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Recently Issued Accounting Standards | 6 Months Ended
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Jun. 30, 2018
Accounting Changes and Error Corrections [Abstract] |
RECENTLY ISSUED ACCOUNTING STANDARDS | RECENTLY ISSUED ACCOUNTING STANDARDS Revenue Recognition In May 2014, the FASB issued ASU, Revenue from Contracts with Customers (Topic 606). FASB Accounting Standards Codification (“ASC”) Topic 606 supersedes the revenue recognition requirements under Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Industry Topics of the ASC. The core principle of the guidance is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. Under Topic 606, an entity is required to perform the following five steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. Additionally, the guidance requires improved disclosures as to the nature, amount, timing and uncertainty of revenue that is recognized. We adopted the provisions of this ASU on January 1, 2018 using the modified retrospective approach. As such, the comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. Topic 606 did not materially affect the accounting for our revenue streams. Revenue from sales of preneed cemetery interment rights was previously recognized in the period in which the customer’s cumulative payments exceeded 10% of the contract price related to the interment right. Under Topic 606, we recognize revenue at the time the contract is signed. Customers select a specific location and space for their interment right, thus, restricting us from other use or transfer of the contracted cemetery property. The interment right is deeded to the customer when the contract is paid in full. Because we generally receive an initial down payment at the time the contract is signed, there is no significant difference in the timing of revenue recognition under Topic 606, as compared to previous guidance. Revenue from preneed sales of funeral and cemetery merchandise and services continues to be deferred and recognized when the merchandise is delivered or the service is performed. Topic 606 impacted our accounting for incremental selling costs, primarily commission costs, related to preneed cemetery merchandise and services and preneed funeral trust contracts. Under Topic 606, these costs are capitalized and amortized over the average maturity period for our preneed cemetery contracts and preneed funeral trust contracts. Previously, these costs were expensed in the period incurred. Our capitalized commissions on preneed contracts are included in Intangible and other non-current assets on our Consolidated Balance Sheets. See Note 9 to the Consolidated Financial Statements included herein for additional information. The selling costs related to the sales of cemetery interment rights, which include real property and other costs related to cemetery development activities, continue to be expensed using the specific identification method in the period in which the sale of the cemetery interment right is recognized as revenue. The selling costs related to preneed funeral insurance contracts continue to be expensed in the period incurred as these contracts are not included on our Consolidated Balance Sheets. Topic 606 also impacted our classification of amounts due from customers for undelivered performance obligations. Under Topic 606 amounts due on our preneed funeral trust contracts and preneed cemetery merchandise and services contracts have been reclassified to reduce Deferred preneed funeral revenue and Deferred preneed cemetery revenue, respectively, on our Consolidated Balance Sheets. These amounts were previously reported as Accounts receivable and Preneed receivables on our Consolidated Balance Sheets. The adoption of the provisions of this ASU did not have a material impact on our effective tax rate for the reporting period. The following table presents the impact of the adoption of Topic 606 on our Consolidated Balance Sheet (in thousands):
| As of June 30, 2018
| As Reported |  | Balances Without Adoption of Topic 606 |  | Effect of Change
Assets |  |  |  |  |
Accounts receivable, net of allowance for bad debts | $ | 17,026 |  |  | $ | 18,450 |  |  | $ | (1,424 | )
