,245

10,742

—

36,987

Other investment funds⁽¹⁾

347,273

44,687

(4,333
)

387,627

Equity securities

1

25,725

9,468

(968
)

34,225

Other invested assets

2

3,777

99

—

3,876

Total investments

473,083

66,099

(5,301
)

533,881

West Virginia Trust Receivable

10,531

—

(144
)

10,387

Total

$
483,614

$
66,099

$
(5,445
)

$
544,268

(1)

Other investment funds are measured at fair value using the net asset value per share practical expedient and have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the balance sheet. This asset class is composed of fixed income funds and equity funds, which have redemption periods ranging from 1 to 30 days, and private credit funds, which have lockup periods of zero to fourteen years with 3 potential one year extensions at the discretion of the funds’ general partners. As of June 30, 2022, there were $160.8 million in unfunded investment commitments to the private credit funds, which are callable at any time. This asset class also includes $127.2 million of direct loans which are accounted for at amortized cost, net of unamortized origination fees, if any, and are categorized as Level 3 investments in the fair value hierarchy. The interest rates on these direct loans are consistent with market rates, and their amortized cost approximates fair value.


December 31, 2021	Fair Value Hierarchy Level	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Short-term investments	1	$	51,243	$	—	$	—		$	51,243
Fixed maturities:
U.S. governmental securities	2		1		—		—			1
Corporate debt securities	2		—		1		—			1
Other debt securities	2		—		—		—			—
Total fixed maturities			1		1		—			2
Mutual funds—debt securities	1		6,097		81		(15	)		6,163
Mutual funds—equity securities	1		1,021		245		—			1,266
Other investment funds(1)			457,447		26,008		(4,398	)		479,057
Equity securities	1		14,696		3,316		(2,051	)		15,961
Other invested assets	2		3,766		103		—			3,869
Total investments			534,271		29,754		(6,464	)		557,561
West Virginia Trust Receivable			9,992		300		—			10,292
Total		$	544,263	$	30,054	$	(6,464	)	$	567,853

⁽¹⁾

(1)

Other investment funds are measured at fair value using the net asset value per share practical expedient and have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the balance sheet. This asset class is composed of fixed income funds and equity funds, which have redemption periods ranging from 1 to 30 days, and private credit funds, which have lockup periods of zero to 15 years with 3 potential one year extensions at the discretion of the funds’ general partners. As of December 31, 2021, there were $112.4 million in unfunded investment commitments to the private credit funds, which are callable at any time. This asset class also includes $125.4 million of direct loans which are accounted for at amortized cost, net of unamortized origination fees, if any, and are categorized as Level 3 investments in the fair value hierarchy. The interest rates on these direct loans are consistent with market rates, and their amortized cost approximates fair value.

December 31, 2020

Fair Value
Hierarchy
Level

Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

Short-term investments

1

$
41,039

$
12

$
—

$
41,051

Fixed maturities:

U.S. governmental securities

2

1

—

—

1

Corporate debt securities

2

2,818

638

—

3,456

Other debt securities

2

23,165

1,578

(1,332
)

23,411

Total fixed maturities

25,984

2,216

(1,332
)

26,868

Mutual funds—debt securities

1

6,097

306

—

6,403

Mutual funds—equity securities

1

26,356

43

(154
)

26,245

Other investment funds⁽¹⁾

337,565

32,461

(8,812
)

361,214

Equity securities

1

35,055

5,544

(19
)

40,580

Other invested assets

2

3,875

79

—

3,954

Total investments

475,971

40,661

(10,317
)

506,315

West Virginia Trust Receivable

10,190

—

(221
)

9,969

Total

$
486,161

$
40,661

$
(10,538
)

516,284

Less: Assets held for sale

(14,831
)
Total

$
501,453

The Company evaluates declines in fair value below cost for each asset held in the merchandise trusts on a quarterly basis.

An aging of unrealized losses on the Company’s investments in debt and equity securities within the merchandise trusts as of June 30, ~~2021~~2022 and December 31, ~~2020~~2021 is presented below (in thousands):

	Less than 12 months				12 months or more				Total
June 30, 2021	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
													Less than 12 months				12 months or more				Total
June 30, 2022													Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Fixed maturities:
U.S. governmental securities	$	—	$	—	$	297	$	—	$	297	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Corporate debt securities		—		—		620		—		620		—		—		—		—		—		—		—
Other debt securities		—		—		—		—		—		—		—		—		—		—		—		—
Total fixed maturities		—		—		917		—		917		—		—		—		—		—		—		—
Mutual funds—debt securities		4		—		—		—		4		—		5,448		646		2		1		5,450		647
Mutual funds—equity securities		—		—		—		—		—		—		55		7		—		—		55		7
Other investment funds		44,497		4,333		—		—		44,497		4,333		44,033		4,530		—		—		44,033		4,530
Equity securities		2,952		968		—		—		2,952		968		382		35		1,891		2,005		2,273		2,040
Total	$	47,453	$	5,301	$	917	$	—	$	48,370	$	5,301	$	49,918	$	5,218	$	1,893	$	2,006	$	51,811	$	7,224


	Less than 12 months				12 months or more				Total
December 31, 2021	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Fixed maturities:
U.S. governmental securities	$	—	$	—	$	297	$	—	$	297	$	—
Corporate debt securities		—		—		620		—		620		—
Other debt securities		—		—		—		—		—		—
Total fixed maturities		—		—		917		—		917		—
Mutual funds—debt securities		890		15		—		—		890		15
Mutual funds—equity securities		—		—		—		—		—		—
Other investment funds		42,645		4,398		—		—		42,645		4,398
Equity securities		3,108		2,050		1		1		3,109		2,051
Total	$	46,643	$	6,463	$	918	$	1	$	47,561	$	6,464

For all securities in an unrealized loss position, the Company evaluated the severity of the impairment and length of time that a security has been in a loss position and concluded the decline in fair value below the asset’s cost was temporary in nature. In addition, the Company is not aware of any circumstances that would prevent the future market value recovery for these securities.

The Company assesses its merchandise trust assets for other-than-temporary declines in fair value on a quarterly basis. During the six months ended June 30, 2022, the Company determined, based on its review, that there were no other than temporary impairments to the investment portfolio in the merchandise trusts. During the six months ended June 30, 2021, the Company determined, based on its review, that there were 6 securities with an aggregate ~~cost~~costs basis of approximately ~~$0.3~~$0.3 million and an aggregate fair value of approximately ~~$0.2~~$0.2 million, resulting in an impairment of ~~$0.1~~$0.1 million, with such impairment considered to be other than temporary due to credit indicators. ~~During~~ ~~the six months ended June 30, 2020,~~ the Company determined, based on its review, that there were 2 securities with an aggregate costs basis of approximately $16.8 million and an aggregate fair value of approximately $15.1 million, resulting in an impairment of $1.7 million, ~~with such impairment considered to be other than temporary due to credit indicators.~~Accordingly, the Company adjusted the cost basis of these assets to their current value and offset these changes against deferred merchandise trust revenue. These adjustments to deferred revenue will be reflected within the Company’s unaudited condensed consolidated statements of operations in future periods as the underlying merchandise is delivered or the underlying service is performed.

On a quarterly basis, the merchandise trusts evaluate the carrying value of each direct loan for impairment. A direct loan is considered impaired when, based on current information and events, it is determined that the trusts will not be able to collect the amounts due according to the loan contract, including scheduled interest payments. This evaluation is generally based on delinquency information, an assessment of the borrower’s financial condition and the adequacy of collateral, if any. The trusts would generally place direct loans on nonaccrual status when the full and timely collection of interest or principal becomes uncertain and they are 90 days past due for interest or principal, unless the direct loan is both well-secured and in the process of collection. When placed on nonaccrual, the trusts would reverse any accrued unpaid interest receivable against interest income and amortization of any net deferred fees is suspended. Generally, the trusts would return a direct loan to accrual status when all delinquent interest and principal become current under the terms of the credit agreement and collectability of remaining principal and interest is no longer doubtful. In certain circumstances, the trusts may place a direct loan on nonaccrual status but conclude it is not impaired. The trusts may retain independent third-party valuations on such nonaccrual positions to support impairment decisions.

When the trusts identify a direct loan as impaired, they measure the impairment based on the present value of expected future cash flows, discounted at the receivable’s effective interest rate, or the estimated fair value of the collateral, less estimated costs to sell. If it is determined that the value of an impaired receivable is less than the recorded investment, the trusts would recognize impairment with a charge to deferred revenue. When the value of the impaired loan is calculated by discounting expected cash flows, interest income would be recognized using the loan’s effective interest rate over the remaining life of the loan.

The trusts individually develop the allowance for credit losses for any identified impaired loans. In developing the allowance for credit losses, the trusts consider, among other things, the following credit quality indicators:

At June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company’s perpetual care trusts consisted of investments in debt and equity marketable securities and cash equivalents, both directly as well as through mutual and investment funds.

All of these investments are carried at fair ~~value~~.value. All of the investments subject to the fair value hierarchy are considered either Level 1 or Level 2 assets pursuant to the three-level hierarchy described in Note 13 Fair Value of Financial Instruments. There were no Level 3 assets. The perpetual care trusts are VIEs for which the Company is the primary beneficiary.

A reconciliation of the Company’s perpetual care trust activities for the six months ended June 30, ~~2021~~2022 and ~~2020~~2021 is presented below (in thousands):


	Six months ended June 30,						Six months ended June 30,
	2021			2020			2022			2021
Balance—beginning of period	$	316,746		$	343,619		$	339,138		$	316,746
Contributions		4,420			3,616			9,569			4,420
Distributions		(24,966	)		(27,765	)		(21,177	)		(24,966	)
Interest and dividends		19,615			11,279			16,108			19,615
Capital gain distributions		1,077			318			1,483			1,077
Realized gains and losses, net		2,994			(831	)		475			2,994
Other than temporary impairment		(55	)		(930	)		—			(55	)
Taxes		(890	)		(86	)		(1,530	)		(890	)
Fees		(2,374	)		(912	)		(1,697	)		(2,734	)
Unrealized change in fair value		10,391			(23,454	)		6,781			10,391
Total		326,958			304,854
Less: Assets held for sale		—			(6,633	)
Balance—end of period	$	326,958		$	298,221		$	349,150		$	326,598

During the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, purchases of available for sale securities were approximately ~~$19.0~~$11.2 million and ~~$9.3~~$19.0 million, respectively. During the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, sales, maturities and paydowns of available for sale securities were approximately ~~$11.1~~$0.8 million and ~~$22.0~~$11.1 million, respectively. Cash flows from perpetual care trust related contracts are presented as operating cash flows in Company’s unaudited condensed consolidated statements of cash flows.

~~Table of Contents~~

The cost and market value associated with the assets held in the perpetual care trusts as of June 30, ~~2021~~2022 and December 31, ~~2020~~2021 were as follows (in thousands):


June 30, 2022	Fair Value Hierarchy Level	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Short-term investments	1	$	13,422	$	—	$	—		$	13,422
Fixed maturities:
U.S. governmental securities	2		10		1		—			11
Corporate debt securities	2		—		—		—			—
Other debt securities	2		—		—		—			—
Total fixed maturities			10		1		—			11
Mutual funds—debt securities	1		1,904		6		(317	)		1,593
Mutual funds—equity securities	1		4,078		584		(297	)		4,365
Other investment funds(1)			300,218		22,585		(2,393	)		320,410
Equity securities	1		7,026		2,443		(130	)		9,339
Other invested assets	2		9		1		—			10
Total investments		$	326,667	$	25,620	$	(3,137	)	$	349,150

June 30, 2021

Fair Value
Hierarchy
Level

Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

Short-term investments

1

$
19,971

$
—

$
—

$
19,971

Fixed maturities:

U.S. governmental securities

2

15

2

—

17

Corporate debt securities

2

365

110

—

475

Other debt securities

2

—

—

—

—

Total fixed maturities

380

112

—

492

Mutual funds—debt securities

1

1,982

43

(12
)

2,013

Mutual funds—equity securities

1

9,846

3,788

(4
)

13,630

Other investment funds⁽¹⁾

257,247

21,205

(6,908
)

271,544

Equity securities

1

13,824

5,513

(39
)

19,298

Other invested assets

2

9

1

—

10

Total investments

$
303,259

$
30,662

$
(6,963
)

$
326,958

(1)

Other investment funds are measured at fair value using the net asset value per share practical expedient and have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the balance sheet. This asset class is composed of fixed income funds and equity funds, which have a redemption period ranging from 1 to 30 days, and private credit funds, which have lockup periods ranging from zero to fourteen years with 4 potential one year extensions at the discretion of the funds’ general partners. As of June 30, 2022, there were $98.4 million in unfunded investment commitments to the private credit funds, which are callable at any time. This asset class also includes $81.3 million of direct loans which are accounted for at amortized cost, net of unamortized origination fees, if any, and are categorized as Level 3 investments in the fair value hierarchy. The interest rates on these direct loans are consistent with market rates, and their amortized cost approximates fair value.

⁽¹⁾22

December 31, 2020

Fair Value
Hierarchy
Level

Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

Short-term investments

1

$
21,217

$
—

$
—

$
21,217

Fixed maturities:

U.S. governmental securities

2

48

4

—

52

Corporate debt securities

2

505

92

(44
)

553

Other debt securities

2

433

—

(28
)

405

Total fixed maturities

986

96

(72
)

1,010

Mutual funds—debt securities

1

2,386

62

(9
)

2,439

Mutual funds—equity securities

1

9,240

1,244

(7
)

10,477

Other investment funds⁽¹⁾

247,845

21,952

(10,813
)

258,984

Equity securities

1

21,748

873

(19
)

22,602

Other invested assets

2

16

1

—

17

Total investments

$
303,438

$
24,228

$
(10,920
)

316,746

Less: Assets held for sale

(4,518
)
Total

$
312,228

⁽¹⁾

Table of Contents


December 31, 2021	Fair Value Hierarchy Level	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Short-term investments	1	$	25,674	$	—	$	—		$	25,674
Fixed maturities:
U.S. governmental securities	2		12		2		—			14
Corporate debt securities	2		—		—		—			—
Other debt securities	2		—		—		—			—
Total fixed maturities			12		2		—			14
Mutual funds—debt securities	1		2,306		28		(35	)		2,299
Mutual funds—equity securities	1		3,894		1,341		(63	)		5,172
Other investment funds(1)			285,826		14,554		(2,776	)		297,604
Equity securities	1		6,817		1,661		(113	)		8,365
Other invested assets	2		9		1		—			10
Total investments		$	324,538	$	17,587	$	(2,987	)	$	339,138

(1)

Other investment funds are measured at fair value using the net asset value per share practical expedient and have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the balance sheet. This asset class is composed of fixed income funds and equity funds, which have a redemption period ranging from 1 to 30 days, and private credit funds, which have lockup periods ranging from zero to 15 years with 4 potential one year extensions at the discretion of the funds’ general partners. As of December 31, 2021, there were $67.3 million in unfunded investment commitments to the private credit funds, which are callable at any time. This asset class also includes $79.7 million of direct loans which are accounted for at amortized cost, net of unamortized origination fees, if any, and are categorized as Level 3 investments in the fair value hierarchy. The interest rates on these direct loans are consistent with market rates, and their amortized cost approximates fair value.

The contractual maturities of debt securities as of June 30, ~~2021~~2022 and December 31, ~~2020~~2021 were as follows (in thousands):


June 30, 2022	Less than 1 year		1 year through 5 years		6 years through 10 years		More than 10 years
U.S. governmental securities	$	—	$	1	$	—	$	10
Corporate debt securities		—		—		—		—
Other debt securities		—		—		—		—
Total fixed maturities	$	—	$	1	$	—	$	10


December 31, 2021	Less than 1 year		1 year through 5 years		6 years through 10 years		More than 10 years
U.S. governmental securities	$	—	$	1	$	—	$	13
Corporate debt securities		—		—		—		—
Other debt securities		—		—		—		—
Total fixed maturities	$	—	$	1	$	—	$	13

June 30, 2021

Less than
1 year

1 year through
5 years

6 years through
10 years

More than
10 years

U.S. governmental securities

$
—

$
1

$
—

$
16

Corporate debt securities

—

475

—

—

Other debt securities

—

—

—

—

Total fixed maturities

$
—

$
476

$
—

$
16

Table of Contents

December 31, 2020

Less than
1 year

1 year through
5 years

6 years through
10 years

More than
10 years

U.S. governmental securities

$
25

$
6

$
—

$
21

Corporate debt securities

—

553

—

—

Other debt securities

405

—

—

—

Total fixed maturities

$
430

$
559

$
—

$
21

Temporary Declines in Fair Value

The Company evaluates declines in fair value below cost of each individual asset held in the perpetual care trusts on a quarterly basis.

An aging of unrealized losses on the Company’s investments in debt and equity securities within the perpetual care trusts as of June 30, ~~2021~~2022 and December 31, ~~2020~~2021 is presented below (in thousands):


	Less than 12 months				12 months or more				Total
June 30, 2022	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Fixed maturities:
U.S. governmental securities	$	1	$	—	$	—	$	—	$	1	$	—
Corporate debt securities		—		—		—		—		—		—
Other debt securities		—		—		—		—		—		—
Total fixed maturities		1		—		—		—		1		—
Mutual funds—debt securities		823		201		364		116		1,187		317
Mutual funds—equity securities		1,540		219		392		78		1,932		297
Other investment funds		24,535		2,393		—		—		24,535		2,393
Equity securities		317		50		76		80		393		130
Total	$	27,216	$	2,863	$	832	$	274	$	28,048	$	3,137

	Less than 12 months				12 months or more				Total
June 30, 2021	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
													Less than 12 months				12 months or more				Total
December 31, 2021													Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Fixed maturities:
U.S. governmental securities	$	1	$	—	$	990	$	—	$	991	$	—	$	—	$	—	$	990	$	—	$	990	$	—
Corporate debt securities		—		—		1,959		—		1,959		—		—		—		1,959		—		1,959		—
Other debt securities		—		—		—		—		—		—		—		—		—		—		—		—
Total fixed maturities		1		—		2,949		—		2,950		—		—		—		2,949		—		2,949		—
Mutual funds—debt securities		1,084		12		2		—		1,086		12		863		25		454		10		1,317		35
Mutual funds—equity securities		214		1		1		3		215		4		661		60		1		3		662		63
Other investment funds		53,752		6,908		—		—		53,752		6,908		26,533		2,776		—		—		26,533		2,776
Equity securities		140		39		—		—		140		39		962		112		1		1		963		113
Total	$	55,191	$	6,960	$	2,952	$	3	$	58,143	$	6,963	$	29,019	$	2,973	$	3,405	$	14	$	32,424	$	2,987

Less than 12 months

12 months or more

Total

December 31, 2020

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fixed maturities:

U.S. governmental securities

$
—

$
—

$
990

$
—

$
990

$
—

Corporate debt securities

—

—

1,959

44

1,959

44

Other debt securities

405

28

—

—

405

28

Total fixed maturities

405

28

2,949

44

3,354

72

Mutual funds—debt securities

600

9

—

—

600

9

Mutual funds—equity securities

288

7

—

—

288

7

Other investment funds

74,885

10,813

—

—

74,885

10,813

Equity securities

45

4

19

15

64

19

Total

$
76,223

$
10,861

$
2,968

$
59

$
79,191

$
10,920

~~Table of Contents~~

Other-Than-Temporary Impairment of Trust Assets

The Company assesses its perpetual care trust assets for other-than-temporary declines in fair value on a quarterly basis. During the six months ended June 30, ~~2021,~~ 2022, the Company determined, based on its review, that there were no other than temporary impairments to the investment portfolio in the perpetual care trusts. During the six months ended June 30, 2021, the Company determined, based on its review, that there were 6 securities with an aggregate cost basis of approximately ~~$84,000~~$84,000 and an aggregate fair value of approximately ~~$30,000,~~$30,000, resulting in an impairment of ~~$54,000,~~$54,000, with such impairment considered to be other than temporary due to credit indicators. ~~During the six months ended June 30, 2020,~~ ~~the Company determined, based on its review, that there were 2~~ ~~securities with an aggregate cost basis of approximately $9.4 million and an aggregate fair value of approximately~~ ~~$8.5 million, resulting in an impairment of $0.9 million,~~ ~~with such impairment considered to be other than temporary due to credit indicators.~~ Accordingly,, the Company adjusted the cost basis of these assets to their current value with the offset going against the liability for perpetual care trust corpus.

Table of Contents

Impairment of Direct Loans

On a quarterly basis, the perpetual care trusts evaluate the carrying value of each direct loan for impairment. A direct loan is considered impaired when, based on current information and events, it is determined that the trusts will not be able to collect the amounts due according to the loan contract, including scheduled interest payments. This evaluation is generally based on delinquency information, an assessment of the borrower’s financial condition and the adequacy of collateral, if any. The trusts would generally place direct loans on nonaccrual status when the full and timely collection of interest or principal becomes uncertain and they are 90 days past due for interest or principal, unless the direct loan is both well-secured and in the process of collection. When placed on nonaccrual, the trusts would reverse any accrued unpaid interest receivable against interest income and amortization of any net deferred fees is suspended. Generally, the trusts would return a direct loan to accrual status when all delinquent interest and principal become current under the terms of the credit agreement and collectability of remaining principal and interest is no longer doubtful. In certain circumstances, the trusts may place a direct loan on nonaccrual status but conclude it is not impaired. The trusts may retain independent third-party valuations on such nonaccrual positions to support impairment decisions.

