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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________

FORM | 10-K

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

For the fiscal year ended, December 31, 2021

| or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| For the transition period from ______________ to _____________

Commission file number: 1-11961
________________________________________________
CARRIAGE SERVICES, INC.
(Exact name of registrant as specified in its charter)

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

3040 Post Oak Boulevard, Suite 300
Houston, Texas, 77056
(Address of principal executive offices)
(713) 332-8400
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:

Title of each class | Trading Symbol | Name of each exchange on which registered
Common Stock, Par Value $.01 Per Share | CSV | New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
None
_______________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of 1933. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐ No ☒
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Securities Exchange Act of 1934.

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

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. | ☒

Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Securities Exchange Act of 1934. Yes ☐ No ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2021 was approximately $597.5 million based on the closing price of $36.97 per share on the New York Stock Exchange.
The number of shares of the registrant’s Common Stock, $.01 par value per share, outstanding as of February 25, 2022 was 15,326,738.
DOCUMENTS INCORPORATED BY REFERENCE
_____________________________________
Certain information required to be disclosed in Part III of this report is incorporated by reference from the registrant’s definitive proxy statement or an amendment to this report, which will be filed with the SEC not later than 120 days after the end of the fiscal year covered by this report.

Table of Contents

|  | Page
Part I
Item 1. | Business | 3
Item 1A. | Risk Factors | 11
Item 1B. | Unresolved Staff Comments | 20
Item 2. | Properties | 20
Item 3. | Legal Proceedings | 22
Item 4. | Mine Safety Disclosures | 22
Part II
Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 22
Item 6. | [Reserved] | 25
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 25
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk | 43
Item 8. | Financial Statements and Supplementary Data | 44
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 96
Item 9A. | Controls and Procedures | 96
Item 9B. | Other Information | 98
Item 9C. | Disclosure Regarding Foreign Jurisdictions that Prevent Inspection | 98
Part III
Item 10. | Directors, Executive Officers and Corporate Governance | 98
Item 11. | Executive Compensation | 98
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 98
Item 13. | Certain Relationships and Related Transactions and Director Independence | 99
Item 14. | Principal Accountant Fees and Services | 99
Part IV
Item 15. | Exhibits and Financial Statement Schedules | 99
Item 16. | Form 10-K Summary | 102
| Signatures | 103

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CAUTIONARY NOTE
Certain statements and information in this Annual Report on Form 10-K (this “Form 10-K”) may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical information, should be deemed to be forward-looking statements. The words “may”, “will”, “estimate”, “intend”, “believe”, “expect”, “seek”, “project”, “forecast”, “foresee”, “should”, “would”, “could”, “plan”, “anticipate” and other similar words or expressions are intended to identify forward-looking statements, which are generally not historical in nature. These forward-looking statements include, but are not limited to, statements regarding any projections of earnings, revenue, asset sales, cash flow, debt levels or other financial items; any statements of the plans, strategies and objectives of management for future operations; including, but not limited to, technology innovations; any statements of the plans, timing and objectives of management for acquisition and divestiture activities; any statements of the plans, timing, expectations and objectives of management for future financing activities; any statements regarding future economic and market conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing and are based on our current expectations and beliefs concerning future developments and their potential effect on us. While management believes that these forward-looking statements are reasonable as and when made, there can be no assurance that future developments affecting us will be those that we anticipate. All comments concerning our expectations for future revenue and operating results are based on our forecasts for our existing operations and do not include the potential impact of any future acquisitions. Our forward-looking statements involve significant risks and uncertainties (some of which are beyond our control) and assumptions that could cause actual results to differ materially from our historical experience and our present expectations or projections. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, those summarized below:
•our ability to find and retain skilled personnel;
•the effects of our incentive and compensation plans and programs, including such effects on our Standards Operating Model and our operational and financial performance;
•our ability to execute our growth strategy;
•the execution of our Standards Operating, 4E Leadership and Strategic Acquisition Models;
•the effects of competition;
•changes in the number of deaths in our markets;
•changes in consumer preferences and our ability to adapt to or meet those changes;
•our ability to generate preneed sales, including implementing our cemetery portfolio sales strategy;
•our ability to implement our technology innovation strategy;
•the investment performance of our funeral and cemetery trust funds;
•fluctuations in interest rates;
•our ability to obtain debt or equity financing on satisfactory terms to fund additional acquisitions, expansion projects, working capital requirements and the repayment or refinancing of indebtedness;
•our ability to meet the timing, objectives and expectations related to our capital allocation framework, including our forecasted rates of return, planned uses of free cash flow and future capital allocation, including share repurchases, internal growth projects, potential strategic acquisitions, dividend increases, or debt repayment plans;
•the timely and full payment of death benefits related to preneed funeral contracts funded through life insurance contracts;
•the timely and full payment of death benefits related to preneed funeral contracts funded through life insurance contracts;
•the financial condition of third-party insurance companies that fund our preneed funeral contracts;
•increased or unanticipated costs, such as insurance or taxes;
•our level of indebtedness and the cash required to service our indebtedness;
•changes in federal income tax laws and regulations and the implementation and interpretation of these laws and regulations by the Internal Revenue Service;
•effects of the application of other applicable laws and regulations, including changes in such regulations or the interpretation thereof;
•the potential impact of epidemics and pandemics, including the COVID-19 coronavirus, including new variants of COVID-19, such as the Delta and Omicron variants, on customer preferences and on our business;
•government, social, business and other actions that have been and will be taken in response to pandemics, including potential responses to new variants of COVID-19, such as the Delta and Omicron variants;
•effects and expense of litigation;
•consolidation of the funeral and cemetery industry;
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•our ability to consummate the divestiture of low performing businesses as currently expected, if at all, including expected use of proceeds related thereto;
•our ability to integrate acquired businesses with our existing businesses, including expected performance and financial improvements related thereto;
•economic, financial and stock market fluctuations;
•interruptions or security lapses of our information technology, including any cybersecurity or ransomware incidents;
•our failure to maintain effective control over financial reporting; and
•other factors and uncertainties inherent in the funeral and cemetery industry.
For additional information regarding known material factors that could cause our actual results to differ from our projected results, please see Part I, Item 1A, Risk Factors.
Investors are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise.
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PART I
ITEM 1. BUSINESS.
GENERAL
Carriage Services, Inc. (“Carriage,” the “Company,” “we,” “us,” or “our”) was incorporated in the State of Delaware in December 1993 and is a leading provider of funeral and cemetery services and merchandise in the United States. We operate in two business segments: Funeral Home Operations, which currently accounts for approximately 70% of our total revenue, and Cemetery Operations, which currently accounts for approximately 30% of our total revenue.
At December 31, 2021, we operated 170 funeral homes in 26 states and 31 cemeteries in 11 states. We compete with other publicly held and independent operators of funeral and cemetery companies. We believe we are a market leader in most of our markets.
Funeral home and cemetery businesses provide products and services to families in three principal areas: (i) ceremony and tribute, generally in the form of a funeral or memorial service; (ii) disposition of remains, either through burial or cremation; and (iii) memorialization, generally through monuments, markers or inscriptions. Our funeral homes offer a complete range of services to meet a family’s funeral needs, including consultation, the removal and preparation of remains, the sale of caskets and related funeral merchandise, the use of funeral home facilities for visitation and memorial services and transportation services. Most of our funeral homes have a non-denominational chapel on the premises, which permits family visitation and services to take place at one location and thereby reduces transportation costs and inconvenience to the family.
Our cemeteries provide interment rights (primarily grave sites, lawn crypts, mausoleum spaces and niches), related cemetery merchandise (such as outer burial containers, memorial markers and floral placements) and services (interments, inurnments and installation of cemetery merchandise).
We provide funeral and cemetery services and products on both an “atneed” (time of death) and “preneed” (planned prior to death) basis.
CURRENT YEAR DEVELOPMENTS
Executive Team
On June 1, 2021, C. Benjamin Brink, Steven D. Metzger and Carlos R. Quezada were each promoted to Executive Vice President. Our Board of Directors (our “Board”) also appointed Carlos R. Quezada to serve as the Company’s Chief Operating Officer and Steven D. Metzger to serve as the Company's Chief Administrative Officer.
On February 23, 2022, our Board appointed Carlos R. Quezada to serve as the Company's President and Chief Operating Officer.
Share Repurchase Program
During 2021, our Board increased our share repurchase program authorization by an additional $125.0 million that, including the addition of amounts previously authorized and outstanding, totaled up to $190.0 million in share repurchase authorizations. During the year ended December 31, 2021, we repurchased 2,906,983 shares of common stock for a total cost of $142.5 million at an average cost of $49.01 per share pursuant to the share repurchase program. At December 31, 2021, we had $8.1 million remaining available for repurchase under our approved program.
Dividends
On October 27, 2021, our Board approved an increase of $0.05 per share for a total annual dividend of $0.45 per share beginning with the dividend declaration in the fourth quarter. During 2021, we paid $7.3 million in dividends.
Senior Notes and Credit Facility
On May 13, 2021, we completed the issuance of $400.0 million in aggregate principal amount of 4.25% Senior Notes due 2029 (the “Senior Notes”). In connection with the issuance of the Senior Notes, we entered into an amended and restated $150.0 million senior secured revolving credit facility (the “Credit Facility”).
We used the proceeds of $395.5 million from the offering of the Senior Notes, which are net of a 1.125% debt discount of $4.5 million, together with cash on hand and borrowings under the Credit Facility, to redeem all of our existing $400.0 million in aggregate principal amount of 6.625% senior notes due 2026 (the “Original Senior Notes”).
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On November 22, 2021, we entered into a first amendment and commitment increase to the Credit Facility with the financial institutions party thereto, as lenders, and Bank of America, N.A., as administrative agent. Pursuant to this amendment, the revolving credit commitment was increased from $150.0 million to $200.0 million.
Divestitures
During 2021, we sold two funeral homes and one cemetery for $2.5 million and real property for $5.2 million, for a total net gain of $0.9 million.
Litigation
Chinchilla v. Carriage Services, Inc., et al., Superior Court of California, San Joaquin County, Case No. STK-CV-UOE-2021-0004661. On May 19, 2021, a putative class action against the Company and several of our subsidiaries was filed. Plaintiff, a former employee, seeks monetary damages on behalf of himself and other similarly situated current and former non-exempt employees. Plaintiff claims that the Company failed to, among other things, pay minimum wages, provide meal and rest breaks, pay overtime, provide accurately itemized wage statements, reimburse employees for business expenses, and provide wages when due. On January 5, 2022, the parties mediated the matter and executed a Memorandum of Understanding for class settlement in the amount of $1.0 million. The parties will seek preliminary approval of the class settlement after executing a long-form class settlement agreement. At December 31, 2021, we accrued $1.1 million for the expected settlement amount and associated legal fees.
Business Impact under the Macroeconomic Environment of COVID-19
On March 11, 2020, COVID-19 was deemed a global pandemic and since then, the Company has continued to proactively monitor and assess the pandemic’s current and potential impact to the Company’s operations. Throughout the pandemic, the Company’s senior leadership team has taken steps to assist our businesses in appropriately adjusting and adapting to the conditions resulting from the COVID-19 pandemic.
Our businesses remain open and ready to provide service to their communities in this time of need. While our businesses provide an essential public function, along with a critical responsibility to the communities and families they serve, the health and safety of our employees and the families we serve remain our top priority. The Company took additional steps during this time to continually review and update our processes and procedures to comply with all regulatory mandates and procure additional supplies to ensure that each of our businesses have appropriate personal protective equipment to provide these essential services. The Company also implemented additional safety and precautionary measures as it concerns our businesses’ day-to-day interaction with the families and communities they serve.
The overall impact of the macroeconomic environment to the deathcare industry from the pandemic may provide varying results as compared to other industries. Our industry’s revenues are impacted by various factors, including the number of funeral services performed, the average price for a service and the mix of traditional burial versus cremation contracts. During 2021, changes in the macroeconomic environment as a result of the pandemic have, to this point, led to an increase in funeral volumes and the services we provide. Our businesses have remained focused on being innovative and resourceful, providing families immediate service as part of the grieving process.
Within our financial reporting environment, we have considered various areas that could affect the results of our operations, though the scope, severity and duration of these impacts remain uncertain at this time because the ultimate impact of COVID-19 remains uncertain, including the potential impacts of new variants of COVID-19, such as the Delta and Omicron variants, and any resulting government responses to such variants. We do not believe we are particularly vulnerable to concentrations, with respect to geographic area, revenue for specific products or our relationships with our vendors. Our relationships with our vendors and suppliers have remained consistent and we continue to receive reliable service. To date, we have not experienced any material supply chain impacts or disruptions from our vendors. Remote working arrangements, when utilized, have not materially affected our ability to maintain and support operations, including financial reporting systems, internal controls over financial reporting, and disclosure controls and procedures.
We believe our access to capital, the cost of our capital, or the sources and uses of our cash should be relatively consistent in the near term. While the expected duration of the pandemic is unknown, we have not currently experienced any material negative impacts to our liquidity position, access to capital, or cash flows as a result of COVID-19. See Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, Liquidity and Capital Resources for additional information related to our liquidity position.
During the latter half of 2021, we experienced a high growth rate in funeral home revenue due to elevated funeral volumes from broad market share gains and higher COVID-19 related deaths combined with incremental growth in the average revenue per funeral contract. We will continue to assess these impacts, including the potential impacts of new variants of COVID-19,
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such as the Delta and Omicron variants, and implement appropriate procedures, plans, strategy, and issue any disclosures that may be required, as the situation surrounding the pandemic and related regulatory mandates and restrictions, if any, evolves.
OUR OPERATIONS
See Part II, Item 8, Financial Statements and Supplementary Data, Note 21 for segment data related to our operations.
Funeral Home and Cemetery Operations
Our funeral home and cemetery operations are managed by a team of experienced industry and sales professionals with substantial leadership experience.
Given the high fixed-cost structure associated with funeral home operations, we believe the following are key factors affecting our profitability:
•our ability to establish and maintain market share positions supported by strong local heritage and relationships;
•our ability to effectively respond to the increasing trends towards cremation by bundling complimentary services and merchandise;
•our ability to successfully execute our Standards Operating Model;
•our ability to control salary, merchandise and other controllable costs;
•our ability to exercise pricing leverage related to our atneed business to increase average revenue per contract;
•demographic trends in terms of population growth and average age, which impact death rates and number of deaths; and
•our response to fluctuations in capital markets and interest rates, which affect investment earnings on trust funds and our securities portfolio within the trust funds, which would offset lower pricing power as preneed contracts mature.
Our cemetery operations are subject to many of the same profitability factors as our funeral home business, as well as the following key factors:
•size and success of our sales organization;
•local perceptions and heritage of our cemeteries;
•our ability to adapt to changes in the economy and consumer confidence; and
•our response to fluctuations in capital markets and interest rates, which affect investment earnings on trust funds, finance charges on installment contracts and our securities portfolio within the trust funds.
Personalization and pre-planning continue to be two important trends in the funeral and cemetery industry, but the national trend toward more cremations may be the most significant. While this trend is expected to continue, other factors are expected to lead to rising industry revenue, including an increase in spending on additional or unique funeral and cremation services. Shifting preferences will likely continue to lead to a considerable rise in cremations; as such, we are focused on educating and providing our cremation customers with additional services and products that are available. All of our funeral homes offer cremation products and services. While the average revenue for a cremation service is generally lower than that of an average traditional burial service, we have found that this revenue can be substantially enhanced by offering additional services and merchandise, including video tributes, flowers, burial garments and memorial items such as urns, keepsake jewelry and other items that hold a portion of the cremated remains.
We believe the following are our key strengths for our funeral home and cemetery operations:
Market Leader. We compete with other publicly held funeral and cemetery companies and smaller, independent operators and believe we are a market leader in most of our markets. We focus on markets that perform better than the industry average and are less subject to material economic and demographic changes.
High Performance, Decentralized, Partnership Culture. Our funeral homes and cemeteries are managed by entrepreneurially focused Managing Partners with extensive funeral and cemetery industry experience, often within their local markets. They are responsible for day-to-day operations and for growing the business by hiring, training and developing highly motivated and productive local teams. Our businesses are supported by a broader team of High Performance leaders across multiple disciplines in our support center located in Houston, Texas. This promotes more cooperation and synergy between our funeral and cemetery operations and supports the goal of market-share and volume growth in our most significant markets. We believe our decentralized and partnership culture is very attractive to owners of premier independent businesses that fit our profile of suitable acquisition candidates.
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Flexible Capital Structure and Strong Cash Flows. We believe our capital structure provides us with financial flexibility by allowing us to invest our cash in growth opportunities, such as business acquisitions and cemetery inventory projects. While we reassess our capital allocation strategy annually, we currently believe that our financial goals will best be achieved by continuing to improve the operating and financial performance of our existing portfolio of businesses while selectively investing our cash in growth opportunities that generate a return on invested capital in excess of our weighted average cost of capital. For additional information regarding our capital structure, please see Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, Liquidity and Capital Resources.
Strong Field-Level Gross Profit Margins. We believe that we have strong field-level gross profit margins and that this performance is a testament to the success of our business strategies. Our strong margins and the ability to control costs are important advantages in a business such as ours that is characterized by a high fixed-cost structure. We will continue to seek ways to improve our financial performance, and we believe that our Standards Operating Model will continue to yield long-term improvement in our financial results.
Integrated Information Systems. We have implemented information systems to support local business decisions and to monitor performance of our businesses compared to financial and performance standards. Additionally, we have innovative technological and digital tools that enhance our ability to serve our client families in a remote environment. To further enhance the services we provide to our client families, we have begun developing a multi-year strategy with a greater focus on leveraging technology, specifically with customer facing opportunities. All of our funeral homes and cemeteries are connected to our support center located in Houston, Texas, which allows us to monitor and assess critical operating and financial data and analyze the performance of individual locations on a timely basis. Furthermore, our information system infrastructure provides senior management with a critical tool for monitoring and adhering to our established internal controls, which is critical given our decentralized model and the sensitive nature of our business operations.
Proven Leadership Team. Our leadership team, headed by our founder, Chairman and Chief Executive Officer, Melvin C. Payne, is characterized by a dynamic culture that focuses on addressing changing market conditions and emerging trends in the funeral services industry. We believe our culture of emphasizing the 4E (Energy, Energize Others, Edge and Execution) leadership characteristics is critical and will provide an important advantage as the funeral and cemetery industry evolves. We are committed to continue operating an efficient organization and strengthening our corporate and local business leadership.
Preneed Programs
Funeral and cemetery arrangements sold prior to death occurring are referred to as preneed contracts. We market funeral and cemetery services and products on a preneed basis at the local level. We operate under a decentralized preneed sales strategy whereby each business location customizes its preneed program to its local needs.
Preneed funeral or cemetery contracts enable families to establish, in advance, the type of service to be performed, the products to be used and the cost of such products and services. Preneed contracts permit families to eliminate the burden of making deathcare plans at the time of need and allow input from other family members before the death occurs. We guarantee the price and performance of the preneed contracts to the customer.
Approximately 15% of our funeral services performed are funded through preneed contracts, which are usually secured by placing the funds collected in trust for the benefit of the customer or by the purchase of a life insurance policy, the proceeds of which will pay for such services at the time of need. Insurance-funded contracts allow us to earn commission income to improve our near-term cash flow and offset a significant amount of the up-front costs associated with preneed sales. Trust funded contracts typically provide cash that is invested in various securities with the expectation that returns will exceed the growth factor in the insurance contracts. The cash flow and earnings from insurance contracts are more stable, but are generally lower than traditional trust fund investments. In markets that depend on preneed sales for market share, we supplement the arrangements written by our local funeral directors with sales sourced by our own sales counselors and by third party sellers. We sold 7,525 and 9,563 preneed funeral contracts, net of cancellations, during the years ended December 31, 2020 and 2021, respectively. At December 31, 2021, we had a backlog of 97,203 preneed funeral contracts to be delivered in the future.
In addition to preneed funeral contracts, we also offer “pre-planned” funeral arrangements whereby a customer determines in advance substantially all of the details of a funeral service without any financial commitment or other obligation on the part of the client until the actual time of need. Pre-planned funeral arrangements permit a family to avoid the burden of making deathcare plans at the time of need and enable a funeral home to establish relationships with a client that may eventually lead to an atneed sale.
Approximately 50% of our cemetery operating revenue is derived from preneed property sales. Our preneed cemetery strategy is to build family heritage in our cemeteries by selling property and interment rights prior to death through full time, highly motivated and entrepreneurial local sales teams. Our goal is to build broader and deeper teams of sales leaders and counselors in our larger and more strategically located cemeteries, including the development of standardized sales systems across our portfolio of cemeteries, in order to focus on growth of our preneed property sales. For example, during 2021, we
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continued to grow our cemetery sales and marketing team to develop and implement our standardized sales system. Cemetery merchandise and services are often purchased in addition to cemetery property at the time of sale. The performance of these preneed cemetery contracts is secured by placing the funds collected in trust for the benefit of the customer, the proceeds of which will pay for such services at the time of need. General consumer confidence and discretionary income may have a significant impact on our preneed sales success rate. Cemetery revenue that originated from preneed contracts represented approximately 67% of our total cemetery revenue for both 2020 and 2021. At December 31, 2021, we had a backlog of 65,694 preneed cemetery contracts to be delivered in the future.
Trust Funds and Insurance Contracts
We have established a variety of trusts in connection with funeral home and cemetery operations as required under applicable state laws. Such trusts include (i) preneed funeral trusts; (ii) preneed cemetery merchandise and service trusts; and (iii) cemetery perpetual care trusts. These trusts are typically administered by independent financial institutions that we select. Investment management and advisory services are provided either by our wholly-owned registered investment advisory firm (“CSV RIA”) or by independent financial advisors. As of December 31, 2021, CSV RIA provided these services to approximately 80% of our trust assets, for a fee based on the market value of trust assets. Under state trust laws, we are allowed to charge the trust a fee for advising on the investment of the trust assets and these fees are recognized as income in the period in which services are provided. The investment advisors establish an investment policy that provides guidance on asset allocation, investment requirements, investment manager selection and performance monitoring. The investment objectives are tailored to generate long-term investment returns without assuming undue risk, while ensuring the management of assets complies with applicable laws.
Preneed sales generally require deposits to a trust or purchase of a third-party insurance product. Trust fund income earned, along with the receipt and recognition of any insurance benefits, are not reflected in our revenue until the service is performed or the merchandise is delivered. Trust fund holdings and deferred revenue are reflected on our Consolidated Balance Sheet, while our insurance funded contracts are not reflected on our Consolidated Balance Sheet. In most states, we are not permitted to withdraw principal or investment income from such trusts until the service is performed. Additionally, in most states, regulations require a portion (generally 10%) of the sale amount of cemetery property and memorials to be placed in a perpetual care trust. The income from these perpetual care trusts provides funds necessary to maintain cemetery property and memorials in perpetuity.
For additional information with respect to our trusts, see Part II, Item 8, Financial Statements and Supplementary Data, Note 7.
BUSINESS STRATEGY
