RECENTLY ISSUED ACCOUNTING STANDARDS

Leases

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

On January 1, 2019, we adopted Topic 842 using the modified retrospective method for all lease arrangements at the beginning of the period of adoption. Results for reporting periods beginning January 1, 2019, are presented under Topic 842, while prior period amounts have not been adjusted and continue to be reported in accordance with Topic 840. While Topic 842 had a material impact on our Consolidated Balance Sheet, it did not have a material impact on our Consolidated Statements of Operations or Cash Flows, or liquidity measures, such as debt covenant ratios. It also did not have a material impact on our effective tax rate for the reporting period. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases. For leases that commenced before the effective date of Topic 842, we elected the permitted practical expedients to not reassess the following: (i) whether any expired or existing contracts contain leases; (ii) the lease classification for any expired or existing leases; and (iii) initial direct costs for any existing leases. We also elected to exclude leases with a term of 12 months or less in the recognized ROU assets and lease liabilities. We have real estate lease agreements which require payments for lease and non-lease components and have elected to account for these as a single lease component. We have elected the short-term lease recognition exemption for all applicable classes of underlying assets.

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



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

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

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

Accounting Pronouncements Not Yet Adopted

Financial Instruments - Credit Losses

In June 2016, the FASB issued ASU, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments and subsequent amendments collectively known as (Topic 326). This ASU applies to all entities holding financial assets measured at amortized cost, including loans, trade and financed receivables and other financial instruments. The guidance introduces a new credit reserving model known as Current Expected Credit Loss (“CECL”), which requires earlier recognition of credit losses, while also providing additional transparency about credit risk. The CECL model utilizes a lifetime expected credit loss measurement objective for the recognition of credit losses at the time the financial asset is originated or acquired. The CECL model requires all expected credit losses to be measured based on historical experience, current conditions and reasonable and supportable forecasts about collectability.

This ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with earlier application permitted for all entities. We plan to adopt the provisions of this ASU for our fiscal year beginning January 1, 2020 using the modified retrospective approach.

We believe that our current process of analyzing and calculating our allowance for doubtful accounts on trade receivables and the allowance for contract cancellations on financed receivables considers the credit risk of our customers and accounts for the recognition of credit losses at inception. Our customer base is generally a homogeneous pool of consumers based in the United States that, as a group, have a similar level of credit risk that are less subject to material economic and demographic changes. Additionally, our trade receivables are short term in nature (outstanding less than 90 days). Therefore, due to the similar level of credit risk of our customer base and the short-term nature of our receivables, we use our historical loss experience to forecast future collectability of our trade receivables and record an allowance at each reporting period. Our current contract cancellation policy on cemetery financed receivables requires that we record an allowance at the date that the sale is recognized as revenue. Additionally, we reserve 100% of the receivable on contracts in which the revenue has been recognized and payments are 90 days past due or more. Because we believe our current processes already consider credit risk and recognize credit losses at inception, we do not expect the adoption of this ASU to have a material impact on our consolidated financial statements.

In addition, the new guidance prospectively replaces the other-than-temporary impairment model for available-for-sale debt securities and requires the recognition of an allowance for reductions in a security's fair value attributable to declines in credit quality, instead of a direct write-down of the security, when a valuation decline is determined to be other-than-temporary. We are currently establishing a policy where we review our available-for-sale securities at each reporting period and perform an analysis on securities whose fair value is less than amortized cost to determine if impairment is appropriate. If the analysis of the security reflects impairment, we will perform a present value calculation of the future cash flows on the respective security using the effective interest rate implicit in the security at the date of acquisition. The impairment recognized will be the greater of the current fair market value or the present value of the future cash flows of the security. We do not expect the impact of the new guidance on available-for-sale securities to be material to our consolidated financial statements upon adoption.

Income Taxes

In December 2019, the FASB issued ASU, Income Taxes (Topic 740), to simplify the accounting for income taxes. The amendments in this update are effective for fiscal years beginning after December 15, 2020, with early adoption permitted. We plan to adopt the provisions of this ASU for our fiscal year beginning January 1, 2021 and are currently evaluating the impact of adoption on our consolidated financial statements.