•

business characteristics and financial conditions of obligors;

•

current economic conditions and trends;

•

actual charge-off experience;

•

current delinquency levels;

•

value of underlying collateral and guarantees;

•

regulatory environment; and

•

any other relevant factors predicting investment recovery.

There were 0 such impairments during the three and six months ended June 30, 2022 and 2021.

LONG-TERM DEBT

~~LONG-TERM DEBT~~

On May 11, 2021, the Company issued ~~$400.0~~$400.0 million aggregate principal amount of ~~8.500%~~8.500% Senior Secured Notes due ~~2029.~~2029. The gross proceeds from the sale of the 2029 Notes was ~~$389.9~~$389.9 million, less advisor fees, legal fees, mortgage costs and other closing expenses. The 2029 Notes were issued pursuant to the 2029 Indenture, dated as of May 11, 2021, by and among the Company, the guarantors named therein and Wilmington Trust, National Association, as trustee and collateral agent (“Wilmington”). Capitalized terms that are used in this description of the 2029 Notes but not defined herein shall have the meaning assigned to such terms in the 2029 Indenture.

Proceeds from the sale of the 2029 Notes were used to fund the redemption in full of approximately ~~$338.1~~$338.1 million aggregate principal amount of the 2024 Notes together with an approximately ~~$18.5~~$18.5 million prepayment premium and pay fees and expenses incurred in connection with the offering. Any remaining proceeds will be used for general corporate purposes, which may include acquisitions. Upon deposit of the funds to redeem the 2024 Notes with the 2024 Trustee, the 2024 Indenture was satisfied and discharged in accordance with its terms. As a result of the satisfaction and discharge of the 2024 Indenture, the 2024 Issuers and the 2024 Guarantors, including the Company, have been released from their obligations with respect to the 2024 Indenture and the 2024 Notes, except with respect to those provisions of the 2024 Indenture that, by their terms, survive the satisfaction and discharge of the 2024 Indenture.

Interest on the 2029 Notes accrues at a rate of ~~8.5%~~8.5% per year, payable in cash semiannually, in arrears, on May 15 and November 15 of each year, beginning on November 15, ~~2021.~~2021. The Notes mature on May 15, 2029. Subject to the covenants contained in the 2029 Indenture, the Company may, without the consent of the holders of the 2029 Notes, issue additional notes under the 2029 Indenture (“Additional Notes”) having the same terms in all respects as the 2029 Notes, which shall be treated with the 2029 Notes as a single class under the 2029 Indenture. The issue price of the 2029 Notes was ~~100%~~100%.

The 2029 Notes are redeemable at the Company’s option, in whole or in part, on and after May 15, 2024 at the redemption prices (expressed as percentages of principal amount) set forth below, plus any accrued and unpaid interest, if any, to, but excluding, the redemption date.


On or after May 15, 2024 and prior to May 15, 2025	~~104.250%~~	104.250%
On or after May 15, 2025 and prior to May 15, 2026	~~102.125%~~	102.125%
On or after May 15, 2026	~~100.000%~~	100.000%

In addition, prior to May 15, 2024, the Company may utilize the net proceeds of one or more equity offerings to redeem up to ~~40%~~40% of the aggregate principal amount of the 2029 Notes originally issued under the 2029 Indenture, including any Additional Notes, at a redemption price of ~~108.500%~~108.500% of the principal amount of the 2029 Notes redeemed, plus any accrued and unpaid interest, if any, to, but excluding, the redemption date, provided that at least ~~50%~~50% of the aggregate principal amount of the 2029 Notes (including Additional Notes) originally issued under the 2029 Indenture remain outstanding following such redemption.

Table of Contents

During each of the 12-month periods ending May 10, 2022, May 10, 2023 and May 10, 2024, respectively, the Company may redeem up to ~~10%~~10% of the aggregate principal amount of the 2029 Notes (including Additional Notes) originally issued under the 2029 Indenture at a redemption price equal to ~~103%~~103% of the principal amount of the 2029 Notes redeemed plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

Prior to May 15, 2024, the 2029 Notes are redeemable at the Company’s option, in whole or in part, at a redemption price equal to ~~100%~~100% of the principal amount of the 2029 Notes being redeemed plus an “applicable premium” (as defined in the 2029 Indenture) along with accrued and unpaid interest, if any, to, but excluding, the redemption date.

Upon the occurrence of a “change of control” (as defined in the 2029 Indenture), if the Company has not previously exercised its right to redeem all of the outstanding 2029 Notes pursuant to the optional redemption provisions as described above, the Company must offer to repurchase the 2029 Notes at a redemption price equal to ~~101%~~101% of the principal amount of the 2029 Notes, plus accrued and unpaid interest, if any, to, but excluding, the date of repurchase.

Upon certain asset sales where the excess proceeds from all applicable asset sales exceed ~~$10~~$10 million since the issue date of the 2029 Notes, the Company may be required in certain circumstances to make an offer to purchase 2029 Notes with the excess proceeds from such an asset sale in excess of such ~~$10~~$10 million threshold at a price in cash equal to ~~100%~~100% of the principal amount thereof, together with accrued and unpaid interest, if any, to, but excluding, the date of purchase.

Guarantees and Collateral

The Company’s obligations under the 2029 Notes and the 2029 Indenture are jointly and severally guaranteed (the “Note Guarantees”) by each of the Company’s existing and future direct and indirect domestic subsidiaries, with certain exceptions, and will be guaranteed by each of the Company’s foreign subsidiaries that guarantees any future credit facility (each applicable foreign and domestic subsidiary, a “2029 Guarantor” and collectively, the “2029 Guarantors”). In connection with the Note Guarantees, the Company, the 2029 Guarantors and Wilmington entered into a Security Agreement, dated May 11, 2021 (the “Security Agreement”). Pursuant to the 2029 Indenture and the Security Agreement, the Company’s obligations under the 2029 Indenture and the 2029 Notes are secured by a lien and security interest (subject to permitted liens and security interests) in substantially all of the Company’s and the 2029 Guarantors’ existing and future property and assets, excluding certain assets which include, among others: (a) trust and other fiduciary accounts and amounts required to be deposited or held therein, (b) assets that may not be pledged as a matter of law or without governmental approvals, until such time such assets may be pledged without legal prohibition and (c) owned and leased real property that (i) may not be pledged as a matter of law or without the prior approval of any governmental authority or third person, (ii) is not operated or intended to be operated as a cemetery, crematory or funeral home or (iii) has a fair market value of less than ~~$3.0~~$3.0 million.

~~Table of Contents~~

The 2029 Notes are the Company’s senior secured obligations and the guarantees are the 2029 Guarantors’ senior secured obligations. The obligations of the Company and each 2029 ~~Guarantor will:~~Guarantor:

•

~~rank equal in right of payment with all of the Company and each 2029 Guarantor’s existing and future senior indebtedness, including any borrowings under any future credit facility;~~

•

rank equal in right of payment with all of the Company and each 2029 Guarantor’s existing and future senior indebtedness, including any borrowings under any future credit facility;

•

~~rank senior in right of payment to all of the Company’s and each 2029 Guarantor’s existing and future subordinated indebtedness;~~

•

rank senior in right of payment to all of the Company’s and each 2029 Guarantor’s existing and future subordinated indebtedness;

•

~~be effectively senior to all of the Company’s and each 2029 Guarantor’s unsecured senior indebtedness to the extent of the value of the collateral securing the 2029 Notes and the Note Guarantees;~~

•

are effectively senior to all of the Company’s and each 2029 Guarantor’s unsecured senior indebtedness to the extent of the value of the collateral securing the 2029 Notes and the Note Guarantees;

•

be contractually subordinated to the Company’s and each 2029 Guarantor’s obligations under any future credit facility permitted by the 2029 Indenture to the extent of the value of the collateral securing such credit facility and subject to the terms of any future intercreditor agreement; and

•

are contractually subordinated to the Company’s and each 2029 Guarantor’s obligations under any future credit facility permitted by the 2029 Indenture to the extent of the value of the collateral securing such credit facility and subject to the terms of any future intercreditor agreement; and

•

~~structurally subordinated to all indebtedness and other obligations of the Company’s existing and future subsidiaries that do not guarantee the 2029 Notes.~~

•

are structurally subordinated to all indebtedness and other obligations of the Company’s existing and future subsidiaries that do not guarantee the 2029 Notes.

Covenants

The 2029 Indenture requires the Company and the 2029 Guarantors, as applicable, to comply with various affirmative covenants regarding, among other matters, delivery to Wilmington of financial statements and certain other information or reports filed with the Securities and Exchange Commission.

Table of Contents

The 2029 Indenture requires the Company and the 2029 Guarantors, as applicable, to comply with certain covenants including, but not limited to, covenants that, subject to certain exceptions, limit the Company’s and 2029 Guarantors’ ability to: (i) incur additional indebtedness or issue disqualified capital stock; (ii) pay dividends, redeem subordinated debt or make other restricted payments; (iii) make certain investments; (iv) create or incur certain liens; (v) issue stock of subsidiaries; (vi) enter into certain transactions with affiliates; (vii) merge, consolidate or transfer substantially all of its respective assets; (viii) agree to dividend or other payment restrictions affecting the Restricted Subsidiaries; (ix) change the business it conducts; (x) withdraw any monies or other assets from, or make any investments of, its trust funds; and (xi) transfer or sell assets, including capital stock of a Restricted Subsidiary.

Events of Default

The 2029 Indenture contains customary events of default, which could, subject to certain conditions, cause the 2029 Notes to become immediately due and payable, including, but not limited to defaults by the Company in the payment of the principal of any 2029 Notes when the same becomes due and payable at maturity, upon acceleration or redemption, or otherwise (other than pursuant to an offer to purchase by the Company) or in the payment of interest on any 2029 Notes when the same becomes due and payable, and the default continues for a period of 30 days; failure to comply with certain repurchase obligations in the 2029 Indenture and certain other covenants the 2029 Indenture relating to mergers, consolidation or sales of assets; failure to comply with certain other covenants in the 2029 Indenture beyond the applicable cure period following notice by Wilmington or the holders of at least ~~30%~~30% in aggregate principal amount of the 2029 Notes then ~~outstanding;~~outstanding; failure to pay debt within any applicable grace period after the final maturity or acceleration of such debt by the holders thereof because of a default, if the total amount of such debt unpaid or accelerated exceeds ~~$20.0~~$20.0 million; failure to pay final judgments entered by a court or courts of competent jurisdiction aggregating ~~$20.0~~$20.0 million or more (excluding amounts covered by insurance), which judgments are not paid, discharged or stayed, for a period of 60 days; and certain events of bankruptcy or insolvency.

As of June 30, ~~2021,~~2022, the Company was in compliance with the covenants of the 2029 Indenture.

Deferred Financing Costs

For the three months ended June 30, 2022 and 2021, the Company recognized $0.3 million and $0.7 million, respectively, of amortization of deferred financing fees on its various debt facilities. For the six months ended June 30, 2022 and 2021, the Company recognized $0.7 million and $1.7 million, respectively, of amortization of deferred financing fees on its various debt facilities.

In connection with the full redemption of the 2024 Notes, the Company wrote off unamortized deferred financing fees of ~~$13.1~~$13.1 million and original issue discount of ~~$8.5~~$8.5 million, for the three and six months ended June 30, 2021, which are included in Loss on debt extinguishment in the accompanying condensed consolidated statements of operations.

For the three months ended June 30, 2021 and 2020, the Company recognized $0.7 million and $1.0 million, respectively, of amortization of deferred financing fees on its various debt facilities. For the six months ended June 30, 2021 and 2020, the Company recognized $1.7 million and $1.8 million, respectively, of amortization of deferred financing fees on its various debt facilities.

~~Table of Contents~~9.

9.	~~STOCKHOLDERS’ EQUITY~~

STOCKHOLDERS’ EQUITY

Capital Stock

TheThe Company is authorized to issue two classes of capital stock: common stock, ~~$0.01~~$0.01 par value per share (“Common Stock”) and preferred stock, ~~$0.01~~$0.01 par value per share (“Preferred Stock”).

At June 30, ~~2021, 117,964,891~~2022, 118,723,067 shares of Common Stock were issued and outstanding and 0 shares of Preferred Stock were issued or outstanding. At June 30, ~~2021,~~2022, there were ~~82,035,109~~81,276,933 shares of Common Stock available for issuance, including ~~853,333~~1,389,010 shares available for issuance as stock-based incentive compensation under the Company’s Amended and Restated 2019 Long-Term Incentive Plan (as amended, the “Plan”), and 10,000,000 shares of Preferred Stock available for issuance.

Stock-based Compensation

The Plan permits the granting of awards covering a total of 9,875,000 common units of the Company. A “unit” under the Plan is defined as a common unit of the Company and such other securities as may be substituted or resubstituted for common units of the Company, including but not limited to shares of the Company’s Common Stock. The Plan is intended to promote the interests of the Company by providing to employees, consultants and directors of the Company incentive compensation awards to encourage superior performance and enhance the Company’s ability to attract and retain the services of individuals who are essential for its growth and profitability and to encourage them to devote their best efforts to advancing the Company’s business.

Table of Contents

Stock Options

~~During~~A rollforward of stock options as of June 30, 2022 is as follows:


	Number of Stock Options			Weighted Average Exercise Price Per Share ($)
Total outstanding at December 31, 2021		6,075,000			1.27
Options granted		225,000			3.42
Options exercised		(812,163	)		1.24
Options forfeited		(220,001	)		1.30
Options expired		0			0
Total outstanding at June 30, 2022		5,267,836			1.36

For the ~~three and~~ six months ended June 30, ~~2021, the Company did 0t grant any stock options~~2022 and ~~0 options were exercised, forfeited or expired.~~

~~For the three months ended June 30,~~ 2021, ~~and 2020,~~ non-cash compensation expense related to stock options was ~~$0.2 million and $0.1 million, respectively. For the six months ended June 30, 2021 and 2020, non-cash compensation expense related to stock options was $0.4 million and $0.3 million, respectively.~~$0.3 million. As of June 30, ~~2021,~~2022, total unrecognized compensation cost related to unvested stock options was ~~$1.2~~$0.7 million, which the Company expects to recognize over the remaining weighted-average period of 1.7 ~~years.~~ year.

Restricted Stock and ~~Restricted~~ Phantom Stock

A rollforward of restricted stock and phantom stock awards as of June 30, ~~2021~~2022 is as follows:

	Number of Restricted Stock and Phantom Stock Awards			Weighted Average Grant Date Fair Value ($)
Total non-vested at December 31, 2020		1,277,907		$	2.17
						Number of Restricted Stock and Phantom Stock Awards			Weighted Average Grant Date Fair Value ($)
Total non-vested at December 31, 2021							873,600			1.95
Granted		27,029			2.22		41,035			2.56
Vested		(93,750	)		3.88		(93,750	)		3.88
Total non-vested at June 30, 2021		1,211,186		$	2.04
Forfeited							(45,001	)		1.71
Total non-vested at June 30, 2022							775,884			1.77

For the three months ended June 30, 2021 and 2020, the Company recognized $0.3 million and $0.2 million, respectively, of non-cash compensation expense related to restricted stock and phantom stock awards into earnings. For the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, the Company recognized ~~$0.6~~$0.7 million ~~and $0.4 million, respectively,~~ of non-cash compensation expense related to restricted stock and phantom stock awards into earnings. As of June 30, ~~2021,~~2022, total unamortized compensation cost related to unvested restricted stock awards was ~~$1.8~~$0.6 million, which the Company expects to recognize over the remaining weighted-average period of ~~1.9~~1.4 years.

10.

DEFERRED REVENUES AND COSTS

~~10.~~

~~DEFERRED REVENUES AND COSTS~~

The Company defers revenues and all direct costs associated with the sale of pre-need cemetery merchandise and services until the merchandise is delivered or the services are performed. The Company recognizes deferred merchandise and service revenues as customer contract liabilities within long-term liabilities on its consolidated balance sheets. The Company recognizes deferred direct costs associated with pre-need cemetery merchandise and service revenues as deferred selling and obtaining costs within long-term assets on its consolidated balance sheets. The Company also defers the costs to obtain new pre-need cemetery and new prearranged funeral business as well as the investment earnings on the prearranged services and merchandise trusts. Such costs are recognized when the associated performance obligation is fulfilled based upon the net change in the customer contract liabilities. All other selling costs are expensed as incurred. Additionally, the Company has elected the practical expedient of not recognizing incremental costs to obtain a contract as incurred, as the associated amortization period is typically one year or less.

~~Table of Contents~~

Deferred revenues and related costs consisted of the following (in thousands):


	June 30, 2021		December 31, 2020		June 30, 2022		December 31, 2021

Deferred contract revenues	$	852,570	$	832,373	$	915,822	$	880,290
Deferred merchandise trust revenue		100,428		87,218		163,735		150,368
Deferred merchandise trust unrealized gains (losses)		60,655		29,573		38,651		25,602
Deferred revenues	$	1,013,653	$	949,164	$	1,118,208	$	1,056,260
Deferred selling and obtaining costs	$	120,229	$	116,900	$	127,927	$	124,023

For the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, the Company recognized ~~$42.9~~$42.8 million and ~~$34.7~~$42.9 million, respectively, of the customer contract liabilities balance that existed at December 31, ~~2020~~2021 and ~~2019,~~2020, respectively, as revenue.

The components of the customer contract liabilities, net in the Company’s consolidated balance sheets at June 30, ~~2021~~2022 and December 31, ~~2020~~2021 were as follows (in thousands):


	June 30, 2021			December 31, 2020			June 30, 2022			December 31, 2021
Customer contract liabilities, gross	$	1,039,189		$	973,444		$	1,145,408		$	1,082,970
Amounts due from customers for unfulfilled performance obligations on cancellable pre-need contracts		(25,536	)		(24,280	)		(27,200	)		(26,710	)
Customer contract liabilities, net	$	1,013,653		$	949,164		$	1,118,208		$	1,056,260

The Company expects to service approximately ~~55%~~55% of its deferred revenue in the first 4-5 years and approximately ~~80%~~80% of its deferred revenue within 18 years. The Company cannot estimate the period when it expects its remaining performance obligations will be recognized, because certain performance obligations will only be satisfied at the time of death.

11.

COMMITMENTS AND CONTINGENCIES

Legal

The Company is subject to state law claims that certain of its officers and directors breached their fiduciary duties, as well as a claim under federal law that certain of the Company’s prior proxy disclosures were misleading. The Company could also become subject to additional claims and legal proceedings relating to the factual allegations made in these actions. While management cannot reasonably estimate the potential exposure in these matters at this time, if we do not prevail in any such proceedings, we could be required to pay substantial damages or settlement costs, subject to certain insurance coverages. Management has determined that, based on the status of the claims and legal proceedings described below, the amount of the potential losses cannot be reasonably estimated at this time. These actions are summarized below.

•

Bunim v. Miller, et al., No. 2:17-cv-519-ER, pending in the United States District Court for the Eastern District of Pennsylvania, and filed on February 6, 2017. The plaintiff in this case brought, derivatively on behalf of the Partnership, claims that the officers and directors of StoneMor GP LLC, a Delaware limited liability company and general partner of the Partnership (“StoneMor GP”), aided and abetted in breaches of StoneMor GP’s purported fiduciary duties by, among other things and in general, allegedly making misrepresentations through the use of non-GAAP accounting standards in the Partnership’s public filings, by allegedly failing to clearly disclose the use of proceeds from debt and equity offerings, and by allegedly approving unsustainable distributions. The plaintiff also claims that these actions and misrepresentations give rise to causes of action for gross mismanagement, unjust enrichment, and (in connection with a purportedly misleading proxy statement filed in 2014) violations of Section 14(a) of the Exchange Act. The derivative plaintiff seeks an award of damages, attorneys’ fees and costs in favor of the Partnership as nominal plaintiff, as well as general compliance and governance changes. This case has been stayed, by the agreement of the parties, provided that either party may terminate the stay on 30 days’ notice.

•

Fried v. Axelrod, et al., C.A. No. 2020-1065-SG, pending in the Chancery Court of the State of Delaware and filed on December 16, 2020. The plaintiff in this case brought an action he seeks to have certified as a class action that asserts claims against Axar Capital Management, LP (“Axar”), Andrew M. Axelrod and the other individuals who were directors at the time of the transactions in question and against the Company as a nominal defendant. The complaint includes direct claims against all individual defendants and derivative claims against the individual defendants other than Mr. Axelrod for breach of fiduciary duty in approving certain transactions in connection with the Company’s sale of preferred and common stock to Axar and certain accounts managed by Axar (the “Axar Stock Purchase”). The complaint also includes derivative claims against Axar for breach of fiduciary duty and unjust enrichment in connection with those same transactions as well as direct claims against both Axar and Mr. Axelrod for breach of fiduciary duty with respect to those transactions. Finally, the complaint includes a derivative claim against all individual defendants for breach of fiduciary duty in connection with the approval of a related-party investment disclosed by the Company. The plaintiff seeks rescission of the transactions contemplated by the Axar Stock Purchase and the related-party investment and/or an award of damages as well as attorneys’ fees and costs. On January 6, 2021, a motion to dismiss the complaint was filed on behalf of the Company and the individual defendants other than Mr. Axelrod and on January 11, 2021, a motion to dismiss the complaint was filed on behalf of Axar and Mr. Axelrod. On April 2, 2021, the plaintiff filed a First Amended Complaint, which included additional factual background regarding the plaintiff’s claims and alleged demand futility, but did not add additional defendants, claims or relief sought. The defendants filed a motion to dismiss the First Amended Complaint on April 16, 2021. Thereafter, the plaintiff and defendants filed a joint stipulation to stay the Fried litigation. On December 9, 2021, this action was consolidated with the Titterton action filed in November 2021 and described below.