Our business strategy is based on strong, local leadership with entrepreneurial principles that is focused on sustainable long-term market share, revenue, and profitability growth in each local business. We believe Carriage has the most innovative operating model in the funeral and cemetery industry, which we are able to achieve through a decentralized, high-performance culture and operating framework linked with incentive compensation programs that attract top-quality industry talent to our organization. We also believe that Carriage provides a unique consolidation and operating framework that offers a highly attractive succession planning solution for independent funeral home owners who want their legacy family business to remain operationally prosperous in their local communities.
Our Mission Statement states that “we are committed to being the most professional, ethical and highest quality funeral and cemetery service organization in our industry” and our Guiding Principles state our core values, which are comprised of:
•Honesty, integrity and quality in all that we do;
•Hard work, pride of accomplishment and shared success through employee ownership;
•Belief in the power of people through individual initiative and teamwork;
•Outstanding service and profitability go hand-in-hand; and
•Growth of the Company is driven by decentralization and partnership.
Our five Guiding Principles collectively embody our Being The Best high-performance culture and operating framework.
Our operations and business strategy are built upon the execution of the following three models:
•Standards Operating Model;
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•4E Leadership Model; and
•Strategic Acquisition Model.
Standards Operating Model
Our Standards Operating Model is focused on growing local market share, providing personalized high-value services to our client families and guests, and operating financial metrics that drive long-term, sustainable revenue growth and improved earning power of our portfolio of businesses by employing leadership and entrepreneurial principles that fit the nature of our high-value personal service business. Standards Achievement is the measure by which we judge the success of each business and incentivize our local managers and their teams. Our Standards Operating Model is not designed to produce maximum short-term earnings because we believe such performance is unsustainable and will ultimately stress the business, which very often leads to declining market share, revenue and earnings.
Important elements of our Standards Operating Model include:
•Balanced Operating Model – We believe a decentralized structure works best in the funeral and cemetery industry. Successful execution of our Standards Operating Model is highly dependent on strong local leadership, intelligent risk taking, entrepreneurial drive and corporate support aligned with the key drivers of a successful operation organized around three primary areas - market share, high-value services and operating financial metrics.
•Incentives Aligned with Standards – Empowering local managers, who we call Managing Partners, to do the right things in their operations and local communities, and providing appropriate support with operating and financial practices, will enable long-term growth and sustainable profitability. Each Managing Partner participates in a variable bonus plan whereby he or she earns a percentage of his or her respective business’ earnings based upon the actual standards achieved as long as the performance exceeds our minimum standards.
•The Right Local Leadership – Successful execution of our operating model is highly dependent on strong local leadership as defined by our 4E Leadership Model, intelligent risk taking and entrepreneurial empowerment. A Managing Partner’s performance is judged according to achievement of the standards for that business.
4E Leadership Model
Our 4E Leadership Model requires strong local leadership in each business to grow an entrepreneurial, decentralized, high-value, personal service and sales business at sustainable profit margins. Our 4E Leadership Model is based upon principles established by Jack Welch during his tenure at General Electric, and is based upon 4E qualities essential to succeed in a high-performance culture: Energy to get the job done; the ability to Energize others; the Edge necessary to make difficult decisions; and the ability to Execute and produce results. To achieve a high level within our Standards in a business year after year, we require our Managing Partners that have the 4E Leadership skills to entrepreneurially grow the business by hiring, training and developing highly motivated and productive local teams.
Strategic Acquisition Model
Our Standards Operating Model led to the development of our Strategic Acquisition Model, which guides our acquisition strategy. We believe that both models, when executed effectively, will drive long-term, sustainable increases in market share, revenue, earnings and cash flow. We believe a primary driver of higher revenue and profits in the future will be the execution of our Strategic Acquisition Model using strategic ranking criteria to assess acquisition candidates. As we execute this strategy over time, we expect to acquire larger, higher margin strategic businesses.
We have learned that the long-term growth or decline of a local branded funeral and cemetery business is reflected by several criteria that correlate strongly with five to ten year performance in volumes (market share), revenue and sustainable field-level earnings before interest, taxes, depreciation and amortization (“EBITDA”) margins (a non-GAAP measure). We use criteria such as cultural alignment, volume and price trends, size of business, size of market, competitive standing, demographics, strength of brand and barriers to entry to evaluate the strategic position of potential acquisition candidates. Our financial valuation of the acquisition candidate is then determined through the application of an appropriate after-tax cash return on investment that exceeds our cost of capital.
Our belief in our Mission Statement and Guiding Principles and proper execution of the three models that define our strategy have given us a competitive advantage in every market where we compete. We believe that we can execute our three models without proportionate incremental investment in our consolidation platform infrastructure and without additional fixed regional and corporate overhead. This gives us a competitive advantage that is evidenced by the sustained earning power of our portfolio as defined by our EBITDA margin.
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COMPETITION
The operating environment in the funeral and cemetery industry has been highly competitive. The largest publicly held operators, in terms of revenue, of both funeral homes and cemeteries with operations in the United States are Service Corporation International (“SCI”), StoneMor, Inc. (“StoneMor”), Park Lawn Corporation (“Park Lawn”) and Carriage. We believe these four companies collectively represent approximately 25% of funeral and cemetery revenue in the United States Independent businesses, along with a few privately-owned consolidators, represent the remaining amount of industry revenue, accounting for an estimated 75% share of revenue.
Our funeral home and cemetery operations face competition in the markets that they serve. Our primary competition in most of our markets is from local independent operators. We have observed new start-up competition in certain areas of the country, which may impact our profitability in certain markets. Market share for funeral homes and cemeteries is largely a function of reputation and heritage, although competitive pricing, professional service and attractive, well-maintained and conveniently located facilities are also important. Because of the importance of reputation and heritage, market share increases are usually gained over a long period of time. The sale of preneed funeral services and cemetery property has increasingly been used by many companies as a marketing tool to build market share.
There has been increasing competition from providers specializing in specific services, such as cremations, who offer minimal service and low-end pricing. We also face competition from companies that market products and related merchandise over the internet and non-traditional casket stores in certain markets. These competitors have been successful in capturing a portion of the low-end market and product sales.
SEASONALITY
Our business can be affected by seasonal fluctuations in the death rate and may be further affected by epidemics and pandemics, like COVID-19. Generally, the number of deaths is higher during the winter months because the incidences of death from influenza and pneumonia are higher during this period than other periods of the year. However, we have experienced fluctuations in the death rate due to COVID-19, although the duration of these impacts on the death rate remain uncertain at this time because the ultimate impact of COVID-19 remains uncertain.
REGULATION
General. Our operations are subject to regulations, supervision and licensing under numerous federal, state and local laws, ordinances and regulations, including extensive regulations concerning trust funds, preneed sales of funeral and cemetery products and services and various other aspects of our business. We believe that we comply in all material respects with the provisions of these laws, ordinances and regulations. Legislative bodies and regulatory agencies frequently propose new laws and regulations, some of which could have a material impact on our business. We cannot predict the impact of any future laws and regulations or changes to existing laws and regulations.
Federal Trade Commission. Our funeral home operations are comprehensively regulated by the Federal Trade Commission (“FTC”) under Section 5 of the Federal Trade Commission Act and a trade regulation rule for the funeral industry promulgated thereunder referred to as the “Funeral Rule.” The Funeral Rule defines certain acts or practices as unfair or deceptive and contains certain requirements to prevent these acts or practices. The preventive measures require a funeral provider to give consumers accurate, itemized pricing information and various other disclosures about funeral goods and services and prohibit a funeral provider from: (i) misrepresenting legal, crematory and cemetery requirements; (ii) embalming for a fee without permission; (iii) requiring the purchase of a casket for direct cremation; (iv) requiring consumers to buy certain funeral goods or services as condition for furnishing other funeral goods or services; (v) misrepresenting state and local requirements for an outer burial container; and (vi) representing that funeral goods and services have preservative and protective value. Additionally, the Funeral Rule requires the disclosure of mark-ups, commissions, additional charges and rebates related to cash advance items. On February 4, 2020, the FTC has announced that it is reviewing the Funeral Rule, which may result in changes to the Funeral Rule. Among the subjects under review by the FTC is whether the scope of the Funeral Rule should be expanded to cover cemetery sales and merchandise and mandated disclosure of online pricing. We cannot predict what changes, if any, may be made to the Funeral Rule or the impact of any such changes on our business.
State Trust Laws. We have established a variety of trusts in connection with funeral home and cemetery operations as required under applicable state laws. Such trusts include (i) preneed funeral trusts; (ii) preneed cemetery merchandise and service trusts; and (iii) cemetery perpetual care trusts. These trusts are typically administered by independent financial institutions which we select. Under state trust laws, our wholly owned registered investment advisor is allowed to charge the trust a fee for advising on the investment of the trust assets and these fees are recognized as income in the period in which services are provided. Preneed funeral sales generally require deposits to a trust or purchase of a third-party insurance product. In most states, we are not permitted to withdraw principal or investment income from such trusts until the funeral service is performed. Some states, however, allow for the retention of a percentage (generally 10%) of the receipts to offset any
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administrative and selling expenses. Additionally, we are generally required under applicable state laws to deposit a specified amount (which varies from state to state, generally 50% to 100% of the selling price) into a merchandise and service trust fund for preneed cemetery merchandise and services sales.
Environmental. Our operations are also subject to certain federal, regional, state and local laws and regulations relating to environmental protection, including legal requirements governing air emissions, waste management and disposal and wastewater discharges. For instance, the federal Clean Air Act and analogous state laws, which restrict the emission of pollutants from many sources, including crematories, may require us to apply for and obtain air emissions permits, install costly emissions control equipment, and conduct monitoring and reporting tasks. Also, in the course of our operations, we store and use chemicals and other regulated substances as well as generate wastes that may subject us to strict liability under the federal Resource Conservation and Recovery Act and comparable state laws, which govern the treatment, storage, and disposal of nonhazardous and hazardous wastes, and the federal Comprehensive Environmental Response, Compensation and Liability Act, a remedial statute that imposes cleanup obligations on current and past owners or operators of facilities where hazardous substance releases occurred and anyone who transported or disposed or arranged for the transportation or disposal of hazardous substances released into the environment from such sites. In addition, the Federal Water Pollution Control Act, also known as the federal Clean Water Act, and analogous state laws regulate discharges of pollutants to state and federal waters. Underground and above ground storage tanks that store chemicals and fuels for vehicle maintenance or general operations are located at certain of our facilities and any spills or releases from those facilities may cause us to incur remedial liabilities under the Clean Water Act or analogous state laws as well as potential liabilities for damages to properties or persons. Failure to comply with environmental laws and regulations could result in the assessment of sanctions, including administrative, civil, and criminal penalties, the imposition of investigatory, remedial and corrective action obligations, delays in permitting or performance of projects and the issuance of injunctions restricting or prohibiting some or all of our activities in affected areas. Moreover, accidental releases or spills may occur in the course of our operations, and we cannot assure that we will not incur significant costs and liabilities as a result of such releases or spills, including any third party claims for damages to property, natural resources or persons. Also, it is possible that implementation of stricter environmental laws and regulations or more stringent enforcement of existing environmental requirements could result in additional, currently unidentifiable costs or liabilities to us, such as requirements to purchase pollution control equipment or implement operational changes or improvements. While we believe we are in compliance with existing environmental laws and regulations, we cannot assure that we will not incur substantial costs in the future.
Worker Health and Safety. We are subject to the requirements of the federal Occupational Safety and Health Act, as amended (“OSHA”), and comparable state statutes whose purpose is to protect the health and safety of workers. In addition, the OSHA hazard communication standard, the Emergency Planning and Community Right to Know Act and implementing regulations and similar state statutes and regulations require that we organize and/or disclose information about hazardous materials used or produced in our operations and that this information be provided to employees, state and local governmental authorities and citizens. We believe that we are in compliance with all applicable laws and regulations relating to worker health and safety.
HUMAN CAPITAL
Our funeral homes and cemeteries are managed by entrepreneurially focused Managing Partners with extensive funeral and cemetery industry experience. They have responsibility for day-to-day operations and follow operating and financial metrics called “Standards” within our Standards Operating Model. Standards Achievement is the measure by which we judge the Managing Partner's performance and how we incentivize our Managing Partners and their teams. To achieve a high level within our Standards in a business year after year, we require local Managing Partners that have the 4E Leadership skills to entrepreneurially grow the business by hiring, training and developing highly motivated and productive local teams. See Part I, Item 1, Business Strategy for additional details about our Standards Operating Model and 4E Leadership Model. Additionally, we utilize short-term and long-term incentive performance programs to attract and retain talent in critical positions, ranging from sales counselors and sales managers to Houston support center leaders and employees.
As of December 31, 2021, we and our subsidiaries employed 2,657 employees, of whom 1,139 were full-time and 1,518 were part-time. All of our funeral directors and embalmers possess licenses required by applicable regulatory agencies. None of our employees are represented by unions.
AVAILABLE INFORMATION
We file annual, quarterly and other reports, and any amendments to those reports, and information with the United States Securities and Exchange Commission (“SEC”). The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us.
Our website address is www.carriageservices.com. Available on our website under “Investors – SEC Filings,” free of charge, are Carriage’s annual reports on Form 10-K, quarterly reports on Form 10-Q, proxy statements, current reports on
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Form 8-K, insider reports on Forms 3, 4 and 5 filed on behalf of directors and officers and amendments to those reports as soon as reasonably practicable after such materials are electronically filed with or furnished to the SEC.
Also posted on our website, and available in print upon request, are charters for our Audit Committee, Compensation Committee and Corporate Governance Committee. Copies of the Code of Business Conduct and Ethics and the Corporate Governance Guidelines are also posted on our website under “Investors – Corporate Governance.” Within the time period required by the SEC and the New York Stock Exchange, we will post on our website any modifications to the charters and any waivers applicable to senior officers as defined in the applicable charters, as required by the Sarbanes-Oxley Act of 2002. Information contained on our website is not part of this Annual Report on Form 10-K.
ITEM 1A. RISK FACTORS
RISKS RELATED TO OUR BUSINESS
Key Employees and Compensation
The success of our businesses is typically dependent upon one or a few key employees for success because of the localized and personal nature of our business.
Funeral home and cemetery businesses have built local heritage and tradition through successive generations, providing a foundation for ongoing business opportunities from established client family relationships and related referrals. We believe these relationships build trust in the community and are a key driver to market share. Our businesses, which tend to serve small local markets, usually have one or a few key employees that drive our relationships. Our ability to attract and retain Managing Partners, sales force and other personnel is an important factor in achieving future success. We can give no assurance that we can retain these employees or that these relationships will drive market share. Our inability to attract and maintain qualified and productive Managing Partners and sales force could have a material adverse effect on our financial condition, results of operations and cash flows.
Our “Good To Great” incentive program could result in significant future payments to our Managing Partners.
Our Good To Great incentive program rewards our Managing Partners for achieving an average net revenue compounded annual growth rate equal to at least 1% (the “Minimum Growth Rate”) over a five year performance period (the “Performance Period”) with respect to our funeral homes that they operate, which aligns our incentives with long-term value creation. Each Managing Partner that achieves the Minimum Growth Rate during the applicable Performance Period and remains continuously employed as a Managing Partner of the same business throughout the Performance Period will receive a one-time bonus, payable in a combination of cash and shares of our common stock, determined at our discretion. We believe this incentive program will result in improved field-level margins, market share and overall financial performance.
Our “Good To Great II” incentive program could result in the issuance of a significant number of shares of common
stock to certain critical employees.
Our Good To Great II incentive program rewards certain employees who are not Managing Partners in alignment with the incentive programs for our Managing Partners. Specifically, the Good To Great II incentive program is tied to the future performance of the Company and requires the Company’s share price to reach one of five predetermined Common Stock Price Averages (as defined by the program) through a performance period ending December 31, 2024 in order for the award to be earned by the participants of the program. While the program aligns our incentives with long-term value creation, there is a potential risk of dilution to our shareholders if we achieve the highest performance tier under the Good To Great II incentive program, which equals a Common Stock Price Average (as defined by the program) of $77.34 per share. At December 31, 2021, under such a scenario, a total of 1,052,532 shares of common stock would be awarded to participants under the program. We believe this incentive program will result in improved overall financial performance.
Strategic Business Execution and Performance
Improved performance in our funeral and cemetery segments is dependent upon successful execution of our Standards Operating Model.
We have implemented our Standards Operating Model to improve and better measure performance in our funeral and cemetery operations. We developed standards according to criteria, each with a different weighting, designed around market share, high-value services and operational and financial metrics. We also incentivize our location Managing Partners by giving them the opportunity to earn a fixed percentage of the field-level earnings before interest, taxes, depreciation and amortization based upon the number and weighting of the standards achieved. Our expectation is that, over time, the Standards Operating Model will result in improving field-level margins, market share, customer satisfaction and overall financial performance, but
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there is no assurance that these goals will be met. Failure to successfully implement our Standards Operating Model in our funeral and cemetery operations could have a material adverse effect on our financial condition, results of operations and cash flows.
Our ability to execute our growth strategy is highly dependent upon our ability to successfully identify suitable acquisition candidates and negotiate transactions on favorable terms.
There is no assurance that we will be able to continue to identify acquisition candidates that meet our criteria or that we will be able to reach terms with identified candidates for transactions that are acceptable to us, and even if we do, we may not be able to successfully complete the transaction or integrate the new business into our existing business. We intend to apply standards established under our Strategic Acquisition Model to evaluate acquisition candidates, and there is no assurance that we will continue to be successful in doing so or that we will find attractive candidates that satisfy these standards. Due in part to the presence of competitors who have been in certain markets longer than we have, such acquisitions or investments may be more difficult or expensive than we anticipate.
Divestitures could negatively impact our business and retained liabilities from businesses that we sell could adversely affect our financial results.
As part of our growth strategy, we periodically review our businesses which may no longer be aligned with our strategic business plan and long-term objectives and, as a result of these reviews of our businesses we may pursue additional divestitures. From time to time, we engage in discussions with third parties about potential divestitures of one or more of our businesses that, if fully consummated, could result in the divestiture of a material amount of assets and contribution to our results of operations that have historically contributed to our results of operations. Divestitures pose risks and challenges that could negatively impact our business, including disputes with buyers or potential impairment charges. For example, when we decide to sell a business, we may be unable to do so on our terms and within our anticipated time-frame, and even after reaching a definitive agreement to sell a business, the sale may be subject to satisfaction of pre-closing conditions, which may not be satisfied, as well as regulatory and governmental approvals, which may prevent us from completing a transaction on acceptable terms. If we do not realize the expected benefits of any divestiture transaction, our financial condition, results of operations, and cash flows could be materially adversely affected. For more information related to our divestitures, see Part II, Item 8, Financial Statements and Supplementary Data, Note 5.
Competitive Marketplace
The funeral and cemetery industry is competitive.
The funeral and cemetery industry is characterized by a large number of locally-owned, independent operations in the United States and a large number of operations owned by publicly and privately-held funeral home and cemetery consolidators. To compete successfully, our funeral service locations and cemeteries must maintain good reputations and high professional standards, as well as offer attractive products and services at competitive prices. In addition, we must market ourselves in such a manner as to distinguish us from our competitors. We have historically experienced price competition from independent and publicly held funeral service and cemetery operators, monument dealers, casket retailers, low-cost providers, and other nontraditional providers of merchandise and services. If we are unable to successfully compete, our financial condition, results of operations, and cash flows could be materially adversely affected.
Marketing and sales activities by existing and new competitors could cause us to lose market share and lead to lower revenue and margins.
We face competition in all of our markets. Most of our competitors are independently owned, and some are relatively recent market entrants. Some of the recent entrants are individuals who were formerly employed by us or by our competitors and have relationships and name recognition within our markets. As a group, independent competitors tend to be aggressive in distinguishing themselves by their independent ownership, and they promote their independence through television, radio and print advertising, direct mailings and personal contact. Increasing pressures from new market entrants and continued advertising and marketing by competitors in local markets could cause us to lose market share and revenue. The types of services and the prices offered for such services by our competitors may attract customers, causing us to lose market share and revenue as well as to incur costs in response to competition to vary the types or mix of products or services offered by us.
Price competition could also reduce our market share or cause us to reduce prices to retain or recapture market share, either of which could reduce revenue and margins.
We have historically experienced price competition primarily from independent funeral home and cemetery operators, and from monument dealers, casket retailers, low-cost providers and other non-traditional providers of services or products. New market entrants tend to attempt to build market share by offering lower cost alternatives. In the past, this price competition has resulted in our losing market share in some markets. In other markets, we have had to reduce prices or offer discounts thereby
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reducing profit margins in order to retain or recapture market share. Increased price competition in the future could further reduce revenue, profits and our preneed backlog.
Change in Preneed Sales
Our ability to generate preneed sales depends on a number of factors, including sales incentives and local and general economic conditions.
Significant declines in preneed sales would reduce our backlog and revenue and could reduce our future market share. On the other hand, a significant increase in preneed sales can have a negative impact on cash flow as a result of commissions and other costs incurred initially without corresponding revenue.
As we have localized our preneed sales strategies, we are continuing to refine the mix of service and product offerings in both our funeral and cemetery segments, including changes in our sales commission and incentive structure. These changes could cause us to experience declines in preneed sales in the near term. In addition, economic conditions at the local or national level could cause declines in preneed sales either as a result of less discretionary income or lower consumer confidence. Declines in preneed cemetery property sales reduces current revenue, and declines in other preneed sales would reduce our backlog and future revenue and could reduce future market share.
Increased preneed sales could have a negative impact on our cash flows.
Preneed sales of funeral and cemetery products and services generally have an initial negative impact on our cash flows, as we are required in certain states to deposit a portion of the sales proceeds into trusts or escrow accounts and often incur other expenses at the time of sale. Furthermore, many preneed purchases are paid for in installments over a period of several years, further limiting our cash flows at the time of sale. Because preneed sales generally provide positive cash flows over the long term, we market the sale of such contracts at the local level. If our efforts to increase such sales are successful, however, our current cash flows could be materially and adversely affected, in the near term.
Trust Fund and Life Insurance Contracts
Our funeral and cemetery trust funds own investments in equity securities, fixed income securities, and mutual funds, which are affected by market conditions that are beyond our control.
In connection with our backlog of preneed funeral and preneed cemetery merchandise and service contracts, funeral and cemetery trust funds own investments in equity securities, fixed income securities and mutual funds. Our returns on these investments are affected by financial market conditions that are beyond our control.
The following table summarizes our investment returns (realized and unrealized), excluding certain fees, on our trust funds for the years ended December 31, 2019, 2020 and 2021:

| 2019 |  | 2020 |  | 2021
Preneed funeral trust funds | 21.2 | % |  | 13.5 | % |  | 16.0 | %
Preneed cemetery trust funds | 26.0 | % |  | 15.5 | % |  | 19.3 | %
Perpetual care trust funds | 25.2 | % |  | 16.8 | % |  | 19.1 | %

Generally, earnings or gains and losses on our preneed funeral and cemetery trust investments are recognized, and we withdraw cash, when the underlying service is performed, merchandise is delivered, or upon contract cancellation. Our cemetery perpetual care trusts recognize earnings, and in certain states, capital gains and losses, and we withdraw cash when we incur qualifying cemetery maintenance costs. If the investments in our trust funds experience significant, recurring and sustained declines in subsequent years, there could be insufficient funds in the trusts to cover the costs of delivering services and merchandise or maintaining cemeteries in the future. We may be required to cover any such shortfall with cash flows from operations or other sources of cash, which could have a material adverse effect on our financial condition, results of operations or cash flows. For more information related to our trust investments, see Part II, Item 8, Financial Statements and Supplementary Data, Note 7.
If the fair market value of these trusts, plus any other amount due to us upon delivery of the associated contracts, were to decline below the estimated costs to deliver the underlying products and services at maturity, we would record a charge to earnings for the expected losses on the delivery of the associated contracts. For additional information, see Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, Critical Accounting Policies and Estimates.
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Earnings from and principal of trust funds could be reduced by changes in financial markets and the mix of securities owned.
Earnings and investment gains and losses on trust funds are affected by financial market conditions and the specific fixed-income and equity securities that we choose to maintain in the funds. We may not choose the optimal mix for any particular market condition. Declines in earnings from perpetual care trust funds would cause a decline in current revenue, while declines in earnings from other trust funds could cause a decline in future cash flows and revenue.
We may be required to replenish our funeral and cemetery trust funds in order to meet minimum funding requirements, which would have a negative effect on our earnings and cash flow.
Some states have laws that either require replenishment of investment losses under certain circumstances or impose various restrictions on withdrawals of future earnings when trust fund values drop below certain prescribed amounts. In the event of realized losses or market declines, we may be required to deposit portions or all of these amounts into the respective trusts in some future period.
Increasing death benefits related to preneed funeral contracts funded through life insurance contracts may not cover future increases in the cost of providing a price-guaranteed funeral service.
We sell price-guaranteed preneed funeral contracts through various programs providing for future funeral services at prices prevailing when the agreements are signed. For preneed funeral contracts funded through life insurance contracts, we receive in cash a general agency commission from the third-party insurance company. Additionally, there is an increasing death benefit associated with the contract that may vary over the contract life. There is no guarantee that the increasing death benefit will cover future increases in the cost of providing a price-guaranteed funeral service, and any such excess cost could be materially adverse to our future cash flows, revenue, and operating margins.
The financial condition of third-party insurance companies that fund our preneed funeral contracts may impact our future revenue.
Where permitted by state law, our customers may arrange their preneed funeral contract by purchasing a life insurance policy from third-party insurance companies. The customer/policy holder assigns the policy benefits to our funeral home to pay for the preneed funeral contract at the time of need. If the financial condition of the third-party insurance companies were to deteriorate materially because of market conditions or otherwise, there could be an adverse effect on our ability to collect all or part of the proceeds of the life insurance policy, including the annual increase in the death benefit, when we fulfill the preneed contract at the time of need. Failure to collect such proceeds could have a material adverse effect on our financial condition, results of operations, or cash flows.
Tax Changes
Changes in taxation as well as the inherent difficulty in quantifying potential tax effects of business decisions could have a material adverse effect on the results of our operations, financial condition, or cash flows.
We make judgments regarding the utilization of existing income tax credits and the potential tax effects of various financial transactions and results of operations to estimate our obligations to taxing authorities. Tax obligations include income, franchise, real estate, sales and use, and employment-related taxes. These judgments include reserves for potential adverse outcomes regarding our tax positions. Changes in federal, state, or local tax laws, adverse tax audit results, or adverse tax rulings on positions taken could have a material adverse effect on the results of our operations, financial condition, or cash flows.
New or revised tax regulations could have a material effect on our financial statements
New tax laws or regulations could be enacted at any time, and existing tax laws or regulations could be interpreted, amended, or applied in a manner that has a material effect on us, which could materially impact our business and financial condition. For example, on March 27, 2020, the CARES Act was enacted in response to the macroeconomic environment conditions posed by COVID-19. The CARES Act is a sweeping stimulus bill intended to bolster the U.S. economy, among other things, and provide emergency assistance to qualifying businesses and individuals. Under the CARES Act, the primary areas that should be considered for future earnings and cash impact are the changes to the interest expense limitation threshold and the technical correction to the Tax Cuts and Jobs Act regarding the qualified improvement property now being eligible for full expensing. Based on available guidance, we believe that the legislative changes will have a positive impact on our earnings and cash flow. As the enacted legislation includes provisions that would expire after certain periods of time, the fact that our business has the potential to change its operating situation, and the existence of potential changes by state tax authorities related to conformity with federal tax regulations, the possibility exists that the future benefit of the legislation could change. In
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addition, it is uncertain if, and to what extent, various states will conform to the CARES Act, or any new or revised federal tax legislation will be enacted.
Litigation and Claims
Unfavorable results of litigation could have a material adverse impact on our financial statements.
We are subject to a variety of claims and lawsuits in the ordinary course of our business. Adverse outcomes in potential litigation related to our business may result in significant monetary damages or injunctive relief against us, as litigation and other claims are subject to inherent uncertainties. Any such adverse outcomes that may arise in the future, could have a material adverse impact on our financial position, results of operations, and cash flows.
RISKS RELATED TO THE FUNERAL AND CEMETERY INDUSTRY
Changes in Death Rates and Consumer Preferences
Declines in the number of deaths in our markets can cause a decrease in revenue. Changes in the number of deaths are not predictable from market to market or over the short term.
Declines in the number of deaths could cause atneed sales of funeral and cemetery services, property and merchandise to decline, which could decrease revenue. Although the United States Bureau of the Census estimates that the number of deaths in the United States will increase in the future, longer life spans could reduce the rate of deaths. In addition, changes in the number of deaths can vary among local markets and from quarter to quarter, and variations in the number of deaths in our markets or from quarter to quarter are not predictable. For example, we have seen the COVID-19 pandemic affect the death rate, with a result of increased deaths. These variations may cause our revenue to fluctuate and our results of operations to lack predictability.
The increasing number of cremations in the United States could cause revenue to decline because we could lose market share to firms specializing in cremations and because our average revenue for cremations is lower than that for traditional burials.
Our traditional cemetery and funeral service operations face competition from the increasing number of cremations in the United States. Industry studies indicate that the percentage of cremations has increased every year and this trend is expected to continue into the future. The trend toward cremation could cause cemeteries and traditional funeral homes to lose market share and revenue to firms specializing in cremations. Additionally, our average revenue for cremations is lower than that for traditional burials. If we are unable to continue to expand our cremation memorialization products and services, and cremations remain or increase as a significant percentage of our services, our financial condition, results of operations, and cash flows could be materially adversely affected.
If we are not able to respond effectively to changing consumer preferences, our market share, revenue and profitability could decrease.
Future market share, revenue and profits will depend in part on our ability to anticipate, identify and respond to changing consumer preferences. In past years, we have implemented new product and service strategies based on results of customer surveys that we conduct on a continuous basis. However, we may not correctly anticipate or identify trends in consumer preferences, or we may identify them later than our competitors. In addition, any strategies we may implement to address these trends may prove incorrect or ineffective.
Because the funeral and cemetery businesses are high fixed-cost businesses, changes in revenue can have a disproportionately large effect on cash flow and profits.
Funeral home and cemetery businesses incur the costs of operating and maintaining facilities, land and equipment regardless of the level of sales in any given period. For example, we must pay salaries, utilities, property taxes and maintenance costs on funeral homes and maintain the grounds of cemeteries regardless of the number of funeral services or interments performed. Because we cannot decrease these costs significantly or rapidly when we experience declines in sales, those declines can cause margins, profits and cash flow to decrease at a greater rate than the decline in revenue.
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Regulatory Changes
Changes or increases in, or failure to comply with, regulations applicable to our business could increase costs or decrease cash flows.
The funeral and cemetery industry is subject to extensive and evolving regulation and licensing requirements under federal, state and local laws. For example, the funeral industry is regulated by the FTC, which requires funeral homes to take actions designed to protect consumers. State laws impose licensing requirements and regulate preneed sales. As such, we are subject to state trust fund and preneed sales practice audits, which could result in audit adjustments as a result of non-compliance. In addition, we may assume the liability for any audit adjustments for our acquired businesses for periods under audit that were prior to our ownership of the business depending upon the obligations outlined in the agreement. These audit adjustments could have a material adverse impact on our financial condition, results of operations and cash flows.
Embalming and cremation facilities are subject to stringent environmental and health regulations. Compliance with these regulations is burdensome, and we are always at risk of not complying with the regulations or facing costly and burdensome investigations from regulatory authorities.
In addition, from time to time, governments and agencies propose to amend or add regulations, which could increase costs or decrease cash flows. Several states and regulatory agencies have considered or are considering regulations that could require more liberal refund and cancellation policies for preneed sales of products and services, limit or eliminate our ability to use surety bonding, increase trust requirements and/or prohibit the common ownership of funeral homes and cemeteries in the same market. If adopted by the regulatory authorities of the jurisdictions in which we operate, these and other possible proposals could have a material adverse effect on us, our financial condition, our results of operations and our future prospects. For additional information regarding the regulation of the funeral and cemetery industry, see Part I, Item 1, Business, Regulation.
We are subject to environmental and worker health and safety laws and regulations that may expose us to significant costs and liabilities.
Our cemetery and funeral home operations are subject to certain federal, regional, state and local laws and regulations governing worker health and safety aspects of the operations, the release or disposal of materials into the environment or otherwise relating to environmental protection. These laws and regulations may restrict or impact our business in many ways, including requiring the acquisition of a permit before conducting regulated activities, restricting the types, quantities and concentration of substances that can be released into the environment, applying specific health and safety criteria addressing worker protection, and imposing substantial liabilities for any pollution resulting from our operations. We may be required to make significant capital and operating expenditures to comply with these laws and regulations and any failure to comply may result in the assessment of sanctions, including administrative, civil and criminal penalties, imposition of investigatory, remedial or corrective action obligations, delays in permitting or performance of projects and the issuance of injunctions restricting or prohibiting our activities. Failure to appropriately transport and dispose of generated wastes, used chemicals or other regulated substances, or any spills or other unauthorized releases of regulated substances in the course of our operations could expose us to material losses, expenditures and liabilities under applicable environmental laws and regulations, and result in neighboring landowners and other third parties filing claims for personal injury, property damage and natural resource damage allegedly caused by such non-compliant activities or spills or releases. Certain of these laws may impose strict, joint and several liabilities upon us for the remediation of contaminated property resulting from our or a predecessor owner's or operator's operations. We may not be able to recover some or any of these costs from insurance or contractual indemnifications. Moreover, changes in environmental laws, regulations and enforcement policies occur frequently, and any changes that result in more stringent or costly emissions control or waste handling, storage, transport, disposal or cleanup requirements could require us to make significant expenditures to attain and maintain compliance and may otherwise have a material adverse effect on our results of operations, competitive position or financial condition.
RISKS RELATED TO OUR CREDIT FACILITY AND FINANCIAL ACTIVITIES
Credit Facility and Debt Obligations
Covenant restrictions in our debt instruments may limit our flexibility to operate and grow our business, and if we are not able to comply with such covenants, our lenders could accelerate our indebtedness, proceed against certain collateral or exercise other remedies, which could have a material adverse effect on us.
The covenants in our Credit Facility and the Indenture governing our Senior Notes contain a number of provisions that impose operating and financial restrictions which, subject to certain exceptions, limit our ability and the ability of our subsidiaries to, among other things: incur additional indebtedness (including guarantees); pay dividends or make distributions or redeem or repurchase our common stock; make investments; grant liens on assets; make capital expenditures; enter into
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transactions with affiliates; enter into sale-leaseback transactions; sell or dispose assets; and acquire the assets of, or merge or consolidate with, other companies.
We are required to comply with certain financial covenants in our Credit Facility. Complying with these financial covenants and other restrictive covenants, as well as those that may be contained in any future debt agreements, may limit our ability to finance our future operations or working capital needs or to take advantage of future business opportunities. Our ability to comply with these covenants will depend on our future performance, which may be affected by events beyond our control. Our failure to comply with any of these covenants or restrictions could result in a default under any future debt instrument, which could lead to an acceleration of the debt under that instrument and, in some cases, the acceleration of debt under other instruments that contain cross-default or cross-acceleration provisions, each of which could have a material adverse effect on us. In the case of an event of default, or in the event of a cross-default or cross-acceleration, we may not have sufficient funds available to make the required payments under our debt instruments. If we are unable to repay amounts owed under the terms of our Credit Facility, the lenders thereunder may choose to exercise their remedies in respect of the collateral, including a foreclosure of their lien which results in a sale of certain of our funeral assets to satisfy our obligations under the Credit Facility.
Pursuant to the terms of our Credit Facility, we must comply with, amongst other things, a maximum Total Leverage Ratio covenant that is measured quarterly. If we are unable to comply with the maximum Total Leverage Ratio, we will be in immediate default under the Credit Facility. For example, although we have not currently experienced any material negative impacts to our liquidity position, access to capital, or cash flows as a result of COVID-19, the expected duration of the pandemic is unknown and may have a future impact on our business that could result in our inability to comply with this Total Leverage Ratio covenant and other covenants in our Credit Facility. There can be no assurance that the lenders will agree to amend the Credit Facility in the future to adjust or eliminate this covenant or whether the lenders may agree to waive any non-compliance with this financial covenant or any other covenant in the future.
Moreover, if we do not maintain compliance with our continuing obligations or any covenants, terms and conditions of the Credit Facility, we could be in default and required to repay outstanding borrowings on an accelerated basis, which could subject us to decreased liquidity and other negative impacts on our business, results of operations and financial condition. It may be difficult for us to find an alternative lending source under these circumstances. Without access to borrowings under the Credit Facility, our liquidity would be adversely affected and we would lack sufficient working capital to operate our business as presently conducted. Any disruption in access to credit could force us to take measures to conserve cash.
Our level of indebtedness could adversely affect our financial condition and prevent us from fulfilling our debt obligations.
Our indebtedness requires significant interest and principal payments. As of December 31, 2021, we had $559.9 million of total debt (excluding debt issuance costs, debt discounts and lease obligations), consisting of $4.5 million of acquisition debt (consisting of deferred purchase price and promissory notes payable to sellers of businesses we purchased), $400.0 million of our Senior Notes and $155.4 million of outstanding borrowings under our Credit Facility, with $42.3 million of availability under our Credit Facility after giving effect to $2.3 million of outstanding letters of credit.
Our and our subsidiaries’ level of indebtedness could have important consequences to us, including:
•continuing to require us and certain of our subsidiaries to dedicate a substantial portion of our cash flow from operations to the payment of our indebtedness, thereby reducing the funds available for operations and any future business opportunities;
•limiting flexibility in planning for, or reacting to, changes in our business or the industry in which we operate;
•placing us at a competitive disadvantage compared to our competitors that have less indebtedness;
•increasing our vulnerability to adverse general economic or industry conditions;
•making us and our subsidiaries more vulnerable to increases in interest rates, as borrowings under our Credit Facility are at variable rates; and
•limiting our ability to obtain additional financing to fund working capital, capital expenditures, acquisitions or other general corporate requirements and increasing our cost of borrowing.
Our ability to make payments on and to refinance our indebtedness will depend on our ability to generate cash in the future from operations, financings or asset sales. 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
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our indebtedness. In addition, our ability to withstand competitive pressures and to react to changes in our industry could be impaired. The lenders who hold our debt could also accelerate amounts due in the event that we default, which could potentially trigger a default or acceleration of the maturity of our other debt, including the notes.
Additionally, our leverage could put us at a competitive disadvantage compared to our competitors that are less leveraged. 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 levels of indebtedness, we may still incur additional indebtedness. This could further exacerbate the risks associated with our indebtedness.
We may incur additional indebtedness in the future. The terms of our Credit Facility and the Indenture governing our Senior Notes will limit, but not prohibit, us from incurring additional indebtedness. Additional indebtedness incurred in compliance with these restrictions could be substantial. These restrictions also do not prevent us or our subsidiaries from incurring obligations, such as trade payables, that do not constitute indebtedness as defined under our debt agreements. To the extent new debt is added to our current debt levels, the leverage risks associated with our indebtedness would increase.
GENERAL RISKS
Economic Conditions and Natural Disasters
Unfavorable economic conditions, including those resulting from health and safety concerns, could adversely affect our business, financial condition or results of operations.
Our business and operational results could be adversely affected by general conditions in the U.S. economy, including conditions that are outside of our control, such as the impact of health and safety concerns from the COVID-19 pandemic. The initial U.S. and global economic and financial conditions related to COVID-19 resulted in extreme volatility and disruptions in the capital and credit markets. A severe or prolonged economic downturn, and the related adverse economic and health consequences could result in a variety of risks to our business, financial condition or results from operations, including weakened demand from our client families, decreased preneed sales, increased preneed installment contract defaults, increased cremation rates, reduced access to capital and credit markets or delays in obtaining client family payments. A weak or declining economy could also strain our supply partners. Additionally, our business relies heavily on our employees, including key employees due to the localized and personal nature of our business, and adverse events such as health-related concerns, the inability to travel and other matters affecting the general work environment could harm our business. In the event of a major disruption caused by the outbreak of pandemic diseases such as COVID-19, we may lose the services of a number of our key employees or experience system interruptions, which could lead to impacts to our regular business operations, inefficiencies and reputational harm. Due to the uncertainty around the ultimate impact of COVID-19 to our business and operations, the impact on our business and operational results cannot be reasonably estimated at this time. Any of the foregoing could harm our business and we cannot anticipate all the ways in which the current COVID-19 pandemic and financial market conditions could adversely impact our business.
Economic, financial and stock market fluctuations could affect future potential earnings and cash flows and could result in future goodwill, intangible assets and long-lived asset impairments.
In addition to an annual review, we assess the impairment of goodwill, intangible assets and other long-lived assets whenever events or changes in circumstances indicate that the carrying value may be greater than fair value. Factors that could trigger an interim impairment review include, but are not limited to, a significant decline in the market value of our stock or debt values, significant under-performance relative to historical or projected future operating results, and significant negative industry or economic trends. If these factors occur, we may have a triggering event, which could result in an impairment of our goodwill, intangible assets and other long-lived assets.
Based on the results of our annual goodwill and intangible assets impairment test we performed as of August 31, 2021 and our annual review of long-lived assets and leases at December 31, 2021, we concluded that there were no impairments of our goodwill, intangible assets or other long-lived assets and leases.
During 2020, as a result of economic conditions caused by COVID-19, we performed a quantitative assessment of our goodwill and we recorded an impairment to goodwill of $13.6 million, as the carrying amount of our funeral homes in the Eastern Region Reporting Unit exceeded the fair value. We also performed a quantitative assessment of our tradenames and we recorded an impairment for certain of our tradenames of $1.1 million, as the carrying amount of these tradenames exceeded the fair value. In connection with the goodwill impairment recorded for the Eastern Region Reporting Unit, we also evaluated the long-lived assets and leases of our funeral homes in the Eastern Region Reporting Unit and concluded that there was no impairment to our long-lived assets and leases.
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For our 2020 annual impairment test, we performed a qualitative assessment and determined that there were no factors that would indicate the need to perform additional quantitative goodwill and tradenames impairment tests. We concluded that there was no additional impairment to goodwill or tradenames.
Additionally, if current economic conditions weaken causing deterioration in our operating revenue, operating margins and cash flows, we may have a triggering event that could result in a material impairment of our goodwill, intangible assets and/or long-lived assets and leases.
Significant weather events, natural disasters, or catastrophic events could adversely affect our business, financial condition or results of operations.
Over thirty-five percent of the businesses we operate are located in California, Texas and Florida, areas where natural disasters are more prevalent. Significant weather events, natural disasters or catastrophic events in these states or other key areas where our operations are concentrated could disrupt our business through injury to our employees or client families, physical damage, closure or destruction of one or more of our locations, data centers or office facilities, or disrupt the delivery of goods or services by one or more of our vendors, any or all of which could adversely impact our operations or increase our costs, which would adversely affect our financial results.
Information Technology and Internal Controls
We rely significantly on information technology and any failure, inadequacy, interruption or security lapse of that technology, including any cybersecurity incidents could harm our ability to operate our business effectively.
In the ordinary course of our business, we receive certain personal information, in both physical and electronic formats, about our customers, their loved ones, our employees, and our vendors. We maintain security measures and data backup systems to protect, store, and prevent unauthorized access to such information. Nevertheless, it is possible that computer hackers and others (through increasingly sophisticated cyberattacks or by other means) might circumvent our security measures in the future and obtain the personal information of customers, their loved ones, our employees or our vendors.
For example, in January 2021, we detected that our information technology system was affected by a ransomware attack. Upon learning of the incident, we undertook immediate steps to address the incident, including engaging information technology security and forensics experts and working diligently with these experts to assess the impact on our information technology systems, implement additional and enhanced security measures to help prevent a similar incident in the future, and to restore any of our information technology systems that were impacted by the incident. The restoration of any impacted systems is complete. We maintain insurance coverage for various cybersecurity risks, which covered substantially all of the costs associated with the January 2021 ransomware attack, but it is possible that such insurance coverage may not fully insure all future costs or losses associated with other cybersecurity incidents.
While we determined, based on our assessment of the information known to us, that the January 2021 ransomware incident did not have, nor do we expect it will have, a material impact on our business, operations or financial results, if we fail to protect our own information from any future breaches in data security, we could experience significant costs and expenses as well as damage to our reputation. Additionally, as the sophistication and frequency of attacks increase, our information technology security costs, including cybersecurity insurance, which are significant, may rise.
Additionally, legislation relating to cybersecurity threats could impose additional requirements on our operations. Various state governments, notably California, New York and Nevada, have enacted or enhanced data privacy regulations, and other state governments are considering establishing similar or stronger protections. These regulations impose certain obligations for securing, and potentially removing, specified personal information in our systems, and for apprising individuals of the information we have collected about them. We have incurred costs in an effort to comply with these data privacy risks and requirements, and our costs may increase significantly as risks become increasingly complex or if new or changing requirements are enacted, and based on how individuals exercise their rights. For example, in November 2020, California voters approved Proposition 24 (Consumer Personal Information Law and Agency Initiative), which will increase data privacy requirements for our business when its provisions take effect in 2023. Despite our efforts, any noncompliance could result in our incurring substantial penalties and reputational damage.
Our ability to manage and maintain our internal reports effectively and integration of new business acquisitions depends significantly on our enterprise resource planning system and other information systems. Some of our information technology systems may experience interruptions, delays or cessations of service or produce errors in connection with ongoing systems implementation work. The failure of our systems to operate effectively or to integrate with other systems, or a breach in security or other unauthorized access of these systems, may also result in reduced efficiency of our operations and could require significant capital investments to remediate any such failure, problem or breach and to comply with applicable regulations, all of which could adversely affect our business, financial condition and results of operations.
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Failure to maintain effective internal control over financial reporting could adversely affect our results of operations, investor confidence, and our stock price.
The accuracy of our financial reporting depends on the effectiveness of our internal control over financial reporting. Internal control over financial reporting can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements and may not prevent or detect misstatements because of its inherent limitations. If we do not maintain effective internal control over financial reporting or implement controls sufficient to provide reasonable assurance with respect to the preparation and fair presentation of our financial statements, we could be unable to file accurate financial reports on a timely basis, and our results of operations, investor confidence, and stock price could be materially adversely affected.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES.
At December 31, 2021, we operated 170 funeral homes in 26 states and 31 cemeteries in 11 states. We own the real estate and buildings for 149 of our funeral homes and lease 21 facilities. We own 30 cemeteries and operate one cemetery under a long-term contract with a municipality, which we refer to as a managed property. We operate 18 funeral homes in combination with cemeteries as these locations are physically located on the same property or in very close proximity and are under the same leadership.
The 31 cemeteries that we operate have developed cemetery property of approximately 155,000 and 147,000 units available-for-sale at December 31, 2020 and 2021, respectively. In addition, we own approximately 500 acres that are available for future development or sale. We anticipate having a sufficient inventory of lots to maintain our property sales for the foreseeable future.
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The following table sets forth certain information as of December 31, 2021, regarding our properties used by the funeral home segment and by the cemetery segment identified by state:

|  | Number of Funeral Homes |  | Number of Cemeteries
State |  | Owned |  | Leased(1) |  | Owned |  | Managed
California |  | 21 |  |  | 5 |  |  | 5 |  |  | — |
Connecticut |  | 7 |  |  | 2 |  |  | — |  |  | — |
Florida |  | 9 |  |  | 5 |  |  | 5 |  |  | — |
Georgia |  | 3 |  |  | — |  |  | — |  |  | — |
Idaho |  | 4 |  |  | 1 |  |  | 3 |  |  | — |
Illinois |  | 2 |  |  | — |  |  | 1 |  |  | — |
Kansas |  | 2 |  |  | — |  |  | — |  |  | — |
Kentucky |  | 7 |  |  | 1 |  |  | — |  |  | — |
Louisiana |  | 3 |  |  | 1 |  |  | 1 |  |  | — |
Massachusetts |  | 11 |  |  | — |  |  | — |  |  | — |
Michigan |  | 2 |  |  | — |  |  | — |  |  | — |
Montana |  | 2 |  |  | 1 |  |  | 1 |  |  | — |
Nevada |  | 2 |  |  | — |  |  | 2 |  |  | 1 |
New Jersey |  | 2 |  |  | 1 |  |  | — |  |  | — |
New Mexico |  | 1 |  |  | — |  |  | — |  |  | — |
New York |  | 10 |  |  | 1 |  |  | — |  |  | — |
North Carolina |  | 7 |  |  | 1 |  |  | 1 |  |  | — |
Ohio |  | 5 |  |  | — |  |  | — |  |  | — |
Oklahoma |  | 5 |  |  | — |  |  | 2 |  |  | — |
Pennsylvania |  | 2 |  |  | — |  |  | — |  |  | — |
Rhode Island |  | 4 |  |  | — |  |  | — |  |  | — |
Tennessee |  | 4 |  |  | — |  |  | — |  |  | — |
Texas |  | 23 |  |  | 1 |  |  | 8 |  |  | — |
Virginia |  | 8 |  |  | 1 |  |  | 1 |  |  | — |
Washington |  | 2 |  |  | — |  |  | — |  |  | — |
Wisconsin |  | 1 |  |  | — |  |  | — |  |  | — |
Total |  | 149 |  |  | 21 |  |  | 30 |  |  | 1 |

(1) | The leases, with respect to these funeral homes, generally have remaining terms ranging from one to twenty years, and generally, we have the right to renew past the initial terms and have a right of first refusal on any proposed sale of the property where these funeral homes are located.

Our support center occupies approximately 48,000 square feet of leased office space in Houston, Texas. At December 31, 2021, we owned and operated 427 vehicles.
The following table sets forth the number of funeral homes and cemeteries owned and operated by us for the periods presented:

| Years Ended December 31,
| 2019 |  | 2020 |  | 2021
Funeral homes at beginning of period | 182 |  |  | 186 |  |  | 178 |
Acquisitions | 9 |  |  | 1 |  |  | — |
Divestitures | (4) |  |  | (8) |  |  | (2) |
Mergers of funeral homes | (1) |  |  | (1) |  |  | (6) |
Funeral homes at end of period | 186 |  |  | 178 |  |  | 170 |
Cemeteries at beginning of period | 29 |  |  | 31 |  |  | 32 |
Acquisitions | 2 |  |  | 1 |  |  | — |
Divestitures | — |  |  | — |  |  | (1) |
Cemeteries at end of period | 31 |  |  | 32 |  |  | 31 |

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ITEM 3. LEGAL PROCEEDINGS.
For more information regarding legal proceedings see Part II, Item 8, Financial Statements and Supplementary Data, Notes 16 and 24.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
MARKET INFORMATION
Our common stock is traded on the New York Stock Exchange under the symbol “CSV.” At February 25, 2022, there were 15,326,738 shares of our common stock outstanding. The shares of common stock outstanding are held by approximately 330 stockholders of record. Each share is entitled to one vote on matters requiring the vote of stockholders. We believe there are approximately 8,700 beneficial owners of our common stock.
RECENT SALES OF UNREGISTERED SECURITIES
During the year ended December 31, 2021, we did not have any sales of securities in transactions that were not registered under the Securities Act of 1933 (as amended, the “Securities Act”) that have not been reported in a Form 8-K or Form 10-Q.
DIVIDENDS
While we intend to pay regular quarterly cash dividends for the foreseeable future, covenant restrictions under our Credit Facility and the Indenture governing our Senior Notes may limit our ability to pay dividends in the future.
EQUITY PLANS
For information regarding securities authorized for issuance under our equity compensation plans, see Part III, Item 12, Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
PURCHASES OF EQUITY SECURITIES BY THE ISSUER
Subject to market conditions, normal trading restrictions and satisfying certain financial covenants in our Credit Facility, and in the Indenture governing our Senior Notes, we may make purchases in the open market or through privately negotiated transactions under our Board authorized share repurchase program, in accordance with Rule 10b-18 of the Securities Exchange Act.
On May 18, 2021, July 26, 2021 and October 27, 2021, our Board increased our share repurchase authorization by an additional $25.0 million, $25.0 million and $75.0 million, respectively, that including amounts previously authorized and outstanding, totaled up to $190.0 million in share repurchase authorizations.
Share repurchase activity is as follows (dollar value of shares repurchased in thousands):

| Years Ended December 31,
| 2019 |  | 2020 |  | 2021 |  |  |
Number of Shares Repurchased(1) | 400,000 |  |  | — |  |  | 2,906,983 |  |  |  |
Average Price Paid Per Share | $ | 19.39 |  |  | $ | — |  |  | $ | 49.01 |  |  |  |
Dollar Value of Shares Repurchased(1) | $ | 7,756 |  |  | $ | — |  |  | $ | 142,469 |  |  |  |

(1) | These amounts may differ from the repurchases of common stock amounts in the consolidated statements of cash flows due to unsettled share repurchases at the end of a period. In December 2021, we repurchased 37,408 shares for $2.4 million, the settlement of which occurred in January 2022.

Our shares were purchased in the open market at times and in amounts as management determined appropriate based on factors such as market conditions, legal requirements and other business considerations. Shares purchased pursuant to the repurchase program are currently held as treasury stock. At December 31, 2021, we had $8.1 million remaining available for repurchase under our authorized program.
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The following table sets forth certain information with respect to repurchases of our common stock during the quarter ended December 31, 2021:

Period |  | Total Number of Shares Purchased |  | Average Price Paid Per Share |  | Total Number of Shares Purchased as Part of Publicly Announced Program |  | Dollar Value of Shares That May Yet Be Purchased Under the Program (1)
October 1, 2021 - October 31, 2021 |  | — |  |  | $ | — |  |  | — |  |  | $ | 85,061,552 |
November 1, 2021 - November 30, 2021 |  | — |  |  | $ | — |  |  | 531,417 |  |  | $ | 57,594,459 |
December 1, 2021 - December 31, 2021 |  | — |  |  | $ | — |  |  | 847,369 |  |  | $ | 8,132,056 |
Total for quarter ended December 31, 2021 |  | — |  |  |  |  | 1,378,786 |  |  |

(1) | See the first paragraph under the caption “Purchases of Equity Securities by the Issuer” for more information on our publicly announced share repurchase program.

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PERFORMANCE
The following graph compares the cumulative 5-year total shareholder return on our common stock relative to the cumulative total returns of the Russell 3000 Index, and a peer group selected by the Company comprising of SCI and StoneMor (the “Peer Group”). The returns of each member of the Peer Group are weighted according to their respective stock market capitalization as of the beginning of each period measured. The graph assumes that the value of the investment in our common stock, the Russell 3000 Index and the Peer Group was $100 on the last trading day of December 2016, and that all dividends were reinvested. Performance data for Carriage, the Russell 3000 Index and the Peer Group is provided as of the last trading day of each of our last five fiscal years.
The following graph and related information shall not be deemed “soliciting material” or “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities or the Exchange Act except to the extent that we specifically incorporate it by reference.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN(1)
Among Carriage, the Russell 3000 Index and the Peer Group

| 12/16 |  | 12/17 |  | 12/18 |  | 12/19 |  | 12/20 |  | 12/21
Carriage Services, Inc. | $ | 100.00 |  |  | $ | 90.56 |  |  | $ | 55.34 |  |  | $ | 92.69 |  |  | $ | 115.15 |  |  | $ | 239.40 |
Russell 3000 | 100.00 |  |  | 121.12 |  |  | 114.77 |  |  | 150.35 |  |  | 181.74 |  |  | 228.33 |
Peer Group | 100.00 |  |  | 129.84 |  |  | 143.30 |  |  | 166.92 |  |  | 177.14 |  |  | 262.53 |

(1) | Fiscal year ending December 31. $100 invested on December 31, 2016 in stock or index, including reinvestment of dividends. The Peer Group above includes SCI and StoneMor. The stock price performance included in this graph is not necessarily indicative of future stock price performance.

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ITEM 6. [RESERVED]
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
OVERVIEW
Recent Trends
During the initial phase of the COVID-19 pandemic, we experienced an increase in volume that corresponded with the initial increase in COVID-related deaths. While we have seen the trend in COVID-related deaths begin to significantly decrease during the last half of 2021, we have not seen an adverse impact to our overall financial performance. However, we continue to closely monitor these death rates. Historically cremation trends have increased year over year and while that continues to be the case, we view this an opportunity to put greater focus on educating our client families on available cremation memorialization options.
General
We operate in two business segments: funeral home operations, which accounts for approximately 70% of our revenue, and cemetery operations, which accounts for approximately 30% of our revenue. Our funeral homes offer a complete range of high value personal services to meet a family’s funeral needs, including consultation, the removal and preparation of remains, the sale of caskets and related funeral merchandise, the use of funeral home facilities for visitation and remembrance services and transportation services. Our cemeteries provide interment rights (grave sites and mausoleum spaces) and related merchandise, such as markers and outer burial containers. We provide funeral and cemetery services and products on both an “atneed” (time of death) and “preneed” (planned prior to death) basis.
At December 31, 2021, we operated 170 funeral homes in 26 states and 31 cemeteries in 11 states within the United States. For additional discussion about our overall business strategy, see Part I, Item 1, Business – Business Strategy.
Funeral Home Operations
Factors affecting our funeral operating results include: demographic trends relating to population growth and average age, which impact death rates and number of deaths; establishing and maintaining leading market share positions supported by strong local heritage and relationships; effectively responding to increasing cremation trends by selling complementary services and merchandise; controlling salary and merchandise costs; and exercising pricing leverage related to our atneed business to increase average revenue per contract. In simple terms, volume and price are the two variables that affect funeral revenue. The average revenue per contract is influenced by the mix of traditional and cremation services because our average cremation service revenue is approximately one-third of the average revenue earned from a traditional burial service. Funeral homes have a relatively fixed cost structure.
Cemetery Operations
Factors affecting our cemetery operating results include: the size and success of our sales organization; local perceptions and heritage of our cemeteries; our ability to adapt to changes in the economy and consumer confidence; and our response to fluctuations in capital markets and interest rates, which affect investment earnings on trust funds, finance charges on installment contracts and our securities portfolio within the trust funds.
LIQUIDITY AND CAPITAL RESOURCES
Overview
Our primary sources of liquidity and capital resources are internally generated cash flows from operating activities and availability under our Credit Facility.
We generate cash in our operations primarily from atneed sales and delivery of preneed sales. We also generate cash from earnings on our cemetery perpetual care trusts. Based on our recent operating results, current cash position and anticipated future cash flows, we do not anticipate any significant liquidity constraints in the foreseeable future. We have the ability to draw on our Credit Facility, subject to its customary terms and conditions. However, if our capital expenditures or acquisition plans change, we may need to access the capital markets to obtain additional funding. Further, to the extent operating cash flow or access to and cost of financing sources are materially different than expected, future liquidity may be adversely affected. Please read Part I, Item 1A, Risk Factors.
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For 2022, our plan is to remain focused on integrating our recently acquired businesses and to use cash on hand and borrowings under our Credit Facility primarily for general corporate purposes, payment of dividends and debt obligations, strategic acquisitions, internal growth capital expenditures, share repurchases, dividend increases and further debt repayments. We also expect continued divestiture activity for the next three-six months, which could yield an aggregate of approximately $3-4 million of cash from the proceeds of the sale. From time to time we may also use available cash resources (including borrowings under our Credit Facility) to repurchase shares of our common stock, subject to satisfying certain financial covenants in our Credit Facility and in the Indenture governing our Senior Notes. We believe that our existing and anticipated cash resources will be sufficient to meet our anticipated working capital requirements, capital expenditures, scheduled debt payments, commitments and dividends for the next 12 months as well as our long-term financial obligations.
Cash Flows
We began 2021 with $0.9 million in cash and ended the year with $1.1 million in cash. At December 31, 2021, we had borrowings of $155.4 million outstanding on our Credit Facility compared to $47.2 million on our Former Credit Facility as of December 31, 2020 and $83.8 million as of December 31, 2019.
The following table sets forth the elements of cash flow (in thousands):

| Years Ended December 31,
| 2019 |  | 2020 |  | 2021
Cash at beginning of year | $ | 644 |  |  | $ | 716 |  |  | $ | 889 |
Net cash provided by operating activities | 43,216 |  |  | 82,915 |  |  | 84,246 |
Acquisition of businesses and real estate | (140,907) |  |  | (28,011) |  |  | (3,285) |
Deposit on pending acquisition | (5,000) |  |  | — |  |  | — |
Proceeds from divestiture and sale of other assets | 967 |  |  | 8,541 |  |  | 7,875 |
Proceeds from insurance reimbursements | 1,433 |  |  | 248 |  |  | 7,758 |
Capital expenditures | (15,379) |  |  | (15,198) |  |  | (24,883) |
Net cash used in investing activities | (158,886) |  |  | (34,420) |  |  | (12,535) |
Net borrowings on our Credit Facility, acquisition debt and finance lease obligations | 54,413 |  |  | (38,345) |  |  | 106,869 |
Payment to redeem the Original Senior Notes |  |  |  |  | (400,000) |
Payment of call premium related to the Original Senior Notes | — |  |  | — |  |  | (19,876) |
Proceeds from the issuance of the Senior Notes |  |  |  |  | 395,500 |
Payment of debt issuance costs for the Credit Facility and Senior Notes | (1,871) |  |  | (78) |  |  | (2,197) |
Conversion and maturity of the Convertible Notes | (27) |  |  | (4,563) |  |  | (3,980) |
Proceeds from the issuance of the Senior Notes | 76,688 |  |  | — |  |  | — |
Net proceeds from employee equity plans | 1,251 |  |  | 881 |  |  | (3) |
Dividends paid on common stock | (5,398) |  |  | (6,048) |  |  | (7,264) |
Purchase of treasury stock | (9,152) |  |  | — |  |  | (140,040) |
Other financing costs | (162) |  |  | (169) |  |  | (461) |
Net cash provided by (used in) financing activities | 115,742 |  |  | (48,322) |  |  | (71,452) |
Cash at end of year | $ | 716 |  |  | $ | 889 |  |  | $ | 1,148 |