Preneed receivables, net of allowance for bad debts | $ | 21,327 |  |  | $ | 32,746 |  |  | $ | (11,419 | )
Intangible and other non-current assets | $ | 2,816 |  |  | $ | — |  |  | $ | 2,816 |
Liabilities |  |  |  |  |
Deferred preneed cemetery revenue, net | $ | 50,699 |  |  | $ | 55,264 |  |  | $ | (4,565 | )
Deferred preneed funeral revenue, net | $ | 27,740 |  |  | $ | 36,018 |  |  | $ | (8,278 | )
Deferred tax liability | $ | 30,293 |  |  | $ | 29,636 |  |  | $ | 657 |
Stockholders’ equity: |  |  |  |  |
Retained earnings | $ | 72,138 |  |  | $ | 69,979 |  |  | $ | 2,159 |
The following table presents the impact of the adoption of Topic 606 on our Consolidated Statement of Operations (in thousands, except per share data):
| Three Months Ended June 30, 2018 |  | Six Months Ended June 30, 2018
| As Reported |  | Balances Without Adoption of Topic 606 |  | Effect of Change |  | As Reported |  | Balances Without Adoption of Topic 606 |  | Effect of Change
Field costs and expenses: |  |  |  |  |  |  |  |  |  |  |
Funeral | $ | 33,238 |  |  | $ | 33,267 |  |  | $ | (29 | ) |  | $ | 69,604 |  |  | $ | 69,672 |  |  | $ | (68 | )
Cemetery | $ | 9,880 |  |  | $ | 9,869 |  |  | $ | 11 |  |  | $ | 18,940 |  |  | $ | 18,910 |  |  | $ | 30 |
Income before income taxes | $ | 3,747 |  |  | $ | 3,729 |  |  | $ | 18 |  |  | $ | 15,981 |  |  | $ | 15,943 |  |  | $ | 38 |
Net income | $ | 2,747 |  |  | $ | 2,734 |  |  | $ | 13 |  |  | $ | 12,103 |  |  | $ | 12,075 |  |  | $ | 28 |
Basic earnings per common share: | $ | 0.15 |  |  | $ | 0.15 |  |  | $ | — |  |  | $ | 0.71 |  |  | $ | 0.71 |  |  | $ | — |
Diluted earnings per common share: | $ | 0.15 |  |  | $ | 0.15 |  |  | $ | — |  |  | $ | 0.67 |  |  | $ | 0.67 |  |  | $ | — |
Dividends declared per common share | $ | 0.075 |  |  | $ | 0.075 |  |  | $ | — |  |  | $ | 0.075 |  |  | $ | 0.075 |  |  | $ | — |
The following table presents the impact of the adoption of Topic 606 on our Consolidated Statement of Cash Flows (in thousands):
| Three Months Ended June 30, 2018 |  | Six Months Ended June 30, 2018
| As Reported |  | Balances Without Adoption of Topic 606 |  | Effect of Change |  | As Reported |  | Balances Without Adoption of Topic 606 |  | Effect of Change
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |  |  |  |  |  |  |  |
Amortization of capitalized commissions on preneed contracts | $ | 144 |  |  | $ | — |  |  | $ | 144 |  |  | $ | 293 |  |  | $ | — |  |  | $ | 293 |
Changes in operating assets and liabilities that provided (required) cash: |  |  |  |  |  |  |  |  |  |  |
Intangible and other non-current assets | $ | (162 | ) |  | $ | — |  |  | $ | (162 | ) |  | $ | (331 | ) |  | $ | — |  |  | $ | (331 | )
The cumulative effect of changes made to our opening Consolidated Balance Sheet on January 1, 2018 for the adoption of Topic 606 was as follows (in thousands):
| December 31, 2017 |  | Effect of Adoption of Topic 606 |  | January 1, 2018
Assets |  |  |  |  |
Accounts receivable, net of allowance for bad debts(1) | $ | 19,655 |  |  | $ | (1,399 | ) |  | $ | 18,256 |
Preneed receivables, net of allowance for bad debts(2)(3) | $ | 31,644 |  |  | $ | (11,129 | ) |  | $ | 20,515 |
Intangible and other non-current assets(4) | $ | — |  |  | $ | 2,778 |  |  | $ | 2,778 |
|  |  | $ | (9,750 | ) |  |
Liabilities |  |  |  |  |
Deferred preneed cemetery revenue(1)(2) | $ | 54,690 |  |  | $ | (4,594 | ) |  | $ | 50,096 |
Deferred preneed funeral revenue(3) | $ | 34,585 |  |  | $ | (7,934 | ) |  | $ | 26,651 |
Deferred tax liability(4) | $ | 31,159 |  |  | $ | 647 |  |  | $ | 31,806 |
Stockholders’ equity: |  |  |  |  |
Retained earnings(4) | $ | 57,904 |  |  | $ | 2,131 |  |  | $ | 60,035 |
|  |  | $ | (9,750 | ) |  |
(1) | Under Topic 606, receivables represent an entity’s unconditional right to consideration, billed or unbilled. Our balance of accounts receivable, net of allowance for bad debts, of $19.7 million at December 31, 2017, included the current portion of receivables for preneed cemetery merchandise and service contracts totaling $1.4 million. As these amounts represent undelivered performance obligations, they have been reclassified to reduce deferred preneed cemetery revenue on January 1, 2018.