2830

Table of Contents

•

Titterton v. StoneMor Inc., C.A. No.: 2021-1028-SG, pending in the Court of Chancery of the State of Delaware and filed on November 24, 2021. The plaintiff in this case brought a derivative action that asserts claims against Axar, Andrew M. Axelrod and the other individuals who were directors at the time of the transactions in question and against the Company as a nominal defendant. On December 9, 2021, the Fried action was consolidated with this action, with Titterton and Fried appointed as lead plaintiffs. On December 27, 2021, a motion to dismiss plaintiffs’ complaint was filed on behalf of the Company and the individual defendants other than Mr. Axelrod and on December 28, 2021, a motion to dismiss the complaint was filed on behalf of Axar and Mr. Axelrod. On February 4, 2022, all defendants filed their briefs in support of their motions to dismiss. The plaintiffs subsequently filed an amended complaint on March 11, 2022. The amended complaint includes derivative claims against the individual defendants, Mr. Axelrod, and Axar for breach of fiduciary duty in approving certain transactions in connection with the Company’s sale of preferred and common stock to Axar and certain accounts managed by Axar (the “Axar Stock Purchase”), as well as for breach of fiduciary duty in connection with the approval of a related-party investment disclosed by the Company. The amended complaint also includes claims against Mr. Axelrod and Axar for unjust enrichment with respect to those same transactions. The plaintiffs seek rescission of the transactions contemplated by the Axar Stock Purchase and the related-party investment and/or an award of damages as well as attorneys’ fees and costs. On March 25, 2022, the defendants filed motions to dismiss the amended complaint. On April 22, 2022, all defendants filed their briefs in support of their motions to dismiss. The plaintiffs filed their brief in response to the defendants’ motion to dismiss on May 27, 2022 and the defendants filed their reply brief on June 27, 2022.

individual defendants and derivative claims against the individual defendants other than Mr. Axelrod for breach of fiduciary duty in approving certain transactions in connection with the Company’s sale of preferred and common stock to Axar and certain accounts managed by Axar (the “Axar Stock Purchase”). The complaint also includes derivative claims against Axar for breach of fiduciary duty and unjust enrichment in connection with those same transactions as well as direct claims against both Axar and Mr. Axelrod for breach of fiduciary duty with respect to those transactions. Finally, the complaint includes a derivative claim against all individual defendants for breach of fiduciary duty in connection with the approval of a related-party investment disclosed by the Company. The plaintiff seeks rescission of the transactions contemplated by the Axar Stock Purchase and the related-party investment and/or an award of damages as well as attorneys’ fees and costs. On January 6, 2021, a motion to dismiss the complaint was filed on behalf of the Company and the individual defendants other than Mr. Axelrod and on January 11, 2021, a motion to dismiss the complaint was filed on behalf of Axar and Mr. Axelrod. On April 2, 2021, the plaintiff filed a First Amended Complaint, which included additional factual background regarding the plaintiff’s claims and alleged demand futility, but did not add additional defendants, claims or relief sought. Thereafter, the plaintiff and defendants filed a joint stipulation to stay the Fried litigation pending the resolution of a separate pending action described below, which the court granted on April 28, 2021.

•

Titterton v. StoneMor Inc., C.A. No.: 2021-0259-PAF, pending in the Court of Chancery of the State of Delaware and filed on March 25, 2021. The plaintiff in this case brought an action seeking expedited relief under Section 220 of the Delaware General Corporation Law. The plaintiff had previously made a demand for inspection of certain books and records of the Company allegedly related to potential corporate misconduct. The Company responded to the request by rejecting plaintiff’s demand as deficient under Delaware law for failure to state a proper purpose and being overbroad, but nonetheless provided certain of the requested materials. After the plaintiff made a further demand for inspection in March 2021, the Company again rejected the demand as deficient under Delaware law for failure to state a proper purpose and being overbroad. The plaintiff then brought this action seeking an order to compel additional books and records and reimbursement of attorney’s fees. On April 19, 2021, the Company filed its answer to the complaint. Trial was held on July 21, 2021, after which the Court issued an order permitting the requested inspection, in part, but denied the plaintiff’s request for attorneys’ fees. The Company is preparing its production of the requested materials.

The Company is party to other legal proceedings in the ordinary course of its business, but does not expect the outcome of any proceedings, individually or in the aggregate, to have a material adverse effect on its financial position, results of operations or cash flows. The Company carries insurance with coverage and coverage limits that it believes to be customary in the cemetery and funeral home industry. Although there can be no assurance that such insurance will be sufficient to protect the Company against all contingencies, Management believes that the insurance protection is reasonable in view of the nature and scope of the Company’s operations.

Moon Landscaping, Inc.

On April 2, 2020, the Company entered into two multi-year Master Services Agreements (the “MSAs”) with Moon Landscaping, Inc. and its affiliate, Rickert Landscaping, Inc. (collectively “Moon”)~~. Under the terms of the MSAs, Moon provides all~~ to outsource grounds and maintenance services at most of the Company’s funeral homes ~~cemeteries~~ and ~~other properties~~cemeteries. Due to certain liquidity constraints and performance issues experienced by Moon, the Company ~~owns or manages. The contractual annual amounts due to Moon as of June 30, 2021 by year and in total were as follows (in thousands):~~

2021

$
50,107

2022

$
51,109

2023

$
52,131

2024

$
53,174

Total

$
206,521

Each party has the right to terminate the MSAs at any time on six months’ prior written notice, provided that if we terminate the MSAs without cause, we will be obligated to pay Moon an equipment credit fee in the amount of $1.0 million for each year remaining in the term, prorated for the portion of the year in which any such termination occurs. The MSAs also contain representations, covenants and indemnity provisions that are customary for agreements of this nature.

~~The Company also has the~~exercised its right under the MSAs to take back the responsibility for grounds and maintenance services at the locations outsourced to ~~Moon. Due to certain liquidity constraints and performance issues experienced by~~ Moon ~~the Company has exercised this right~~ with respect to 81 locations effective July 1, 2021, 22 locations effective August 1, 2021, ~~and an additional~~ 111 locations effective August 9, 2021, ~~representing in the aggregate approximately 61% of the~~34 locations ~~the Company had originally outsourced to Moon. The Company is continuing to evaluate Moon’s performance under the MSAs.~~

~~Table of Contents~~

In connection with these changes, the Company is now using its own equipment to service these locations and rehired the employees Moon had hired from the Company upon execution of the MSAs. These employees will continue to provide certain grounds services for the Company at these locations using the equipment previously leased to Moon. The Company is outsourcing substantially all of the landscaping and other maintenance services previously provided by Moon at these locations to other vendors who had previously been subcontractors to Moon. The Company does not anticipate that these changes will have any material impact on the cost of providing the services compared to the amounts paid to Moon under the MSAs.

From time to time, on the behalf of Moon, the Company incurred a higher level of expenses relating to services covered by the MSAs, including location materials and supplies, uniforms, repair of marker damage, customer refunds and payments to third party landscapers and repair shops. These additional payments, which were in addition to the payments specified in the MSAs, were recorded as cemetery operating expenses in the relevant periods and as of June 30,effective November 15, 2021 ~~aggregated $5.2 million. The Company has the ability to seek reimbursement from Moon for these additional payments as outlined in the MSAs.~~

On August 12, 2021, Moon and certain of its affiliates filed a petition under Chapter 11 of Title 11 of the United States Code in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). As a result of this filing, the Company will not be able to exercise its right to take back additional properties or otherwise modify the terms of or seek to enforce its MSAs with Moon, including finalizing arrangements to seek the reimbursement of additional payments, absent Moon’s consent and/or approval of the Bankruptcy Court. Management believes the impact on the Company of Moon's bankruptcy filing has been partially mitigated because the Company has taken back the responsibilities under the MSAs for the locations noted above. However, given the uncertainty associated with the bankruptcy proceedings and the remaining locations for which Moon will continue to be responsible under the MSAs, it is possible that the Company may experience disruptions in operations at those locations, particularly if it becomes necessary for the Company to assume the responsibility for servicing those locations in the near future on relatively short notice. In addition, the Company expects that it will incur additional expenses relating to services covered by the MSAs. If Moon is unable to obtain appropriate financing and have a plan of reorganization confirmed by the Bankruptcy Court, the Company would likely not be able to obtain reimbursement of any of the additional payments it has made or may hereafter make on Moon’s behalf under the MSAs.

It is expected that disruptions, if any, will not have a material adverse effect on the Company’s overall business given the number of locations for which it is responsible and the Company’s previous relationships, which were established before the transfer of responsibilities to Moon. The Company is closely monitoring the overall situation.effective January 7, 2022.

Archdiocese of Philadelphia

In May 2014, the Company entered into lease and management agreements with the Archdiocese of Philadelphia, pursuant to which the Company has committed to pay aggregate fixed rent of ~~$36.0~~$36.0 million in the following amounts:

~~Lease Years 1-5 (May 28, 2014-May 31, 2019)~~	~~None~~
Lease Years 6-20 (June 1, 2019-May 31, 2034)	$1,000,000 per Lease Year
Lease Years 21-25 (June 1, 2034-May 31, 2039)	$1,200,000 per Lease Year
Lease Years 26-35 (June 1, 2039-May 31, 2049)	$1,500,000 per Lease Year
Lease Years 36-60 (June 1, 2049-May 31, 2074)	~~None~~	NaN

The fixed rent for lease years six through 11, an aggregate of ~~$6.0~~$6.0 million, is deferred. If prior to May 31, 2025, the Archdiocese terminates the agreements in accordance with their terms during lease year 11 or the Company terminates the agreements as a result of a default by the Archdiocese, the Company is entitled to retain the deferred fixed rent. If the agreements are not terminated, the deferred fixed rent will become due and payable on or before June 30, 2025.

Table of Contents

12.

LEASES

~~12.~~

~~LEASES~~

The Company leases a variety of assets throughout its organization, such as office space, funeral homes, warehouses and equipment. In addition the Company has a sale-leaseback related to one of its warehouses. Leases with an initial term of 12 months or less are not recorded on the Company’s consolidated balance sheets, and the Company recognizes lease expense for these leases on a straight-line basis over the lease term. For lease agreements with an initial term of more than 12 months, the Company measures the lease liability at the present value of the sum of the remaining minimum rental payments, which exclude executory ~~costs~~costs..

Certain leases provide the Company with the option to renew for additional periods,, with renewal terms that can extend the lease term for periods ranging from 1 to 30 ~~years.~~years. The exercise of lease renewal options is at the Company’s sole discretion, and the Company is only including the renewal option in the lease term when the Company can be reasonably certain that it will exercise the renewal options. The Company does have residual value guarantees on the finance leases for its vehicles, but no residual guarantees on any of its operating leases.

~~Table of Contents~~

Certain of the Company’s leases have variable payments with annual escalations based on the proportion by which the consumer price index (“CPI”) for all urban consumers increased over the CPI index for the prior comparative year.

The Company has the following balances recorded on its consolidated balance sheets related to leases:


	June 30, 2022		December 31, 2021
Assets:
Operating	$	5,449	$	5,944
Finance		3,035		3,343
Total ROU assets(1)	$	8,484	$	9,287
Liabilities:
Current
Operating	$	1,136	$	1,103
Finance		1,764		1,859
Long-term
Operating		4,514		4,969
Finance		670		1,035
Total lease liabilities(2)	$	8,084	$	8,966

June 30, 2021

December 31, 2020

Assets:

Operating

$
7,230

$
5,171

Finance

3,609

4,296

Total ROU assets⁽¹⁾

$
10,839

$
9,467

Liabilities:

Current

Operating

$
1,161

$
1,182

Finance

1,325

1,416

Long-term

Operating

5,538

3,441

Finance

1,945

2,592

Total lease liabilities⁽²⁾

$
9,969

$
8,631

(1)

The Company’s ROU operating assets and finance assets are presented within Other assets and Property and equipment, net of accumulated depreciation, respectively, in its consolidated balance sheets.

(2)

The Company’s current lease liabilities and long-term are presented within Accounts payable and accrued liabilities and Other long-term liabilities, respectively, in its consolidated balance sheets.

⁽¹⁾

~~The Company’s ROU operating assets and finance assets are presented within Other assets and Property and equipment, net of accumulated depreciation, respectively, in its consolidated balance sheets.~~

⁽²⁾	~~The Company’s current lease liabilities and long-term are presented within Accounts payable and accrued liabilities and Other long-term liabilities, respectively, in its consolidated balance sheets.~~

As most of the ~~Company~~’sCompany’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate, based on the information available at commencement date, in determining the present value of lease payments. The Company used the incremental borrowing rate on January 1, 2019 for operating leases that commenced prior to that ~~date~~.date. The weighted average borrowing rates for operating and finance leases were ~~10.0%~~9.9% and ~~8.7%~~8.8%, respectively, as of June 30, ~~2021~~.2022.

The components of lease expense were as follows:


		Six months ended June 30,
		2022		2021
Lease cost	Classification
Operating lease costs(1)	General and administrative expense	$	912	$	1,009
Finance lease costs
Amortization of leased assets	Depreciation and Amortization		468		606
Interest on lease liabilities	Interest expense		153		166
Short-term lease costs(2)	General and administrative expense		—		—
Net lease costs		$	1,533	$	1,781

Six months ended June 30,

2021

2020

Lease cost
Classification

Operating lease costs⁽¹⁾
General and administrative expense
$
1,009

$
1,597

Finance lease costs

Amortization of leased assets
Depreciation and Amortization

606

606

Interest on lease liabilities
Interest expense

166

225

Short-term lease costs⁽²⁾
General and administrative expense

—

—

Net lease costs

$
1,781

$
2,428

(1)

The Company includes its variable lease costs under operating lease costs as these variable lease costs are immaterial.

⁽¹⁾(2)

The Company does not have any short-term leases with lease terms greater than one month.

~~The Company includes its variable lease costs under operating lease costs as these variable lease costs are immaterial.~~

⁽²⁾	~~The Company does not have any short-term leases with lease terms greater than one month.~~

~~Maturities of the Company’s lease labilities as of June 30, 2021 were as follows:~~

Year ending December 31,

Operating

Finance

2021

$
1,070

$
920

2022

1,606

1,889

2023

1,438

649

2024

1,213

100

2025

1,102

50

Thereafter

2,578

18

Total

$
9,007

$
3,626

Less: Interest

(2,308
)

(357
)
Present value of lease liabilities

$
6,699

$
3,269

3132

Table of Contents

Maturities of the Company’s lease ~~labilities~~liabilities as of June 30, 2022 were as follows:


Year ending December 31,	Operating			Finance
2022	$	865		$	1,345
2023		1,489			816
2024		1,253			211
2025		1,131			114
2026		1,100			151
Thereafter		1,504			44
Total	$	7,342		$	2,681
Less: Interest		(1,693	)		(247	)
Present value of lease liabilities	$	5,649		$	2,434

Maturities of the Company’s lease liabilities as of December 31, ~~2020~~2021 were as follows:


Year ending December 31,	Operating			Finance			Operating			Finance
2020	$	1,615		$	1,791
2021		1,186			1,939
2022		881			643		$	1,661		$	2,099
2023		702			107			1,460			780
2024		595			33			1,223			168
2025								1,111			95
2026								1,086			100
Thereafter		1,092			—			1,498			—
Total	$	6,071		$	4,513		$	8,039		$	3,242
Less: Interest		(1,448	)		(505	)		(1,967	)		(348	)
Present value of lease liabilities	$	4,623		$	4,008		$	6,072		$	2,894

Operating and finance lease payments include ~~$1.3~~$0.1 million related to options to extend lease terms that are reasonably certain of being exercised and ~~$1.7~~$1.4 million related to residual value guarantees. The weighted average remaining lease term for operating and finance leases was ~~6.0~~5.4 years and ~~1.6~~1.4 years, respectively, as of June 30, ~~2021~~2022..

As of June 30, ~~2021,~~2022, the Company had no additional operating leases that had not yet commenced, and did not have any lease transactions with its related ~~parties.~~parties. In addition, as of June 30, ~~2021,~~2022, the Company had not entered into any new sale-leaseback arrangements.

13.

FAIR VALUE OF FINANCIAL INSTRUMENTS

~~13.~~

~~FAIR VALUE OF FINANCIAL INSTRUMENTS~~

Management has established a hierarchy to classify the inputs used to measure the Company’s financial instruments at fair value, pursuant to which the Company is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs represent market data obtained from independent sources; whereas, unobservable inputs reflect the Company’s own market assumptions, which are used if observable inputs are not reasonably available without undue cost and effort. The hierarchy defines three levels of inputs that may be used to measure fair value:

•

Level 1 – Unadjusted quoted market prices in active markets for identical, unrestricted assets or liabilities that the reporting entity has the ability to access at the measurement date.

•

Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset and liability or can be corroborated with observable market data for substantially the same contractual term of the asset or liability.

•

Level 3 – Unobservable inputs based on the entity’s own assumptions about the assumptions market participants would use in the pricing of the asset or liability and are consequently not based on market activity but rather through particular valuation techniques.

•

~~Level 1 – Unadjusted quoted market prices in active markets for identical, unrestricted assets or liabilities that the reporting entity has the ability to access at the measurement date.~~

•

The carrying value of the Company’s current assets and current liabilities on its consolidated balance sheets approximated or equaled their estimated fair values due to their short-term nature or imputed interest rates.

Table of Contents

Recurring Fair Value Measurement

At June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the two financial instruments measured by the Company at fair value on a recurring basis were its merchandise and perpetual care trusts, which consist of investments in debt and equity marketable securities and cash equivalents that are carried at fair value and are classified as either Level 1 or Level 2 (see Note 6 Merchandise Trusts and Note 7 Perpetual Care Trusts).

Where quoted prices are available in an active market, securities are classified as Level 1 investments pursuant to the fair value measurement hierarchy. Where quoted market prices are not available for the specific security, fair values are estimated by using either quoted prices of securities with similar characteristics or an income approach fair value model with observable inputs that include a combination of interest rates, yield curves, credit risks, prepayment speeds, rating, and tax-exempt status. These securities are classified as Level 2 investments pursuant to the fair value measurements hierarchy. Certain investments in the merchandise and perpetual care trusts are excluded from the fair value leveling hierarchy in accordance with GAAP. These funds are measured at fair value using the net asset value per share practical expedient and have not been categorized in the fair value hierarchy.

~~Table of Contents~~

Non-Recurring Fair Value Measurement

The Company may be required to measure certain assets and liabilities at fair value, such as its indefinite-lived assets and long-lived assets, on a nonrecurring basis in accordance with GAAP from time to time. These adjustments to fair value usually result from impairment charges.

Other Financial Instruments

The Company’s other financial instruments at June 30, 2022 and December 31, 2021 consisted of its 2029 Notes ~~and at December 31, 2020 consisted of its 2024 Notes~~ (see Note 8 Long-Term Debt). At June 30, ~~2021 the carrying value of the 2029 Notes approximated their fair value due to the timing of the issuance of the 2029 Notes on May 11, 2021. At~~2022 and December 31, ~~2020,~~2021, the estimated fair value of the ~~Company’s 2024~~Company's 2029 Notes was ~~$350.2~~$352.0 million and $413.5 million, respectively, based on trades made on that date, compared with the carrying amount of ~~$344.8~~$400.0 million.

14.

SEGMENT INFORMATION

~~14.~~

~~SEGMENT INFORMATION~~

Management operates the Company in 2 reportable operating segments: Cemetery Operations and Funeral Home Operations. These operating segments reflect the way the Company manages its operations and makes business decisions. Management evaluates the performance of these operating segments based on interments performed, interment rights sold, pre-need cemetery and at-need cemetery contracts written, revenue and segment profit (loss). As a percentage of revenue and assets, the Company’s major operations consist of its cemetery operations.

The following tables present financial information with respect to the Company’s segments (in thousands). Corporate costs represent those not directly associated with an operating segment, such as corporate overhead, interest expense and income taxes. Corporate assets primarily consist of cash and cash equivalents and restricted cash.