Operating Activities
For the year ended December 31, 2021, cash provided by operating activities was $84.2 million compared to $82.9 million for the year ended December 31, 2020 and $43.2 million for the year ended December 31, 2019. The increase of $1.3 million for the year ended December 31, 2021 compared to the year ended December 31, 2020 is primarily due to the increase in net income, offset by unfavorable working capital changes in income tax receivables, accounts payable and accrued liabilities.
The increase of $39.7 million for the year ended December 31, 2020 compared to the year ended December 31, 2019 was primarily due to the increase in operating income (excluding the non-cash impact of the divestitures and impairment charges) of $26.4 million in addition to other favorable working capital changes.
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Investing Activities
Our investing activities resulted in a net cash outflow of $12.5 million for the year ended December 31, 2021 compared to $34.4 million for the year ended December 31, 2020 and $158.9 million for the year ended December 31, 2019.
Acquisition and Divestiture Activity
During the year ended December 31, 2021, we sold two funeral homes and one cemetery for $2.5 million, sold real property for $5.2 million and purchased real property for $3.3 million. We also received proceeds of $7.8 million from our property insurance policy for the reimbursement of renovation costs for our funeral and cemetery businesses that were damaged by Hurricane Ida.
During the year ended December 31, 2020, we acquired one funeral home and cemetery combination business in Lafayette, California for $33.0 million in cash, of which $5.0 million was deposited in escrow in 2019 and $28.0 million was paid at closing in 2020. In addition, we sold eight funeral homes for $8.4 million and we sold real property for $0.1 million.
During the year ended December 31, 2019, we acquired, in three separate transactions, two funeral home and cemetery combination businesses, seven funeral home businesses and three ancillary service businesses for an aggregate purchase price of $140.9 million. In addition, we also paid a $5.0 million deposit for a funeral home and cemetery combination business that we acquired in January 2020. In addition, we sold a funeral home business for $0.9 million and we sold real property for $0.1 million related to a funeral home we merged with another business in an existing market.
Capital Expenditures
For the year ended December 31, 2021, our capital expenditures (comprising of growth and maintenance spend) totaled $24.9 million compared to $15.2 million for the year ended December 31, 2020, and $15.4 million for the year ended December 31, 2019.
The following tables present our growth and maintenance capital expenditures (in thousands):

| Years Ended December 31,
| 2019 |  | 2020 |  | 2021
Growth |  |  |  |  |
Cemetery development | $ | 4,111 |  |  | $ | 4,705 |  |  | $ | 5,845 |
Renovations at certain businesses(1) | 2,236 |  |  | 953 |  |  | 4,541 |
Streaming equipment and cemetery sales software | 42 |  |  | 636 |  |  | 687 |
Other | 195 |  |  | 142 |  |  | 495 |
Total Growth | $ | 6,584 |  |  | $ | 6,436 |  |  | $ | 11,568 |

(1) | During the year ended December 31, 2021, we spent $2.0 million for renovations on four businesses that were affected by Hurricane Ida, all of which was reimbursed by our property insurance. During the year ended December 31, 2019, we spent $1.6 million for renovations on four businesses that were affected by Hurricane Michael, of which $1.4 million was reimbursed by our property insurance policy.

| Years Ended December 31,
| 2019 |  | 2020 |  | 2021
Maintenance |  |  |  |  |
Facility repairs and improvements | $ | 1,820 |  |  | $ | 2,053 |  |  | $ | 2,543 |
General equipment and furniture | 3,032 |  |  | 2,892 |  |  | 6,377 |
Vehicles | 1,950 |  |  | 1,493 |  |  | 2,329 |
Paving roads and parking lots | 795 |  |  | 731 |  |  | 1,186 |
Information technology infrastructure improvements | 977 |  |  | 949 |  |  | — |
Other | 221 |  |  | 644 |  |  | 880 |
Total Maintenance | $ | 8,795 |  |  | $ | 8,762 |  |  | $ | 13,315 |

Financing Activities
Our financing activities resulted in a net cash outflow of $71.5 million for the year ended December 31, 2021 compared to a net cash outflow of $48.3 million for the year ended December 31, 2020 and a net cash inflow of $115.7 million for the year ended December 31, 2019.
For the year ended December 31, 2021, we had net borrowings on our Credit Facility, acquisition debt and finance leases of $106.9 million, offset by the following payments: i) $19.9 million for the call premium to redeem our Original Senior Notes; ii) $140.0 million for the purchase of treasury stock; iii) $2.2 million for debt issuance and transactions costs related to our
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Senior Notes and Credit Facility; iv) $4.0 million for the conversions and maturity of our Convertible Notes; and v) $7.3 million in dividends.
For the year ended December 31, 2020, we had net payments on our Credit Facility, acquisition debt and finance leases of $38.3 million. In addition, we paid $6.0 million in dividends and $4.6 million for the repurchase of a portion of our Convertibles Notes.
For the year ended December 31, 2019, we had net proceeds related to the additional issuance of our Original Senior Notes of $75.7 million and net borrowing on our long-term debt obligations of $53.5 million. In addition, we purchased treasury stock for $9.2 million and paid $5.4 million in dividends on our common stock.
Dividends
On October 27, 2021, our Board approved an increase of $0.05 per share for a total annual dividend of $0.45 per share beginning with the dividend declaration in the fourth quarter.
Our Board declared the following dividends payable on the dates below (in thousands, except per share amounts):

2021 | Per Share |  | Dollar Value
March 1st | $ | 0.1000 |  |  | $ | 1,799 |
June 1st | $ | 0.1000 |  |  | $ | 1,808 |
September 1st | $ | 0.1000 |  |  | $ | 1,783 |
December 1st | $ | 0.1125 |  |  | $ | 1,873 |
2020 | Per Share |  | Dollar Value
March 1st | $ | 0.0750 |  |  | $ | 1,339 |
June 1st | $ | 0.0750 |  |  | $ | 1,343 |
September 1st | $ | 0.0875 |  |  | $ | 1,569 |
December 1st | $ | 0.1000 |  |  | $ | 1,797 |
2019 | Per Share |  | Dollar Value
March 1st | $ | 0.0750 |  |  | $ | 1,360 |
June 1st | $ | 0.0750 |  |  | $ | 1,365 |
September 1st | $ | 0.0750 |  |  | $ | 1,336 |
December 1st | $ | 0.0750 |  |  | $ | 1,337 |

Share Repurchases
Subject to market conditions, normal trading restrictions and satisfying certain financial covenants in our Credit Facility, and in the Indenture governing our Senior Notes, we may make purchases in the open market or through privately negotiated transactions under our Board authorized share repurchase program, in accordance with Rule 10b-18 of the Securities Exchange Act. On May 18, 2021, July 26, 2021 and October 27, 2021, our Board increased our share repurchase authorization by an additional $25.0 million, $25.0 million and $75.0 million, respectively, that including amounts previously authorized and outstanding, totaled up to $190.0 million in share repurchase authorizations.
Share repurchase activity is as follows (dollar value of shares repurchased in thousands):

| Years Ended December 31,
| 2019 |  | 2020 |  | 2021 |  |  |
Number of Shares Repurchased(1) | 400,000 |  |  | — |  |  | 2,906,983 |  |  |  |
Average Price Paid Per Share | $ | 19.39 |  |  | $ | — |  |  | $ | 49.01 |  |  |  |
Dollar Value of Shares Repurchased(1) | $ | 7,756 |  |  | $ | — |  |  | $ | 142,469 |  |  |  |

(1) | These amounts may differ from the repurchases of common stock amounts in the consolidated statements of cash flows due to unsettled share repurchases at the end of a period. In December 2021, we repurchased 37,408 shares for $2.4 million, the settlement of which occurred in January 2022.

Our shares were purchased in the open market at times and in amounts as management determined appropriate based on factors such as market conditions, legal requirements and other business considerations. Shares purchased pursuant to the repurchase program are currently held as treasury stock. At December 31, 2021, we had $8.1 million remaining available for repurchase under our authorized program.
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Credit Facility, Lease Obligations and Acquisition Debt
The outstanding principal of our long-term debt and lease obligations is as follows (in thousands):

| December 31, 2020 |  | December 31, 2021
Credit Facility | $ | 47,200 |  |  | $ | 155,400 |
Finance leases | 5,854 |  |  | 5,532 |
Operating leases | 22,384 |  |  | 20,433 |
Acquisition debt | 5,509 |  |  | 4,500 |
Total | $ | 80,947 |  |  | $ | 185,865 |

Credit Facility
At December 31, 2020, our senior secured revolving credit facility (the "Former Credit Facility") was comprised of: (i) a $190.0 million revolving credit facility, including a $15.0 million subfacility for letters of credit and a $10.0 million swingline, and (ii) an accordion or incremental option allowing for future increases in the facility size by an additional amount of up to $75.0 million in the form of increased revolving commitments or incremental term loans. The final maturity of the Former Credit Facility was to occur on May 31, 2023.
On May 13, 2021, in connection with the issuance of the Senior Notes (defined in Senior Notes section below), we entered into an amended and restated $150.0 million senior secured revolving credit facility (the “Credit Facility”) with the Subsidiary Guarantors (as defined below), the financial institutions party thereto, as lenders, and Bank of America, N.A., as administrative agent. We incurred $0.8 million in transactions costs related to the Credit Facility, which were capitalized and will be amortized over the remaining term of the related debt using the straight-line method.
On May 13, 2021, we used $21.4 million of the availability under the Credit Facility to repay the then outstanding balances under our Former Credit Facility and all commitments thereunder were terminated. In connection with the repayment in full of all amounts due thereunder, the Former Credit Facility was retired and $2.1 million of letters of credit previously issued under the Former Credit Facility were deemed issued under (and remain outstanding under) the Credit Facility. In connection with the termination of the Former Credit Facility, we recognized a loss on the write-off of $0.1 million in unamortized debt issuance costs, which was recorded in Loss on extinguishment of debt.
On November 22, 2021, we entered into a first amendment and commitment increase to the Credit Facility with the financial institutions party thereto, as lenders, and Bank of America, N.A., as administrative agent. Pursuant to this amendment, the revolving credit commitment was increased from $150.0 million to $200.0 million. We incurred $0.1 million in transactions costs related to this amendment, which were capitalized and will be amortized over the remaining term of the related debt using the straight-line method.
Our obligations under the Credit Facility are unconditionally guaranteed on a joint and several basis by the same subsidiaries which guarantee the Senior Notes and certain of our subsequently acquired or organized domestic subsidiaries (collectively, the “Subsidiary Guarantors”). The Credit Facility allows for future increases in the facility size in the form of increased revolving commitments or new incremental term loans by an additional amount of up to $75.0 million in the aggregate. The final maturity of the Credit Facility will occur on May 13, 2026.
The Credit Facility is secured by a first-priority perfected security interest in and lien on substantially all of the Company’s personal property assets and those of the Subsidiary Guarantors. In addition, the Credit Facility includes provisions which require the Company and the Subsidiary Guarantors, upon the occurrence of an event of default or in the event the Company’s actual Total Leverage Ratio is not at least 0.25 less than the required Total Leverage Ratio covenant level under the Credit Facility, to grant additional liens on real property assets accounting for no less than 50% of the Company’s and the Subsidiary Guarantors’ funeral operations if requested by the administrative agent.
The Credit Facility contains customary affirmative covenants, including, but not limited to, covenants with respect to the use of proceeds, payment of taxes and other obligations, continuation of the Company’s business and the maintenance of existing rights and privileges, the maintenance of property and insurance, amongst others.
In addition, the Credit Facility also contains customary negative covenants, including, but not limited to, covenants that restrict (subject to certain exceptions) the ability of the Company and the Subsidiary Guarantors to incur indebtedness, grant liens, make investments, engage in mergers and acquisitions, and pay dividends and other restricted payments, and certain financial maintenance covenants. At December 31, 2021, we were subject to the following financial covenants under our Credit Facility: (A) a Total Leverage Ratio not to exceed, (i) 5.00 to 1.00 and (B) a Fixed Charge Coverage Ratio (as defined in the Credit Facility) of not less than 1.20 to 1.00 as of the end of any period of four consecutive fiscal quarters. These financial maintenance covenants are calculated for the Company and its subsidiaries on a consolidated basis.
We were in compliance with all of the covenants contained in our Credit Facility at December 31, 2021.
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At December 31, 2021, we had outstanding borrowings under the Credit Facility of $155.4 million. We also had one letter of credit for $2.1 million under the Credit Facility, which was increased to $2.3 million on September 1, 2021. The letter of credit will expire on November 25, 2022 and is expected to automatically renew annually and secures our obligations under our various self-insured policies. At December 31, 2021, we had $42.3 million of availability under the Credit Facility.
Outstanding borrowings under our Credit Facility bear interest at either a prime rate or a LIBOR rate, plus an applicable margin based upon our leverage ratio. At December 31, 2021, the prime rate margin was equivalent to 0.75% and the LIBOR rate margin was 1.75%. The weighted average interest rate on our Credit Facility for the year ended December 31, 2021 was 2.4%. The weighted average interest rate on our Former Credit Facility for the year ended December 31, 2020 was 3.8%.
We have no material assets or operations independent of the Subsidiary Guarantors, as all of our assets and operations are held and conducted by Subsidiary Guarantors. Additionally, we do not currently have any significant restrictions on our ability to receive dividends or loans from any Subsidiary Guarantors.
The interest expense and amortization of debt issuance costs related to our Credit Facility are as follows (in thousands):

| Years Ended December 31,
| 2019 |  | 2020 |  | 2021
Credit Facility interest expense | $ | 1,601 |  |  | $ | 3,738 |  |  | $ | 1,820 |
Credit Facility amortization of debt issuance costs | 229 |  |  | 482 |  |  | 380 |

The interest payments on our remaining borrowings under the Credit Facility will be determined based on the average outstanding balance of our borrowings and the prevailing interest rate during that time. See Part II, Item 8, Financial Statements and Supplementary Data, Note 12 to our Consolidated Financial Statements for further detail of our debt and interest payments.
Lease Obligations
Our lease obligations consist of operating and finance leases. We lease certain office facilities, certain funeral homes and equipment under operating leases with original terms ranging from one to twenty years. Many leases include one or more options to renew, some of which include options to extend the leases for up to forty years. We lease certain funeral homes under finance leases with original terms ranging from ten to forty years.
The lease cost related to our operating leases and short-term leases and depreciation expense and interest expense related to our finance leases are as follows (in thousands):

|  |  |  | Years Ended December 31,
|  |  |  | 2019 |  | 2020 |  | 2021
Operating lease cost |  |  |  | $ | 3,722 |  |  | $ | 3,795 |  |  | $ | 3,762 |
Short-term lease cost |  |  |  | 250 |  |  | 185 |  |  | 193 |
Variable lease cost |  |  |  | 27 |  |  | 39 |  |  | 160 |
Finance lease cost: |  |  |  |  |  |  |  |
Depreciation of leased assets |  |  |  | $ | 498 |  |  | $ | 439 |  |  | $ | 438 |
Interest on lease liabilities |  |  |  | 520 |  |  | 496 |  |  | 471 |

At December 31, 2021, operating and finance lease obligations were $48.3 million, with $6.0 million payable within 12 months. See Part II, Item 8, Financial Statements and Supplementary Data, Note 15 to our Consolidated Financial Statements for further detail of our lease payments.
Acquisition Debt
Acquisition debt consists of deferred purchase price and promissory notes payable to sellers. A majority of the deferred purchase price and notes bear no interest and are discounted at imputed interest rates ranging from 7.3% to 10.0%. Original maturities typically range from five to twenty years. Acquisition debt obligations were $4.5 million, with $0.5 million payable within 12 months.
The imputed interest expense related to our acquisition debt is as follows (in thousands):

| Years Ended December 31,
| 2019 |  | 2020 |  | 2021
Acquisition debt imputed interest expense | $ | 622 |  |  | $ | 489 |  |  | $ | 364 |

At December 31, 2021, acquisition debt obligations were $4.5 million, with $0.5 million payable within 12 months. See Part II, Item 8, Financial Statements and Supplementary Data, Note 12 to our Consolidated Financial Statements for further detail of our debt payments.
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Convertible Subordinated Notes due 2021
On March 19, 2014, we issued $143.75 million aggregate principal amount of our 2.75% convertible subordinated notes due 2021 (the “Convertible Notes”). The Convertible Notes were due on March 15, 2021 and bear interest at 2.75% per year, which was payable semi-annually in arrears on March 15 and September 15 of each year.
In May 2018, we exchanged $115.0 million in aggregate principal amount of Convertible Notes in a privately-negotiated exchange with a limited number of convertible noteholders. We completed privately-negotiated repurchases of $22.4 million, $25,000 and $3.8 million in aggregate principal amount of Convertible Notes in December 2018, April 2019 and September 2020, respectively.
During the year ended December 31, 2021, we converted $2.4 million in aggregate principal amount of our Convertible Notes held by certain holders for $3.8 million in cash and recorded $1.4 million for the reacquisition of the equity component. The Convertible Notes matured on March 15, 2021, at which time all Convertible Notes outstanding, $0.2 million in aggregate principal amount, were paid in full in cash at par value. Therefore, no Convertible Notes remain outstanding at December 31, 2021.
The interest expense and accretion of debt discount and debt issuance costs related to our Convertible Notes are as follows (in thousands):

| Years Ended December 31,
| 2019 |  | 2020 |  | 2021
Convertible Notes interest expense | $ | 174 |  |  | $ | 149 |  |  | $ | 18 |
Convertible Notes accretion of debt discount | 241 |  |  | 216 |  |  | 20 |
Convertible Notes amortization of debt issuance costs | 24 |  |  | 20 |  |  | 1 |

The effective interest rate on the unamortized debt discount and debt issuance costs for both years ended December 31, 2020 and 2021 was 11.4% and 3.1%, respectively.
Senior Notes
On May 13, 2021, we issued $400.0 million in aggregate principal amount of 4.25% Senior Notes due in May 2029 (the “Senior Notes”) and related guarantees by the Subsidiary Guarantors in a private offering under Rule 144A and Regulation S of the Securities Act.
We used the proceeds of $395.5 million from the offering of the Senior Notes, which are net of a 1.125% debt discount of $4.5 million, together with cash on hand and borrowings under the Credit Facility, to redeem all of our existing $400.0 million in aggregate principal amount of 6.625% senior notes due 2026 (the “Original Senior Notes”). We paid a premium of $19.9 million to redeem the Original Senior Notes on June 1, 2021 at a redemption price of 104.97% of the principal amount thereof, plus accrued and unpaid interest of $13.25 million. During the year ended December 31, 2021, we incurred $1.3 million in transaction costs related to the Senior Notes.
For the year ended December 31, 2021, we recognized a net loss of $23.7 million related to the redemption of the Original Senior Notes, which was recorded in Loss on extinguishment of debt. The loss is composed of the $19.9 million call premium, the write-off of $3.4 million in unamortized debt discount, the write-off of $1.8 million in unamortized debt issuance costs, offset by the write-off of $1.4 million in unamortized debt premium.
The Senior Notes were issued under an indenture, dated as of May 13, 2021 (the “Indenture”), among the Company, the Subsidiary Guarantors (as defined therein) and Wilmington Trust, National Association, as trustee (“Collateral Trustee”).
The Senior Notes bear interest at 4.25% per year. Interest on the Senior Notes is payable semi-annually in arrears on May 15 and November 15 of each year, beginning on November 15, 2021. The Senior Notes mature on May 15, 2029, unless earlier redeemed or purchased. The Senior Notes are unsecured, senior obligations and are fully and unconditionally guaranteed on a senior unsecured basis, jointly and severally by each of the Subsidiary Guarantors.
We may redeem the Senior Notes, in whole or in part, at the redemption price of 102.13% on or after May 15, 2024, 101.06% on or after May 15, 2025 and 100% on or after May 15, 2026, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. At any time before May 15, 2024, we may also redeem all or part of the Senior Notes at the redemption prices described in the Indenture, plus accrued and unpaid interest, if any, to (but excluding) the date of redemption. In addition, before May 15, 2024, we may redeem up to 40% of the aggregate principal amount of the Senior Notes outstanding using an amount of cash equal to the net proceeds of certain equity offerings, at a price of 104.25% of the principal amount of the Senior Notes, plus accrued and unpaid interest, if any, to (but excluding) the date of redemption; provided that (1) at least 50% of the aggregate principal amount of the Senior Notes (including any additional Senior Notes) outstanding under the Indenture remain outstanding immediately after the occurrence of such redemption (unless all Senior Notes are redeemed
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concurrently), and (2) each such redemption must occur within 180 days of the date of the consummation of any such equity offering.
If a “change of control” occurs, holders of the Senior Notes will have the option to require us to purchase for cash all or a portion of their Senior Notes at a price equal to 101% of the principal amount of the Senior Notes, plus accrued and unpaid interest. In addition, if we make certain asset sales and do not reinvest the proceeds thereof or use such proceeds to repay certain debt, we will be required to use the proceeds of such asset sales to make an offer to purchase the Senior Notes at a price equal to 100% of the principal amount of the Senior Notes, plus accrued and unpaid interest.
The Indenture contains restrictive covenants limiting our ability and our Restricted Subsidiaries (as defined in the Indenture) to, among other things, incur additional indebtedness or issue certain preferred shares, create liens on certain assets to secure debt, pay dividends or make other equity distributions, purchase or redeem capital stock, make certain investments, sell assets, agree to certain restrictions on the ability of Restricted Subsidiaries to make payments to us, consolidate, merge, sell or otherwise dispose of all or substantially all assets, or engage in transactions with affiliates. The Indenture also contains customary events of default.
The debt discount and the debt issuance costs are being amortized using the effective interest method over the remaining term of 89 months of the Senior Notes. The effective interest rate on the unamortized debt discount and the unamortized debt issuance costs for the Senior Notes for the year ended December 31, 2021 was 4.42% and 4.30%, respectively.
The effective interest rate on the unamortized debt discount and the unamortized debt issuance costs for the Original Senior Notes, issued in May 2018, for the year ended December 31, 2020 was 6.69%. The effective interest rate on the unamortized debt premium and the unamortized debt issuance costs for the additional Original Senior Notes, issued in December 2019, for year ended December 31, 2020 was 6.90%.
The fair value of the Senior Notes, which are Level 2 measurements, was $401.6 million at December 31, 2021.
The interest expense and amortization of debt discount, debt premium and debt issuance costs related to our Senior Notes are as follows (in thousands):

| Years Ended December 31,
| 2019 |  | 2020 |  | 2021
Senior Notes interest expense | $ | 21,711 |  |  | $ | 26,500 |  |  | $ | 21,767 |
Senior Notes amortization of debt discount | 493 |  |  | 528 |  |  | 504 |
Senior Notes amortization of debt premium | — |  |  | 221 |  |  | 85 |
Senior Notes amortization of debt issuance costs | 139 |  |  | 280 |  |  | 195 |

We have future interest payments on our outstanding balance of $125.3 million, with $17.0 million payable within 12 months. See Part II, Item 8, Financial Statements and Supplementary Data, Note 14 to our Consolidated Financial Statements for further detail of our debt and interest payments.
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Off-Balance Sheet Arrangements
At December 31, 2021, our off-balance sheet arrangements were as follows:
Non-compete agreements - We have various non-compete agreements with former owners and employees of businesses we have acquired. These agreements are generally for one to ten years and provide for periodic payments over the term of the agreements. We have future payments on our non-compete agreements of $6.8 million, with $2.3 million payable within 12 months.
Consulting agreements - We have various consulting agreements with former owners of businesses we have acquired. Payments for such agreements are generally not made in advance. These agreements are generally for one to five years and provide for bi-weekly or monthly payments. We have future payments on our consulting agreements of $1.2 million, with $0.7 million payable within 12 months.
Employment agreements - We have employment agreements with our executive officers and certain senior leadership. These agreements are generally for three to five years and provide for participation in various incentive compensation arrangements. These agreements generally renew automatically on an annual basis after their initial term has expired, with the exception of our Chairman of the Board and Chief Executive Officer, which does not renew after the current term expiring in February 2028. We have future payments on our employment agreements of $8.3 million, with $3.3 million payable within 12 months.
Letter of credit - We have one letter of credit for $2.3 million under the Credit Facility, which secures our obligations under our various self-insurance policies in the event we are unable to meet the self-insurance portion of our claim payment obligations. As we already have reserves recorded for our self-insurance claims costs, these do not represent additional liabilities. The letter of credit will expire on November 25, 2022 and is expected to automatically renew annually.
The obligations related to our off-balance sheet arrangements are significant to our future liquidity; however, although we can provide no assurances, we anticipate that these obligations will be funded from cash provided from our operating activities. If we are not able to meet these obligations with cash provided by our operating activities, we may be required to access the capital markets or draw down on our Credit Facility, both of which may be more difficult to access. See Part II, Item 8, Financial Statements and Supplementary Data, Notes 12 and 16 to our Consolidated Financial Statements for further detail of our letter of credit and off-balance sheet agreements, respectively.
FINANCIAL HIGHLIGHTS
Below are our financial highlights (in thousands except for volumes and averages):

| Years Ended December 31,
| 2019 |  | 2020 |  | 2021
Revenue | $ | 274,107 |  |  | $ | 329,448 |  |  | $ | 375,886 |
Funeral contracts | 38,940 |  |  | 47,190 |  |  | 49,249 |
Average revenue per funeral contract | $ | 5,499 |  |  | $ | 5,145 |  |  | $ | 5,360 |
Preneed interment rights (property) sold | 7,205 |  |  | 9,503 |  |  | 11,408 |
Average price per interment right sold | $ | 3,653 |  |  | $ | 4,033 |  |  | $ | 4,718 |
Gross profit | $ | 79,585 |  |  | $ | 105,923 |  |  | $ | 129,516 |
Net income | $ | 14,533 |  |  | $ | 16,090 |  |  | $ | 33,159 |

Revenue in 2021 increased $46.4 million compared to 2020, as we experienced a 20.0% increase in the number of preneed interment rights (property) sold, as well as a 17.0% increase in the average price per interment right sold, primarily due to (1) our sales personnel being less impacted by social distancing restrictions that were in place in 2020 due to COVID-19; (2) the full integration of the cemetery acquisitions made in the fourth quarter of 2019 and first quarter of 2020; and (3) the execution of our innovative cemetery sales strategy of building high performance sales teams and standardized sales systems across our portfolio of cemeteries.
We also experienced a 4.4% increase in total funeral contracts and a 4.2% increase in the average revenue per funeral contract for 2021 compared to 2020. We believe the increase in volume during 2021 is due not only to COVID-19 deaths, but also due to a result of our ability to adapt to the continued changing consumer environment with new and innovative ways to serve families. We believe the increase in the average revenue per contract is a further reflection of our ability to creatively serve our families, as the number of contracts for which we provided memorial services in 2021 began to return to pre-COVID-19 levels.
Revenue in 2020 increased $55.3 million compared to 2019, as we experienced a 21.2% increase in total funeral contracts primarily due to the funeral home acquisitions made in the fourth quarter of 2019 and first quarter of 2020, as well as increases
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from broad market share gains and increases in the number of deaths related to the COVID-19 pandemic. Volume growth was offset by a decrease in the average revenue per funeral contract of 6.4% primarily due to the decrease in services performed as restrictions mandated by state and local governments were placed on social gatherings. In addition, we experienced an increase of 31.9% in the number of preneed interment rights (property) sold primarily due to the cemetery acquisitions made in the fourth quarter of 2019 and first quarter of 2020, as well as an increase of 10.4% in the average price per interment right sold. Further discussion of Revenue for our funeral home and cemetery segments is presented herein under “Results of Operations.”
Gross profit in 2021 increased $23.6 million compared to 2020, primarily due to the increase in revenue from both our funeral home and cemetery segments, as well as decreases in funeral home and cemetery operating expenses as a percent of operating revenue primarily in salaries and benefits expense as we increased revenue without adding extra personnel.
Gross profit in 2020 increased $26.3 million compared to 2019, primarily due to the increase in revenue from both our funeral home and cemetery segments due to the acquisitions made in the fourth quarter of 2019 and first quarter of 2020, as well as disciplined expense and cost management by leaders at each business. Further discussion of the components of Gross profit for our funeral home and cemetery segments, is presented herein under “Results of Operations.”
Net income for the 2021 increased $17.1 million compared to 2020, primarily due to (1) the increase in gross profit of $23.6 million; (2) a $20.8 million decrease in net loss on divestitures, disposals and impairments charges and (3) a $7.1 million decrease in interest expense; offset by (4) a $23.8 million loss on extinguishment of debt; (5) a $8.1 million increase in general, administrative and other expenses and (6) a $2.6 million increase in tax expense.
Net income in 2020 increased $1.6 million compared to 2019 primarily due to the increase in gross profit, offset by the $16.6 million increase in charges related to the net loss on divestitures and impairments and $7.0 million increase in interest expense related to our Senior Notes and Credit Facility.
Further discussion of General, administrative and other expenses, Home office depreciation and amortization expense, Net loss on divestitures, disposals and impairment charges, Interest expense, Income taxes and other components of income and expenses are presented herein under “Other Financial Statement Items.”
REPORTING AND NON-GAAP FINANCIAL MEASURES
We also present our financial performance in our “Operating and Financial Trend Report” (“Trend Report”) as reported in our earnings release for the year ending December 31, 2021, dated February 23, 2022 and discussed in the corresponding earnings conference call. This Trend Report is used as a supplemental financial statement by management and investors to compare our current financial performance with our previous results and with the performance of other companies. We do not intend for this information to be considered in isolation or as a substitute for other measures of performance prepared in accordance with United States generally accepted accounting principles (“GAAP”). The Trend Report is a non-GAAP statement that also provides insight into underlying trends in our business.
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Below is a reconciliation of Net income, a GAAP measure to Adjusted net income, a non-GAAP measure, (in thousands):

| Years Ended December 31,
| 2019 |  | 2020 |  | 2021
Net income | $ | 14,533 |  |  | $ | 16,090 |  |  | $ | 33,159 |
Special items(1) |  |  |  |  |
Acquisition expenses | 2,083 |  |  | (11) |  |  | — |
Severance and separation costs(2) | 1,205 |  |  | 563 |  |  | 1,575 |
Performance awards cancellation and exchange | — |  |  | 288 |  |  | — |
Accretion of discount on Convertible Notes(1) | 241 |  |  | 216 |  |  | 20 |
Loss on early extinguishment of debt(3) | — |  |  | — |  |  | 23,807 |
Net (gain) loss on divestitures and other costs | 4,217 |  |  | 6,864 |  |  | (856) |
Net impact of impairment of goodwill and other intangibles | 963 |  |  | 14,952 |  |  | 500 |
Litigation reserve(4) | 750 |  |  | 270 |  |  | 1,050 |
Tax expense related to divested business(1) | 911 |  |  | — |  |  | — |
Gain on insurance reimbursements | (885) |  |  | — |  |  | — |
Disaster recovery and pandemic costs | — |  |  | 1,627 |  |  | 2,157 |
Other special items(5) | 336 |  |  | 410 |  |  | 2,354 |
Tax adjustment related to certain discrete items(1) | — |  |  | 400 |  |  | — |
Sum of special items | $ | 9,821 |  |  | $ | 25,579 |  |  | $ | 30,607 |
Tax effect on special items(1) | 1,822 |  |  | 7,986 |  |  | 8,503 |
Adjusted net income(6) | $ | 22,532 |  |  | $ | 33,683 |  |  | $ | 55,263 |

(1) | Special items are defined as charges or credits included in our GAAP financial statements that can vary from period to period and are not reflective of costs incurred in the ordinary course of our operations. In 2019 and 2020, Special items are taxed at the federal statutory rate of 21.0%, except the Net (gain) loss on divestitures and other costs and the Net impact of impairment of goodwill and other intangibles, which are taxed at the operating tax rate for the period. In 2021, Special items are taxed at the operating tax rate for the period. The Accretion of discount on Convertible Notes, the Tax expense related to divested business and the Tax adjustment related to certain discrete items are not tax effected.
(2) | Costs related to the termination or resignation of certain key members of leadership.
(3) | Loss on the redemption of our Original Senior Notes during the second quarter of 2021.
(4) | Costs related to litigation matters.
(5) | In 2019, the amount is related to costs associated with recruitment of a former member of the senior leadership team. In 2020, this is related to the costs associated with a state audit assessment. In, 2021, this is related to (1) write-off of certain fixed assets; (2) a one-time $1.0 million payment in September 2021 for residual insurance claims; and (3) interest paid on our Original Senior Notes for the two-week period during which our Senior Notes were issued prior to the redemption of our Original Senior Notes.
(6) | Adjusted net income is defined as Net income plus adjustments for Special items and other expenses or gains that we believe do not directly reflect our core operations and may not be indicative of our normal business operations.