(2) | Under Topic 606, receivables represent an entity’s unconditional right to consideration, billed or unbilled. Our balance of preneed receivables, net of allowance for bad debts, of $31.6 million at December 31, 2017, included the non-current portion of receivables for preneed cemetery merchandise and service contracts totaling $4.6 million. As these amounts represent undelivered performance obligations, they have been reclassified to reduce deferred preneed cemetery revenue on January 1, 2018.
(3) | Under Topic 606, receivables represent an entity’s unconditional right to consideration, billed or unbilled. Our balance of preneed receivables, net of allowance for bad debts, $31.6 million at December 31, 2017, included the non-current portion of receivables for preneed funeral trust contracts totaling $7.9 million. As these amounts represent undelivered performance obligations, they have been reclassified to reduce deferred preneed funeral revenue on January 1, 2018.
(4) | Under Topic 606, certain costs incurred to obtain or fulfill a contract with a customer are capitalized. Beginning January 1, 2018, we capitalize selling costs related to undelivered preneed cemetery merchandise and services and preneed funeral trust contracts. Previously, these costs were expensed in the period incurred. We recorded a cumulative adjustment of approximately $2.1 million to our opening Retained earnings, which consisted of a $2.8 million adjustment to our Intangible and other non-current assets and a $0.6 million adjustment to our Deferred tax liability on our Consolidated Balance Sheets on January 1, 2018.
The following accounting pronouncements were adopted on January 1, 2018 with no impact to our Consolidated Financial Statements: Compensation (Topic 718): Stock Compensation – Scope of Modification Accounting The amendments in this ASU provide guidance about which changes to the terms and conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. An entity should account for the effects of a modification unless the fair value, vesting conditions and classification of the modified award are the same as the original award immediately before the award is modified. Business Combinations (Topic 805): Clarifying the Definition of a Business This ASU applies to all entities that must determine whether they have acquired or sold a business. The amendments in this ASU clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments This ASU applies to all entities that are required to present a statement of cash flows under Topic 230. The amendments provide guidance on eight specific cash flow issues and includes clarification on how these items should be classified in the statement of cash flows and is designed to help eliminate diversity in practice as to where items are classified in the cash flow statement. In November 2016, the FASB issued additional guidance on this topic that requires amounts generally described as restricted cash and restricted cash equivalents to be included with cash and cash equivalents when reconciling the statement of cash flows. Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities The amendments in this ASU address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments and apply to all entities that hold financial assets or owe financial liabilities. The amendments in this ASU also simplify the impairment assessment of equity investments without readily determinable fair values by requiring assessment for impairment qualitatively at each reporting period. That impairment assessment is similar to the qualitative assessment for long-lived assets, goodwill, and indefinite-lived intangible assets. Accounting Pronouncements Not Yet Adopted Leases In February 2016, the FASB issued ASU, Leases (Topic 842). This ASU addresses certain aspects of recognition, presentation, and disclosure of leases and applies to all entities that enter into a lease, with some specified scope exemptions. The amendments in this ASU aim to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with earlier application permitted for all entities. Both lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach, which recognizes the cumulative effect of initially applying the standard as an adjustment to retained earnings at the date of initial application. We plan to adopt the provisions of this ASU for our fiscal year beginning January 1, 2019 and do not expect the adoption of this new accounting standard to have a material impact on our Consolidated Financial Statements.

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