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020			2022			2021			2022			2021
STATEMENT OF OPERATIONS DATA:
Cemetery Operations:
Revenues	$	72,128		$	56,863		$	139,108		$	111,660		$	70,454		$	72,128		$	139,951		$	139,108
Operating costs and expenses		(55,951	)		(47,834	)		(109,696	)		(95,762	)		(63,692	)		(55,951	)		(123,736	)		(109,696	)
Depreciation and amortization		(1,505	)		(1,606	)		(3,081	)		(3,259	)		(1,423	)		(1,505	)		(2,857	)		(3,081	)
Segment operating profit	$	14,672		$	7,423		$	26,331		$	12,639		$	5,339		$	14,672		$	13,358		$	26,331
Funeral Home Operations:
Revenues	$	10,853		$	9,738		$	22,186		$	20,043		$	9,593		$	10,853		$	21,073		$	22,186
Operating costs and expenses		(9,194	)		(8,279	)		(18,535	)		(16,769	)		(9,274	)		(9,194	)		(19,049	)		(18,535	)
Depreciation and amortization		(423	)		(461	)		(854	)		(906	)		(434	)		(423	)		(866	)		(854	)
Segment operating profit	$	1,236		$	998		$	2,797		$	2,368		$	(115	)	$	1,236		$	1,158		$	2,797
Reconciliation of segment operating profit to net loss from continuing operations:
Cemetery Operations	$	14,672		$	7,423		$	26,331		$	12,639		$	5,339		$	14,672		$	13,358		$	26,331
Funeral Home Operations		1,236			998			2,797			2,368			(115	)		1,236			1,158			2,797
Total segment profit		15,908			8,421			29,128			15,007			5,224			15,908			14,516			29,128
Corporate overhead		(9,534	)		(8,756	)		(19,075	)		(17,257	)		(12,806	)		(9,534	)		(24,619	)		(19,075	)
Corporate depreciation and amortization		(99	)		(226	)		(194	)		(442	)		(161	)		(99	)		(356	)		(194	)
Loss on sale of business and other impairments		(2,220	)		—			(2,220	)		—
Other gains		69			—			69			—
Loss on sale of businesses and other impairments														(43	)		(2,220	)		(43	)		(2,220	)
Other (losses) gains														(15	)		69			(15	)		69
Interest expense		(9,977	)		(11,729	)		(20,450	)		(23,082	)		(9,279	)		(9,977	)		(18,565	)		(20,450	)
Loss on debt extinguishment		(40,128	)		—			(40,128	)		—			—			(40,128	)		—			(40,128	)
Income tax benefit		9,736			3,492			11,412			2,204
Income tax (expense) benefit														(181	)		9,736			(413	)		11,412
Net loss from continuing operations	$	(36,245	)	$	(8,798	)	$	(41,458	)	$	(23,570	)	$	(17,261	)	$	(36,245	)	$	(29,495	)	$	(41,458	)

CASH FLOW DATA:
Capital expenditures:
Cemetery Operations	$	1,345		$	1,357		$	3,058		$	2,545		$	3,019		$	1,345		$	4,963		$	3,058
Funeral Home Operations		35			7			96			17			497			35			1,090			96
Corporate		207			354			207			1,229			26			207			91			207
Total capital expenditures	$	1,587		$	1,718		$	3,361		$	3,791		$	3,542		$	1,587		$	6,144		$	3,361


	June 30, 2022		December 31, 2021
BALANCE SHEET DATA:
Assets:
Cemetery Operations	$	1,564,546	$	1,506,504
Funeral Home Operations		132,364		128,590
Corporate		101,125		106,050
Total assets	$	1,798,035	$	1,741,144
Goodwill:
Cemetery Operations	$	5,444	$	—
Funeral Home Operations		1,330		—
Total goodwill	$	6,774	$	—

Table of Contents

June 30, 2021

December 31, 2020

BALANCE SHEET DATA:

Assets:

Cemetery Operations

$
1,472,646

$
1,445,217

Funeral Home Operations

127,126

130,687

Corporate

112,416

59,059

Total assets

$
1,712,188

$
1,634,963

Assets held for sale:

Cemetery Operations

$
—

$
23,500

Funeral Home Operations

—

5,075

Total assets held for sale

$
—

$
28,575

16.

RELATED PARTIES

In January 2020, the Company’s trusts completed the purchase of a $30 million participation in a new $70 million debt facility issued by Payless Holdings LLC (“Payless”). Funds and accounts affiliated with Axar also invested $20 million in this facility. The investment was initially proposed by the Chairman of the Board, Mr. Axelrod. The investment was reviewed and approved in December 2019 in accordance with the Partnership’s governance policies in place at that time. At the time of the investment, the funds and accounts affiliated with Axar owned approximately 30% of the equity of Payless, and Mr. Axelrod serves on Payless’ board of directors. The Company’s investment in Payless represented approximately 4% of the total fair market value of the Company’s trust assets when the investment was made.

June 30, 2022, Axar beneficially ~~owns 75.1%~~owned 74.7% of the Company’s outstanding Common Stock, which ~~constitutes~~constituted a majority of the Company’s outstanding Common Stock. As a result, the Company is a “controlled company” within the meaning of NYSE corporate governance standards. For discussion of certain risks and uncertainties attributable to the Company being a controlled company, see Part I, Item 1A. Risk Factors of the Company’s Annual Report. For discussion on the security ownership of certain beneficial owners, directors and executives of the Company, see Part III, Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters of the Annual Report.

Subadvisor Agreement

On February 1, 2021, Cornerstone Trust Management Services LLC (“Cornerstone”), a wholly-owned subsidiary of the Company, entered into a Subadvisor Agreement (the “Agreement”) with Axar. The sole member of Axar’s general partner is

~~Table of Contents~~

Andrew M. Axelrod, who serves as the Chairman of the Company’s Board of Directors. In connection with the execution of the Agreement, Mr. Axelrod resigned as a member of the Trust and Compliance Committee (the “Trust Committee”) of the Company’s Board of Directors (the “Board”).

~~Pursuant to~~On April 19, 2022, Axar, at the ~~charter~~request of the Trust Committee, ~~the retention of Axar as a subadvisor and~~agreed to terminate the Agreement ~~were first reviewed and approved by~~effective immediately. In connection with the ~~Trust Committee, subject~~termination, Axar also agreed to ~~the condition that the retention of~~waive all fees payable to Axar ~~and~~under the Agreement also be approved by a Board committee comprised exclusively of independent directors. Given the Axar relationship, the Board appointed a special committee to review the retention of Axar and the Agreement, which subsequently also approved the retention of Axar and the terms of the Agreement. Both the Trust Committee and the special committee concluded that Axar had the appropriate experience and performance record that would assist Cornerstone in performing its investment advisory obligations for the ~~Company, that~~period from January 1, 2022 though the ~~retention of Axar would provide back-office operational efficiencies~~termination date, which amounted to ~~Cornerstone and that the financial terms were at least as favorable to Cornerstone as the terms that would be available from other unaffiliated subadvisors, if not more favorable.~~$

Under the terms of the Agreement, Axar agreed to provide the following services with respect to the assets held in the Company’s merchandise and perpetual care trust (the “Trusts”) and certain pooled investment vehicles administered by the trustee of the Trusts (the “Trustee”) in which certain of the Trusts participate or invest (collectively, the “Investment Assets”):219,000

•

Advise Cornerstone with respect to the allocation and investment of the Investment Assets on a non-discretionary basis, including providing advice concerning portfolio allocation among investment strategies;

•

~~Oversee other subcontractors or external managers engaged by Cornerstone to provide advice with respect to the Investment Assets;~~

•

~~Provide quarterly investment performance reports to and meet on a quarterly basis with the Trust Committee;~~

•

~~As requested by Cornerstone from time to time, perform the tasks and responsibilities delegated by the Trust Committee to Cornerstone under the Company’s investment policy statement; and~~

•

As requested by Cornerstone, assist Cornerstone in performing its duties by providing general back office and administrative support to Cornerstone and, at Cornerstone’s reasonable request, the Trustee.

Under the Agreement, Axar is entitled to a quarterly fee equal to 0.0125% of the value of the Investment Assets through December 31, 2021 and, thereafter, a quarterly fee equal to 0.025% of the value of the Investment Assets. In each case, the value of the Investment Assets will be determined by the Trustee.. During the three and six months ended June 30, 2021, ~~the Company incurred~~Axar received fees of ~~$103,000~~$103,000 and ~~$172,000, respectively, due to Axar.~~$

172,000, respectively. The ~~initial term~~termination was requested by the Trust Committee following its review of certain investments by the Company’s trusts recommended by Axar under the Agreement ~~is through December 31, 2021 and it automatically renews for~~in which Axar had an ~~unlimited number of one-year terms thereafter, provided that either party may terminate~~interest, as more fully described in the ~~Agreement on 90 days’ prior written notice. The Agreement also includes customary confidentiality and indemnification provisions.~~

On April 13, 2021, the Company reimbursed American Infrastructure Funds LLC (“AIM”), an entity controlled by Robert B. Hellman, Jr., a former Chairman and member of the Company's Board of Directors, $0.6 million for certain expenses incurred by AIM in responding to a document production request from the SEC inCompany’s Annual Report. In connection with ~~an SEC investigation~~the termination, the Trust Committee authorized Cornerstone to engage Cambridge Associates LLC, which is also a subadvisor to Cornerstone, to resume providing the administrative and other investment advisory services it had previously furnished to Cornerstone prior to the assumption of such responsibilities by Axar under the ~~Company and StoneMor GP that was settled in December 2019.~~Agreement.

Table of Contents

Nomination and Director Voting Agreement

The Company is a party to a Nomination and Director Voting Agreement dated as of September 17, 2018 (as amended on February 4, 2019, June 27, 2019, November 3, 2020 and November 20, 2020, the “DVA”) with Axar, certain funds and managed accounts for which it serves as investment manager and its general partner, Axar GP, LLC (collectively, the “Axar Entities”), StoneMor GP Holdings LLC, a Delaware limited liability company and formerly the sole member of StoneMor GP (“GP Holdings”), and Robert B. Hellman, Jr., as trustee under the Voting and Investment Trust Agreement for the benefit of American Cemeteries Infrastructure Investors LLC (“ACII” and, collectively with GP Holdings, the “ACII Entities”). Under the DVA, and subject to certain conditions and exceptions, the Axar Entities and their affiliates are prohibited from acquiring additional shares of the Company’s Common Stock. On April 13, 2021, the Axar Entities, the ACII Entities and the Company entered into a letter agreement (the “Waiver”) pursuant to which the Axar Entities were permitted to acquire some or all of the shares of the Company’s Common Stock held by ACII and its affiliates in a single privately negotiated transaction and not in the open market. The terms of the Waiver were approved by the Conflicts Committee of the Company’s Board of Directors. The waiver was subject to the following conditions:

•

any such purchase be consummated on or before May 31, 2021;

•

the Company, the Axar Entities and the ACII Entities have entered into a further amendment to the DVA to clarify that the standstill period applicable to the Axar Entities will expire on December 31, 2023;

•

Axar will vote or direct the voting of all shares of the Company’s Common Stock it beneficially owns in favor of amendments to Article VIII of the Company’s Certificate of Incorporation (the “Charter”) relating to amendments of the Company’s Bylaws and Article X of the Charter with respect to any amendment or repeal of Article V, Article VI(c), Article VII(a)-(d), Article VIII, Article X or Article XI of the Charter to increase the required stockholder approval required thereunder from “at least sixty six and two thirds percent (66 2/3%)” to “at least eighty-five percent (85%) (collectively, the “Supermajority Provisions”);” and

•

pending the effectiveness of such amendment to Article VIII and Article X of the Charter, Axar would not vote or direct the voting of any shares of the Company’s Common Stock in favor of any proposal to which the Supermajority Provisions are applicable unless such proposal has been approved by the Company’s Board of Directors and its Conflicts Committee.

•

~~any such purchase be consummated on or before May 31, 2021;~~

•

~~Table of Contents~~

•

As contemplated by the Waiver, on April 13, 2021, the Company, the Axar Entities and the ACII Entities also entered into the Fifth Amendment to the DVA pursuant to which the parties clarified that the standstill period applicable to the Axar Entities thereunder would expire on December 31, 2023.

Merger Agreement

On May 24, 2022, the Company, Axar Cemetery Parent Corp., a Delaware corporation (“Parent”), and Axar Cemetery Merger Corp., a Delaware corporation and a wholly-owned subsidiary of Parent (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”). Pursuant to the Merger Agreement, and upon the terms and subject to the conditions described therein and in accordance with the General Corporation Law of the State of Delaware, as amended (the “DGCL”), the Company, Parent and Merger Sub intend to enter into a transaction pursuant to which Merger Sub will be merged with and into the Company (the “Merger,” and, collectively with the other transactions contemplated in the Merger agreement, the “Transactions”), with the Company surviving the Merger and becoming a wholly-owned subsidiary of Parent as a result of the Merger.

36Merger Consideration

At the effective time of the Merger (the “Effective Time”), each Share issued and outstanding immediately prior to the Effective Time, other than any Excluded Shares and any Dissenting Shares (as such terms are defined in the Merger Agreement), will be converted into the right to receive $3.50 in cash per Share without interest (the “Merger Consideration”). All Shares that are converted into the right to receive the Merger Consideration will no longer be outstanding and will be automatically cancelled and cease to exist as of the Effective Time. All Excluded Shares that are held by the Company will be automatically cancelled and cease to exist as of the Effective Time, without any conversion thereof and no payment or distribution will be made with respect thereto. All Excluded Shares that are Axar Shares and that are issued and outstanding immediately prior to the Effective Time will be converted into one validly issued, fully paid and non-assessable share of common stock, par value $0.01 per share, of the Surviving Corporation (as such term is defined in the Merger Agreement). “Axar Shares” means Shares held by any of Parent, AC Holdings, Merger Sub, any other direct or indirect Subsidiary of Parent or any Axar Vehicle (as such term is defined

Table of Contents

in the Merger Agreement).

At the Effective Time, (i) outstanding Company Phantom Units (as such term is defined in the Merger Agreement) will be canceled and converted into the right to receive an amount in cash equal to the product of the Merger Consideration times the number of Shares subject to the award, and (ii) outstanding Company Restricted Shares (as such term is defined in the Merger Agreement) awarded under the Company Equity Plan will vest in full and be converted into the right to receive the Merger Consideration under the same terms and conditions as apply to the receipt of the Merger Consideration by holders of Shares generally.

With respect to Company Options subject to Company Employee Option Awards (as such terms are defined in the Merger Agreement), (A) 50% of the Company Options will be canceled in consideration for the right to receive a lump sum cash payment with respect thereto equal to the product of: (1) the excess, if any, of the Merger Consideration over the applicable exercise price of the applicable Company Employee Option Award, times (2) the number of Shares subject to such Company Options that are cancelled, less any required withholding taxes; and (B) the remaining Company Options will be assumed by Parent and converted into fully vested options to purchase (on the same terms and conditions as were applicable to such Company Options pursuant to the Company Equity Plan and the Company Employee Option Award prior to the Effective Time) that number of Parent Shares equal to the number of Shares subject to such Company Option immediately prior to the Effective Time with an exercise price equal to the exercise price applicable to such Company Option immediately prior to the Effective Time divided by the Option Exchange Ratio (as defined in the Merger Agreement).

The Merger Agreement was entered into following receipt of a proposal from Axar (as such term is defined in the Merger Agreement) on September 22, 2021 (the “Proposal”), in which Axar expressed interest in pursuing discussions concerning strategic alternatives that might be beneficial to the Company and its various stakeholders. After receiving the Proposal, the Board of Directors of the Company (the “Board”) authorized the Conflicts Committee of the Board (the “Conflicts Committee”), consisting entirely of independent directors, to engage in the discussions contemplated by the Proposal, including the authority to engage in discussions concerning and to negotiate the terms and provisions of strategic alternatives. The Conflicts Committee engaged separate financial and legal advisors and over the course of the last several months has negotiated the terms and conditions of Axar’s proposal to acquire all outstanding shares not owned by Axar and its Affiliates (as such term is defined in the Merger Agreement). At a meeting held on May 21, 2022, the Conflicts Committee approved the Merger Agreement in substantially the form subsequently executed and, based on the opinion of its independent financial advisor, Kroll, LLC, operating through its Duff & Phelps Opinions Practice (“Duff & Phelps”), concluded that the consideration payable in the Merger was fair, from a financial perspective, to the Company and its stockholders (other than the holders of the Excluded Shares and Insider Shares, as “Insider Shares” is defined in the Merger Agreement) and unanimously recommended to the Board that it approve the Merger Agreement and the Merger.

The Board, acting on the unanimous recommendation of the Conflicts Committee, (i) determined that the Merger Agreement and the Transactions were fair to, and in the best interest of, the Company and its stockholders, (ii) approved the execution, delivery and performance by the Company of the Merger Agreement and the consummation of the Transactions and (iii) resolved to recommend that the stockholders of the Company tender their Shares to Purchaser pursuant to the Offer. All of the directors of the Company approved the transaction other than Andrew Axelrod, who was not present at the meeting.

Stockholders of the Company will be asked to vote to approve and adopt the Merger Agreement at a stockholders’ meeting that will be held on a date to be announced. A condition to the consummation of the Merger is the approval and adoption of the Merger by the affirmative vote of (i) the holders of at least a majority of the issued and outstanding Shares and (ii) the holders of at least a majority of the issued and outstanding Shares other than the Axar Shares and the Shares held by the Board and the officers of the Company and their respective immediate family members (clauses (i) and (ii), the “Requisite Company Vote”), in each case in accordance with the Company’s certificate of incorporation and bylaws and Delaware law.

Representations, Covenants and Conditions to Closing

The Merger Agreement includes certain representations, warranties and covenants of the Company, on one hand, and Parent and Merger Sub on the other, including certain restrictions with respect to the Company’s business between the date of the Merger Agreement and the consummation of the Merger.

The Company, Parent and Merger Sub also agreed to use their respective reasonable best efforts to take, or cause to be taken, all appropriate actions, and to do, or cause to be done, all things necessary, proper or advisable under applicable Laws or otherwise

Table of Contents

to consummate and make effective the Transactions. The Company, Parent, and Merger Sub also agreed, upon request by any other party, to furnish such other party with all information concerning itself, its Affiliates, directors, officers and stockholders and such other matters as may be reasonably necessary or advisable in connection with the Proxy Statement (as defined in the Merger Agreement), the Schedule 13E-3 or any other statement, filing, notice or application made by or on behalf of Parent, Merger Sub, the Company or any of their respective Affiliates to any third party or any Governmental Authority (as defined in the Merger Agreement) in connection with the Merger and the other Transactions.

Go-Shop Period

The Company agreed to a period (the “Go-Shop Period”) which commenced on the date of the Merger Agreement and ended 60 days thereafter, or July 23, 2022 (the “Go-Shop Period End Date”), during which time the Company and its representatives, acting at the direction and under the supervision of the Conflicts Committee, were permitted to solicit Competing Transactions (as defined in the Merger Agreement) and share information with potential bidders. After the Go-Shop Period End Date, the Company was required to cease discussions with other parties regarding a transaction except for Excluded Parties. “Excluded Parties” means third parties that had, prior to such date, made a bona fide written proposal for a Competing Transaction that the Conflicts Committee determined in good faith on or prior to the Go-Shop Period End Date, after consultation with its financial advisor and outside legal advisors, constituted or was reasonably likely to result in a Superior Proposal (as defined in the Merger Agreement). The Company was required, within two days of the Go-Shop Period End Date, to provide a list of Excluded Parties to Parent with the current terms of any acquisition proposal. During the Go-Shop Period, the Conflicts Committee’s financial advisor contacted five potential strategic buyers and 32 potential financial buyers that the Conflicts Committee and its financial advisor believed could have an interest in reviewing the opportunity and had the financial ability to pursue a potential strategic transaction with the Company. None of the parties contacted entered into a confidentiality agreement with the Company or otherwise pursued a transaction that would be an alternative to the Merger. Now that the Go-Shop Period End Date has passed, the Company is not permitted to solicit potential bidders.

No Solicitation

The Company has also agreed that after the Go-Shop Period End Date, the Company will, and will cause each of the Company Subsidiaries and each of its and their Representatives to, immediately cease and cause to be terminated any existing solicitation of, or discussions or negotiations with, any Third Party (as defined in the Merger Agreement), other than Excluded Parties, relating to any Competing Transaction or any inquiry, discussion, offer or request that could reasonably be expected to lead to a Competing Transaction. Additionally, the Company will, as promptly as possible, request each Third Party (other than any Excluded Party) that has previously executed a confidentiality or similar agreement in connection with its consideration of a Competing Transaction to return to the Company or destroy any non-public information previously furnished or made available to such person or any of its Representatives by or on behalf of the Company or its Representatives in accordance with the terms of the confidentiality agreement in place with such person.

Pursuant to the Merger Agreement, “Superior Proposal” means: a written, bona fide offer that did not result from a breach of the Merger Agreement made by a person with respect to a Competing Transaction that the Conflicts Committee determines, in its good faith judgement (after (a) consultation with its financial advisor and outside legal counsel and (b) taking into consideration all terms and conditions relating to such offer, including all legal, financial, regulatory and other aspects of such offer, including the likelihood and timing of consummation thereof, the identity of the person or group making the offer and any revisions to Axar’s offer made or proposed in writing pursuant to the Merger Agreement), to be more favorable to the Company and the stockholders (other than the holders of the Excluded Shares) from a financial point of view than the Merger. For purposes of the definition of “Superior Proposal,” each reference to “10%” or “20%”, as the case may be, in the definition of “Competing Transaction” is replaced with “50%”. For a Competing Transaction to constitute a Superior Proposal: (i) such Competing Transaction must not be subject to a financing condition; (ii) the Conflicts Committee must have reasonably concluded that the Person making such offer has the financial wherewithal (together with up to $10,000,000 in cash of the Company) necessary to perform its obligations thereunder and to consummate the transactions contemplated thereby (including the financial wherewithal to comply and/or cause the Company to comply with its obligations under Section 5.14 of the Indenture (as such term is defined in the Merger Agreement) in connection therewith); and (iii) any financing required by such Person in connection with the Competing Transaction is then supported by financing commitments that, if executed in connection with definitive documentation for a transaction, would be sufficient for such purposes.

Table of Contents

Termination

The Merger Agreement contains certain termination rights for both the Company and Parent and Merger Sub. The Company will pay Parent a termination fee equal to 4% of the aggregate value of the Shares not owned by Axar Vehicles if: Parent terminates due to a Company breach of the Go-Shop or No Solicitation provisions; after the end of the Go-Shop Period, the Company terminates to enter into a Superior Proposal (as defined in the Merger Agreement) that Parent supports; or either party terminates, and, within six months thereafter, the Company enters into a Competing Transaction (as defined in the Merger Agreement) in which Axar participates. Further, the Company will pay Parent a 50% termination fee (i.e., equal to 2% of the aggregate value of the non-Axar shares) if: before the end of the Go-Shop Period, the Company terminates to enter into a Superior Proposal that Parent supports; or the Company terminates due to a Change in Company Recommendation in connection with an Intervening Event. No Termination Fee is payable if the Company terminates the Merger Agreement upon a change in recommendation in connection with a Superior Proposal that is not supported by Parent.