Below is a reconciliation of Gross profit (a GAAP measure) to Operating profit (a non-GAAP measure) (in thousands):

| Years Ended December 31,
| 2019 |  | 2020 |  | 2021
Gross profit | $ | 79,585 |  |  | $ | 105,923 |  |  | $ | 129,516 |
Cemetery property amortization | 3,985 |  |  | 4,956 |  |  | 6,670 |
Field depreciation expense | 12,370 |  |  | 13,006 |  |  | 12,609 |
Regional and unallocated funeral and cemetery costs | 13,827 |  |  | 18,057 |  |  | 25,846 |
Operating profit(1) | $ | 109,767 |  |  | $ | 141,942 |  |  | $ | 174,641 |

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

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Our operations are reported in two business segments: Funeral Home and Cemetery. Below is a breakdown of Operating profit (a non-GAAP measure) by Segment (in thousands):

| Years Ended December 31,
| 2019 |  | 2020 |  | 2021
Funeral Home | $ | 85,737 |  |  | $ | 104,998 |  |  | $ | 119,007 |
Cemetery | 24,030 |  |  | 36,944 |  |  | 55,634 |
Operating profit | $ | 109,767 |  |  | $ | 141,942 |  |  | $ | 174,641 |
Operating profit margin(1) | 40.0% |  | 43.1% |  | 46.5%

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

Further discussion of Operating profit for our funeral home and cemetery segments is presented herein under “Results of Operations.”
YEAR ENDED DECEMBER 31, 2021 COMPARED TO YEAR ENDED DECEMBER 31, 2020
Results of Operations
The following is a discussion of our results of operations for the year ended December 31, 2021 compared to the year ended December 31, 2020.
The term “same store” refers to funeral homes and cemeteries acquired prior to January 1, 2017 and owned and operated for the entirety of each period being presented, excluding certain funeral home and cemetery businesses that we intend to divest in the near future.
The term “acquired” refers to funeral homes and cemeteries purchased after December 31, 2016, excluding any funeral home and cemetery businesses that we intend to divest in the near future. This classification of acquisitions has been important to management and investors in monitoring the results of these businesses and to gauge the leveraging performance contribution that a selective acquisition program can have on total company performance.
The term “divested” when discussed in the Funeral Home Segment, refers to two funeral homes we sold and six funeral homes we merged with other businesses we own in existing markets during the year ended December 31, 2021 and eight funeral homes we sold during the year ended December 31, 2020. The term “divested” when discussed in the Cemetery Segment, refers to one cemetery we sold during the year ended December 31, 2021.
“Planned divested” refers to the funeral home businesses that we intend to divest.
“Ancillary” in the Funeral Home Segment represents our flower shop, pet cremation business and online cremation business.
Cemetery property amortization, Field depreciation expense and Regional and unallocated funeral and cemetery costs, are not included in Operating profit, a non-GAAP financial measure. Adding back these items will result in Gross profit, a GAAP financial measure.
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Funeral Home Segment
The following table sets forth certain information regarding our Revenue and Operating profit from our funeral home operations (in thousands):

| Years Ended December 31, |  |
| 2020 |  | 2021 |  |  |  |
Revenue: |  |  |  |  |  |  |
Same store operating revenue | $ | 191,757 |  |  | $ | 215,039 |  |  |  |  |
Acquired operating revenue | 35,461 |  |  | 38,031 |  |  |  |  |
Divested/planned divested revenue | 8,082 |  |  | 3,174 |  |  |  |  |
Ancillary revenue | 4,661 |  |  | 4,437 |  |  |  |  |
Preneed funeral insurance commissions | 1,349 |  |  | 1,262 |  |  |  |  |
Preneed funeral trust and insurance | 7,828 |  |  | 8,144 |  |  |  |  |
Total | $ | 249,138 |  |  | $ | 270,087 |  |  |  |  |
Operating profit: |  |  |  |  |  |  |
Same store operating profit | $ | 79,850 |  |  | $ | 93,025 |  |  |  |  |
Acquired operating profit | 13,628 |  |  | 16,017 |  |  |  |  |
Divested/planned divested operating profit | 2,067 |  |  | 605 |  |  |  |  |
Ancillary operating profit | 1,186 |  |  | 1,006 |  |  |  |  |
Preneed funeral insurance commissions | 564 |  |  | 359 |  |  |  |  |
Preneed funeral trust and insurance | 7,703 |  |  | 7,995 |  |  |  |  |
Total | $ | 104,998 |  |  | $ | 119,007 |  |  |  |  |

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

| Years Ended December 31,
| 2020 |  | 2021
Same store: |  |  |
Contract volume | 37,802 |  |  | 41,307 |
Average revenue per contract, excluding preneed funeral trust earnings | $ | 5,073 |  |  | $ | 5,206 |
Average revenue per contract, including preneed funeral trust earnings | $ | 5,258 |  |  | $ | 5,382 |
Burial rate | 36.6% |  | 35.2%
Cremation rate | 56.3% |  | 57.1%
Acquired: |  |  |
Contract volume | 7,218 |  |  | 7,243 |
Average revenue per contract, excluding preneed funeral trust earnings | $ | 4,913 |  |  | $ | 5,251 |
Average revenue per contract, including preneed funeral trust earnings | $ | 4,980 |  |  | $ | 5,317 |
Burial rate | 40.4% |  | 39.9%
Cremation rate | 55.4% |  | 54.3%

Funeral home same store operating revenue increased $23.3 million for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase in operating revenue is primarily driven by a 9.3% increase in same store contract volume, as well as a 2.6% increase in the average revenue per contract excluding preneed interest. The increase in volume is not only due to COVID-19 deaths during 2021, but also a result of our ability to adapt to the continued changing environment with new and innovative ways to serve families. We believe the increase in the average revenue per contract is a further reflection of our ability to creatively serve our families, as the number of contracts for which we provided memorial services in 2021 began to return to pre-COVID-19 levels.
Funeral home same store operating profit for the year ended December 31, 2021 increased $13.2 million when compared to the year ended December 31, 2020. The comparable operating profit margin increased 170 basis points to 43.3%. The
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increase in operating profit is primarily due to the increase in same store operating revenue along with disciplined expense and cost management by leaders at each business. Overall same store operating expenses as a percent of operating revenue decreased 1.7% with the largest decrease in salaries and benefits expense of 1.2% as a percent of operating revenue, as we focused on optimizing the inherent operating leverage in each business by increasing revenue without adding extra personnel.
Funeral home acquired operating revenue for the year ended December 31, 2021 increased $2.6 million compared to the year ended December 31, 2020. The increase in operating revenue is primarily driven by a 6.9% increase in the average revenue per contract excluding preneed interest, while the acquired contract volume was relatively flat. We believe the increase in the average revenue per contract is a further reflection of our ability to creatively serve our families, as the number of contracts for which we provided memorial services in 2021 began to return to pre-COVID-19 levels.
Acquired operating profit for the year ended December 31, 2021, increased $2.4 million when compared to the year ended December 31, 2020. The comparable operating profit margin increased 370 basis points to 42.1%. The increase in operating profit is primarily due to the increase in acquired operating revenue along with disciplined expense and cost management by leaders at each business. Overall acquired operating expenses as a percent of operating revenue decreased 3.7% with the largest decrease in salaries and benefits expense of 3.2% as a percent of operating revenue, as we focused on optimizing the inherent operating leverage in each business by increasing revenue without adding extra personnel.
Ancillary revenue, which is recorded in Other revenue, represents revenue from our flower shop, pet cremation and online cremation businesses and Ancillary operating profit both decreased $0.2 million for the year ended December 31, 2021 compared to the year ended December 31, 2020.
Preneed funeral insurance commissions and preneed funeral trust and insurance (recorded in Other revenue) on a combined basis, increased $0.2 million for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase is primarily from trust and insurance earnings on preneed contracts. Recognition of trust and insurance earnings is triggered at the time a preneed contract matures to atneed. For the year ended December 31, 2021, the average trust and insurance earnings per preneed contract increased 7.8% compared to the year ended December 31, 2020. Operating profit for preneed funeral insurance commissions and preneed trust and insurance, on a combined basis, increased $0.1 million for the year ended December 31, 2021 compared to the year ended December 31, 2020 primarily due to the increase in revenue.
Cemetery Segment
The following table sets forth certain information regarding our Revenue and Operating profit from our cemetery operations (in thousands):

| Years Ended December 31, |  |
| 2020 |  | 2021 |  |  |  |
Revenue: |  |  |  |  |  |  |
Same store operating revenue | $ | 51,767 |  |  | $ | 64,171 |  |  |  |  |
Acquired operating revenue | 17,584 |  |  | 27,829 |  |  |  |  |
Divested revenue | 246 |  |  | 288 |  |  |  |  |
Preneed cemetery trust earnings | 9,797 |  |  | 12,487 |  |  |  |  |
Preneed cemetery finance charges | 916 |  |  | 1,024 |  |  |  |  |
Total | $ | 80,310 |  |  | $ | 105,799 |  |  |  |  |
Operating profit: |  |  |  |  |  |  |
Same store operating profit | $ | 19,501 |  |  | $ | 27,015 |  |  |  |  |
Acquired operating profit | 7,128 |  |  | 15,526 |  |  |  |  |
Divested operating profit | 23 |  |  | 82 |  |  |  |  |
Preneed cemetery trust operating profit | 9,376 |  |  | 11,987 |  |  |  |  |
Preneed cemetery finance charges | 916 |  |  | 1,024 |  |  |  |  |
Total | $ | 36,944 |  |  | $ | 55,634 |  |  |  |  |

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

| Years Ended December 31,
| 2020 |  | 2021
Same store: |  |  |
Preneed revenue as a percentage of operating revenue | 61% |  | 61%
Preneed revenue (in thousands) | $ | 31,407 |  |  | $ | 39,291 |
Atneed revenue (in thousands) | $ | 20,360 |  |  | $ | 24,880 |
Number of preneed interment rights sold | 7,104 |  |  | 8,330 |
Average price per interment right sold | $ | 3,771 |  |  | $ | 4,209 |
Acquired: |  |  |
Preneed revenue as a percentage of operating revenue | 66% |  | 67%
Preneed revenue (in thousands) | $ | 11,552 |  |  | $ | 18,536 |
Atneed revenue (in thousands) | $ | 6,032 |  |  | $ | 9,293 |
Number of preneed interment rights sold | 2,353 |  |  | 3,044 |
Average price per interment right sold | $ | 4,889 |  |  | $ | 6,155 |

Cemetery same store preneed revenue increased $7.9 million for the year ended December 31, 2021 compared to the year ended December 31, 2020, as we experienced a 17.3% increase in the number of interments rights sold, as well as an 11.6% increase in the average price per interment right sold. The increase is primarily due to (1) our sales personnel being less impacted by social distancing restrictions that were in place in 2020 due to COVID-19; and (2) the continuous execution of our innovative cemetery sales strategy of building high performance sales teams and standardized sales systems across our portfolio of cemeteries. Cemetery same store atneed revenue, which represents 39% of our same store operating revenue, increased $4.5 million for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase was a result of a 12.6% increase in same store atneed contracts and an 8.5% increase in the average sale per contract, primarily due to the increased deaths in 2021 related to COVID-19.
Cemetery same store operating profit increased $7.5 million for the year ended December 31, 2021 compared to the year ended December 31, 2020. The comparable operating profit margin increased 440 basis points to 42.1% primarily as a result of the increase in operating revenue, along with disciplined expense and cost management by leaders at each business. Operating expenses as a percent of operating revenue decreased 4.4% with the largest decreases in the following areas: (1) salaries and benefits expense decreased 2.6%, as we increased revenue without adding extra personnel; and (2) facilities and grounds expenses decreased 1.0%.
There are three businesses in our acquired cemetery portfolio, two of which were acquired in the fourth quarter of 2019 and one acquired in the first quarter of 2020. In the first quarter of 2020, we hired new sales leadership at two of our recently acquired cemeteries and continue to build their respective sales teams as we execute our innovative cemetery sales strategy of building high performance sales teams and standardized sales systems across our portfolio of cemeteries. As a result, our acquired cemetery portfolio experienced a $7.0 million increase in preneed revenue and a $3.3 million increase in atneed revenue for the year ended December 31, 2021 compared to the year ended December 31, 2020.
Cemetery acquired operating profit increased $8.4 million for the year ended December 31, 2021 compared to the year ended December 31, 2020. The comparable operating profit margin increased 1,530 basis points to 55.8% primarily as a result of the increase in operating revenue, along with disciplined expense and cost management by leaders at each business. Operating expenses as a percent of operating revenue decreased 15.2% with the largest decreases in the following areas: (1) salaries and benefits expense decreased 7.1%, as we increased revenue without adding extra personnel; (2) promotional costs decreased 3.4%; (3) preneed merchandise and service costs decreased 1.9%; and (4) facilities and grounds expenses decreased 1.2%.
Preneed cemetery trust revenue and preneed cemetery finance charges (recorded in Other revenue) on a combined basis increased $2.8 million for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase in our trust fund income is primarily due to our execution of a major repositioning strategy beginning at the height of the COVID-19 market crisis in March 2020, substantially increasing our preneed cemetery trust revenue and operating profit. We experienced a $1.9 million increase in income and a $0.3 million increase in realized capital gains within our perpetual care trusts for the year ended December 31, 2021 compared to the year ended December 31, 2020. Additionally, income from delivered merchandise and service contracts increased $0.3 million. Operating profit for the two categories of Other revenue, on a combined basis, increased $2.7 million for the year ended December 31, 2021 compared to the year ended December 31, 2020 primarily due to the increase in revenue.
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Cemetery property amortization. Cemetery property amortization totaled $6.7 million for the year ended December 31, 2021, an increase of $1.7 million compared to the year ended December 31, 2020, primarily due to the increase in property sold across our cemetery portfolio.
Field depreciation. Depreciation expense for our field businesses totaled $12.6 million for the year ended December 31, 2021, a decrease of $0.4 million compared to the year ended December 31, 2020, primarily due to building structures and older vehicles becoming fully depreciated.
Regional and unallocated funeral and cemetery costs. Regional and unallocated funeral and cemetery costs consist of salaries and benefits for regional management, field incentive compensation and other related costs for field infrastructure. Regional and unallocated funeral and cemetery costs totaled $25.8 million for the year ended December 31, 2021, an increase of $7.8 million compared to the year ended December 31, 2020, primarily due to the following: (1) a $5.3 million increase in cash and other incentives and equity compensation, as a result of our improved performance, which reinforces our strategy of aligning incentives with long-term value creation; (2) $1.0 million increase in compensation expenses, which includes our Chief Operating Officer hired in June 2020 and six additional cemetery sales employees hired in 2021 and the latter half of 2020; (3) a $0.9 million increase in other general administrative costs, which includes higher travel costs; (4) a $0.7 million increase in natural disaster costs due to Hurricane Ida impacting several Louisiana businesses; and (5) a $0.2 million increase in health and safety expenses related to the COVID-19 pandemic; offset by (6) a $0.3 million decrease in state audit assessments.
Other Financial Statement Items
General, administrative and other. General, administrative and other expenses totaled $33.9 million for the year ended December 31, 2021, a decrease of $8.1 million compared to the year ended December 31, 2020, primarily due to the following: (1) a $3.6 million increase in cash incentives and equity compensation, as a result of our improved performance, which reinforces our strategy of aligning incentives with long-term value creation; (2) a $1.7 million increase in other general administrative costs, which includes higher online marketing and advertising costs and software license fees for new technology; (3) a $1.2 million increase in separation expenses related to the resignation of two members of senior leadership; (4) a $1.2 million increase in insurance claims expense, which includes a one-time $1.0 million payment for residual insurance claims; and (5) a $0.4 million increase in acquisition costs.
Home office depreciation and amortization. Home office depreciation and amortization expense totaled $1.2 million for the year ended December 31, 2021, a decrease of $0.2 million compared to the year ended December 31, 2020, primarily due to equipment at the home office becoming fully depreciated in the latter half of the prior year.
Net loss on divestitures, disposals and impairment charges. The components of Net loss on divestitures, disposals and impairment charges are as follows (in thousands):

|  |  | Years Ended December 31,
|  |  |  |  | 2020 |  | 2021
Goodwill impairment |  |  |  |  | $ | 13,632 |  |  | $ | — |
Tradenames impairment |  |  |  |  | 1,061 |  |  | — |
Assets held for sale impairment |  |  |  |  | — |  |  | 500 |
Net (gain) loss on divestitures and real property |  |  |  |  | 6,749 |  |  | (856) |
Net loss on disposals of fixed assets |  |  |  |  | — |  |  | 1,022 |
Total |  |  |  |  | $ | 21,442 |  |  | $ | 666 |

During the year ended December 31, 2021, we divested two funeral homes and one cemetery and sold real property for a net gain of $0.9 million. In addition, we recognized an impairment loss of $0.5 million related to property, plant and equipment assets held for sale. We also disposed of damaged and obsolete property, plant and equipment that had a carrying value of $1.0 million.
During the year ended December 31, 2020, as a result of economic conditions caused by COVID-19, we performed a quantitative assessment of our goodwill and we recorded an impairment to goodwill of $13.6 million, as the carrying amount of our funeral homes in the Eastern Region Reporting Unit exceeded the fair value. We also performed a quantitative assessment of our tradenames and we recorded an impairment for certain of our tradenames of $1.1 million, as the carrying amount of these tradenames exceeded the fair value. In addition, we divested eight funeral homes for a net loss of $6.7 million.
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Interest expense. Interest expense related to its respective debt arrangement is as follows (in thousands):

|  |  | Years Ended December 31,
|  |  |  |  | 2020 |  | 2021
Senior Notes |  |  |  |  | $ | 27,087 |  |  | $ | 22,381 |
Credit Facility |  |  |  |  | 4,220 |  |  | 2,200 |
Convertible Notes |  |  |  |  | 169 |  |  | 19 |
Finance leases |  |  |  |  | 496 |  |  | 471 |
Acquisition debt |  |  |  |  | 489 |  |  | 364 |
Other |  |  |  |  | 54 |  |  | 10 |
Total |  |  |  |  | $ | 32,515 |  |  | $ | 25,445 |

Other, net. The components of Other, net are as follows (in thousands):

|  |  | Years Ended December 31,
|  |  |  |  | 2020 |  | 2021
Gain on insurance reimbursements related to Hurricane Michael |  |  |  |  | $ | (97) |  |  | $ | — |
Loss on land donation |  |  |  |  | — |  |  | 61 |
Other (income) expense |  |  |  |  | (55) |  |  | 23 |
Total |  |  |  |  | $ | (152) |  |  | $ | 84 |

Income taxes. Our income tax provision was $11.1 million for the year ended December 31, 2021, compared to our income tax provision of $8.6 million for the year ended December 31, 2020. Our operating tax rate before discrete items was 27.8% and 32.4% for the years ended December 31, 2021 and 2020, respectively.
We recorded a net discrete tax benefit of $1.2 million and a discrete tax expense of $0.6 million for the years ended December 31, 2021 and 2020, respectively. The net discrete tax benefit for the year ended December 31, 2021, includes benefit related to equity compensation and other adjustments including return to provision analysis and state legislative changes. Our effective tax rate was 25.2% and 34.7% for years ended December 31, 2021 and 2020, respectively.
In connection with the CARES Act, we filed a claim for a refund on June 30, 2020, to carryback the NOLs generated in the tax year ended December 31, 2018. The refund claim for $7.0 million from the 2018 tax year was received on August 7, 2020. As our refund claim filed for tax year 2018 exceeded $5.0 million, our 2018 federal return is under audit by the Internal Revenue Service (“IRS”), as required in order to receive Joint Committee approval. An additional carryback claim for a refund was filed on November 3, 2020 for the tax year ended December 31, 2019, which has not yet been received. On December 4, 2020, we filed an amended federal return for the tax year ended December 31, 2018, in order to take full advantage of the CARES Act legislative changes. The changes reported in the amended return resulted in additional $2.3 million of losses. The additional losses generated from the amended filing will be administratively carried back and processed as part of the Joint Committee review of the 2018 carryback claim.
The majority of the NOLs generated in tax years 2018 and 2019 are the result of filing non-automatic accounting method changes relating to the recognition of revenue from our cemetery property and merchandise and services sales. Our unrecognized tax benefit reserve for the years ended December 31, 2020 and 2021 was $3.7 million and $3.8 million, respectively.
On October 11, 2021, we received an adverse ruling from the IRS for the accounting method change filed in 2018 for revenue recognition of cemetery property. Approval is still pending for the accounting method change filed for revenue recognition of cemetery merchandise and services. Upon receiving the adverse ruling on the revenue recognition of cemetery property accounting method change, we filed an automatic method change on Form 3115, to adopt the IRS’ preferred revenue recognition method for cemetery property. The accounting method change application was submitted under the “three-month window” rule, which would grant audit protection for the cumulative effect of the adverse ruling for revenue recognition of cemetery property, at the discretion of the IRS agent conducting the audit.
See Part II, Item 8, Financial Statements and Supplementary Data, Note 17 for additional information regarding income taxes.
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CRITICAL ACCOUNTING ESTIMATES
The preparation of our Consolidated Financial Statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. Understanding our accounting policies and the extent to which our management uses judgment, assumptions and estimates in applying these policies is integral to understanding our Consolidated Financial Statements. Our critical accounting policies are more fully described in Part II, Item 8, Financial Statements and Supplementary Data, Note 1.
We have identified the following accounting policies as those that require significant judgments, assumptions and estimates and that have a significant impact on our financial condition and results of operations. These policies are considered critical because they may result in fluctuations in our reported results from period to period due to the significant judgments, estimates and assumptions about complex and inherently uncertain matters and because the use of different judgments, assumptions or estimates could have a material impact on our financial condition or results of operations. Actual results may differ from these estimates and such estimates may change if the underlying conditions or assumptions change. Historical performance should not be viewed as indicative of future performance because there can be no assurance the margins, operating income and net earnings, as a percentage of revenue, will be consistent from period to period. We evaluate our critical accounting estimates and judgments required by our policies on an ongoing basis and update them as appropriate based on changing conditions.
Goodwill
Our quantitative goodwill impairment test involves estimates and management judgment. In the quantitative analysis, we compare the fair value of each reporting unit to its carrying value, including goodwill. We determine fair value for each reporting unit using both an income approach, weighted 90%, and a market approach, weighted 10%. Our methodology for determining an income-based fair value is based on discounting projected future cash flows. The discounted cash flow valuation uses projections of future cash flows and includes assumptions concerning future operating performance and economic conditions that may differ from actual future cash flows. Our methodology for determining a market approach fair value utilizes the guideline public company method, in which we rely on market multiples of comparable companies operating in the same industry as the individual reporting units. In accordance with the guidance, if the fair value of the reporting unit is less than its carrying amount an impairment charge is recorded in an amount equal to the difference.
See Part II, Item 8, Financial Statements and Supplementary Data, Note 4 for additional information related to goodwill.
Business Combinations
Determining the fair value of identifiable assets, particularly intangibles and liabilities acquired also requires management to make estimates, which are based on all available information and in some cases assumptions with respect to the timing and amount of future revenues and expenses associated with an asset. To the extent that information not available to us at the closing date subsequently becomes available during the allocation period, we may adjust goodwill, intangible assets, assets or liabilities associated with the acquisition.
When we acquire a cemetery, we utilize an internal and external approach to determine the fair value of the cemetery property. From an external perspective, we obtain an accredited appraisal to provide reasonable assurance for property existence, property availability (unrestricted) for development, property lines, available spaces to sell, identifiable obstacles or easements and general valuation inclusive of known variables in that market. From an internal perspective, we conduct a detailed analysis of the acquired cemetery property using other cemeteries in our portfolio as a benchmark. This provides the added benefit of relevant data that is not available to third party appraisers. Through this thorough internal process, the Company is able to identify viable costs of property based on historical experience, particular markets and demographics, reasonable margins, practical retail prices and park infrastructure and condition.
See Part II, Item 8, Financial Statements and Supplementary Data, Note 3 for additional information related to business combinations.
RECENT ACCOUNTING PRONOUNCEMENTS, ACCOUNTING CHANGES AND OTHER REGULATIONS
For discussion of recent accounting pronouncements and accounting changes, see Note 2 in Part II, Item 8. Financial Statements and Supplementary Data.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
In the ordinary course of business, we are typically exposed to a variety of market risks. Currently, these are primarily related to interest rate risk and changes in the values of securities associated with the preneed and perpetual care trusts. Management is actively involved in monitoring exposure to market risk and developing and utilizing appropriate risk management techniques when appropriate and when available at a reasonable price. We are not exposed to any other significant market risks other than those related to COVID-19 which are described in more detail in Part 1, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021.
The following quantitative and qualitative information is provided about financial instruments to which we are a party at December 31, 2021 and from which we may incur future gains or losses from changes in market conditions. We do not enter into derivative or other financial instruments for speculative or trading purposes.
Hypothetical changes in interest rates and the values of securities associated with the preneed and perpetual care trusts chosen for the following estimated sensitivity analysis are considered to be reasonable near-term changes generally based on consideration of past fluctuations for each risk category. However, since it is not possible to accurately predict future changes in interest rates, these hypothetical changes may not necessarily be an indicator of probable future fluctuations.
The following information about our market-sensitive financial instruments constitutes a “forward-looking statement.”
In connection with our preneed funeral operations and preneed cemetery merchandise and service sales, the related funeral and cemetery trust funds own investments in equity and debt securities and mutual funds, which are sensitive to current market prices. Cost and market values of such investments at December 31, 2021 are presented in Part II, Item 8, Financial Statements and Supplementary Data, Note 7. The sensitivity of the fixed income securities is such that a 0.25% change in interest rates causes an approximate 1.26% change in the value of the fixed income securities.
We monitor current and forecasted interest rate risk in the ordinary course of business and seek to maintain optimal financial flexibility, quality and solvency. As of December 31, 2021, we had outstanding borrowings under the Credit Facility of $155.4 million. Any further borrowings or voluntary prepayments against the Credit Facility or any change in the floating rate would cause a change in interest expense. We have the option to pay interest under our Credit Facility at either the prime rate or the LIBOR rate plus a margin. At December 31, 2021, the prime rate margin was equivalent to 0.75% and the LIBOR rate margin was 1.75%. Assuming the outstanding balance remains unchanged, a change of 100 basis points in our borrowing rate would result in a change in income before taxes of $1.6 million. We have not entered into interest rate hedging arrangements in the past. Management continually evaluates the cost and potential benefits of interest rate hedging arrangements.
Our Senior Notes bear interest at the fixed annual rate of 4.25%. We may redeem the Senior Notes, in whole or in part, at the redemption price of 102.13% on or after May 15, 2024, 101.06% on or after May 15, 2025 and 100% on or after May 15, 2026, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. At any time before May 15, 2024, we may also redeem all or part of the Senior Notes at the redemption prices described in the Indenture, plus accrued and unpaid interest, if any, to (but excluding) the date of redemption. At December 31, 2021, the carrying value of the Senior Notes on our Consolidated Balance Sheet was $394.6 million and the fair value of the Senior Notes was $401.6 million based on the last traded or broker quoted price as reported by FINRA. Increases in market interest rates may cause the value of the Senior Notes to decrease, but such changes will not affect our interest costs.
The remainder of our long-term debt and leases consist of non-interest bearing notes and fixed rate instruments that do not trade in a market and do not have a quoted market value. Any increase in market interest rates causes the fair value of those liabilities to decrease, but such changes will not affect our interest costs.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
CARRIAGE SERVICES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

| Page
CONSOLIDATED FINANCIAL STATEMENTS: |
Reports of Independent Registered Public Accounting Firm (PCAOB ID Number 248) | 45
Consolidated Balance Sheet as of December 31, 2020 and 2021 | 47
Consolidated Statements of Operations for the Years Ended December 31, 2019, 2020 and 2021 | 48
Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2019, 2020 and 2021 | 49
Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, 2020 and 2021 | 50
Notes to Consolidated Financial Statements | 50