Co-Investments with Axar and its Affiliates

Investment in Shoe Retailer Debt Facility

In January 2020, the Company’s trusts completed the purchase of a $30 million participation in a new $70 million debt facility issued by a discount shoe retailer (the “Shoe Retailer”). Funds and accounts affiliated with Axar also invested $20 million in this facility. The investment was initially proposed by the Chairman of the Board, Mr. Axelrod. The investment was reviewed and approved in December 2019 in accordance with the Partnership’s governance policies in place at that time. At the time of the investment, the funds and accounts affiliated with Axar owned approximately 30% of the equity of the Shoe Retailer, and Mr. Axelrod served on the Shoe Retailer’s board of directors. The Company’s investment in the Shoe Retailer represented approximately 4% of the total fair market value of the Company’s trust assets when the investment was made.

Purchase of Nevada Company Shares

On March 9, 2021, the Company's trusts purchased an aggregate of 43,681,528 shares (the “Nevada Company Shares”) of common stock of a Nevada company whose primary assets now consist of cash and tax-related assets (the “Nevada Company”), representing approximately 27% of the outstanding common stock of the Nevada Company, from three private investment funds (the “Nevada Company Sellers”) for an aggregate cash purchase price of $18.0 million. Axar had originally agreed to acquire the Nevada Company Shares pursuant to a Securities Purchase Agreement dated December 31, 2020, among the Nevada Company Sellers and Axar (the “Nevada Company Purchase Agreement”). On February 1, 2021, pursuant to the Subadvisor Agreement described above, Axar recommended to Cornerstone that our trusts purchase the Nevada Company Shares. Pursuant to that recommendation, on February 4, 2021, Axar and our trusts entered into an Assignment and Assumption Agreement (the “Nevada Company Assignment Agreement”), pursuant to which Axar agreed to assign its rights under the Nevada Company Purchase Agreement to our trusts and our trusts agreed to assume Axar’s obligations thereunder. Axar did 0t receive any additional consideration from our trusts for this assignment and has represented to us that it did not receive any consideration for this assignment from any other person.

The Nevada Company Sellers and Axar entered into the Nevada Company Purchase Agreement while the Subadvisor Agreement was being finalized. Axar has informed us that it entered into the Nevada Company Purchase Agreement with the intention that our trusts would purchase the Nevada Company Shares directly from the Nevada Company Sellers. Axar has represented to Cornerstone that it is not, and at the time it entered into the Nevada Company Purchase Agreement was not, affiliated with any of the Nevada Company Sellers and did not control and was not an affiliate of Nevada Company at the time it executed the Nevada Company Purchase Agreement or when our trusts purchased the Nevada Company Shares. Axar has represented to us that, at the time the Nevada Company Purchase Agreement was signed and at all times thereafter until our trusts completed their purchase of the Nevada Company Shares, funds and accounts affiliated with Axar owned approximately 13.8% of Nevada Company’s outstanding common stock, and that Andrew Axelrod was elected to the board of directors of the Nevada Company on December 31, 2020.

Hotel Fund Loan Agreement

On May 17, 2021, the Company's trusts entered into a Loan Agreement with a hotel investor and developer and certain of its subsidiaries (collectively, the “Hotel Fund”), which was amended and restated on October 12, 2021 (such agreement, as so amended and restated, the “Hotel Fund Loan Agreement”) and subsequently amended on December 13, 2021, March 7, 2022 and April 19, 2022. Pursuant to the Hotel Fund Loan Agreement, our trusts provided a $33.2 million mezzanine loan to the Hotel

Table of Contents

Fund on May 19, 2021 as part of a $162.2 million loan facility originated by an unaffiliated loan fund. The participation by our trusts was based on the recommendation of Axar under the Subadvisor Agreement. As part of the same transaction, funds and other accounts affiliated with or managed by Axar loaned $10.0 million to the Hotel Fund on the same terms as the trusts’ loans, representing the balance of the $43.2 million mezzanine loan, and our trusts and the Axar funds and accounts each received an origination fee equal to 4% of their respective loan amounts. The principal amount of these loans is payable on October 12, 2023, subject to acceleration under the circumstances described in the Hotel Fund Loan Agreement, and bear interest at an adjustable rate equal to one-month LIBOR plus a spread. On February 15, 2022, the administrative agent for the lenders under the Hotel Fund Loan Agreement delivered a reservation of rights letter to the Hotel Fund with respect to the Hotel Fund’s apparent failure to comply with several covenants in the Hotel Fund Loan Agreement, none of which related to payment of amounts due to the lenders. As of June 30, 2022, the interest rate was 19.07%. In April 2022 in connection with an amendment of the Hotel Fund Loan Agreement pursuant to which Axar committed to provide an additional $4.5 million loan discretionary subfacility to the Hotel Fund (our trusts did not participate in this subfacility), Axar and our trusts agreed to have the interest payable on the mezzanine loan in April, May and June 2022 paid in kind. The terms of the subfacility are generally the same as the existing loan and are secured pari passu by the same collateral. An additional amendment, to extend the capitalization period through September 2022, is currently being negotiated. The prior amendments have also provided for the Hotel Fund's cooperation in a sale process of its real estate properties, the appointment of a chief administrative officer and the appointment of an independent financial advisor. Through June 30, 2022, the Company's trusts have received cash interest in the aggregate amount of $7.7 million on this loan from an interest and expense reserve account established for that purpose, and additional interest in the form of an additional $1.6 million in principal of the loan, collectively representing all interest payable to the Company’s trusts under the Hotel Fund Loan Agreement. The Hotel Fund owns its properties in subsidiaries, certain of which are subject to underlying financing arrangements. One of these financing arrangements is currently in default. The Hotel Fund is currently in the process of having its properties marketed for sale, either through brokers or through auction process, or is considering such steps or alternative steps (such as a refinancing in certain cases).

Holdco Loan Assignment

On September 27, 2021, our trusts entered into an Assignment and Acceptance Agreement (the “Holdco Loan Assignment”) with an insurance holding company (“Holdco”) and Holdco’s then current lender (the “Initial Lender”) pursuant to which the Initial Lender agreed to assign to our trusts all of its rights, duties and obligations under a Loan Agreement dated as of July 9, 2019 between the Initial Lender and Holdco (the “Holdco Loan Agreement”). The Initial Lender had previously declared Holdco in default under the terms of the Holdco Loan Agreement. At the closing of the transactions contemplated by the Holdco Loan Assignment on October 6, 2021, our trusts paid the Initial Lender $28.7 million in cash, which equaled the then outstanding principal balance of the loan under the Holdco Loan Agreement (the “Holdco Loan”). The Company was not affiliated with either Holdco or the Initial Lender and Axar has represented to Cornerstone that it did not control and was not an affiliate of either Holdco or the Initial Lender. Also on September 27, 2021, our trusts and Holdco entered into the First Amendment to Loan Agreement (the “Amended Holdco Loan Agreement”) pursuant to which, among other changes, the defaults asserted by the Initial Lender were waived and the interest rate on the Holdco Loan was increased from 10%, all of which had been payable in kind by increasing the principal balance of the loan, to 15%, of which 10% continued to be payable in kind and 5% was payable in cash. In addition, the Amended Holdco Loan Agreement accelerated the maturity of the Holdco Loan to the earliest of the first anniversary of the closing (subject to a six month extension at the request of Holdco with the consent of our trusts) and the occurrence of certain other events described further below. As of June 30, 2022, the interest rate on the Holdco Loan remained at 15%. Through June 30, 2022, the trusts have received cash interest in the aggregate amount of $1.6 million on the Holdco Loan and additional interest in the form of an increase in the principal balance of the Holdco Loan in the amount of $2.2 million, representing all interest payable to our trusts under the Amended Loan Agreement.

Also on September 27, 2021, Axar entered into a letter agreement with Holdco (the “Transaction Letter Agreement”) pursuant to which Holdco agreed, in order to induce Axar to enter into the Amended Holdco Loan Agreement, that it would, if requested by Axar, enter into an agreed-upon form of purchase agreement for the sale of the outstanding capital stock of its wholly-owned insurance company subsidiary (the “Holdco Subsidiary”) to Axar for a purchase price of $100 million, subject to certain conditions including completion by Axar of a customary due diligence investigation and regulatory approval of the transaction by the state insurance regulator. Recently, Axar advised us that the state insurance regulators had advised Axar that regulatory approval of the transaction between Axar and Holdco would not be granted because the contemplated purchase price included a $40 million note to be issued to Holdco, and, as a result, after further negotiations, that Holdco and Axar entered into a purchase agreement dated January 20, 2022, which provided for a cash purchase price of $75 million, less the outstanding amounts owed to our trusts under the Amended Holdco Loan Agreement and a fee that remained payable to the Initial Lender. Axar has advised us that the primary regulatory approval for the sale to Axar under the purchase agreement was received on July 25, 2022, but that other less material approvals remain outstanding. Because the Holdco Loan is secured by the stock of the Holdco Subsidiary, the Holdco Loan is required to be repaid in full upon the sale of the stock of the Holdco Subsidiary to Axar or any third party.

Table of Contents

The Amended Holdco Loan Agreement provides that the Holdco Loan is due and payable on the earliest of (a) October 6, 2022 (subject to a six-month extension as discussed above), (b) an election by Holdco not to proceed with the transaction contemplated by the Transaction Letter Agreement, (c) a breach by Holdco of any of its obligations under the Transaction Letter Agreement or any purchase agreement executed with respect to the sale of Holdco Subsidiary or (d) the consummation of the sale of Holdco Subsidiary to Axar.

Also on September 27, 2021, (i) our trusts and Holdco entered into a letter agreement pursuant to which Holdco has paid our trusts a fee of $500,000 (the “StoneMor Trusts Fee Letter Agreement”) and (ii) Axar and Holdco entered into an Expense Fee Letter pursuant to which Holdco agreed to pay Axar’s due diligence expenses of up to $630,000 (the “Expense Fee Letter Agreement”). Entrance of Holdco into both the Expense Fee Letter Agreement and the StoneMor Trusts Fee Letter Agreement were conditions to the effectiveness of the Amended Holdco Loan Agreement.

17.

SUBSEQUENT EVENTS

Note Purchase Agreement and Release

On July 20, 2022, the Company, Fortmore LLC (the “LLC”), certain affiliates (the “Fortress Purchasers”) of Fortress Capital Advisors LLC (“Fortress”) and certain holders of the Company’s 8.500% Senior Secured Notes due 2029 (the “Company Notes”) who were not affiliated with either the Company or Fortress (the “Sellers”) entered into a Note Purchase Agreement and Release (the “Purchase Agreement”) pursuant to which the LLC and the Fortress Purchasers (collectively, the “Purchasers”) agreed to purchase $100.0 million principal amount of Company Notes held by the Sellers for an aggregate purchase price equal to 100% of the principal amount thereof plus all accrued and unpaid interest thereon. The final settlement of the transactions contemplated by the Purchase Agreement occurred on July 26, 2022. The Fortress Purchasers collectively purchased $65.0 million of such Company Notes and the LLC purchased $35.0 million of such Company Notes.

On July 20, 2022, the Company and separate affiliates (the “Fortress Equity Entities”) of Fortress entered into an Amended and Restated LLC Agreement (the “Operating Agreement”) of the LLC. The LLC was capitalized for the purpose of acquiring and holding $35.0 million principal amount (the “LLC Notes”) of Company Notes pursuant to the Purchase Agreement. The Operating Agreement is described in more detail below.

The Sellers had raised certain issues based on disclosures included in Item 13 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, including issues relating to compliance by the Company with certain covenants under the Indenture dated as of May 11, 2021 pursuant to which the Company Notes were issued (the “Indenture”) and the adequacy of the disclosures by the Company in the offering materials pursuant to which the Company Notes were offered and sold. Throughout its discussion with the Sellers, the Company was and remains firmly convinced that there was no merit to the issues raised by the Sellers. However, in the interest of avoiding additional cost as well as distraction and disruption of its management, the Company agreed to facilitate the consummation of the transactions contemplated by the Purchase Agreement but does not intend to facilitate the purchase of other Company Notes in any similar transactions. In connection with closing under the Purchase Agreement, the Company also agreed to have its entire $42.7 million capital contribution to the LLC used as part of the purchase price paid to the Sellers and to reimburse the Sellers for certain legal fees. In consideration for the purchase of the Sellers’ Company Notes and the reimbursement of the Sellers’ legal fees, the Sellers acknowledged that there was no merit to the issues they had raised. The Sellers and the Company also exchanged mutual releases. In connection with the consummation of the transactions contemplated by the Purchase Agreement and the Operating Agreement, the Company expects to record debt extinguishment of $35.0 million on its balance sheet as of September 30, 2022 and an expense of approximately $7.15 million on its consolidated statement of operations for the quarter ending September 30, 2022.

LLC Operating Agreement

As noted above, on July 20, 2022, the Company and the Fortress Equity Entities entered into the Operating Agreement. In connection therewith, the Company contributed $42.7 million in cash in exchange for 100% of the Class B interests in the LLC and the Fortress Equity Entities contributed an aggregate of $10,000 in cash in exchange for 100% of the Class A interests in the LLC.

Table of Contents

The Operating Agreement provides that, so long as no Default or Event of Default (as such terms are defined in the Indenture) has occurred and is continuing, amounts received by the LLC in respect of the LLC Notes as (i) interest payments, (ii) any consent fee payments that may be payable pursuant to the Indenture or (iii) payments in connection with the redemption or purchase of the LLC Notes pursuant to the Indenture in excess of the principal amount of the LLC Notes so redeemed or purchased will be distributed to the Company as the sole holder of Class B interests (in such capacity, the “Class B Member”).

If any Fortress Notes (as hereinafter defined) are redeemed, retired, cancelled or exchanged or are otherwise no longer outstanding (subject to certain exceptions specified in the Operating Agreement), and the holders of such Fortress Notes do not receive payment of all principal, interest and fees payable thereon under the terms of the Indenture in connection with any such redemption, retirement, cancellation, exchange or other action, then any payments received by the LLC in respect of the LLC Notes will be distributed to the Fortress Equity Entities as the sole holders of Class A interests (in such capacity, the “Class A Members”), up to an amount equal to the excess of the amount of principal, interests and fees payable to the holders of such Fortress Notes under the Indenture in connection with any such redemption, retirement, cancellation, exchange or other action over the amount of principal, interest and fees received by such holders with respect to such Fortress Notes in connection with any such redemption, retirement, cancellation, exchange or other action.

For purposes of the Operating Agreement, “Fortress Notes” means all Company Notes held by Fortress and its affiliates as of the applicable date of determination. The Company anticipates that Fortress and its affiliates will collectively hold approximately $95.0 million in principal amount of Company Notes upon closing under the Purchase Agreement.

An affiliate of Fortress will be the sole manager of the LLC (the “Manager”) until the 91st day after the date on which no Fortress Notes remain outstanding and the LLC has made all distributions to the Class A Member as described above (the “Priority Payment Date”). Thereafter, the Company will become the sole Manager. Prior to the Priority Payment Date, the Manager is prohibited from taking or permitting the LLC to take certain fundamental actions specified in the Operating Agreement without the prior written consent of the Class B Member, which consent may not be unreasonably withheld, conditioned or delayed. On or after the Priority Payment Date, the LLC has the right to repurchase the Class A Members’ interests in the LLC for a purchase price equal to the initial capital contribution made with respect thereto.

The LLC and certain affiliates of the holders of the Fortress Notes separately entered into an Option and Repurchase Agreement on July 20, 2022 (the “Option Agreement”) under which (i) the LLC was granted an option to purchase up to $20 million in principal amount of Fortress Notes (the “Option”) for a purchase price equal to the sum of all accrued and unpaid interest thereon plus the greater of 100% of the principal amount of such Fortress Notes and the weighted average trading price for the Company Notes for the ten (10) consecutive trading days prior to exercise of the Option and (ii) the LLC was granted the option to purchase all outstanding Fortress Notes at any time prior to the Priority Payment Date during which the Notes Repurchase Condition (as hereinafter defined) is satisfied (the “Notes Repurchase Right”) for a purchase price equal to the amount that the Company would be required to pay to redeem such Fortress Notes under Section 3.07 of the Indenture (the “Notes Repurchase Price”). The “Notes Repurchase Condition” means that no distribution is required to be made to the Class A Member as described above and the LLC has available cash at least equal to the Notes Repurchase Price.

Under the Operating Agreement, the Class B Member has the right to make an additional capital contribution in an amount up to the Option Price and, if it does so, the LLC is obligated to exercise the Option to the extent of such contribution. At any time the Notes Repurchase Condition is satisfied and the Notes Repurchase Right is exercisable, the Class B Member has the right to instruct the LLC to exercise the Notes Repurchase Right and, if it does so, the LLC is obligated to exercise such Notes Repurchase Right.

Table of Contents

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

~~ITEM 2.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

Management’s discussion and analysis presented below provides information to assist in understanding the Company’s financial condition and results of operations and should be read in conjunction with the Company’s unaudited condensed consolidated financial statements included in Part I, Item 1 Financial Statements (Unaudited) of this Quarterly Report.

Certain statements contained in this Quarterly Report, including, but not limited to, information regarding our operating activities, the plans and objectives of our management and assumptions regarding our future performance and plans are forward-looking statements. When used in this Quarterly Report, the words “believes,” “anticipates,” “expects” and similar expressions are intended to identify forward-looking statements. Forward-looking statements are based on management’s expectations and estimates. These statements are neither promises nor guarantees and are made subject to certain risks and uncertainties that could cause actual results to differ materially from the results stated or implied in this Quarterly Report. We believe the assumptions underlying the unaudited condensed consolidated financial statements are reasonable.

Our primary risks include uncertainties regarding current business and economic disruptions resulting from the COVID-19 Pandemic, our substantial indebtedness, our ability to identify and negotiate acceptable agreements with sellers and purchasers of additional properties, the cash flow from our pre-need and at-need sales, trusts and financings, which may impact our ability to meet our financial projections and service our debt, as well as with our ability to maintain an effective system of internal control over financial reporting including effective disclosure controls and procedures.

Our risks and uncertainties are more particularly described in Part I, Item 1A. Risk Factors of our Annual Report and in Part II, Item 1A of this Quarterly Report. Readers are cautioned not to place undue reliance on forward-looking statements included in this Quarterly Report, which speak only as of the date the statements were made. Except as required by applicable laws, we undertake no obligation to update or revise forward-looking statements, whether as a result of new information, future events or otherwise.

We are one of the leading providers of funeral and cemetery products and services in the death care industry in the United States (“U.S.”). As of June 30, ~~2021,~~2022, we operated ~~301~~304 cemeteries in 24 states and Puerto Rico, of which ~~271~~275 were owned and 3029 were operated under leases, operating agreements or management agreements. We also owned, operated or managed 7072 funeral homes in 15 states and Puerto Rico.

Our revenue is derived from our Cemetery Operations and Funeral Home Operations segments. Our Cemetery Operations segment principally generates revenue from sales of interment rights, cemetery merchandise, which includes markers, bases, vaults, caskets and cremation niches and our cemetery services, which include opening and closing services, cremation services and fees for the installation of cemetery merchandise. Our Funeral Home Operations segment principally generates revenue from sales of funeral home merchandise, which includes caskets and other funeral related items and service revenues, which include services such as family consultation, the removal of and preparation of remains and the use of funeral home facilities for visitation and prayer services. These sales occur both at the time of death, which we refer to as at-need and prior to the time of death, which we refer to as pre-need. Our Funeral Home Operations segment also include revenues related to the sale of term and whole life insurance on an agency basis, in which we earn a commission from the sales of these insurance policies.

The pre-need sales enhance our financial position by providing a backlog of future revenue from both trust and insurance-funded pre-need funeral and cemetery sales. We believe pre-need sales add to the stability and predictability of our revenues and cash flows. Pre-need sales are typically sold on an installment plan. While revenue on the majority of pre-need funeral sales is deferred until the time of need, sales of pre-need cemetery property interment rights provide opportunities for full current revenue recognition when the property is available for use by the customer.

We also earn investment income on certain payments received from customers on pre-need contracts, which are required by law to be deposited into our merchandise and service trusts. Amounts are withdrawn from our merchandise and service trusts when we fulfill the performance obligations. Earnings on these trust funds, which are specifically identifiable for each performance obligation, are also included in the total transaction price. For sales of interment rights, a portion of the cash proceeds received are required to be deposited into a perpetual care trust. While the principal balance of the perpetual care trust must remain in the trust in perpetuity, we recognize investment income on such assets as revenue, excluding realized gains and losses from the sale of trust assets. Pre-need contracts are subject to financing arrangements on an installment basis, with a contractual term not to

exceed 60 months. Interest income is recognized utilizing the effective interest method. For those contracts that do not bear a market rate of interest, we impute such interest based upon the prime rate at the time of origination plus 150 basis points in order to segregate the principal and interest components of the total contract value.

Our revenue depends upon the demand for funeral and cemetery services and merchandise, which can be influenced by a variety of factors, some of which are beyond our control including demographic trends, such as population growth, average age, death rates and number of deaths. Our operating results and cash flows could also be influenced by our ability to remain relevant to the customers. We provide a variety of unique product and service offerings to meet the needs of our customers’ families. The mix of services could influence operating results, as it influences the average revenue per contract. Expense management, which includes controlling salaries, merchandise costs, corporate overhead and other expense categories, could also impact operating results and cash flows. Lastly, economic conditions, legislative and regulatory changes and tax law changes, all of which are beyond our control, could impact our operating results and cash flows.

For further discussion of our key operating metrics, see our Results of Operations and Liquidity and Capital Resources sections below.

The following are key events and transactions that have occurred during ~~2021~~2022 that were material to us and/or facilitate an understanding of our unaudited condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q:

~~Our top priority is~~On March 1, 2022, we acquired one funeral home in Florida for cash consideration of $1.7 million, subject to customary working capital adjustments, pursuant to a definitive agreement signed on March 1, 2022 with MacDonald Funeral Home & Cremation, Inc.

On March 15, 2022, we acquired one combination cemetery and funeral home, a separate cemetery and a separate funeral home in West Virginia for cash consideration of $11.3 million, subject to customary working capital adjustments, pursuant to a definitive agreement signed on February 4, 2022 with Roselawn Acquisition Group LLC, Monte Vista Park LLC, CPJ LLC, and WV Memorial Properties LLC.

On May 24, 2021, we completed the Missouri Sale for a total cash price of ~~our employees~~$0.7 million, resulting in a loss on sale of $1.7 million for the three and six months ended June 30, 2021.

Like most businesses world-wide, the COVID-19 Pandemic has impacted us financially. At the start of the COVID-19 Pandemic in early 2020, we saw our pre-need sales and at-need sales activity decline as Americans practiced social distancing and crowd size restrictions were put in place. However, since May 2020, we have experienced at-need sales growth, and since late 2020, ~~it has~~we have experienced pre-need sales growth. We believe the implementation of our virtual meeting tools isearly on in the COVID-19 Pandemic was one of several key steps to mitigate this disruption. Throughout the COVID-19 Pandemic, our cemeteries and funeral homes have largely remained open and available to serve our families in all the locations in which we operate to the extent permitted by local authorities, ~~with the exception of Puerto Rico,~~ and we expect that this will continue. ~~The Company has~~We have leveraged the relationships ~~it has~~we have made with the families ~~it has~~we have served during ~~its~~our response to the COVID-19 Pandemic, which has directly resulted in new sales leads and ~~increased~~the increase in pre-need sales activity. In addition, as community restrictions have eased and the COVID-19 vaccine became ~~more~~widely available, ~~the Company has~~we have experienced ~~record~~ growth in ~~its~~our pre-need cemetery ~~sales. However, we had experienced limited location closures due to COVID-19 cases, required quarantines and cleanings. During the year ended December 31, 2020, we incurred costs~~sales, see “Results of ~~approximately $1.0 million related to the implementation of prescribed safety protocols related to the COVID-19 Pandemic.~~Operations” below.

We expect the COVID-19 Pandemic could have an adverse effect on our future results of operations and cash flows depending on COVID-19 variants and ~~increased~~ case counts. However we cannot presently predict, with certainty, the ~~likely~~ scope and severity of that impact. ~~We may incur additional costs related to the implementation of prescribed safety protocols related to the COVID-19 Pandemic.~~ In the event there are confirmed diagnoses of COVID-19 within a significant number of our facilities, we may incur additional costs related to the closing and subsequent cleaning of these facilities and the ability to adequately staff the impacted sites. In addition, our pre-need customers with installment contracts could default on their installment contracts due to lost work or other financial stresses arising from the COVID-19 Pandemic.

~~In connection with these changes, we are now using our own equipment to service these locations and rehired~~ the ~~employees Moon had hired from us upon execution of the MSAs. These employees will~~event that COVID-19 case counts continue to ~~provide certain grounds services for us at these locations using the equipment previously leased~~normalize and variants become less severe, we would expect to Moon. We are outsourcing substantially all of the landscaping and other maintenance services previously provided by Moon at these locations to other vendors who had previously been subcontractors to Moon. We do not anticipate that these changes will have any material impact on the cost of providing the services compared to the amounts due to Moon under the MSAs.

~~From time to time, on the behalf of Moon, we incurred~~see a higher level of expenses relating to services covered by the MSAs, including location materials and supplies, uniforms, repair of marker damage, customer refunds and payments to third party landscapers and repair shops. These additional payments, which were in addition to the payments specifiedreduction in the ~~MSAs, were recorded~~demand for at-need products and services as ~~cemetery operating expenses~~well as a reduction in ~~the relevant periods and as of June 30, 2021 aggregated $5.2 million. We have the ability~~pre-need turning to ~~seek reimbursement from Moon for these additional payments as outlined in the MSAs.~~at-need.

On August 12, 2021, Moon and certain of its affiliates filed a petition under Chapter 11 of Title 11 of the United States Code in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). As a result of this filing, we will not be able to exercise our right to take back additional properties or otherwise modify the terms of or seek to enforce its MSAs with Moon, including finalizing arrangements to seek the reimbursement of additional payments, absent Moon’s consent and/or approval of the Bankruptcy Court. Management believes the impact on the Company of Moon’s bankruptcy filing has been partially mitigated because we have taken back the responsibilities under the MSAs for the locations noted above. However, given the uncertainty associated with the bankruptcy proceedings and the locations for which Moon will continue to be responsible under the MSAs, it is possible that we may experience disruptions in operations at those locations, particularly if it becomes necessary for us to assume the responsibility for servicing those locations in the near future on relatively short notice. In addition, we expect that we will incur additional expenses relating to services covered by the MSAs. If Moon is unable to obtain appropriate financing and have a plan of reorganization confirmed by the Bankruptcy Court, we would likely not be able to obtain reimbursement of any of the additional payments we have made or may hereafter make on Moon’s behalf under the MSAs. We expect that disruptions, if any, will not have a material adverse effect on our overall business given the number of locations for which we are responsible and our previous relationships, which were established before the transfer of responsibilities to Moon. We are closely monitoring the overall situation.

On April 2, 2021, we completed the Clearstone Sale for a net cash purchase price of $6.2 million, subject to certain adjustments. We redeemed an additional $6.7 million of principal amount of the 2024 Notes in accordance with the terms of the 2024 Indenture. The Clearstone Agreement to sell the Clearstone Assets, together with the other divestitures completed in 2020, represented a strategic exit from the West Coast. Therefore, the results of operations of the Clearstone Assets, and of the businesses sold in 2020 for the period before their respective sales, have been presented as discontinued operations on the accompanying consolidated statements of operations for the six months ended June 30, 2021 and the three and six months ended June 30, 2020. Additionally, all of the assets and liabilities associated with the Clearstone Assets have been classified as held for sale on the accompanying consolidated balance sheets at December 31, 2020.

We expect our business to be affected by key trends in the death care industry, based upon assumptions made by us and information currently available. Death care industry factors affecting our financial position and results of operations include, but are not limited to, death rates, per capita disposable income, demographic trends in terms of number of adults aged 65 and older, cremation rates and trends and e-commerce sales. In addition, we are subject to fluctuations in the fair value of equity and fixed-maturity debt securities held in our trusts. These values can be negatively impacted by contractions in the credit market and overall downturns in economic activity. Our ability to make payments on our debt depends on our success at managing operations with respect to these industry trends. To the extent our underlying assumptions about or interpretations of available information prove to be incorrect, our actual results may vary materially from our expected results.

Our management identified key areas of strategic improvement as part of its turnaround strategy in 2018, which has allowed us to realize upside in our operational and financial performance. The key pillars of the turnaround strategy included:

We are poised to execute on a targeted, long-term growth strategy to reduce leverage and increase the sustainability of our operations. We have identified the following pathway to additional growth:

During the second quarter of 2022, we began to experience modest cost increases from our vendors on merchandise and goods due to the broader inflationary environment and global supply chain issues, and we expect these impacts to continue through the end of the year. The U.S. economy has recently experienced an increase in the rate of inflation, which has impacted many industries and sectors, causing consumers to face rising prices. This inflationary environment may negatively impact consumers and discretionary spending. We will continue to assess these impacts and take the appropriate steps, if necessary, to mitigate these cost increases, if possible.

We have two distinct reportable segments, Cemetery Operations and Funeral Home Operations, which are supported by corporate costs and expenses.

We are currently the one of the largest owners and operators of cemeteries in the U.S. As of June 30, ~~2021,~~2022, we operated ~~301~~304 cemeteries in 24 states and Puerto Rico. We owned ~~271~~275 of these cemeteries, and we managed or operated the remaining 3029 under leases, operating agreements or management agreements. Revenues from our Cemetery Operations segment accounted for approximately ~~87%~~88% and ~~86%~~87% of our total revenues for the three and six months ended June 30, ~~2021,~~2022, respectively.

Three Months Ended June 30, ~~2021~~2022 Compared to Three Months Ended June 30, ~~2020~~2021

The following tables present operating results for our Cemetery Operations segment for the three months ended June 30, ~~2021~~2022 and ~~2020~~2021 (in thousands):


	Three Months Ended June 30,										Three Months Ended June 30,
					Variance										Variance
	2021		2020		$			%			2022		2021		$			%
Interments	$	22,906	$	16,467	$	6,439			39	%	$	22,136	$	22,906	$	(770	)		(3	%)
Merchandise		17,787		14,591		3,196			22	%		19,744		17,787		1,957			11	%
Services		17,698		16,551		1,147			7	%		18,370		17,698		672			4	%
Interest income		2,261		1,612		649			40	%		1,742		2,261		(519	)		(23	%)
Investment and other		11,476		7,642		3,834			50	%		8,462		11,476		(3,014	)		(26	%)
Total revenues		72,128		56,863		15,265			27	%		70,454		72,128		(1,674	)		(2	%)
Cost of goods sold		12,435		9,269		3,166			34	%		12,519		12,435		84			1	%
Cemetery expense		18,090		17,229		861			5	%		21,634		18,090		3,544			20	%
Selling expense		14,776		12,206		2,570			21	%		17,289		14,776		2,513			17	%
General and administrative expense		10,650		9,130		1,520			17	%		12,250		10,650		1,600			15	%
Depreciation and amortization		1,505		1,606		(101	)		(6	%)		1,423		1,505		(82	)		(5	%)
Total costs and expenses		57,456		49,440		8,016			16	%		65,115		57,456		7,659			13	%
Segment operating profit	$	14,672	$	7,423	$	7,249			98	%	$	5,339	$	14,672	$	(9,333	)		(64	%)

Cemetery interments revenues were $22.1 million for the three months ended June 30, 2022, a decrease of $0.8 million and 3% from $22.9 million for the three months ended June 30, ~~2021, an increase~~2021. The decrease resulted primarily from a decrease in pre-need revenues of ~~$6.4~~$0.6 million and ~~39% from $16.5~~a decrease in at-need revenues of $0.3 million compared to the prior year period which experienced overall revenue growth attributable to the COVID-19 Pandemic. These decreases were offset by a $0.1 million increase due to lower cancellations and promotional discounts.

Cemetery merchandise revenues were $19.7 million for the three months ended June 30, 2020. The increase resulted primarily from an increase in pre-need revenues of $6.3 million due to improved productivity of the salesforce. At-need revenues declined $0.2 million or 4% versus the prior year. Additionally, there was2022, an increase of ~~$0.3~~$2.0 million ~~associated with reduced cancellations~~ and ~~promotional discounts.~~

~~Cemetery merchandise revenues were~~11% from $17.8 million for the three months ended June 30, ~~2021,~~2021. The increase resulted primarily from a $1.2 million increase in pre-need turning at-need revenues and an increase in at-need revenues of ~~$3.2 million and 22% from $14.6~~$$0.7 million.

Cemetery service revenues were $18.4 million for the three months ended June 30, ~~2020. The increase resulted primarily from a $2.2 million increase in at-need revenues and a $0.6 million increase in pre-need turned at-need revenues. These increases were primarily associated~~

~~with delivery of markers and bases, including those deliveries previously delayed due to the COVID-19 Pandemic. Additionally, there was~~2022, an increase of ~~$0.4~~$0.7 million ~~associated with reduced cancellations~~ and ~~promotional discounts.~~

~~Cemetery service revenues were~~4% from $17.7 million for the three months ended June 30, ~~2021, an increase of $1.1 million and 7% from $16.6 million for the three months ended June 30, 2020.~~2021. The increase resulted from a ~~$0.8~~$0.4 million increase in pre-need turned at-need revenues and a ~~$0.1~~$0.3 million increase in at-need revenues. These increases were primarily associated with the installation of markers, including those previously delayed due to the COVID-19 Pandemic. Additionally, there was an increase of $0.2 million associated with reduced cancellations and promotional discounts.

Investment and other income was $8.5 million for the three months ended June 30, 2022, a decrease of $3.0 million and 26% from $11.5 million for the three months ended June 30, ~~2021,~~2021. The decrease was driven by a decrease in investment income associated with the perpetual care trust of $4.0 million, a decrease of $0.6 million in other income and a decrease of $0.5 million in RIA fees earned. These decreases were offset in part by an increase in investment income associated with the merchandise trust of ~~$3.8 million and 50% from $7.6~~$2.1 million.

Cost of goods sold was $12.5 million for the three months ended June 30, ~~2020. The~~2022, an increase ~~was driven primarily by a $2.4~~of $0.1 million ~~increase in income associated with the perpetual care trust, a $1.7 million increase in RIA fees earned~~ and $0.2 million in other miscellaneous revenue, partially offset by a $1.0 million in merchandise trust income. Additionally, during the second quarter of 2021, there was a $0.5 million sale of excess cemetery land that contributed to this increase.

~~Cost of goods sold was~~1% from $12.4 million for the three months ended June 30, ~~2021, an increase of $3.2 million and 34% from $9.3 million for the three months ended June 30, 2020.~~2021. As a percentage of cemetery revenue, cost of goods sold ~~increased~~was 17.8% for the three months ended June 30, 2022, compared to 17.2% ~~from 16.3% due to~~for the ~~increased revenue recognized on markers, which carry a higher cost to revenue ratio.~~three months ended June 30, 2021.

Cemetery expenses were $21.6 million for the three months ended June 30, 2022, an increase of $3.5 million and 20% from $18.1 million for the three months ended June 30, ~~2021,~~2021. The increase was due to a $2.4 million increase in repairs and maintenance expense as well as an increase of ~~$0.9~~approximately $1.1 million ~~and 5% from $17.2~~in general expenditures, including costs associated with cemetery maintenance which had previously been outsourced to Moon.

Selling expenses were $17.3 million for the three months ended June 30, ~~2020. The~~2022, an increase ~~was due to ancillary costs associated with the transition~~ of ~~cemetery maintenance to Moon, coupled with a $0.4~~$2.5 million ~~increase in repairs~~ and ~~maintenance expense.~~

~~Selling expenses were~~17% from $14.8 million for the three months ended June 30, 2021. As a percentage of cemetery revenue, selling expenses increased to 24.5% for the three months ended June 30, 2022 from 20.5% for the three months ended June 30, 2021, anand included a $1.5 million increase ~~of $2.6~~in marketing and advertising expense and a $0.6 million increase in payroll expenses.

General and ~~21% from $12.2~~administrative expenses were $12.3 million for the three months ended June 30, ~~2020. As a percentage~~2022, an increase of ~~cemetery revenue, selling expenses decreased to 20.5%~~$1.6 million and 15% from ~~21.5%, notwithstanding a $0.5 million increase in marketing and advertising expense.~~

~~General and administrative expenses were~~ $10.7 million for the three months ended June 30, ~~2021, an~~2021. The increase was primarily the result of ~~$1.5~~a $1.4 million increase in payroll and ~~17% from $9.1~~related costs, a $0.3 million increase in legal fees and a $0.1 million increase in insurance costs. These increases were offset by a $0.2 million decrease in other miscellaneous expenses.

Depreciation and amortization expenses were $1.4 million for the three months ended June 30, ~~2020. The increase was primarily the result~~2022, a decrease of ~~a $0.7~~$0.1 million ~~increase in insurance expense~~ and a $0.3 million increase in payroll costs associated with enhanced bonus program for general managers and regional administration that has resulted in improved operating margin and $0.5 million in miscellaneous expenditures.

~~Depreciation and amortization expenses were~~5% from $1.5 million for the three months ended June 30, ~~2021, a decrease of $0.1 million and 6% from $1.6 million for the three months ended June 30, 2020.~~2021. The decrease was due to routine depreciation and amortization of the associated asset ~~base~~base..

Six Months Ended June 30, ~~2021~~2022 Compared to Six Months Ended June 30, ~~2020~~2021

The following tables present operating results for our Cemetery Operations segment for the six months ended June 30, ~~2021~~2022 and ~~2020~~2021 (in thousands):

Cemetery interments revenues were $43.3 million for the six months ended June 30, 2022, a decrease of $0.1 million and 0% from $43.4 million for the six months ended June 30, ~~2021,~~2021. The decrease resulted from a decrease in at-need revenues of $0.7 million primarily related to a decline in death rates compared to the prior year period which was impacted by the COVID-19 Pandemic, which was partially offset by an increase in pre-need revenues of $0.2 million and an increase of ~~$12.2~~$0.4 million associated with a decrease in cancellations and ~~39% from $31.2~~promotional discounts.

Cemetery merchandise revenues were $34.6 million for the six months ended June 30, ~~2020. The increase resulted from~~2022, an increase ~~in pre-need revenues~~ of ~~$11.2~~$0.5 million ~~due to improved productivity of the salesforce~~ and an increase in at-need revenues of $1.1 million primarily related to the COVID-19 Pandemic for which there were no such revenues in the prior year, offset by an increase in cancellations and promotional discounts of $0.1 million.

~~Cemetery merchandise revenues were~~2% from $34.1 million for the six months ended June 30, ~~2021,~~2021. The increase resulted from a $1.1 million increase in pre-need turning at-need revenues and an increase of ~~$5.1~~$0.1 million associated with a decline in cancellations and promotional discounts. These increases were partially offset by a decrease of $0.6 million in at-need revenues.

Cemetery service revenues were $35.2 million for the six months ended June 30, 2022, an increase of $0.2 million and ~~18%~~1% from $35.0 million for the six months ended June 30, 2021. The increase resulted from a $0.2 million increase in pre-need turning at-need revenues and an increase of $0.1 million associated with a decline in cancellations and promotional discounts.

Investment and other income was $23.3 million for the six months ended June 30, 2022, an increase of $1.2 million and 5% from $22.2 million for the six months ended June 30, 2021. The increase resulted from increases of $3.2 million in investment income associated with the merchandise trust, $0.4 million in RIA fees earned and $0.4 million in other income. These increases were offset in part by a decrease in investment income associated with the perpetual care trust of $2.8 million.

Cost of goods sold was $24.1 million for the six months ended June 30, 2022, an increase of $0.4 million and 2% from $23.6 million for the six months ended June 30, 2021. As a percentage of cemetery revenue, cost of goods sold was 17.2% for the six months ended June 30, 2022, compared to 17.0% for the six months ended June 30, 2021.

Cemetery expenses were $43.8 million for the six months ended June 30, 2022, an increase of $7.6 million and 21% from $36.3 million for the six months ended June 30, 2021. The increase was due to a $4.1 million increase in repairs and maintenance expense as well as an increase of approximately $4.0 million in general expenditures, including costs associated with cemetery maintenance which had previously been outsourced to Moon. These increases were offset partially by a $0.5 million decrease in real estate taxes.

Selling expenses were $32.9 million for the six months ended June 30, 2022, an increase of $3.9 million and 13% from $29.0 million for the six months ended June 30, ~~2020. The increase resulted~~2021. As a percentage of cemetery revenue, selling expenses increased to 23.5% for the six months ended June 30, 2022 from ~~an increase of $4.1~~20.8% for the six months ended June 30, 2021, and included a $3.0 million ~~in at-need revenues and an~~ increase in ~~pre-need turning at-need revenues of~~marketing and advertising expense and a $0.9 million ~~both of which~~increase in payroll expenses.

General and administrative expenses were ~~positively impacted by increased burial rates associated with the COVID-19 Pandemic. Additionally, there was a decrease in cancellations and promotional discounts of $0.1 million.~~

~~Cemetery service revenues were $35.0~~$23.0 million for the six months ended June 30, ~~2021,~~2022, an increase of ~~$3.4~~$2.2 million and ~~11%~~10% from $31.6 million for the six months ended June 30, 2020. The increase resulted from an increase of $1.8 million in at-need revenues and an increase in pre-need turning at-need revenues of $1.4 million, both of which were positively impacted by the increased burial rates associated with the COVID-19 Pandemic. Additionally, there was a decrease in cancellations and promotional discounts of $0.2 million.

Investment and other income was $22.2 million for the six months ended June 30, 2021, an increase of $5.9 million and 36% from $16.2 million for the six months ended June 30, 2020. The increase was driven primarily by a $4.1 million increase in income associated with the perpetual care trust, a $1.2 million increase in RIA fees earned and $0.7 million in other miscellaneous revenue, partially offset by a $0.6 million decrease in merchandise trust income. Additionally, during the second quarter of 2021, there was a $0.5 million sale of excess cemetery land that contributed to this increase.

Cost of goods sold was $23.6 million for the six months ended June 30, 2021, an increase of $4.9 million and 26% from $18.7 million for the six months ended June 30, 2020. As a percentage of cemetery revenue, cost of goods sold increased to 17.0% from 16.7%.