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Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Carriage Services, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Carriage Services, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and financial statement schedule included under Item 15(a) (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March 2, 2022 expressed an unqualified opinion.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical audit matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ GRANT THORNTON LLP
We have served as the Company's auditor since 2014.
Dallas, Texas
March 2, 2022
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Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Carriage Services, Inc.
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of Carriage Services, Inc., (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2021, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2021, and our report dated March 2, 2022 expressed an unqualified opinion on those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying management’s report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ GRANT THORNTON LLP
Dallas, Texas
March 2, 2022
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CARRIAGE SERVICES, INC.
CONSOLIDATED BALANCE SHEET
(in thousands, except share data)

| December 31,
| 2020 |  | 2021
ASSETS |  |  |
Current assets: |  |  |
Cash and cash equivalents | $ | 889 |  |  | $ | 1,148 |
Accounts receivable, net | 25,103 |  |  | 25,314 |
Inventories | 7,259 |  |  | 7,346 |
Prepaid and other current assets | 2,076 |  |  | 6,404 |
Total current assets | 35,327 |  |  | 40,212 |
Preneed cemetery trust investments | 86,604 |  |  | 100,903 |
Preneed funeral trust investments | 101,235 |  |  | 113,658 |
Preneed cemetery receivables, net | 21,081 |  |  | 23,150 |
Receivables from preneed funeral trusts, net | 16,844 |  |  | 19,009 |
Property, plant and equipment, net | 269,051 |  |  | 269,367 |
Cemetery property, net | 101,134 |  |  | 100,701 |
Goodwill | 392,978 |  |  | 391,972 |
Intangible and other non-current assets, net | 29,542 |  |  | 29,378 |
Operating lease right-of-use assets | 21,201 |  |  | 17,881 |
Cemetery perpetual care trust investments | 70,828 |  |  | 72,400 |
Total assets | $ | 1,145,825 |  |  | $ | 1,178,631 |
LIABILITIES AND STOCKHOLDERS’ EQUITY |  |  |
Current liabilities: |  |  |
Current portion of debt and lease obligations | $ | 3,432 |  |  | $ | 2,809 |
Accounts payable | 11,259 |  |  | 14,205 |
Accrued and other liabilities | 31,138 |  |  | 43,773 |
Convertible notes | 2,538 |  |  | — |
Total current liabilities | 48,367 |  |  | 60,787 |
Acquisition debt, net of current portion | 4,482 |  |  | 3,979 |
Credit facility | 46,064 |  |  | 153,857 |
Senior notes | 395,968 |  |  | 394,610 |
Obligations under finance leases, net of current portion | 5,531 |  |  | 5,157 |
Obligations under operating leases, net of current portion | 20,302 |  |  | 18,520 |
Deferred preneed cemetery revenue | 47,846 |  |  | 50,202 |
Deferred preneed funeral revenue | 27,992 |  |  | 30,584 |
Deferred tax liability | 46,477 |  |  | 45,784 |
Other long-term liabilities | 4,748 |  |  | 1,419 |
Deferred preneed cemetery receipts held in trust | 86,604 |  |  | 100,903 |
Deferred preneed funeral receipts held in trust | 101,235 |  |  | 113,658 |
Care trusts’ corpus | 69,707 |  |  | 71,156 |
Total liabilities | 905,323 |  |  | 1,050,616 |
Commitments and contingencies: |  |  |
Stockholders’ equity: |  |  |
Common stock, $0.01 par value; 80,000,000 shares authorized and 26,020,494 and 26,264,245 shares issued, respectively and 17,995,155 and 15,331,923 shares outstanding, respectively | 260 |  |  | 263 |
Additional paid-in capital | 239,989 |  |  | 236,809 |
Retained earnings | 102,303 |  |  | 135,462 |
Treasury stock, at cost; 8,025,339 and 10,932,322 shares at December 31, 2020 and 2021, respectively | (102,050) |  |  | (244,519) |
Total stockholders’ equity | 240,502 |  |  | 128,015 |
Total liabilities and stockholders’ equity | $ | 1,145,825 |  |  | $ | 1,178,631 |

The accompanying condensed notes are an integral part of these Consolidated Financial Statements.
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CARRIAGE SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

| Years Ended December 31,
| 2019 |  | 2020 |  | 2021
Revenue: |  |  |  |  |
Service revenue | $ | 142,554 |  |  | $ | 164,984 |  |  | $ | 180,572 |
Property and merchandise revenue | 114,514 |  |  | 139,630 |  |  | 167,721 |
Other revenue | 17,039 |  |  | 24,834 |  |  | 27,593 |
| 274,107 |  |  | 329,448 |  |  | 375,886 |
Field costs and expenses: |  |  |  |  |
Cost of service | 72,991 |  |  | 79,634 |  |  | 82,395 |
Cost of merchandise | 89,294 |  |  | 103,064 |  |  | 113,871 |
Cemetery property amortization | 3,985 |  |  | 4,956 |  |  | 6,670 |
Field depreciation expense | 12,370 |  |  | 13,006 |  |  | 12,609 |
Regional and unallocated funeral and cemetery costs | 13,827 |  |  | 18,057 |  |  | 25,846 |
Other expenses | 2,055 |  |  | 4,808 |  |  | 4,979 |
| 194,522 |  |  | 223,525 |  |  | 246,370 |
Gross profit | 79,585 |  |  | 105,923 |  |  | 129,516 |
Corporate costs and expenses: |  |  |  |  |
General, administrative and other | 25,880 |  |  | 25,827 |  |  | 33,949 |
Home office depreciation and amortization | 1,416 |  |  | 1,427 |  |  | 1,241 |
Net loss on divestitures, disposals and impairment charges | 4,846 |  |  | 21,442 |  |  | 666 |
Operating income | 47,443 |  |  | 57,227 |  |  | 93,660 |
Interest expense | (25,522) |  |  | (32,515) |  |  | (25,445) |
Accretion of discount on convertible notes | (241) |  |  | (216) |  |  | (20) |
Loss on extinguishment of debt | — |  |  | (6) |  |  | (23,807) |
Other, net | 736 |  |  | 152 |  |  | (84) |
Income before income taxes | 22,416 |  |  | 24,642 |  |  | 44,304 |
Expense for income taxes | (7,395) |  |  | (7,985) |  |  | (12,316) |
Tax adjustment related to discrete items | (488) |  |  | (567) |  |  | 1,171 |
Total expense for income taxes | (7,883) |  |  | (8,552) |  |  | (11,145) |
Net income | $ | 14,533 |  |  | $ | 16,090 |  |  | $ | 33,159 |
Basic earnings per common share: | $ | 0.81 |  |  | $ | 0.90 |  |  | $ | 1.90 |
Diluted earnings per common share: | $ | 0.80 |  |  | $ | 0.89 |  |  | $ | 1.81 |
Dividends declared per common share: | $ | 0.3000 |  |  | $ | 0.3375 |  |  | $ | 0.4125 |
Weighted average number of common and common equivalent shares outstanding: |  |  |  |  |
Basic | 17,877 |  |  | 17,872 |  |  | 17,409 |
Diluted | 18,005 |  |  | 18,077 |  |  | 18,266 |

The accompanying condensed notes are an integral part of these Consolidated Financial Statements.
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CARRIAGE SERVICES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands)

| Shares Outstanding |  | Common Stock |  | Additional Paid-in Capital |  | Retained Earnings |  | Treasury Stock |  | Total
Balance – December 31, 2018 | 18,078 |  |  | $ | 257 |  |  | $ | 243,849 |  |  | $ | 71,680 |  |  | $ | (94,294) |  |  | $ | 221,492 |
Net Income – 2019 | — |  |  | — |  |  | — |  |  | 14,533 |  |  | — |  |  | 14,533 |
Issuance of common stock from employee stock purchase plan | 74 |  |  | 1 |  |  | 971 |  |  | — |  |  | — |  |  | 972 |
Issuance of common stock to directors and board advisor | 7 |  |  | — |  |  | 155 |  |  | — |  |  | — |  |  | 155 |
Issuance of restricted common stock | 26 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Exercise of stock options | 76 |  |  | 1 |  |  | 471 |  |  | — |  |  | — |  |  | 472 |
Cancellation and surrender of restricted common stock | (21) |  |  | — |  |  | (194) |  |  | — |  |  | — |  |  | (194) |
Stock-based compensation expense | — |  |  | — |  |  | 1,998 |  |  | — |  |  | — |  |  | 1,998 |
Dividends on common stock | — |  |  | — |  |  | (5,398) |  |  | — |  |  | — |  |  | (5,398) |
Treasury stock acquired | (400) |  |  | — |  |  | — |  |  | — |  |  | (7,756) |  |  | (7,756) |
Other | 15 |  |  | — |  |  | 295 |  |  | — |  |  | — |  |  | 295 |
Balance – December 31, 2019 | 17,855 |  |  | $ | 259 |  |  | $ | 242,147 |  |  | $ | 86,213 |  |  | $ | (102,050) |  |  | $ | 226,569 |
Net Income – 2020 | — |  |  | — |  |  | — |  |  | 16,090 |  |  | — |  |  | 16,090 |
Issuance of common stock from employee stock purchase plan | 72 |  |  | 1 |  |  | 1,201 |  |  | — |  |  | — |  |  | 1,202 |
Issuance of common stock to directors and board advisor | 31 |  |  | — |  |  | 653 |  |  | — |  |  | — |  |  | 653 |
Exercise of stock options | 20 |  |  | — |  |  | (70) |  |  | — |  |  | — |  |  | (70) |
Issuance of restricted common stock | 10 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Cancellation and surrender of restricted common stock | (11) |  |  | — |  |  | (250) |  |  | — |  |  | — |  |  | (250) |
Stock-based compensation expense | — |  |  | — |  |  | 2,717 |  |  | — |  |  | — |  |  | 2,717 |
Dividends on common stock | — |  |  | — |  |  | (6,048) |  |  | — |  |  | — |  |  | (6,048) |
Convertible notes repurchase | — |  |  | — |  |  | (828) |  |  | — |  |  | — |  |  | (828) |
Other | 18 |  |  | — |  |  | 467 |  |  | — |  |  | — |  |  | 467 |
Balance – December 31, 2020 | 17,995 |  |  | $ | 260 |  |  | $ | 239,989 |  |  | $ | 102,303 |  |  | $ | (102,050) |  |  | $ | 240,502 |
Net Income – 2021 | — |  |  | — |  |  | — |  |  | 33,159 |  |  | — |  |  | 33,159 |
Issuance of common stock from employee stock purchase plan | 62 |  |  | 1 |  |  | 1,629 |  |  | — |  |  | — |  |  | 1,630 |
Issuance of common stock to directors and board advisor | 15 |  |  | — |  |  | 642 |  |  | — |  |  | — |  |  | 642 |
Issuance of restricted common stock | 9 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Exercise of stock options | 169 |  |  | 2 |  |  | (1,259) |  |  | — |  |  | — |  |  | (1,257) |
Cancellation and surrender of restricted common stock | (11) |  |  | — |  |  | (375) |  |  | — |  |  | — |  |  | (375) |
Stock-based compensation expense | — |  |  | — |  |  | 4,871 |  |  | — |  |  | — |  |  | 4,871 |
Dividends on common stock | — |  |  | — |  |  | (7,264) |  |  | — |  |  | — |  |  | (7,264) |
Convertible notes conversions | — |  |  | — |  |  | (1,424) |  |  | — |  |  | — |  |  | (1,424) |
Treasury stock acquired | (2,907) |  |  | — |  |  | — |  |  | — |  |  | (142,469) |  |  | (142,469) |
Balance – December 31, 2021 | 15,332 |  |  | $ | 263 |  |  | $ | 236,809 |  |  | $ | 135,462 |  |  | $ | (244,519) |  |  | $ | 128,015 |

The accompanying notes are an integral part of these Consolidated Financial Statements.
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CARRIAGE SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

| Years Ended December 31,
| 2019 |  | 2020 |  | 2021
Cash flows from operating activities: |  |  |  |  |
Net income | $ | 14,533 |  |  | $ | 16,090 |  |  | $ | 33,159 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |  |
Depreciation and amortization | 17,771 |  |  | 19,389 |  |  | 20,520 |
Provision for credit losses | 1,618 |  |  | 2,318 |  |  | 1,783 |
Stock-based compensation expense | 2,153 |  |  | 3,370 |  |  | 5,513 |
Deferred income tax expense (benefit) | 10,117 |  |  | 4,597 |  |  | (692) |
Amortization of intangibles | 1,231 |  |  | 1,299 |  |  | 1,285 |
Amortization of debt issuance costs | 392 |  |  | 782 |  |  | 576 |
Amortization and accretion of debt discount and premium | 733 |  |  | 523 |  |  | 439 |
Loss on extinguishment of debt | — |  |  | 6 |  |  | 23,807 |
Net loss on divestitures, disposals and impairment charges | 5,059 |  |  | 21,693 |  |  | 847 |
Gain on insurance reimbursements | (879) |  |  | (97) |  |  | — |
Other | 121 |  |  | 19 |  |  | — |
Changes in operating assets and liabilities that provided (used) cash: |  |  |  |  |
Accounts and preneed receivables | (5,801) |  |  | (4,279) |  |  | (4,090) |
Inventories, prepaid and other current assets | (2,762) |  |  | 3,516 |  |  | (4,449) |
Intangible and other non-current assets | (924) |  |  | (1,015) |  |  | (1,181) |
Preneed funeral and cemetery trust investments | (6,500) |  |  | (5,043) |  |  | (31,349) |
Accounts payable | (580) |  |  | 2,702 |  |  | 522 |
Accrued and other liabilities | 1,271 |  |  | 10,784 |  |  | 3,485 |
Deferred preneed funeral and cemetery revenue | 168 |  |  | 528 |  |  | 5,010 |
Deferred preneed funeral and cemetery receipts held in trust | 5,495 |  |  | 5,733 |  |  | 29,061 |
Net cash provided by operating activities | 43,216 |  |  | 82,915 |  |  | 84,246 |
Cash flows from investing activities: |  |  |  |  |
Acquisition of businesses and real estate | (140,907) |  |  | (28,011) |  |  | (3,285) |
Deposit on pending acquisition | (5,000) |  |  | — |  |  | — |
Proceeds from divestitures and sale of other assets | 967 |  |  | 8,541 |  |  | 7,875 |
Proceeds from insurance reimbursements | 1,433 |  |  | 248 |  |  | 7,758 |
Capital expenditures | (15,379) |  |  | (15,198) |  |  | (24,883) |
Net cash used in investing activities | (158,886) |  |  | (34,420) |  |  | (12,535) |
Cash flows from financing activities: |  |  |  |  |
Borrowings from the credit facility | 174,961 |  |  | 109,500 |  |  | 266,168 |
Payments against the credit facility | (118,261) |  |  | (146,100) |  |  | (157,968) |
Payment to redeem the original senior notes | — |  |  | — |  |  | (400,000) |
Payment of call premium for the redemption of the original senior notes | — |  |  | — |  |  | (19,876) |
Proceeds from the issuance of the senior notes | — |  |  | — |  |  | 395,500 |
Payment of debt issuance costs for the credit facility and senior notes | (1,871) |  |  | (78) |  |  | (2,197) |
Conversion and maturity of the convertible notes | (27) |  |  | (4,563) |  |  | (3,980) |
Proceeds from the issuance of the original senior notes | 76,688 |  |  | — |  |  | — |
Payments on acquisition debt and obligations under finance leases | (2,287) |  |  | (1,745) |  |  | (1,331) |
Payments on contingent consideration recorded at acquisition date | (162) |  |  | (169) |  |  | (461) |
Proceeds from the exercise of stock options and employee stock purchase plan | 1,445 |  |  | 1,229 |  |  | 2,644 |
Taxes paid on restricted stock vestings and exercise of stock options | (194) |  |  | (348) |  |  | (2,647) |
Dividends paid on common stock | (5,398) |  |  | (6,048) |  |  | (7,264) |
Purchase of treasury stock | (9,152) |  |  | — |  |  | (140,040) |
Net cash provided by (used in) financing activities | 115,742 |  |  | (48,322) |  |  | (71,452) |
Net increase in cash and cash equivalents | 72 |  |  | 173 |  |  | 259 |
Cash and cash equivalents at beginning of year | 644 |  |  | 716 |  |  | 889 |
Cash and cash equivalents at end of year | $ | 716 |  |  | $ | 889 |  |  | $ | 1,148 |

The accompanying notes are an integral part of these Consolidated Financial Statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Carriage Services, Inc. (“Carriage,” the “Company,” “we,” “us,” or “our”) is a leading provider of funeral and cemetery services and merchandise in the United States. Our operations are reported in two business segments: Funeral Home Operations, which currently account for approximately 70% of our revenue and Cemetery Operations, which currently account for approximately 30% of our revenue. At December 31, 2021, we operated 170 funeral homes in 26 states and 31 cemeteries in 11 states.
Our funeral home operations are principally service businesses that generate revenue from sales of burial and cremation services and related merchandise, such as caskets and urns. Funeral services include consultation, the removal and preparation of remains, the use of funeral home facilities for visitation and memorial services and transportation services. We provide funeral services and products on both an “atneed” (time of death) and “preneed” (planned prior to death) basis.
Our cemetery operations generate revenue primarily through sales of cemetery interment rights (primarily grave sites, lawn crypts, mausoleum spaces and niches), related cemetery merchandise (such as memorial markers, outer burial containers, and monuments) and services (interments, inurnments and installation of cemetery merchandise). We provide cemetery services and products on both an atneed and preneed basis.
Principles of Consolidation
The accompanying Consolidated Financial Statements include the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated.
Reclassifications
Certain reclassifications have been made to prior period amounts on our Consolidated Statements of Cash Flows related to debt and debt issuance costs to conform to the current period financial statement presentation with no effect on our previously reported Consolidated Statements of Operations and Consolidated Balance Sheet.
Use of Estimates
The preparation of our Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses. On an ongoing basis, we evaluate our critical estimates and judgments, which include those related to the impairment of goodwill and the fair value measurements used in business combinations. These policies are considered critical because they may result in fluctuations in our reported results from period to period due to the significant judgments, estimates and assumptions about complex and inherently uncertain matters and because the use of different judgments, assumptions or estimates could have a material impact on our financial condition or results of operations. Actual results may differ from these estimates and such estimates may change if the underlying conditions or assumptions change. Historical performance should not be viewed as indicative of future performance because there can be no assurance the margins, operating income and net earnings, as a percentage of revenue, will be consistent from period to period.
Cash and Cash Equivalents
We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
Funeral and Cemetery Receivables
Our funeral receivables are recorded in Accounts receivable, net and primarily consist of amounts due for funeral services already performed.
Atneed cemetery receivables and preneed cemetery receivables with payments expected to be received within one year from the balance sheet date are recorded in Accounts receivable, net. Preneed cemetery receivables with payments expected to be received beyond one year from the balance sheet date are recorded in Preneed cemetery receivables, net. Our cemetery receivables generally consist of preneed sales of cemetery interment rights and related products and services, which are typically financed through interest-bearing installment sales contracts, generally with terms of up to five years, with such interest income reflected as Other revenue. In substantially all cases, we receive an initial down payment at the time the contract is signed.
For our funeral and atneed cemetery receivables, we have a collections policy where statements are sent to the customer at 30 days past due. Past due notification letters are sent at 45 days and continue until payment is received or the contract is placed
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
with a third-party collections agency. For our preneed cemetery receivables, we have a collections policy where past due notification letters are sent to the customer beginning at 15 days past due and periodically thereafter until payment is received or the contract is cancelled.
Our allowance for credit losses reflects our best estimate of expected credit losses over the term of both our funeral and cemetery receivables. Our policy is to write off receivables when we have determined they will no longer be collectible. Write-offs are applied as a reduction to the allowance for credit losses and any recoveries of previous write-offs are netted against bad debt expense in the period recovered.
We determine our allowance for credit losses by using a loss-rate methodology, in which we assess our historical write-off of receivables against our total receivables over several years. From this historical loss-rate approach, we also consider the current and forecasted economic conditions expected to be in place over the life of our receivables. These estimates are impacted by a number of factors, including changes in the economy, demographics and competition in our local communities. We monitor our ongoing credit exposure through an active review of our customers’ receivables balance against contract terms and due dates. Our activities include timely performance of our accounts receivable reconciliations, assessment of our aging of receivables, dispute resolution and payment confirmation. We monitor any change in our historical write-off of receivables utilized in our loss-rate methodology and assess forecasted changes in market conditions within our credit reserve.
See Note 6 to the Consolidated Financial Statements herein for additional information related to our funeral and cemetery receivables.
Inventory
Inventory consists primarily of caskets, outer burial containers and cemetery monuments and markers and is recorded at the lower of its cost basis or net realizable value. Inventory is relieved using specific identification in fulfillment of performance obligations on our contracts.
Business Combinations
Tangible and intangible assets acquired and liabilities assumed are recorded at fair value and goodwill is recognized for any difference between the price of the acquisition and fair value. We recognize the assets acquired, the liabilities assumed and any non-controlling interest in the acquiree at the acquisition date, measured at the fair value as of that date. Acquisition related costs are recognized separately from the acquisition and are expensed as incurred. We customarily estimate related transaction costs known at closing. To the extent that information not available to us at the closing date subsequently becomes available during the allocation period, we may adjust goodwill, intangible assets, assets or liabilities associated with the acquisition.
We did not acquire any businesses in 2021. On January 3, 2020, we acquired one funeral home and cemetery combination business in Lafayette, California.
The pro forma impact of the acquisitions on prior periods is not presented as the impact is not material to our reported results. The results of the acquired businesses are included in our results of operations from the date of acquisition.
See Note 3 to the Consolidated Financial Statements herein for further information related to acquisitions.
Divested Operations
Prior to divesting a funeral home or cemetery, we first determine whether the sale of the net assets and activities (together referred to as a “set”) qualifies as a business. First, we perform a screen test to determine if the set is not a business. The principle of the screen is that if substantially all of the fair value of the gross assets sold resides in a single asset or group of similar assets, the set is not a business. If the screen is not met, we perform an assessment to determine if the set is a business by evaluating whether the set has both inputs and a substantive process that together significantly contribute to the ability to create outputs. When both inputs and a substantive process are present then the set is determined to be a business and we apply the guidance in Accounting Standards Codification (“ASC”) Topic 350 – Intangibles – Goodwill and Other to determine the accounting treatment of goodwill for that set (see discussion of Goodwill below). Goodwill is only allocated to the sale if the set is considered to be a business.
During 2021, we sold two funeral homes and one cemetery for $2.5 million and we merged six funeral homes with other businesses we own in existing markets. During 2020, we sold eight funeral homes for $8.4 million. During 2019, we divested three funeral homes whose building leases expired and sold a funeral home for $0.9 million. In addition, we merged a funeral home with a business in an existing market.
See Notes 4 and 5 to the Consolidated Financial Statements herein for additional information related to divestitures.
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Goodwill
The excess of the purchase price over the fair value of identifiable net assets of funeral home businesses and cemeteries acquired is recorded as goodwill. Goodwill has an indefinite life and is not subject to amortization. As such, we test goodwill for impairment on an annual basis as of August 31 st each year. Under current guidance, we are permitted to first assess qualitative factors to determine whether it is more-likely-than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative goodwill impairment test.
Our intent is to perform a quantitative impairment test at least once every three years and perform a qualitative assessment during the remaining two years. In addition to our annual test, we assess the impairment of goodwill whenever events or changes in circumstances indicate that the carrying value of a reporting unit may be greater than fair value. Factors that could trigger an interim impairment review include, but are not limited to, significant negative industry or economic trends and significant adverse changes in the business climate, which may be indicated by a decline in our market capitalization or decline in operating results.
Our quantitative goodwill impairment test involves estimates and management judgment. In the quantitative analysis, we compare the fair value of each reporting unit to its carrying value, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, the goodwill of that reporting unit is not considered impaired. We determine fair value for each reporting unit using both an income approach, weighted 90%, and a market approach, weighted 10%. Our methodology for determining an income-based fair value is based on discounting projected future cash flows. The projected future cash flows include assumptions concerning future operating performance and economic conditions that may differ from actual future cash flows discounted at our weighted average cost of capital based on market participant assumptions. Our methodology for determining a market approach fair value utilizes the guideline public company method, in which we rely on market multiples of comparable companies operating in the same industry as the individual reporting units. In accordance with the guidance, if the fair value of the reporting unit is less than its carrying amount an impairment charge is recorded in an amount equal to the difference.
For our 2021 annual impairment test, we performed a qualitative assessment and concluded that there was no impairment to goodwill.
During 2020, as a result of economic conditions caused by COVID-19, we performed a quantitative assessment of our goodwill and we recorded an impairment to goodwill of $13.6 million, as the carrying amount of our funeral homes in the Eastern Region Reporting Unit exceeded the fair value.
For our 2020 annual impairment test, we performed a qualitative assessment and determined that there were no factors that would indicate the need to perform an additional quantitative goodwill impairment test and concluded that there was no additional impairment to goodwill.
For our 2019 annual impairment test, we performed a quantitative assessment and concluded there was no impairment to goodwill as the fair value of our reporting units was greater than the carrying value. However, we recorded a goodwill impairment of $0.7 million during the year ended December 31, 2019 related to two funeral homes that we divested.
When we divest a portion of a reporting unit that constitutes a business in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”), we allocate goodwill associated with that business to be included in the gain or loss on divestiture. The goodwill allocated is based on the relative fair value of the business being divested and the portion of the reporting unit that will be retained. Additionally, after each divestiture, we will test the goodwill remaining in the portion of the reporting unit to be retained for impairment using a qualitative assessment unless we deem a quantitative assessment to be appropriate to ensure the fair value of our reporting units is greater than their carrying value. For the years ended December 31, 2020 and 2021, after each divestiture, we concluded that it was more-likely-than not that the fair value of our reporting units was greater than their carrying value and thus there was no impairment to goodwill.
See Note 4 to the Consolidated Financial Statements included herein for additional information related to goodwill.
Intangible Assets
Our intangible assets include tradenames resulting from acquisitions and are included in Intangible and other non-current assets, net on our Consolidated Balance Sheet. Our tradenames are considered to have an indefinite life and are not subject to amortization. As such, we test our intangible assets for impairment on an annual basis as of August 31 st each year. Under current guidance, we are permitted to first assess qualitative factors to determine whether it is more-likely-than not that the fair value of the tradename is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative impairment test.
Our intent is to perform a quantitative impairment test at least once every three years and perform a qualitative assessment during the remaining two years. In addition to our annual test, we assess the impairment of intangible assets whenever certain
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events or changes in circumstances indicate that the carrying value of the intangible asset may be greater than the fair value. Factors that could trigger an interim impairment review include, but are not limited to, significant under-performance relative to historical or projected future operating results and significant negative industry or economic trends.
Our quantitative intangible asset impairment test involves estimates and management judgment. Our quantitative analysis is performed using the relief from royalty method, which measures the tradenames by determining the value of the royalties that we are relieved from paying due to our ownership of the asset. We determine the fair value of the asset by discounting the cash flows that represent a savings in lieu of paying a royalty fee for use of the tradename. The discounted cash flow valuation uses projections of future cash flows and includes assumptions concerning future operating performance and economic conditions that may differ from actual future cash flows and the determination and application of an appropriate royalty rate and discount rate. To estimate the royalty rates for the individual tradename, we mainly rely on the profit split method, but also consider the comparable third-party license agreements and the return on asset method. A scorecard is used to assess the relative strength of the individual tradename to further adjust the royalty rates selected under the profit-split method for qualitative factors. In accordance with the guidance, if the fair value of the tradename is less than its carrying amount, then an impairment charge is recorded in an amount equal to the difference.
For our 2021 annual impairment test, we performed a qualitative assessment and concluded there that was no impairment to our intangible assets.
During 2020, as a result of economic conditions caused by COVID-19, we performed a quantitative assessment of our tradenames and we recorded an impairment to tradenames for certain of our funeral homes of $1.1 million, as the carrying amount of these tradenames exceeded the fair value.
For our 2020 annual impairment test, we performed a qualitative assessment and determined that there were no factors that would indicate the need to perform an additional quantitative impairment test and concluded there that was no additional impairment to our intangible assets.
For our 2019 annual impairment test, we performed a quantitative assessment and recorded an impairment of $0.2 million for tradenames during the year ended December 31, 2019, as the carrying amount of certain tradenames exceeded their fair value.
See Note 11 to the Consolidated Financial Statements included herein for additional information related to our intangible assets.
Preneed and Perpetual Care Trust Funds
Preneed sales generally require deposits to a trust or purchase of a third-party insurance product. We have established a variety of trusts in connection with funeral home and cemetery operations as required under applicable state laws. Such trusts include (i) preneed funeral trusts; (ii) preneed cemetery merchandise and service trusts; and (iii) cemetery perpetual care trusts.
Our preneed and perpetual care trust funds are reported in accordance with the principles of consolidating Variable Interest Entities (“VIEs”). In the case of preneed trusts, the customers are the legal beneficiaries. In the case of perpetual care trusts, we do not have a right to access the corpus in the perpetual care trusts.
Our trust fund assets are reflected in our financial statements as Preneed cemetery trust investments, Preneed funeral trust investments and Cemetery perpetual care trust investments. We have recognized financial interests of third parties in the trust funds in our financial statements as Deferred preneed funeral and cemetery receipts held in trust and Care trusts’ corpus.
The fair value of our trust fund assets are accounted for as Collateralized Financing Entities (“CFEs”) in ASC Topic 810. The accounting guidance for CFEs allows companies to elect to measure both the financial assets and financial liabilities using the more observable of the fair value of the financial assets or fair value of the financial liabilities. Pursuant to this guidance, we have determined the fair value of the financial assets of the trusts are more observable and we first measure those financial assets at fair value. Our fair value of the financial liabilities mirror the fair value of the financial assets, in accordance with the ASC. Any changes in fair value are recognized in earnings.
We present our credit losses for fixed income securities as an allowance for the fixed income securities we do not intend to sell and it is likely that we will not be required to sell prior to their anticipated recovery.
In accordance with respective state laws, we are required to deposit a specified amount into perpetual and memorial care trust funds for each interment right and certain memorials sold. Income from the trust funds is distributed to us and used to provide for the care and maintenance of the cemeteries and mausoleums. Trust fund income is recognized as revenue when realized by the trust and distributable to us. We are restricted from withdrawing any of the principal balances of these funds.
An enterprise is required to perform an analysis to determine whether the enterprise’s variable interest(s) give it a controlling financial interest in a VIE. This analysis identifies the primary beneficiary of a VIE as the enterprise that has both
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the power to direct the activities of the VIE that most significantly impact the entity’s economic performance and the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE. Our analysis continues to support our position as the primary beneficiary in the majority of our funeral and cemetery trust funds.
We also have preneed funeral trust fund assets in trusts that are controlled and operated by third parties in which we do not have a controlling financial interest (less than 50%) in the trust assets. We account for these investments at cost, reflected in our financial statements as Receivables from preneed funeral trusts, net.
Our preneed funeral and preneed cemetery merchandise and service trusts are reflected in our financial statements net of an allowance for contract cancellations. We determine this allowance based on our five-year historical experience of contract cancellations. On an ongoing basis, we monitor our historical trend and adjust our allowance accordingly.
See Notes 7 and 8 to the Consolidated Financial Statements herein for additional information related to preneed and perpetual care trust funds.
Fair Value Measurements
We measure the securities held by our funeral merchandise and service, cemetery merchandise and service, and cemetery perpetual care trusts at fair value on a recurring basis in accordance with ASC Topic 820. This guidance defines fair value as the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The guidance establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date.
We disclose the extent to which fair value is used to measure financial assets and liabilities, the inputs utilized in calculating valuation measurements, and the effect of the measurement of significant unobservable inputs on earnings, or changes in net assets, as of the measurement date. We currently do not have any assets that have fair values determined by Level 3 inputs and no liabilities measured at fair value. We have not elected to measure any additional financial instruments and certain other items at fair value that are not currently required to be measured at fair value.
In the ordinary course of business, we are typically exposed to a variety of market risks. Currently, these are primarily related to changes in fair market values related to outstanding debts and changes in the values of securities associated with the preneed and perpetual care trusts. Management is actively involved in monitoring exposure to market risk and developing and utilizing risk management techniques when appropriate and when available for a reasonable price.
See Notes 7 and 10 to the Consolidated Financial Statements herein for additional required disclosures related to our fair value measurement of our financial assets and liabilities.
Capitalized Commissions on Preneed Contracts
We capitalize sales commissions and other direct selling costs related to preneed cemetery merchandise and services and preneed funeral trust contracts as these costs are incremental and recoverable costs of obtaining a contract with a customer. Our capitalized commissions on preneed contracts are amortized on a straight-line basis over the average maturity period of ten years for our preneed funeral trust contracts and eight years for our preneed cemetery merchandise and services contracts. Amortization expense totaled $0.6 million for each of the years ended December 31, 2019, 2020 and 2021.
The selling costs related to the sales of cemetery interment rights, which include real property and other costs related to cemetery development activities, continue to be expensed using the specific identification method in the period in which the sale of the cemetery interment right is recognized as revenue. The selling costs related to preneed funeral insurance contracts continue to be expensed in the period incurred as these contracts are not included on our Consolidated Balance Sheet.
See Note 11 to the Consolidated Financial Statements herein for additional information related to our capitalized commissions on preneed contracts.
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Property, Plant and Equipment
Property, plant and equipment (including equipment under finance leases) are stated at cost. The costs of ordinary maintenance and repairs are charged to operations as incurred, while renewals and major replacements that extend the useful economic life of the asset are capitalized. Depreciation of property, plant and equipment (including equipment under finance leases) is computed based on the straight-line method over the following estimated useful lives of the assets:

| Years
Buildings and improvements | 15 to 40
Furniture and fixtures | 5 to 10
Machinery and equipment | 3 to 15
Automobiles | 5 to 7

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

| December 31, 2020 |  | December 31, 2021
Land | $ | 82,615 |  |  | $ | 82,095 |
Buildings and improvements | 240,567 |  |  | 240,387 |
Furniture, equipment and automobiles | 91,302 |  |  | 73,377 |
Property, plant and equipment, at cost | 414,484 |  |  | 395,859 |
Less: accumulated depreciation | (145,433) |  |  | (126,492) |
Property, plant and equipment, net | $ | 269,051 |  |  | $ | 269,367 |

During the year ended December 31, 2021, we acquired real property for $3.3 million and we sold real property for $5.2 million, with a carrying value of $4.3 million, resulting in a gain on the sale of $0.9 million. We recognized a $0.5 million impairment loss related to property, plant and equipment assets held for sale. The gain on sale and impairment loss were recorded in Net loss on divestitures, disposals and impairment charges.
We also divested two funeral homes and one cemetery that had a carrying value of property, plant and equipment of $1.4 million, which was included in the gain or loss on the sale of divestitures and recorded in Net loss on divestitures, disposals and impairment charges on our Consolidated Statements of Operations, described in Note 5 to the Consolidated Financial Statements included herein.
Additionally, we disposed of damaged and obsolete property, plant and equipment that had a carrying value of $1.0 million, which was recorded in Net loss on divestitures, disposals and impairment charges.
During the year ended December 31, 2020, we acquired $1.7 million of property, plant and equipment related to our funeral home and cemetery acquisition, described in Note 3 to the Consolidated Financial Statements included herein. In addition, we divested eight funeral homes that had a carrying value of property, plant and equipment of $8.0 million, which was included in the gain or loss on the sale of divestitures and recorded in Net loss on divestitures, disposals and impairment charges on our Consolidated Statements of Operations.
Our growth and maintenance capital expenditures totaled $10.5 million and $19.0 million for the years ended December 31, 2020 and 2021, respectively, for property, plant, equipment. In addition, we recorded depreciation expense of $13.8 million, $14.4 million and $13.8 million for the years ended December 31, 2019, 2020 and 2021, respectively.
Long-lived assets, such as property, plant and equipment and right-of-use assets (see leases discussion below) are reported at the lower of their carrying amount or fair value and are reviewed for impairment whenever events, such as significant negative industry or economic trends or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with ASC 360 – Property, Plant and Equipment. Factors that could trigger an impairment review include, but are not limited to, significant under-performance relative to historical or projected future operating results. We evaluate our long-lived assets for impairment when a funeral home or cemetery business has negative earnings before interest, taxes, depreciation and amortization (“EBITDA”) for four consecutive years and if there has been a decline in EBITDA in that same period. We test the recoverability of our long-lived assets by comparing their carrying value to the sum of the undiscounted cash flows expected to result from the use of the assets over their remaining useful lives. We recognize an impairment loss if the carrying amount of the long-lived asset is not recoverable and exceeds its fair value.
Additionally, assets to be disposed of and assets not expected to provide any future service potential are recorded at the lower of their carrying amount or fair value less estimated costs to sell. If we determine that the carrying value is not recoverable from the proceeds of the sale, we record an impairment loss at that time.
For the year ended December 31, 2021, we did not identify any factors or events that would trigger us to perform an impairment test on our long-lived assets and concluded there was no impairment to our long-lived assets.
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In connection with the goodwill impairment recorded for the Eastern Region Reporting Unit during the quarter ended March 31, 2020, we evaluated the long-lived assets of our funeral homes in the Eastern Region Reporting Unit for impairment and concluded that there was no impairment to our long-lived assets. Subsequent to our impairment tests performed at March 31, 2020, we did not identify any new factors or events that would trigger us to perform an additional assessment of our long-lived assets.
For the year ended December 31, 2019, we did not identify any factors or events that would trigger us to perform an impairment test on our long-lived assets and concluded there was no impairment to our long-lived assets.
Cemetery Property
When we acquire a cemetery, we utilize an internal and external approach to determine the fair value of the cemetery property. From an external perspective, we obtain an accredited appraisal to provide reasonable assurance for property existence, property availability (unrestricted) for development, property lines, available spaces to sell, identifiable obstacles or easements and general valuation inclusive of known variables in that market. From an internal perspective, we conduct a detailed analysis of the acquired cemetery property using other cemeteries in our portfolio as a benchmark. This provides the added benefit of relevant data that is not available to third party appraisers. Through this thorough internal process, we are able to identify viable costs of property based on historical experience, particular markets and demographics, reasonable margins, practical retail prices and park infrastructure and condition.
Cemetery property was $101.1 million and $100.7 million, net of accumulated amortization of $46.6 million and $53.1 million at December 31, 2020 and 2021, respectively. When cemetery property is sold, the value of the cemetery property (interment right costs) is expensed as amortization using the specific identification method in the period in which the sale of the interment right is recognized as revenue. Our growth capital expenditures totaled $4.7 million and $5.9 million for the years ended December 31, 2020 and 2021, respectively, for cemetery property development. We recorded amortization expense for cemetery interment rights of $4.0 million, $5.0 million and $6.7 million for the years ended December 31, 2019, 2020 and 2021, respectively.
During the year ended December 31, 2021, we divested one cemetery that had a carrying value of cemetery property of $0.1 million, which was included in the gain or loss on the sale of divestitures and recorded in Net loss on divestitures, disposals and impairment charges on our Consolidated Statements of Operations. We did not divest any cemeteries during the years ended December 31, 2019 and 2020.
Leases
We have operating and finance leases. We lease certain office facilities, certain funeral homes and equipment under operating leases with original terms ranging from one to twenty years. Many leases include one or more options to renew, some of which include options to extend the leases for up to forty years. We lease certain funeral homes under finance leases with original terms ranging from ten to forty years. We do not have lease agreements with residual value guarantees, sale-leaseback terms, material restrictive covenants or related parties. We do not have any material sublease arrangements.
We determine if an arrangement is a lease at inception based on the facts and circumstances of the agreement. A right-of-use (“ROU”) asset represents our right to use the underlying asset for the lease term and the lease liability represents our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized on our Consolidated Balance Sheet at the lease commencement date based on the present value of lease payments over the lease term. As our leases do not provide an implicit interest rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The lease terms used to calculate the ROU asset and related lease liability include options to extend the lease when it is reasonably certain that we will exercise that option. Lease expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense, while the expense for finance leases is recognized as depreciation expense and interest expense using the effective interest method of recognition. Variable lease payment amounts that cannot be determined at the commencement of the lease such as increases in lease payments based on changes in index rates or usage, are not included in the ROU assets or liabilities. These are expensed as incurred and recorded as variable lease expense. We have real estate lease agreements which require payments for lease and non-lease components and we account for these as a single lease component. Leases with an initial term of 12 months or less, that do not include an option to renew the underlying asset, are not recorded on our Consolidated Balance Sheet and expense is recognized on a straight-line basis over the lease term.
Operating lease ROU assets are included in Operating lease right-of-use assets and operating lease liabilities are included in Current portion of operating lease obligations and Obligations under operating leases, net of current portion on our Consolidated Balance Sheet. Finance lease ROU assets are included in Property, plant and equipment, net and finance lease liabilities are included in Current portion of finance lease obligations and Obligations under finance leases, net of current portion on our Consolidated Balance Sheet.
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In connection with the goodwill and intangible impairment tests performed at March 31, 2020, we also evaluated the operating and finance leases of our funeral homes in the Eastern Reporting Unit and concluded that there was no impairment to our operating and finance lease assets. Subsequent to our impairment tests performed at March 31, 2020, we did not identify any new factors or events that would trigger us to perform an additional assessment of our operating and finance leases. See discussion of our impairment policy for long-lived assets and right-of-use assets above.
See Note 15 to the Consolidated Financial Statements included herein for additional information related to our leases.
Equity Plans and Stock-Based Compensation
We have equity-based employee and director compensation plans under which we have granted stock awards, stock options and performance awards. We also have an employee stock purchase plan (the “ESPP”). We recognize compensation expense in an amount equal to the fair value of the stock-based awards expected to vest or to be purchased over the requisite service period. We recognize the effect of forfeitures in compensation cost when they occur and any previously recognized compensation cost for an award is reversed in the period that the award is forfeited.
Fair value is determined on the date of the grant. The fair value of restricted stock is determined using the stock price on the grant date. The fair value of options or awards containing options is determined using the Black-Scholes valuation model or the Monte Carlo simulation pricing model. The fair value of the performance awards related to market performance conditions is determined using the Monte-Carlo simulation pricing model. The fair value of the ESPP is determined based on the discount element offered to employees and the embedded option element, which is determined using an option calculation model.
We recognize all excess tax benefits and tax deficiencies (including tax benefits of dividends on share-based payment awards) as income tax benefit or expense in the income statement. We treat the tax effects of exercised or vested awards as discrete items in the reporting period in which they occur. For the years ended December 31, 2019 and 2020 the excess tax deficiency related to share-based payments was $0.4 million and $0.1 million, respectively. For the year ended December 31, 2021, the excess tax benefit was $1.2 million. The excess tax benefit and tax deficiencies are recorded within Tax adjustment related to discrete items on our Consolidated Statements of Operations. Excess tax benefits and deficiencies related to share-based payments are included in operating cash flows on the Consolidated Statements of Cash Flows.
See Note 18 to the Consolidated Financial Statements included herein for additional information related to our equity plans and stock-based compensation.
Revenue Recognition
Funeral and Cemetery Operations Revenue is recognized when control of the merchandise or services is transferred to the customer. Our performance obligations include the delivery of funeral and cemetery merchandise and services and cemetery property interment rights. Control transfers when merchandise is delivered or services are performed. For cemetery property interment rights, control transfers to the customer when the property is developed and the interment right has been sold and can no longer be marketed or sold to another customer. On our atneed contracts, we generally deliver the merchandise and perform the services at the time of need.
Memorial services frequently include performance obligations to direct the service, provide facilities and motor vehicles, catering, flowers, and stationary products. All other performance obligations on these contracts, including arrangement, removal, preparation, embalming, cremation, interment, and delivery of urns and caskets and related memorialization merchandise are fulfilled at the time of need. Personalized marker merchandise and marker installation services sold on atneed contracts are recognized when control is transferred to the customer, generally when the marker is delivered and installed in the cemetery.
Some of our contracts with customers include multiple performance obligations. For these contracts, we allocate the transaction price to each performance obligation based on its relative standalone selling price, which is based on prices charged to customers per our general price list. Packages for service and ancillary items are offered to help the customer make decisions during emotional and stressful times. Package discounts are reflected net in Revenue. We recognize revenue when the merchandise is transferred or the service is performed, in satisfaction of the corresponding performance obligation. Sales taxes collected are recognized on a net basis in our Consolidated Financial Statements.
Ancillary funeral service revenue, which is recorded in Other revenue, represents revenue from our flower shop, pet cremation and online cremation businesses.
The earnings from our preneed trust investments, as well as trust management fees charged by our wholly-owned registered investment advisory firm (“CSV RIA”) are recorded in Other revenue. As of December 31, 2021, CSV RIA provided investment management and advisory services to approximately 80% of our trust assets, for a fee based on the market value of trust assets. Under state trust laws, we are allowed to charge the trust a fee for advising on the investment of the trust assets and these fees are recognized as income in the period in which services are provided.
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Balances due on undelivered preneed funeral trust contracts have been reclassified to reduce Deferred preneed funeral revenue on our Consolidated Balance Sheet of $8.2 million and $8.0 million at December 31, 2020 and 2021, respectively. As these performance obligations are to be completed after the date of death, we cannot quantify the recognition of revenue in future periods. However, we estimate an average maturity period of ten years for preneed funeral contracts.
Balances due from customers on delivered preneed cemetery contracts are included in Accounts receivable, net and Preneed cemetery receivables, net on our Consolidated Balance Sheet. Balances due on undelivered preneed cemetery contracts have been reclassified to reduce Deferred preneed cemetery revenue on our Consolidated Balance Sheet. The transaction price allocated to preneed merchandise and service performance obligations that were unfulfilled were $7.9 million and $10.4 million at December 31, 2020 and 2021, respectively. As these performance obligations are to be completed after the date of death, we cannot quantify the recognition of revenue in future periods. However, we estimate an average maturity period of eight years for preneed cemetery contracts.
See Notes 21 to the Consolidated Financial Statements herein for additional information related to revenue.
Income Taxes
We and our subsidiaries file a consolidated U. S. federal income tax return, separate income tax returns in 15 states in which we operate and combined or unitary income tax returns in 14 states in which we operate. We record deferred taxes for temporary differences between the tax basis and financial reporting basis of assets and liabilities. We classify our deferred tax liabilities and assets as non-current on our Consolidated Balance Sheet.
We record a valuation allowance to reflect the estimated amount of deferred tax assets for which realization is uncertain. Management reviews the valuation allowance at the end of each quarter and makes adjustments if it is determined that it is more likely than not that the tax benefits will be realized.
We analyze tax benefits for uncertain tax positions and how they are to be recognized, measured, and derecognized in the financial statements; provide certain disclosures of uncertain tax matters; and specify how reserves for uncertain tax positions should be classified on our Consolidated Balance Sheet.
In connection with the CARES Act, we filed a claim for a refund on June 30, 2020, to carryback the NOLs generated in the tax year ended December 31, 2018. The refund claim for $7.0 million from the 2018 tax year was received on August 7, 2020. As our refund claim filed for tax year 2018 exceeded $5.0 million, our 2018 federal return is under audit by the Internal Revenue Service (“IRS”), as required in order to receive Joint Committee approval.
An additional carryback claim for a refund was filed on November 3, 2020 for the tax year ended December 31, 2019, which has not yet been received. On December 4, 2020, Carriage filed an amended federal return for the tax year ended December 31, 2018, in order to take full advantage of the CARES Act legislative changes. The changes reported in the amended return resulted in additional $2.3 million of losses. The additional losses generated from the amended filing will be administratively carried back and processed as part of the Joint Committee review of the 2018 carryback claim.
The majority of the NOLs generated in tax years 2018 and 2019 are the result of filing non-automatic accounting method changes relating to the recognition of revenue from our cemetery property and merchandise and services sales. These losses were carried back 5 years to tax years in which the enacted federal rate was 35%, under the CARES Act.
On October 11, 2021, we received an adverse ruling from the IRS for the accounting method change filed in 2018 for revenue recognition of cemetery property. Approval is still pending for the accounting method change filed for revenue recognition of cemetery merchandise and services. Upon receiving the adverse ruling for cemetery property, we filed an automatic accounting method change on Form 3115, to adopt the IRS’ preferred method of revenue recognition for cemetery property effective for the year ending December 31, 2021, reflected in this filing. The accounting method change application was submitted under the “three-month window” rule, which would grant audit protection for the cumulative effect of the adverse ruling for revenue recognition of cemetery property, at the discretion of the IRS auditor currently reviewing our 2018 federal return. Due to the uncertainty of receiving audit protection for the Form 3115 and not yet receiving approval of the cemetery merchandise and services accounting method change filed in 2018, a reserve remains against the net cash tax benefit derived from carrying back the NOLs generated to tax years in which the enacted federal rate was 35%. Our unrecognized tax benefit reserve for the years ended December 31, 2019, 2020 and 2021 was $0.7 million, $3.7 million and $3.8 million, respectively.
See Note 17 to the Consolidated Financial Statements included herein for additional information related to income taxes.
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Computation of Earnings Per Common Share
Basic earnings per share is computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period. Dilutive common equivalent shares consist of stock options, performance awards and our Convertible Notes (as defined in Note 13).
Share-based awards that contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are recognized as participating securities and included in the computation of both basic and diluted earnings per share. Our grants of restricted stock awards to our employees and directors are considered participating securities, and we have prepared our earnings per share calculations attributable to common stockholders to exclude outstanding unvested restricted stock awards, using the two-class method, in both the basic and diluted weighted average shares outstanding calculation.
Our performance awards are considered to be contingently issuable shares because their issuance is contingent upon the satisfaction of certain performance and service conditions. In accordance with ASC 260, we have included in the computation of diluted earnings per share the number of performance awards that would have been issuable as if the end of the reporting period was the end of the contingency period. These shares are considered to be outstanding at the beginning of the reporting period.
See Note 20 to the Consolidated Financial Statements included herein related to the computation of earnings per share.
Subsequent Events
We have evaluated events and transactions during the period subsequent to December 31, 2021 through the date the financial statements were issued for potential recognition or disclosure in the accompanying financial statements covered by this report.
See Note 24 to the Consolidated Financial Statements included herein for additional information related to our subsequent events.
2. RECENTLY ISSUED ACCOUNTING STANDARDS
Accounting Pronouncements Not Yet Adopted
Reference Rate Reform
In March 2020, the FASB issued ASU, Reference Rate Reform (“Topic 848”) to provide optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference London InterBank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. We did not utilize the optional expedients and exceptions provided by this ASU during the year ended December 31, 2021.
Business Combinations - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers
In October 2021, the FASB issued ASU, Business Combinations (“Topic 805”) to improve the accounting for acquired revenue contracts with customers in a business combination. The amendments in this update provide specific guidance on how to recognize and measure acquired contract assets and contract liabilities from revenue contracts in a business combination. These amendments require that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606 – Revenue from Contracts with Customers (“Topic 606”). At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. These amendments are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years and should be applied prospectively to business combinations occurring on or after the effective date of the amendments. Early adoption of the amendments is permitted. We plan to adopt the provisions of this ASU for our fiscal year beginning January 1, 2023. We are still evaluating the impact of adoption on our consolidated financial statements.
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3. ACQUISITIONS
We did not acquire any businesses in 2021. On January 3, 2020, we acquired one funeral home and cemetery combination business in Lafayette, California for $33.0 million in cash, of which $5.0 million was deposited in escrow in 2019 and $28.0 million was paid at closing in 2020. We acquired substantially all of the assets and assumed certain operating liabilities of these businesses.
The pro forma impact of this acquisition on prior periods is not presented, as the impact is not significant to our reported results. The results of the acquired business are reflected on our Consolidated Statements of Operations from the date of acquisition.
Subsequent to our initial purchase price allocation for this acquisition made during the first quarter of 2020, we adjusted and finalized our purchase price allocation based on additional information that became available prior to December 31, 2020.
The following table summarizes the breakdown of the purchase price allocation for our 2020 acquisition (in thousands):

| Initial Purchase Price Allocation |  | Adjustments |  | Adjusted Purchase Price Allocation
Current assets | $ | 2,662 |  |  | $ | 108 |  |  | $ | 2,770 |
Trust investments | 9,089 |  |  | — |  |  | 9,089 |
Property, plant & equipment | 1,720 |  |  | — |  |  | 1,720 |
Cemetery property | 14,753 |  |  | 82 |  |  | 14,835 |
Goodwill | 12,916 |  |  | 500 |  |  | 13,416 |
Intangible and other non-current assets | 2,506 |  |  | (628) |  |  | 1,878 |
Assumed liabilities | (489) |  |  | $ | — |  |  | $ | (489) |
Deferred tax liability | (527) |  |  | (5) |  |  | (532) |
Trust liabilities | (9,089) |  |  | — |  |  | (9,089) |
Deferred revenue | (541) |  |  | (57) |  |  | (598) |
Purchase price | $ | 33,000 |  |  | $ | — |  |  | $ | 33,000 |

The current assets primarily relate to preneed cemetery receivables. The intangible and other non-current assets primarily relate to the fair value of tradenames. The assumed liabilities primarily relate to the obligations associated with delivered preneed merchandise that were not paid for prior to acquisition. The goodwill recorded for our 2020 acquisition is expected to be deductible for tax purposes.
4. GOODWILL
Many of the former owners and staff of our acquired funeral homes and certain cemeteries have provided high quality service to families for generations, which often represents a substantial portion of the value of a business. The excess of the purchase price over the fair value of identifiable net assets of funeral home businesses and cemeteries acquired is recorded as goodwill.
Our goodwill has an indefinite life and is not subject to amortization. As such, we test goodwill for impairment on an annual basis as of August 31st each year. In addition to our annual test, we assess the impairment of goodwill whenever events or changes in circumstances indicate that the carrying value of a reporting unit may be greater than fair value. Factors that could trigger an interim impairment review include, but are not limited to, significant negative industry or economic trends and significant adverse changes in the business climate, which may be indicated by a decline in our market capitalization or decline in operating results.
For our 2021 annual impairment test, we performed a qualitative assessment and determined that there was no impairment to goodwill.
During 2020, as a result of economic conditions caused by COVID-19, we performed a quantitative assessment of our goodwill and we recorded an impairment to goodwill of $13.6 million, as the carrying amount of our funeral homes in the Eastern Region Reporting Unit exceeded the fair value.
For our 2020 annual impairment test, we performed a qualitative assessment and determined that there was no additional impairment to goodwill.
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The following table presents changes in goodwill in the accompanying Consolidated Balance Sheet (in thousands):

| December 31, 2020 |  | December 31, 2021
Goodwill at the beginning of year | $ | 398,292 |  |  | $ | 392,978 |
Net increase in goodwill related to acquisitions | 14,054 |  |  | — |
Decrease in goodwill related to divestitures | (5,736) |  |  | (1,006) |
Decrease in goodwill related to impairments | (13,632) |  |  | — |
Goodwill at the end of the year | $ | 392,978 |  |  | $ | 391,972 |