Cemetery expenses were $36.3 million for the six months ended June 30, 2021, an increase of $2.1 million and 6% from $34.2 million for the six months ended June 30, 2020. The increase was due to ancillary costs associated with the transition of cemetery maintenance to Moon, coupled with a $0.6 million increase in repairs and maintenance expense and $0.2 million increase in real estate taxes.

Selling expenses were $29.0 million for the six months ended June 30, 2021, an increase of $4.7 million and 19% from $24.3 million for the six months ended June 30, 2020. As a percentage of cemetery revenue, selling expenses decreased to 20.8% from 21.7%, notwithstanding a $0.7 million increase in marketing and advertising expense.

~~General and administrative expenses were~~ $20.8 million for the six months ended June 30, ~~2021, an~~2021. The increase was primarily the result of ~~$2.2~~a $1.1 million increase in payroll and ~~12% from $18.6~~related expenses, a $0.6 million increase in legal fees, a $0.3 million increase in insurance costs and a $0.2 million increase in other miscellaneous expenses.

Depreciation and amortization expenses were $2.9 million for the six months ended June 30, ~~2020. The increase was primarily the result~~2022, a decrease of ~~a $1.2~~$0.2 million ~~increase in insurance expense~~ and a $0.5 million increase in payroll costs associated with enhanced bonus program for general managers and regional administration that has resulted in improved operating margins and $0.5 million in miscellaneous expenditures.

~~Depreciation and amortization expenses were~~7% from $3.1 million for the six months ended June 30, ~~2021, a decrease of $0.2 million and 5% from $3.3 million for the six months ended June 30, 2020.~~2021. The decrease was due to routine depreciation and amortization of the associated asset ~~base~~base..

As of June 30, ~~2021,~~2022, we owned, operated or managed 7072 funeral homes. These properties were located in 15 states and Puerto Rico. Revenues from Funeral Home Operations accounted for approximately ~~13%~~12% and ~~14%~~13% of our total revenues for the three and six months ended June 30, ~~2021,~~2022, respectively.

Three Months Ended June 30, ~~2021~~2022 Compared to Three Months Ended June 30, ~~2020~~2021

The following tables present operating results for our Funeral Home Operations for the three months ended June 30, ~~2021~~2022 and ~~2020~~2021 (in thousands):

Funeral home merchandise revenues were $5.0 million for the three months ended June 30, 2022, a decrease of $0.4 million and 8% from $5.4 million for the three months ended June 30, ~~2021, an~~2021. The decrease resulted from a $0.5 million decrease in at-need revenues, partially offset by a $0.1 million increase ~~of $0.6 million and 13% from $4.8~~in pre-need turned at-need revenue.

Funeral home services revenues were $4.6 million for the three months ended June 30, ~~2020. The increase resulted from a $0.6 million increase in at-need revenues partially offset by a $0.2 million decrease in pre-need turned at-need revenue. Additionally, there was~~2022, a decrease ~~in cancellations~~ of ~~$0.2 million.~~

~~Funeral home services revenues were~~$0.9 million and 16% from $5.4 million for the three months ended June 30, ~~2021, an increase of~~2021. The decrease was primarily due to a $0.5 million decrease in income recognized on the merchandise trust, a $0.3 million decrease in at-need revenues and ~~10% from $4.9~~a $0.3 million decrease in other funeral home revenues, offset partially by a $0.2 million increase in pre-need turned at-need revenues.

Funeral home expenses were $9.7 million for the three months ended June 30, ~~2020. The~~2022, an increase ~~was associated primarily with a $0.6~~of $0.1 million ~~increase in income recognized on merchandise trust, a $0.3 million increase in other revenues~~ and ~~a $0.3 million increase in cancellations, offset by a $0.4 million decrease in pre-need turned at-need revenues and a $0.3 million decrease in at-need revenues.~~

~~Funeral home total expenses were~~1% from $9.6 million for the three months ended June 30, ~~2021, an increase of $0.9 million and 10% from $8.7 million for the three months ended June 30, 2020. Funeral home merchandise costs increased $0.1 million or 8%.~~2021. Funeral home services costs increased $0.2 million, partially offset by a $0.1 million ~~or 1%. Other~~decrease in funeral home ~~expenses increased $0.7 million, primarily driven by increases in costs associated with insurance and repairs and maintenance.~~merchandise costs.

Six Months Ended June 30, ~~2021~~2022 Compared to Six Months Ended June 30, ~~2020~~2021

The following tables present operating results for our Funeral Home Operations for the six months ended June 30, ~~2021~~2022 and ~~2020~~2021 (in thousands):

Funeral home merchandise revenues were $11.1 million for the six months ended June 30, 2022, a decrease of $0.3 million and 3% from $11.4 million for the six months ended June 30, ~~2021,~~2021. The decrease was due to a $0.4 million decrease in at-need revenues, partially offset by an increase of ~~$1.2~~$0.1 million ~~and 12% from $10.2~~in pre-need turned at-need revenues.

Funeral home services revenues were $10.0 million for the six months ended June 30, ~~2020. The increase resulted from a $0.9 million increase in at-need revenues and a $0.2 million increase in pre-need turned at-need revenue. Additionally, there was~~2022, a decrease ~~in cancellations~~ of ~~$0.1 million.~~

~~Funeral home services revenues were~~$0.8 million and 7% from $10.8 million for the six months ended June 30, ~~2021, an~~2021. The decrease was primarily due to a $0.4 million decrease in at-need revenues, a $0.3 million decrease in income recognized on the merchandise trust and a $0.2 million decrease in other funeral home revenues, offset partially by a $0.1 million increase ~~of $0.9 million and 9% from $9.8~~in pre-need turned at-need revenues.

Funeral home expenses were $19.9 million for the six months ended June 30, ~~2020. The~~2022, an increase ~~was associated primarily with a $0.6~~of $0.5 million ~~increase in income recognized on merchandise trust, a $0.6 million increase in other revenues~~ and ~~a $0.2 million increase in cancellations, offset by a $0.4 million decrease in pre-need turned at-need revenues and a $0.1 million decrease in at-need revenues.~~

~~Funeral home expenses were~~5% from $19.4 million for the six months ended June 30, ~~2021, an increase of $1.7 million and 11% from $17.7 million for the six months ended June 30, 2020. Funeral home merchandise costs increased $0.4 million or 16%.~~2021. Funeral home services costs increased $0.3 million or 4%3%. Other funeral home expenses increased ~~$1.0~~$0.3 million, primarily driven by increases in costs associated with ~~insurance and~~ repairs and ~~maintenance.~~maintenance, cremations and insurance. These increases were partially offset by a decrease in funeral home merchandise costs of $0.1 million or 4%.

Three Months Ended June 30, ~~2021~~2022 Compared to Three Months Ended June 30, ~~2020~~2021

Corporate overhead expense was $12.8 million for the three months ended June 30, 2022, an increase of $3.3 million and 34% from $9.5 million for the three months ended June 30, ~~2021, an increase of $0.8 million and 9% from $8.8 million for the three months ended June 30, 2020.~~2021. The increase was primarily related to a ~~$0.4~~$1.6 million increase in ~~corporate payroll, which included bonus accruals,~~non-legal professional fees, a ~~$0.3~~$1.5 million increase in ~~corporate insurance, a $0.3 million increase in IT related expenses, a $0.2 million increase in stock compensation expense~~legal fees and a $0.2 million increase in ~~miscellaneous expenditures. These increases were offset by a $0.6 million decrease in professional fees.~~payroll and related expenses.

For the three months ended June 30, 2022, we recorded a loss of $43,000 in connection with the Rhode Island Sale in April 2022. For the three months ended June 30, 2021, we recorded a loss of $2.2 million which consisted of a loss of $1.7 million in connection with the Missouri Sale in May 2021 and an impairment of $0.5 million related to property and equipment held for sale. ~~For~~

Interest expense was $9.3 million for the three months ended June 30, ~~2020, there were no such transactions.~~

~~Interest expense was~~2022, a decrease of $0.7 million and 7% from $10.0 million for the three months ended June 30, ~~2021, a decrease of $1.8 million and 15% from $11.7 million for the three months ended June 30, 2020.~~2021. The change was ~~primarily~~ due to a decrease of ~~$1.4~~$0.4 million related to a lower interest rate on the 2029 ~~Notes.~~Notes compared to the 2024 Notes and a decrease of $0.3 million due to lower amortization of deferred financing fees.

For the three months ended June 30, 2022, there was no loss on debt extinguishment. For the three months ended June 30, 2021, we recorded a loss of $40.1 million related to the full redemption of the 2024 Notes, which was comprised of an early redemption fee of $18.5 million and the write-off of deferred financing fees and original issue discount of $21.6 million. ~~For~~

Income tax expense was $0.2 million for the three months ended June 30, ~~2020, there was no loss on debt extinguishment.~~

~~Income~~2022, compared to an income tax benefit ~~was~~of $9.7 million for the three months ended June 30, ~~2021, compared to $3.5 million~~2021. The income tax expense for the three months ended June 30, ~~2020.~~2022 was primarily due to our inability to offset deferred tax benefits related to net operating losses against long life deferred tax liabilities for federal and state purposes. The income tax benefit for the three months ended June 30, 2021 was primarily due to the loss from continuing operations. ~~The income tax benefit for the three months ended June 30, 2020 was primarily related to changes in projected state deferred tax savings related to consolidated state filings.~~

Six Months Ended June 30, ~~2021~~2022 Compared to Six Months Ended June 30, ~~2020~~2021

Corporate overhead expense was $24.6 million for the six months ended June 30, 2022, an increase of $5.5 million and 29% from $19.1 million for the six months ended June 30, ~~2021, an increase of $1.8 million and 11% from $17.3 million for the six months ended June 30, 2020.~~2021. The increase was primarily related to a ~~$0.9~~$2.2 million increase in ~~corporate~~non-legal professional fees, a $1.5 million increase legal fees, a $0.8 million increase in acquisition related costs, a $0.4 million increase in payroll ~~which included bonus accruals,~~and related expenses and a $0.6 million increase in other corporate ~~insurance, a $0.3 million increase in stock compensation expense and a $0.4 million increase in miscellaneous expenditures. These increases were offset by a $0.4 million decrease in professional fees.~~overhead expenses.

For the six months ended June 30, 2022, we recorded a loss of $43,000 in connection with the Rhode Island Sale in April 2022. For the six months ended June 30, 2021, we recorded a loss of $2.2 million which consisted of a loss of $1.7 million in connection with the Missouri Sale in May 2021 and an impairment of $0.5 million related to property and equipment held for sale. ~~For~~

Interest expense was $18.6 million for the six months ended June 30, ~~2020, there were no such transactions.~~

~~Interest expense was~~2022, a decrease of $1.9 million and 9% from $20.5 million for the six months ended June 30, ~~2021, a decrease of $2.6 million and 11% from $23.1 million for the six months ended June 30, 2020.~~2021. The change was due to a decrease of $1.0 million due to lower ~~principal~~amortization of deferred financing fees and ~~interest on the 2024 Notes, and~~a decrease of $0.9 million related to a lower interest rate on the 2029 Notes compared to the 2024 Notes.

For the six months ended June 30, 2022, there was no loss on debt extinguishment. For the six months ended June 30, 2021, we recorded a loss of $40.1 million related to the full redemption of the 2024 Notes, which was comprised of an early redemption fee of $18.5 million and the write-off of deferred financing fees and original issue discount of $21.6 million. ~~For~~

Income tax expense was $0.4 million for the six months ended June 30, ~~2020 there was no loss on debt extinguishment.~~

~~Income~~2022, compared to an income tax benefit ~~was~~of $11.4 million for the six months ended June 30, ~~2021, compared to $2.2 million~~2021. The income tax expense for the six months ended June 30, ~~2020.~~2022 was primarily due to our inability to offset deferred tax benefits related to net operating losses against long life deferred tax liabilities for federal and state purposes. The income tax benefit for the six months ended June 30, 2021 was primarily due to the loss from continuing operations. ~~The income tax benefit for the six months ended June 30, 2020 was primarily related to changes in projected state deferred tax savings related to consolidated state filings.~~

Our primary sources of liquidity are cash generated from operations, proceeds from asset sales and the remaining proceeds from the sale of the 2029 Notes. In addition, we anticipate entering into a $60 million senior secured revolving credit facility in August 2022 to provide additional liquidity. Our primary cash requirements, in addition to normal operating expenses, are for capital expenditures, net contributions to the merchandise and perpetual care trust funds, debt service and ~~debt service.~~acquisitions. Amounts contributed to the merchandise trust funds will be withdrawn at the time of the delivery of the product or service sold to which the contribution related, which will reduce the amount of additional borrowings or asset sales needed.

While we rely heavily on our available cash and cash flows from operating activities to execute our operational strategy and meet our financial commitments and other short-term financial needs, we cannot be certain that sufficient capital will be generated through operations or be available to us to the extent required and on acceptable terms. Based on our forecasted operating performance, ~~and the issuance of the 2029 Notes and the redemption of the 2024 Notes,~~ we believe that we will be able to continue as a going concern for the next twelve-month period.

The following table summarizes our unaudited condensed consolidated statements of cash flows by class of activities in thousands:

Significant Sources and Uses of Cash During the Six Months Ended June 30, ~~2021~~2022 and ~~2020~~2021

Net cash ~~used in~~provided by operating activities was ~~$1.6~~$6.6 million for the six months ended June 30, ~~2021~~2022 as compared to net cash ~~provided by~~used in operating activities of ~~$1.2~~$1.6 million during the six months ended June 30, ~~2020.~~2021. The ~~$2.8~~$8.1 million change in operating cash flows was primarily due to the change in working capital items which resulted in a net ~~decrease~~increase in operating cash ~~inflows~~flows of ~~$20.9~~$42.1 million, ~~which was~~ offset in part by a decrease of $34.0 million resulting from an ~~$18.1 million~~ increase ~~which resulted from a reduction~~ in ~~the~~ net loss excluding non-cash ~~items due to improved operating performance and expense management efforts.~~items.

Net cash ~~provided by~~used in investing activities for the six months ended June 30, ~~2021~~2022 was ~~$3.2~~$24.3 million as compared to ~~$44.5~~net cash provided by investing activities of $3.2 million for the six months ended June 30, ~~2020.~~2021. The net cash used in investing activities for the six months ended June 30, 2022 was attributable to the cash paid for acquisitions of $18.3 million and capital expenditures for purchases and maintenance of property, plant and equipment of $6.1 million. Net cash provided by investing activities ~~for~~during the six months ended June 30, 2021 was attributable to proceeds from divestitures of $6.6 million, partially offset by capital expenditures for purchases and maintenance of property, plant and equipment of $3.4 million. Net cash provided by investing activities during the six months ended June 30, 2020 consisted of proceeds from divestitures of $48.3 million, offset in part by cash used for capital expenditures for purchases and maintenance of property, plant and equipment of $3.8 million.

Net cash provided by financing activities for the six months ended June 30, ~~2021~~2022 was ~~$45.2 million~~$677,000 as compared to ~~$39.0~~$45.2 million ~~of net~~for the six months ended June 30, 2021. Net cash ~~used in~~provided by financing activities for the six months ended June 30, ~~2020. The~~2022 was primarily due to proceeds from borrowings for financed insurance policies, which was offset by debt and finance lease payments. Net cash provided by financing activities for the six months ended June 30, 2021 was primarily due to proceeds from the issuance of the 2029 Notes offset partially by the full redemption of the 2024 Notes and the related early redemption fee and costs of financing. ~~Net cash used in financing activities during the six months ended June 30, 2020 was primarily due to~~ ~~the redemption of $51.7 million of the 2024 Notes, using proceeds from the Oakmont Sale, the Olivet Sale and other immaterial dispositions, offset in part by $17.0 million of proceeds from the issuance of equity.~~

The following table summarizes maintenance and expansion capital expenditures for the periods presented (in thousands):

On May 11, 2021, we issued $400.0 million aggregate principal amount of 8.500% Senior Secured Notes due 2029 and used a substantial portion of the proceeds to fund the redemption of all of our outstanding 2024 Notes. For further details on our 2029 Notes, see Note 8 Long-Term Debt of Part I, Item 1. Financial Statements (Unaudited) of this Quarterly Report.

We have entered into arrangements with certain surety companies, whereby such companies agree to issue surety bonds on our behalf as financial assurance and/or as required by existing state and local regulations. The surety bonds are used for various business purposes; however, the majority of the surety bonds issued and outstanding have been used to support our pre-need sales activities.

When selling pre-need contracts, we may post surety bonds where allowed by state law. We post the surety bonds in lieu of trusting a certain amount of funds received from the customer. If we were not able to renew or replace any such surety bond, we would be required to fund the trust only for the portion of the applicable pre-need contracts for which we have received payments from the customers, less any applicable retainage, in accordance with state law. We have provided cash collateral to secure these surety bond obligations and may be required to provide additional cash collateral in the future under certain circumstances.

For the six months ended June 30, 2022 and 2021, ~~and 2020,~~ we had ~~$99.5~~$102.5 million and ~~$94.0~~$99.5 million, respectively, of cash receipts from sales attributable to related bond contracts. These amounts do not consider reductions associated with taxes, obtaining costs or other costs.

Surety bond premiums are paid annually and the bonds are automatically renewable until maturity of the underlying pre-need contracts, unless we are given prior notice of cancellation. Except for cemetery pre-construction bonds (which are irrevocable), the surety companies generally have the right to cancel the surety bonds at any time with appropriate notice. In the event a surety company were to cancel the surety bond, we are required to obtain replacement surety assurance from another surety company or fund a trust for an amount generally less than the posted bond amount. We do not expect that we will be required to fund material future amounts related to these surety bonds due to a lack of surety capacity or surety company non-performance.

The preparation of our unaudited condensed consolidated financial statements and related notes included within Part I, Item 1. Financial Statements (Unaudited) of this Quarterly Report in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and disclosure of contingent assets and liabilities that arose during the reporting period and through the date our financial statements are filed with the SEC. Although we base our estimates on historical experience and various other assumptions we believe to be reasonable, actual results may differ from these estimates.

A critical accounting estimate or policy is one that requires a high level of subjective judgement by management and could have a material impact to our financial position, results of operations or cash flows if actuals vary significantly from our estimates.

There have been no significant changes to the critical accounting policies and estimates identified in the Annual Report, as described in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Annual ~~Report.~~Report, except as described in Part 1, Item 1. Financial Statements, Note 1, “Business Combinations,” “Goodwill” and “Recently Adopted Accounting Standards.”

The primary objective of the following information is to provide forward-looking quantitative and qualitative information about our potential exposure to market risks. The term "market" risk refers to the risk of gains or losses arising from changes in interest rates and prices of marketable securities. The disclosures are not meant to be precise indicators of expected future gains or losses, but rather indicators of reasonably possible gains or losses. This forward-looking information provides indicators of how we view and manage our ongoing market risk exposures. All of our market risk-sensitive instruments were entered into for purposes other than trading.

The trusts are invested in assets with the primary objective of maximizing income and distributable cash flow for trust distributions, while maintaining an acceptable level of risk. Certain asset classes in which we invest for the purpose of maximizing yield are subject to an increased market risk. This increased market risk will create volatility in the unrealized gains and losses of the trust assets from period to period.

The interest-bearing investments in our merchandise trusts and perpetual care trusts that are subject to interest rate sensitivity consist of fixed-income securities, money market investments and other short-term investments. As of June 30, ~~2021,~~2022, the accumulated fair value of the interest-bearing investments in our merchandise trusts and perpetual care trusts was ~~$64.9~~$33.6 million and ~~$20.5~~$13.4 million, respectively, or ~~11.9%~~5.6% and ~~6.3%~~3.8% of the fair value of our total trust assets, respectively.

The marketable equity securities in our merchandise trusts and perpetual care trusts that are subject to market price sensitivity consist of individual equity securities as well as closed and open-ended mutual funds. As of June 30, ~~2021,~~2022, the accumulated fair value of the marketable equity securities in our merchandise trusts and perpetual care trusts was ~~$34.2~~$16.5 million and ~~$19.3~~$9.3 million, respectively, or ~~6.3%~~2.7% and ~~5.9%~~2.7% of the fair value of our total trust assets, respectively.

Other investment funds are measured at fair value using the net asset value per share practical expedient. This asset class is composed of fixed income funds and equity funds, which have a redemption period ranging from 1 to 30 days, and private credit funds, which have lockup periods ranging from zero to ~~fifteen~~fourteen years with ~~three~~four potential one year extensions at the discretion of the funds’ general partners. This asset class has an inherent valuation risk as the values provided by investment fund managers may not represent the liquidation values obtained by the trusts upon redemption or liquidation of the fund assets. As of June 30, ~~2021,~~2022, the fair value of other investment funds in our merchandise trusts and perpetual care trusts represented ~~71.2%~~88.4% and ~~83.1%~~91.8%, respectively, of the fair value of total trust assets. The fair market value of the holdings in these funds was ~~$387.6~~$534.7 million and ~~$271.5~~$320.4 million in our merchandise trusts and perpetual care trusts, respectively, as of June 30, ~~2021,~~2022, based on net asset value quotes.

The Company maintains 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”), that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure.

Our management, including the CEO and CFO, evaluated the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of June 30, ~~2021.~~2022. Based on such evaluation, our CEO and CFO concluded the disclosure controls and procedures were not effective due to the on-going remediation associated with the material weaknesses in internal control over financial reporting described below.

Notwithstanding these material weaknesses, based on the additional analysis and other post-closing procedures performed, management believes that the financial statements included in this report fairly present in all material respects our financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

A material weakness (as defined in Rule 12b-2 under the Exchange Act) is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement in our annual or interim financial statements will not be prevented or detected on a timely basis.

Management previously identified and reported material weaknesses in its Annual Report on Form 10-K for the Year Ended December 31, ~~2019.~~2021. We conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, ~~2020~~2021 based on the criteria set forth in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Based on our assessment, we concluded that the Company did not maintain effective internal control over financial reporting as of December 31, ~~2020~~2021 as a result of the material weaknesses described below:

The Company did not design and maintain effective internal controls over financial reporting related to control environment, control activities and monitoring based on the criteria established in the ~~Committee~~COSO framework. More specifically, management did not implement effective oversight to support deployment of ~~Sponsoring Organization Internal Control Integrated Framework including more specifically:~~control activities due to lack of clear and consistent accountability for the performance of internal control over financial reporting responsibilities in certain areas important to financial reporting and implementation of related corrective actions in a timely manner.

The Company’s controls applicable to establishment, periodic review for ongoing relevance and consistent application of material accounting policies in conformity with GAAP relating to revenue recognition were not designed appropriately and thus failed to operate effectively. More specifically:

~~The Company’s~~ controls over sales contract origination occurring at its site locations. Specifically, there was no subsequent review of contract entry at site locations or corporate, as well as consistent approvals for pricing deviations.

The Company’s ~~review~~internal controls designed to ~~detect such errors~~prevent a material misstatement in the recorded amount of deferred revenues as of the balance sheet date were not designed appropriately. Management did not ~~operate~~have effective review and monitoring controls over historical contract servicing and revenue recognition at ~~the appropriate~~a sufficient level of precision to ~~identify such error.~~detect potential misstatements of the related balance sheet accounts.

The Company’s internal controls over the identification and disclosure of related party transactions were not designed appropriately and thus failed to operate effectively. More ~~specifically:~~specifically, as noted in Note 17 Related Parties to our consolidated financial statements as of and for the year ended December 31, 2021, the Company identified various related party transactions in connection with its year-end financial closing procedures, which had not been timely identified by Cornerstone, the Company’s investment advisory subsidiary, or disclosed in our prior quarterly periods because Cornerstone did not have effective procedures in place to ensure that the information needed to analyze whether investment transactions it was recommending for our trusts constituted related party transactions was obtained and reviewed in a timely fashion.

Our management communicated the results of its assessment to the Audit Committee of the Board of Directors.

While we continue to make improvements to our internal control over financial reporting related to the material weaknesses described above, material weaknesses continue to exist, and we believe that ~~the~~ material weaknesses A through C referenced above accurately reflect the material weaknesses in our internal control over financial reporting as of June 30, ~~2021.~~2022. Management, with oversight from our Audit Committee, has identified and planned actions that we believe will remediate ~~these material weaknesses. Management has developed multiple workstreams which correlate to these~~the material weaknesses that include various levels of cross functional management and detail relevant work steps that are assigned, project managed and have defined due dates for completion. Management began to implement the resulting corrective actions during the second quarter of 2021. Once all corrective actions areA through C described above once fully implemented and ~~the controls operate effectively~~operating for a sufficient period of time, and ~~are adequately tested through audit procedures,~~ we ~~believe the material weaknesses will be remediated. We~~ will continue to devote significant time and attention, including internal and external resources, to these remedial efforts. For material weakness D, Management, in conjunction with the Trust and Compliance Committee, has implemented the following, as the primary remediation of this material weakness (subject to control operating effectiveness testing over a sufficient period of time):

For a more comprehensive discussion of Management’s remediation action plans refer to Item 9A., Disclosure Controls and Procedures,, of our ~~2020~~2021 Annual Report on Form 10-K.

During the three months ended June 30, ~~2021, despite the remote~~ ~~work environment due to the ongoing issues surrounding the COVID-19 Pandemic~~ 2022, we continued to make improvements to our internal control over financial reporting with respect to material weaknesses that had been present at that time, and those remediation efforts remain ongoing. Other than as described above and in greater detail in the Item 9A., Disclosure Controls and Procedures, of our ~~2020~~2021 Annual Report on Form 10-K, there were no changes in our internal control over financial reporting as defined in Rules 13a-15(d) and 15d-15(d) of the Exchange Act during the three months ended June 30, ~~2021~~2022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

For information regarding our significant pending administrative and judicial proceedings involving regulatory, operating, transactional, environmental, and other matters, see Part 1. Item 1. Financial Statements (Unaudited)—Notes to the Unaudited Condensed Consolidated Financial Statements—Note 11 Commitments and Contingencies of this Quarterly Report.

We and certain of our subsidiaries are parties to legal proceedings that have arisen in the ordinary course of business. We do not expect such matters to have a material adverse effect on our unaudited condensed consolidated financial position, results of operations or cash flows. We carry insurance with coverage and coverage limits that we believe to be customary in the cemetery and funeral home industry. Although there can be no assurance that such insurance will be sufficient to protect us against such contingencies, we believe that our insurance protection is reasonable in view of the nature and scope of our operations.

You should carefully consider the risks described ~~below.~~in Part I, Item 1A. Risk Factors of our Annual Report. The ongoing coronavirus (COVID-19) pandemic may also have the effect of heightening many of the risks we face, such as those relating to our substantial level of indebtedness, our future capital needs, our need to generate sufficient cash to service our indebtedness and our ability to comply with the covenants contained in the 2029 Indenture. The risks and uncertainties described ~~below and~~ in our Annual Report are not the only risks and uncertainties that we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. If any of those risks actually occurs, our business, financial condition and results of operations would suffer. ~~Please see~~

Our ability to generate cash is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. We may not generate sufficient funds to service our debt and meet our business needs, such as funding working capital or the expansion of our operations. If we are not able to repay or refinance our debt as it becomes due, we may be forced to take certain actions, including reducing spending on day-to-day operations, reducing future financing for working capital, capital expenditures and general corporate purposes, selling assets or dedicating an unsustainable level of our cash flow from operations to the payment of principal and interest on our indebtedness. The trustee or the holders of the 2029 Notes could also accelerate amounts due in the event that we default, which could potentially trigger a default or acceleration of the maturity of our debt.ITEM 6. EXHIBIT INDEX

In addition, our ability to withstand competitive pressures and to react to changes in our industry could be impaired, and our leverage could put us at a competitive disadvantage compared to our competitors that are less leveraged, as these competitors could have greater financial flexibility to pursue strategic acquisitions and secure additional financing for their operations. Our leverage could also impede our ability to withstand downturns in our industry or the economy in general.

Despite our current indebtedness level, we and any of our existing or future subsidiaries may still be able to incur substantially more debt, which could exacerbate the risks associated with our substantial leverage.

We and any of our existing and future subsidiaries may be able to incur substantial additional indebtedness in the future. Although the terms of the 2029 Indenture contains limitations on our ability to incur additional indebtedness, these restrictions will be subject to a number of qualifications and exceptions, and we have the ability under the 2029 Indenture to incur up to $40 million of additional senior secured debt. If new debt is added to our or any of our existing and future subsidiaries’ current debt levels, the related risks that we now face could be exacerbated.

We may not be able to generate sufficient cash to service all of our indebtedness or repay such indebtedness when due, including the 2029 Notes, and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

Our ability to make scheduled payments on or to refinance our debt obligations, including the 2029 Notes, depends on our financial condition and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control, including the effects of the COVID-19 Pandemic. We cannot assure you that our business will generate sufficient cash flows from operating activities, or that future borrowings will be available in an amount sufficient to enable us to pay the principal of, and premium, if any, and interest on, our indebtedness, including the 2029 Notes, or any portion of any of the foregoing, or to fund our other liquidity needs.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital or restructure or refinance our indebtedness, including the 2029 Notes. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. The terms of the 2029 Indenture restrict us from adopting some of these alternatives. In addition, any failure to make payments of interest and principal on our outstanding indebtedness on a timely basis would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness. In the absence of such operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. The 2029 Indenture restricts our ability to dispose of assets and use the proceeds from the disposition. We may not be able to consummate those dispositions or to obtain the proceeds that we could realize from them and these proceeds may not be adequate to meet any debt service obligations then due. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations.

~~The 2029 Indenture imposes significant operating and financial restrictions, which may prevent us from pursuing certain business opportunities and taking certain actions.~~

The 2029 Indenture contains various covenants that limit our ability to engage in specified types of transactions. These covenants limit our and our restricted subsidiaries’ ability to, among other things:

~~Our ability to comply with these covenants can be affected by events beyond our control, and we may not be able to satisfy them.~~

~~We depend on third party vendors to provide a substantial portion of our grounds and maintenance services.~~

In April 2020, we had outsourced all of the grounds and maintenance services at most of the funeral homes and cemeteries we own or manage to Moon. Because we are dependent on Moon to provide these services, disruptions in the supply of these services may be beyond our control. Due to certain liquidity constraints and performance issues experienced by Moon, we have exercised our right under the MSAs to take back the responsibility for the grounds and maintenance services at approximately 61% of the locations we had outsourced to Moon. While we have retained responsibility for certain grounds services at these locations, we have outsourced responsibility for landscaping and other maintenance services to many of the same vendors who had been providing such services as subcontractors to Moon. We are continuing to evaluate Moon’s performance under the MSAs. On August 12, 2021, Moon and certain of its affiliates filed a petition under Chapter 11 of Title 11 of the United States Code in the Bankruptcy Court. If Moon continues to fail to meet its obligations or provides poor or inadequate service at the remaining locations, we would not be able to exercise our right to take back additional properties or otherwise modify the terms of or seek to enforce our MSAs with Moon, including finalizing arrangements to seek the reimbursement of additional payments, absent Moon’s consent and/or approval of the Bankruptcy Court, which could impact and would likely at least delay our ability to respond to such events. Even if we obtain Bankruptcy Court approval, or if any of our recently engaged third party vendors is unable to provide adequate services, there is no assurance that we will be able to make alternative arrangements in a timely manner. Given the uncertainty associated with the bankruptcy proceedings and the locations for which Moon will continue to be responsible under the MSAs, it is at least reasonably possible that we may experience disruptions in operations at those locations, particularly if it becomes necessary for the Company to assume the responsibility for servicing those locations in the near future. Under any of these circumstances, our ability to serve our customers and to operate our business may be adversely affected. Moreover, if Moon is unable to obtain appropriate financing and have a plan of reorganization confirmed by the Bankruptcy Court, we would likely not be able to obtain reimbursement of the additional payments we have made or may hereafter make on Moon’s behalf under the MSAs.

The documents listed in the Exhibit Index of this Quarterly Report on Form 10-Q are ~~incorporated by reference or are~~ filed with this Quarterly Report on Form 10-Q ~~in each case as indicated therein~~ (numbered in accordance with Item 601 of Regulation S-K).

Pursuant to the requirements of Section 13 or 15(d) 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.


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	STON	New York Stock Exchange



PART I	Financial Information

Item 1.	Financial Statements (Unaudited)	3

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3744

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4956

Item 4.	Controls and Procedures	5057


PART II	Other Information

Item 1.	Legal Proceedings	5259

Item 1A.	Risk Factors	5259

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5459

Item 3.	Defaults upon Senior Securities	5459

Item 4.	Mine Safety Disclosures	5459

Item 5.	Other Information	5459

Item 6.	Exhibits	5560

	Signatures	5661


	June 30, 2022			December 31, 2021
Customer receivables	$	162,870		$	154,664
Unearned finance income		(15,215	)		(14,319	)
Allowance for doubtful accounts		(5,780	)		(5,816	)
Accounts receivable, net of allowance		141,875			134,529
Less: Current portion, net of allowance		65,106			62,220
Long-term portion, net of allowance	$	76,769		$	72,309

	June 30, 2021			December 31, 2020
Customer receivables	$	156,102		$	154,903
Unearned finance income		(15,261	)		(16,022	)
Allowance for doubtful accounts		(5,581	)		(5,711	)
Accounts receivable, net of allowance		135,260			133,170
Less: Current portion, net of allowance		58,661			57,869
Long-term portion, net of allowance	$	76,599		$	75,301


	June 30, 2021			December 31, 2020			June 30, 2022			December 31, 2021
Balance, beginning of period	$	5,892		$	5,884		$	5,816		$	5,711
Provision for doubtful accounts		3,519			6,275			2,883			6,354
Charge-offs, net		(3,830	)		(6,267	)		(2,919	)		(6,249	)
Amounts related to assets held for sale		—			(181	)
Balance, end of period	$	5,581		$	5,711		$	5,780		$	5,816


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


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


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

	Common Stock
	Number of Common Shares		Par Value of Common Shares		Paid-in Capital in Excess of Par Value			Accumulated Deficit			Total
Three Months Ended March 31, 2021
December 31, 2020		117,871,141	$	1,178	$	(85,232	)	$	(8,359	)	$	(92,413	)
Common stock awards under incentive plans		46,875		1		504			—			505
Net loss		—		—		—			(4,624	)		(4,624	)
March 31, 2021		117,918,016	$	1,179	$	(84,728	)	$	(12,983	)	$	(96,532	)

Three Months Ended June 30, 2021
March 31, 2021		117,918,016	$	1,179	$	(84,728	)	$	(12,983	)	$	(96,532	)
Common stock awards under incentive plans		46,875		1		507			—			508
Net loss		—		—		—			(35,385	)		(35,385	)
June 30, 2021		117,964,891	$	1,180	$	(84,221	)	$	(48,368	)	$	(131,409	)

	Series A Preferred Stock					Common Stock
	Number of Series A Preferred Shares			Par Value of Series A Preferred Shares		Number of Common Shares		Par Value of Common Shares		Paid-in Capital in Excess of Par Value			Retained Earnings			Total
Three Months Ended March 31, 2020
December 31, 2019		—		$	—		94,447,356	$	944	$	(103,434	)	$	—		$	(102,490	)
Common stock awards under incentive plans		—			—		29,746		—		375			—			375
Net income		—			—		—		—		—			9,003			9,003
March 31, 2020		—		$	—		94,477,102	$	944	$	(103,059	)	$	9,003		$	(93,112	)

Three Months Ended June 30, 2020
March 31, 2020		—		$	—		94,477,102	$	944	$	(103,059	)	$	9,003		$	(93,112	)
Issuance of Series A Preferred Stock		176			—		—		—		8,800			—			8,800
Exchange of Series A Preferred Stock for Common Stock		(176	)		—		12,054,795		121		(121	)		—			—
Issuance of Common Stock		—			—		11,232,877		112		8,088			—			8,200
Common stock awards under incentive plans		—			—		29,746		—		317			—			317
Net loss		—			—		—		—		—			(3,914	)		(3,914	)
June 30, 2020		—		$	—		117,794,520	$	1,177	$	(85,975	)	$	5,089		$	(79,709	)

	December 31, 2020
	Clearstone		Other		Total
Assets
Current assets:
Accounts receivable, net of allowance	$	230	$	—	$	230
Prepaid expenses and other current assets		104		—		104
Total current assets held for sale		334		—		334

Long-term accounts receivable, net of allowance		193		—		193
Cemetery property		3,492		350		3,842
Property and equipment, net of accumulated depreciation		2,529		—		2,529
Merchandise trusts, restricted, at fair value		14,831		—		14,831
Perpetual care trusts, restricted, at fair value		4,518		—		4,518
Deferred selling and obtaining costs		1,865		—		1,865
Other assets		463		—		463
Total assets held for sale	$	28,225	$	350	$	28,575

Liabilities
Current liabilities:
Accounts payable and accrued liabilities	$	51	$	—	$	51
Other current liabilities		—		—		—
Total current liabilities held for sale		51		—		51

Deferred revenues		18,456		—		18,456
Perpetual care trust corpus		4,518		—		4,518
Other long-term liabilities		381		—		381
Total liabilities held for sale	$	23,406	$	—	$	23,406

June 30, 2021	Less than 1 year		1 year through 5 years		6 years through 10 years		More than 10 years

June 30, 2022									Less than 1 year		1 year through 5 years		6 years through 10 years		More than 10 years
U.S. governmental securities	$	—	$	1	$	—	$	—	$	—	$	1	$	—	$	—
Corporate debt securities		—		3,606		—		—		—		—		—		—
Other debt securities		—		—		—		—		—		—		—		—
Total fixed maturities	$	—	$	3,607	$	—	$	—	$	—	$	1	$	—	$	—

	June 30, 2021			December 31, 2020
8.500% Senior Secured Notes due 2029	$	400,000		$	—
9.875%/11.500% Senior Secured PIK Toggle Notes due June 2024		—			335,328
							June 30, 2022			December 31, 2021
8.500% Senior Secured Notes due 2029							$	400,000		$	400,000
Insurance and vehicle financing		1,870			361			2,866			762
Less deferred financing costs, net of accumulated amortization		(10,452	)		(14,657	)		(10,257	)		(10,599	)
Total debt		391,418			321,032			392,609			390,163
Less current maturities		(1,859	)		(317	)		(2,576	)		(762	)
Total long-term debt	$	389,559		$	320,715		$	390,033		$	389,401


Issuer Purchases of Equity Securities

Period	(a) Total Number of Shares Purchased(1)		(b) Average Price Paid per Share(2)		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		(d) Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
April 26, 2022		205,311	$	2.55		—	$	—
May 26, 2022		209,588	$	3.42		—	$	—
June 2, 2022		58,548	$	3.43		—	$	—
Total		473,446	$	3.04		—	$	—

		~~Incorporated by Reference~~
~~Exhibit~~ ~~Number~~	~~Description~~	~~Form~~	~~Exhibit~~	~~Filing Date~~

3.1*	~~Certificate of Incorporation of StoneMor Inc.~~	~~8-K~~	~~3.1~~	~~December 31, 2019~~

3.2*	~~Certificate of Designation of Preferences, Rights and Limitations of Series A Preferred Stock of StoneMor Inc.~~	~~10-K~~	~~3.2~~	~~April 7, 2020~~

3.3*	~~Certificate of Elimination of the Certificate of Designation of Preferred Stock of StoneMor Inc.~~	~~10-Q~~	~~3.3~~	~~November 16, 2020~~

3.4*	~~Certificate of Amendment to the Certificate of Incorporation of StoneMor Inc.~~	~~10-Q~~	~~3.4~~	~~November 16, 2020~~

~~3.5~~	~~Certificate of Amendment to the Certificate of Incorporation of StoneMor Inc.~~

4.1*	Indenture, dated as of May 11, 2021, by and among StoneMor Inc., the guarantors named therein and Wilmington Trust, National Association, as trustee, including the form of 8.500% Senior Secured Notes due 2029.	~~8-K~~	~~4.1~~	~~May 12, 2021~~

4.2*	~~Form of 8.500% Senior Secured Notes due 2029 (included in Exhibit 4.1 hereto).~~	~~8-K~~	~~4.2~~	~~May 12, 2021~~

4.3*	~~Security Agreement, dated as of May 11, 2021, by and among StoneMor Inc., the guarantors named therein and Wilmington Trust, National Association, as collateral agent.~~	~~8-K~~	~~4.3~~	~~May 12, 2021~~

10.1*	Letter Agreement dated as of April 13, 2021 by and among StoneMor Inc., Axar Capital Management, LP, Axar GP, LLC, Axar Master Fund, Ltd., StoneMor GP Holdings, LLC and Robert B. Hellman, Jr., as trustee under the Voting and Investment Trust Agreement for the benefit of American Cemeteries Infrastructure Investors LLC.	~~8-K~~	~~2.1~~	~~April 15, 2021~~

10.2*	Fifth Amendment to Nomination and Director Voting Agreement dated as of April 13. 2021 by and among StoneMor Inc., Axar Capital Management, LP, Axar GP, LLC, Axar Master Fund, Ltd., StoneMor GP Holdings, LLC and Robert B. Hellman, Jr., as trustee under the Voting and Investment Trust Agreement for the benefit of American Cemeteries Infrastructure Investors LLC.	~~8-K~~	~~2.2~~	~~April 15, 2021~~

~~31.1~~	~~Certification pursuant to Exchange Act Rule 13a-14(a) of Joseph M. Redling, President and Chief Executive Officer~~

~~31.2~~	~~Certification pursuant to Exchange Act Rule 13a-14(a) of Jeffrey DiGiovanni, Chief Financial Officer and Senior Vice President~~

~~32.1~~	~~Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350) and Exchange Act Rule 13a-14(b) of Joseph M. Redling, President and Chief Executive Officer~~

~~32.2~~	~~Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350) and Exchange Act Rule 13a-14(b) of Jeffrey DiGiovanni, Chief Financial Officer and Senior Vice President~~

~~101.INS~~	~~Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.~~

~~101.SCH~~	~~Inline XBRL Taxonomy Extension Schema Documents.~~

~~101.CAL~~	~~Inline XBRL Taxonomy Extension Calculation Linkbase Document.~~

~~101.DEF~~	~~Inline XBRL Taxonomy Extension Definition Linkbase Document.~~

~~101.LAB~~	~~Inline XBRL Taxonomy Extension Label Linkbase Document.~~

~~101.PRE~~	~~Inline XBRL Taxonomy Extension Presentation Linkbase Document.~~

~~104~~	~~Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)~~


	STONEMOR INC.


Date: August ~~13, 2021~~12, 2022		By:	/s/ Joseph M. Redling
			Joseph M. Redling
			President and Chief Executive Officer


Date: August ~~13, 2021~~12, 2022		By:	/s/ Jeffrey DiGiovanni
			Jeffrey DiGiovanni
			Senior Vice President and Chief Financial Officer