During the year ended December 31, 2021, we allocated $1.0 million of goodwill to the sale of one funeral home for a loss recorded in Net loss on divestitures, disposals and impairment charges on our Consolidated Statements of Operations. Goodwill is only allocated to the sale if the set is considered to be a business. When we divest a portion of a reporting unit that constitutes a business in accordance with U.S. GAAP, we allocate goodwill associated with that business to be included in the gain or loss on divestiture. When divesting a business, goodwill is allocated based on the relative fair values of the business being divested and the portion of the reporting unit that will be retained.
During the year ended December 31, 2020, we recognized $14.1 million in goodwill related to our acquisitions; $10.4 million was allocated to our cemetery segment and $3.7 million was allocated to our funeral home segment. In addition, we allocated $5.7 million of goodwill to the sale of five funeral homes for a loss recorded in Net loss on divestitures, disposals and impairment charges.
See Notes 1, 3 and 5 to the Consolidated Financial Statements included herein, for a discussion of the methodology used for our annual goodwill impairment test and a discussion of our acquisitions and divestitures, respectively.
5. DIVESTED OPERATIONS
During 2021, we sold two funeral homes and one cemetery for $2.5 million and we merged six funeral homes with other businesses we own in existing markets. During 2020, we sold eight funeral homes for $8.4 million. During 2019, we divested three funeral homes whose building leases expired and sold a funeral home for $0.9 million. In addition, we merged a funeral home with a business we own in an existing market.
The operating results of these divested funeral homes and cemeteries are reflected on our Consolidated Statements of Operations as shown in the table below (in thousands):

| Years Ended December 31,
| 2019 |  | 2020 |  | 2021
Revenue | $ | 805 |  |  | $ | 2,643 |  |  | $ | 1,070 |
Operating income (loss) | (569) |  |  | 159 |  |  | 6 |
Net loss on divestitures(1) | (3,883) |  |  | (6,749) |  |  | (62) |
Income tax benefit | 1,288 |  |  | 2,135 |  |  | 16 |
Net loss from divested operations, after tax | $ | (3,164) |  |  | $ | (4,455) |  |  | $ | (40) |

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

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6. RECEIVABLES
Accounts Receivable
Accounts receivable is comprised of the following (in thousands):

| December 31, 2021
| Funeral |  | Cemetery |  | Corporate |  | Total
Trade and financed receivables | $ | 10,728 |  |  | $ | 13,629 |  |  | $ | — |  |  | $ | 24,357 |
Other receivables | 329 |  |  | 1,433 |  |  | 185 |  |  | 1,947 |
Allowance for credit losses | (365) |  |  | (625) |  |  | — |  |  | (990) |
Accounts receivable, net | $ | 10,692 |  |  | $ | 14,437 |  |  | $ | 185 |  |  | $ | 25,314 |

| December 31, 2020
| Funeral |  | Cemetery |  | Corporate |  | Total
Trade and financed receivables | $ | 11,448 |  |  | $ | 12,230 |  |  | $ | — |  |  | $ | 23,678 |
Other receivables | 367 |  |  | 2,144 |  |  | 201 |  |  | 2,712 |
Allowance for credit losses | (327) |  |  | (960) |  |  | — |  |  | (1,287) |
Accounts receivable, net | $ | 11,488 |  |  | $ | 13,414 |  |  | $ | 201 |  |  | $ | 25,103 |

Other receivables include supplier rebates, commissions due from third party insurance companies and perpetual care income receivables. We do not provide an allowance for credit losses for these receivables as we have historically not had any collectability issues nor do we expect any in the foreseeable future.
The following table summarizes the activity in our allowance for credit losses by portfolio segment for the year ended December 31, 2021 (in thousands):

| January 1, 2021 |  | Provision for Credit Losses |  | Write Offs |  | Recoveries |  | December 31, 2021
Trade and financed receivables: |  |  |  |  |  |  |  |  |
Funeral | $ | (327) |  |  | $ | (915) |  |  | $ | 2,193 |  |  | $ | (1,316) |  |  | $ | (365) |
Cemetery | (960) |  |  | (325) |  |  | 660 |  |  | — |  |  | (625) |
Total allowance for credit losses on Trade and financed receivables | $ | (1,287) |  |  | $ | (1,240) |  |  | $ | 2,853 |  |  | $ | (1,316) |  |  | $ | (990) |

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

| December 31, 2020 |  | December 31, 2021
Interment rights | $ | 36,425 |  |  | $ | 40,863 |
Merchandise and services | 6,449 |  |  | 7,348 |
Unearned finance charges | 4,348 |  |  | 4,644 |
Preneed cemetery receivables | $ | 47,222 |  |  | $ | 52,855 |

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

| December 31, 2020 |  | December 31, 2021
Preneed cemetery receivables | $ | 47,222 |  |  | $ | 52,855 |
Less: unearned finance charges | (4,348) |  |  | (4,644) |
Preneed cemetery receivables, at amortized cost | $ | 42,874 |  |  | $ | 48,211 |
Less: allowance for credit losses | (2,604) |  |  | (1,704) |
Less: balances due on undelivered cemetery preneed contracts | (7,919) |  |  | (10,353) |
Less: amounts in accounts receivable | (11,270) |  |  | (13,004) |
Preneed cemetery receivables, net | $ | 21,081 |  |  | $ | 23,150 |

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The following table summarizes the activity in our allowance for credit losses for Preneed cemetery receivables, net for the year ended December 31, 2021 (in thousands):

| January 1, 2021 |  | Provision for Credit Losses |  | Write Offs |  | December 31, 2021
Total allowance for credit losses on Preneed cemetery receivables, net | $ | (1,644) |  |  | $ | (543) |  |  | $ | 1,108 |  |  | $ | (1,079) |

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

| 2021 |  | 2020 |  | 2019 |  | 2018 |  | 2017 |  | Prior |  | Total
Total preneed cemetery receivables, at amortized cost | $ | 24,644 |  |  | $ | 10,955 |  |  | $ | 6,723 |  |  | $ | 3,158 |  |  | $ | 1,198 |  |  | $ | 1,533 |  |  | $ | 48,211 |

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

| 31-60 Past Due |  | 61-90 Past Due |  | 91-120 Past Due |  | >120 Past Due |  | Total Past Due |  | Current |  | Total Financing Receivables
Recognized revenue | $ | 777 |  |  | $ | 738 |  |  | $ | 210 |  |  | $ | 1,919 |  |  | $ | 3,644 |  |  | $ | 34,214 |  |  | $ | 37,858 |
Deferred revenue | 271 |  |  | 159 |  |  | 57 |  |  | 467 |  |  | 954 |  |  | 14,043 |  |  | 14,997 |
Total contracts | $ | 1,048 |  |  | $ | 897 |  |  | $ | 267 |  |  | $ | 2,386 |  |  | $ | 4,598 |  |  | $ | 48,257 |  |  | $ | 52,855 |

The aging of past due preneed cemetery receivables as of December 31, 2020 is as follows (in thousands):

| 31-60 Past Due |  | 61-90 Past Due |  | 91-120 Past Due |  | >120 Past Due |  | Total Past Due |  | Current |  | Total Financing Receivables
Recognized revenue | $ | 759 |  |  | $ | 348 |  |  | $ | 174 |  |  | $ | 1,763 |  |  | $ | 3,044 |  |  | $ | 32,219 |  |  | $ | 35,263 |
Deferred revenue | 220 |  |  | 130 |  |  | 42 |  |  | 557 |  |  | 949 |  |  | 11,010 |  |  | 11,959 |
Total contracts | $ | 979 |  |  | $ | 478 |  |  | $ | 216 |  |  | $ | 2,320 |  |  | $ | 3,993 |  |  | $ | 43,229 |  |  | $ | 47,222 |

7. TRUST INVESTMENTS
Preneed trust investments represent trust fund assets that we are generally permitted to withdraw as the services and merchandise are provided to customers. Preneed funeral and cemetery contracts are secured by payments from customers, less amounts not required by law to be deposited into trust. These earnings are recognized in Other revenue on our Consolidated Statements of Operations, when a service is performed or merchandise is delivered. Trust management fees charged by CSV RIA are included as revenue in the period in which they are earned. Our investments are diversified across multiple industry segments using a balanced allocation strategy to minimize long-term risk. We do not intend to sell and it is likely that we will not be required to sell the securities prior to their anticipated recovery.
Cemetery perpetual care trust investments represent a portion of the proceeds from the sale of cemetery property interment rights that we are required by various state laws to deposit into perpetual care trust funds. The income earned from these perpetual care trusts offsets maintenance expenses for cemetery property and memorials. This trust fund income is recognized in Other revenue.
Where quoted prices are available in an active market, investments held by the trusts are classified as Level 1 investments pursuant to the three-level valuation hierarchy. Our Level 1 investments include cash, U.S. treasury debt, common stock and equity mutual funds. Where quoted market prices are not available for the specific security, then fair values are estimated by using quoted prices of similar securities in active markets or inputs other than quoted prices that can corroborate observable market data. These investments are fixed income securities, including foreign debt, corporate debt, preferred stocks, mortgage-backed securities and fixed income mutual funds and other investments, all of which are classified within Level 2 of the valuation hierarchy. We review and update our fair value hierarchy classifications quarterly. See Note 10 to the Consolidated Financial Statements included herein for further information of the fair value measurement.
Changes in the fair value of our trust fund assets (Preneed funeral, cemetery and perpetual care trust investments) are offset by changes in the fair value of our trust fund liabilities (Deferred preneed funeral and cemetery receipts held in trust and Care trusts’ corpus) and reflected in Other, net. There is no impact on earnings until such time the services are performed or the merchandise is delivered, causing the contract to be withdrawn from the trust in accordance with state regulations and the gain or loss is allocated to the contract.
For fixed income securities in an unrealized loss position, we first assess whether we intend to sell or it is more-likely-than not that we will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value through income. For fixed
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income securities that do not meet the aforementioned criteria, we evaluate whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, we consider the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If our assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis.
We rely on our trust investments to provide funding for the various contractual obligations that arise upon maturity of the underlying preneed contracts. Because of the long-term relationship between the establishment of trust investments and the required performance of the underlying contractual obligations, the impact of current market conditions that may exist at any given time is not necessarily indicative of our ability to generate profit on our future performance obligations.
Preneed Cemetery Trust Investments
The components of Preneed cemetery trust investments on our Consolidated Balance Sheet are as follows (in thousands):

| December 31, 2020 |  | December 31, 2021
Preneed cemetery trust investments, at market value | $ | 89,081 |  |  | $ | 103,808 |
Less: allowance for contract cancellation | (2,477) |  |  | (2,905) |
Preneed cemetery trust investments | $ | 86,604 |  |  | $ | 100,903 |

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

| Fair Value Hierarchy Level |  | Cost |  | Unrealized Gains |  | Unrealized Losses |  | Fair Market Value
Cash and money market accounts | 1 |  | $ | 3,088 |  |  | $ | — |  |  | $ | — |  |  | $ | 3,088
Fixed income securities: |  |  |  |  |  |  |  |  |
Foreign debt | 2 |  | 15,846 |  |  | 2,025 |  |  | (953) |  |  | 16,918
Corporate debt | 2 |  | 12,965 |  |  | 1,374 |  |  | (49) |  |  | 14,290
Preferred stock | 2 |  | 12,455 |  |  | 1,111 |  |  | (344) |  |  | 13,222
Common stock | 1 |  | 40,992 |  |  | 6,906 |  |  | (4,079) |  |  | 43,819
Mutual funds: |  |  |  |  |  |  |  |  |
Equity | 1 |  | 28 |  |  | 8 |  |  | — |  |  | 36
Fixed income | 2 |  | 11,443 |  |  | 615 |  |  | (567) |  |  | 11,491
Trust securities |  |  | $ | 96,817 |  |  | $ | 12,039 |  |  | $ | (5,992) |  |  | $ | 102,864
Accrued investment income |  |  | $ | 944 |  |  |  |  |  |  | $ | 944
Preneed cemetery trust investments |  |  |  |  |  |  |  |  | $ | 103,808
Market value as a percentage of cost |  |  |  |  |  |  |  |  | 106.2%

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

Due in one year or less | $ | — |
Due in one to five years | 10,250 |
Due in five to ten years | 6,815 |
Thereafter | 27,365 |
Total fixed income securities | $ | 44,430 |

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The cost and market values associated with preneed cemetery trust investments at December 31, 2020 are detailed below (in thousands):

| Fair Value Hierarchy Level |  | Cost |  | Unrealized Gains |  | Unrealized Losses |  | Fair Market Value
Cash and money market accounts | 1 |  | $ | 1,859 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,859
Fixed income securities: |  |  |  |  |  |  |  |  |
Foreign debt | 2 |  | 15,953 |  |  | 2,083 |  |  | (702) |  |  | 17,334
Corporate debt | 2 |  | 14,856 |  |  | 1,820 |  |  | (358) |  |  | 16,318
Preferred stock | 2 |  | 11,886 |  |  | 980 |  |  | (336) |  |  | 12,530
Mortgage-backed securities | 2 |  | 272 |  |  | — |  |  | (159) |  |  | 113
Common stock | 1 |  | 30,253 |  |  | 7,642 |  |  | (6,601) |  |  | 31,294
Mutual funds: |  |  |  |  |  |  |  |  |
Fixed Income | 2 |  | 7,494 |  |  | 1,331 |  |  | (185) |  |  | 8,640
Trust Securities |  |  | $ | 82,573 |  |  | $ | 13,856 |  |  | $ | (8,341) |  |  | $ | 88,088
Accrued investment income |  |  | $ | 993 |  |  |  |  |  |  | $ | 993
Preneed cemetery trust investments |  |  |  |  |  |  |  |  | $ | 89,081
Market value as a percentage of cost |  |  |  |  |  |  |  |  | 106.7%

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

| December 31, 2021
| In Loss Position Less than 12 months |  | In Loss Position Greater than 12 months |  | Total
| Fair market value |  | Unrealized Losses |  | Fair market value |  | Unrealized Losses |  | Fair market value |  | Unrealized Losses
Fixed income securities: |  |  |  |  |  |  |  |  |  |  |
Foreign debt | $ | 4,228 |  |  | $ | (517) |  |  | $ | 629 |  |  | $ | (436) |  |  | $ | 4,857 |  |  | $ | (953) |
Corporate debt | 1,037 |  |  | (49) |  |  | — |  |  | — |  |  | 1,037 |  |  | (49) |
Preferred stock | 1,301 |  |  | (63) |  |  | 2,913 |  |  | (281) |  |  | 4,214 |  |  | (344) |
Total fixed income securities with an unrealized loss | $ | 6,566 |  |  | $ | (629) |  |  | $ | 3,542 |  |  | $ | (717) |  |  | $ | 10,108 |  |  | $ | (1,346) |

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

| December 31, 2020
| In Loss Position Less than 12 months |  | In Loss Position Greater than 12 months |  | Total
| Fair market value |  | Unrealized Losses |  | Fair market value |  | Unrealized Losses |  | Fair market value |  | Unrealized Losses
Fixed income securities: |  |  |  |  |  |  |  |  |  |  |
Foreign debt | $ | 2,517 |  |  | $ | (57) |  |  | $ | 371 |  |  | $ | (645) |  |  | $ | 2,888 |  |  | $ | (702) |
Corporate debt | 784 |  |  | (99) |  |  | 542 |  |  | (259) |  |  | 1,326 |  |  | (358) |
Preferred stock | 709 |  |  | (118) |  |  | 4,049 |  |  | (218) |  |  | 4,758 |  |  | (336) |
Mortgage-backed securities | — |  |  | — |  |  | 112 |  |  | (159) |  |  | 112 |  |  | (159) |
Total fixed income securities with an unrealized loss | $ | 4,010 |  |  | $ | (274) |  |  | $ | 5,074 |  |  | $ | (1,281) |  |  | $ | 9,084 |  |  | $ | (1,555) |

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

| Years ended December 31,
| 2019 |  | 2020 |  | 2021
Investment income | $ | 1,743 |  |  | $ | 2,175 |  |  | $ | 2,147 |
Realized gains | 6,353 |  |  | 8,922 |  |  | 18,321 |
Realized losses | (4,677) |  |  | (5,090) |  |  | (6,626) |
Unrealized gains, net | 826 |  |  | 5,515 |  |  | 6,047 |
Expenses and taxes | (1,313) |  |  | (1,354) |  |  | (1,715) |
Net change in deferred preneed cemetery receipts held in trust | (2,932) |  |  | (10,168) |  |  | (18,174) |
| $ | — |  |  | $ | — |  |  | $ | — |

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

| Years ended December 31,
| 2019 |  | 2020 |  | 2021
Purchases | $ | (40,984) |  |  | $ | (48,824) |  |  | $ | (41,414) |
Sales | 29,635 |  |  | 41,178 |  |  | 43,265 |

Preneed Funeral Trust Investments
Preneed funeral trust investments represent trust fund assets that we are permitted to withdraw as services and merchandise are provided to customers. Preneed funeral contracts are secured by payments from customers, less retained amounts not required to be deposited into trust.
The components of Preneed funeral trust investments on our Consolidated Balance Sheet are as follows (in thousands):

| December 31, 2020 |  | December 31, 2021
Preneed funeral trust investments, at market value | $ | 104,166 |  |  | $ | 116,973 |
Less: allowance for contract cancellation | (2,931) |  |  | (3,315) |
Preneed funeral trust investments | $ | 101,235 |  |  | $ | 113,658 |

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

| Fair Value Hierarchy Level |  | Cost |  | Unrealized Gains |  | Unrealized Losses |  | Fair Market Value
Cash and money market accounts | 1 |  | $ | 23,438 |  |  | $ | — |  |  | $ | — |  |  | $ | 23,438
Fixed income securities: |  |  |  |  |  |  |  |  |
Foreign debt | 2 |  | 14,936 |  |  | 1,874 |  |  | (887) |  |  | 15,923
Corporate debt | 2 |  | 11,231 |  |  | 1,223 |  |  | (46) |  |  | 12,408
Preferred stock | 2 |  | 11,001 |  |  | 986 |  |  | (319) |  |  | 11,668
Common stock | 1 |  | 36,694 |  |  | 6,417 |  |  | (3,574) |  |  | 39,537
Mutual funds: |  |  |  |  |  |  |  |  |
Equity | 1 |  | 26 |  |  | 7 |  |  | — |  |  | 33
Fixed income | 2 |  | 9,396 |  |  | 454 |  |  | (470) |  |  | 9,380
Other investments | 2 |  | 3,754 |  |  | — |  |  | — |  |  | 3,754
Trust securities |  |  | $ | 110,476 |  |  | $ | 10,961 |  |  | $ | (5,296) |  |  | $ | 116,141
Accrued investment income |  |  | $ | 832 |  |  |  |  |  |  | $ | 832
Preneed funeral trust investments |  |  |  |  |  |  |  |  | $ | 116,973
Market value as a percentage of cost |  |  |  |  |  |  |  |  | 105.1%

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The estimated maturities of the fixed income securities (excluding mutual funds) included above are as follows (in thousands):

Due in one year or less | $ | — |
Due in one to five years | 8,931 |
Due in five to ten years | 6,083 |
Thereafter | 24,985 |
Total fixed income securities | $ | 39,999 |

The cost and market values associated with preneed funeral trust investments at December 31, 2020 are detailed below (in thousands):

| Fair Value Hierarchy Level |  | Cost |  | Unrealized Gains |  | Unrealized Losses |  | Fair Market Value
Cash and money market accounts | 1 |  | $ | 18,478 |  |  | $ | — |  |  | $ | — |  |  | $ | 18,478
Fixed income securities: |  |  |  |  |  |  |  |  |
U.S. treasury debt | 1 |  | 819 |  |  | 6 |  |  | — |  |  | 825
Foreign debt | 2 |  | 15,144 |  |  | 2,018 |  |  | (634) |  |  | 16,528
Corporate debt | 2 |  | 13,292 |  |  | 1,638 |  |  | (310) |  |  | 14,620
Preferred stock | 2 |  | 10,944 |  |  | 900 |  |  | (298) |  |  | 11,546
Mortgage-backed securities | 2 |  | 293 |  |  | 1 |  |  | (155) |  |  | 139
Common stock | 1 |  | 28,327 |  |  | 7,364 |  |  | (6,052) |  |  | 29,639
Mutual funds: |  |  |  |  |  |  |  |  |
Fixed income | 2 |  | 6,475 |  |  | 1,198 |  |  | (121) |  |  | 7,552
Other investments | 2 |  | 3,928 |  |  | — |  |  | — |  |  | 3,928
Trust securities |  |  | $ | 97,700 |  |  | $ | 13,125 |  |  | $ | (7,570) |  |  | $ | 103,255
Accrued investment income |  |  | $ | 911 |  |  |  |  |  |  | $ | 911
Preneed funeral trust investments |  |  |  |  |  |  |  |  | $ | 104,166
Market value as a percentage of cost |  |  |  |  |  |  |  |  | 105.7%

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

| December 31, 2021
| In Loss Position Less than 12 months |  | In Loss Position Greater than 12 months |  | Total
| Fair market value |  | Unrealized Losses |  | Fair market value |  | Unrealized Losses |  | Fair market value |  | Unrealized Losses
Fixed income securities: |  |  |  |  |  |  |  |  |  |  |
Foreign debt | $ | 4,251 |  |  | $ | (509) |  |  | $ | 548 |  |  | $ | (378) |  |  | $ | 4,799 |  |  | $ | (887) |
Corporate debt | 965 |  |  | (46) |  |  | — |  |  | — |  |  | 965 |  |  | (46) |
Preferred stock | 1,211 |  |  | (58) |  |  | 2,710 |  |  | (261) |  |  | 3,921 |  |  | (319) |
Total fixed income securities with an unrealized loss | $ | 6,427 |  |  | $ | (613) |  |  | $ | 3,258 |  |  | $ | (639) |  |  | $ | 9,685 |  |  | $ | (1,252) |

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

| December 31, 2020
| In Loss Position Less than 12 months |  | In Loss Position Greater than 12 months |  | Total
| Fair market value |  | Unrealized Losses |  | Fair market value |  | Unrealized Losses |  | Fair market value |  | Unrealized Losses
Fixed income securities: |  |  |  |  |  |  |  |  |  |  |
Foreign debt | $ | 2,225 |  |  | $ | (55) |  |  | $ | 337 |  |  | $ | (579) |  |  | $ | 2,562 |  |  | $ | (634) |
Corporate debt | 763 |  |  | (96) |  |  | 528 |  |  | (214) |  |  | 1,291 |  |  | (310) |
Preferred stock | 506 |  |  | (87) |  |  | 3,942 |  |  | (211) |  |  | 4,448 |  |  | (298) |
Mortgage-backed securities | — |  |  | — |  |  | 111 |  |  | (155) |  |  | 111 |  |  | (155) |
Total fixed income securities with an unrealized loss | $ | 3,494 |  |  | $ | (238) |  |  | $ | 4,918 |  |  | $ | (1,159) |  |  | $ | 8,412 |  |  | $ | (1,397) |

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

| Years ended December 31,
| 2019 |  | 2020 |  | 2021
Investment income | $ | 1,753 |  |  | $ | 1,907 |  |  | $ | 1,747 |
Realized gains | 6,214 |  |  | 9,441 |  |  | 17,091 |
Realized losses | (4,612) |  |  | (4,677) |  |  | (6,155) |
Unrealized gains, net | 1,499 |  |  | 5,555 |  |  | 5,665 |
Expenses and taxes | (1,129) |  |  | (878) |  |  | (1,221) |
Net change in deferred preneed funeral receipts held in trust | (3,725) |  |  | (11,348) |  |  | (17,127) |
| $ | — |  |  | $ | — |  |  | $ | — |

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

| Years ended December 31,
| 2019 |  | 2020 |  | 2021
Purchases | $ | (38,984) |  |  | $ | (47,315) |  |  | $ | (38,175) |
Sales | 29,983 |  |  | 43,270 |  |  | 40,658 |

Cemetery Perpetual Care Trust Investments
Care trusts’ corpus on our Consolidated Balance Sheet represent the corpus of those trusts plus undistributed income. The components of Care trusts’ corpus are as follows (in thousands):

| December 31, 2020 |  | December 31, 2021
Cemetery perpetual care trust investments, at market value | $ | 70,828 |  |  | $ | 72,400 |
Obligations due from trust | (1,121) |  |  | (1,244) |
Care trusts’ corpus | $ | 69,707 |  |  | $ | 71,156 |

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table reflects the cost and market values associated with the trust investments held in perpetual care trust funds at December 31, 2021 (in thousands):

| Fair Value Hierarchy Level |  | Cost |  | Unrealized Gains |  | Unrealized Losses |  | Fair Market Value
Cash and money market accounts | 1 |  | $ | 1,447 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,447
Fixed income securities: |  |  |  |  |  |  |  |  |
Foreign debt | 2 |  | 10,949 |  |  | 1,401 |  |  | (647) |  |  | 11,703
Corporate debt | 2 |  | 9,139 |  |  | 1,065 |  |  | (32) |  |  | 10,172
Preferred stock | 2 |  | 9,742 |  |  | 803 |  |  | (226) |  |  | 10,319
Common stock | 1 |  | 27,853 |  |  | 4,990 |  |  | (3,008) |  |  | 29,835
Mutual funds: |  |  |  |  |  |  |  |  |
Equity | 1 |  | 19 |  |  | 5 |  |  | — |  |  | 24
Fixed income | 2 |  | 8,141 |  |  | 530 |  |  | (460) |  |  | 8,211
Trust securities |  |  | $ | 67,290 |  |  | $ | 8,794 |  |  | $ | (4,373) |  |  | $ | 71,711
Accrued investment income |  |  | $ | 689 |  |  |  |  |  |  | $ | 689
Cemetery perpetual care investments |  |  |  |  |  |  |  |  | $ | 72,400
Market value as a percentage of cost |  |  |  |  |  |  |  |  | 106.6%

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

Due in one year or less | $ | — |
Due in one to five years | 6,748 |
Due in five to ten years | 5,158 |
Thereafter | 20,288 |
Total fixed income securities | $ | 32,194 |

The following table reflects the cost and market values associated with the trust investments held in perpetual care trust funds at December 31, 2020 (in thousands):

| Fair Value Hierarchy Level |  | Cost |  | Unrealized Gains |  | Unrealized Losses |  | Fair Market Value
Cash and money market accounts | 1 |  | $ | 686 |  |  | $ | — |  |  | $ | — |  |  | $ | 686 |
Fixed income securities: |  |  |  |  |  |  |  |  |
Foreign debt | 2 |  | 12,539 |  |  | 1,641 |  |  | (582) |  |  | 13,598 |
Corporate debt | 2 |  | 11,684 |  |  | 1,506 |  |  | (240) |  |  | 12,950 |
Preferred stock | 2 |  | 10,444 |  |  | 819 |  |  | (355) |  |  | 10,908 |
Mortgage-backed securities | 2 |  | 206 |  |  | — |  |  | (121) |  |  | 85 |
Common stock | 1 |  | 23,662 |  |  | 6,108 |  |  | (5,255) |  |  | 24,515 |
Mutual funds: |  |  |  |  |  |  |  |  |
Fixed income | 2 |  | 6,444 |  |  | 1,054 |  |  | (220) |  |  | 7,278 |
Trust securities |  |  | $ | 65,665 |  |  | $ | 11,128 |  |  | $ | (6,773) |  |  | $ | 70,020 |
Accrued investment income |  |  | $ | 808 |  |  |  |  |  |  | $ | 808 |
Cemetery perpetual care investments |  |  |  |  |  |  |  |  | $ | 70,828 |
Market value as a percentage of cost |  |  |  |  |  |  |  |  | 106.6 | %

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

| December 31, 2021
| In Loss Position Less than 12 months |  | In Loss Position Greater than 12 months |  | Total
| Fair market value |  | Unrealized Losses |  | Fair market value |  | Unrealized Losses |  | Fair market value |  | Unrealized Losses
Fixed income securities: |  |  |  |  |  |  |  |  |  |  |
Foreign debt | $ | 2,649 |  |  | $ | (321) |  |  | $ | 468 |  |  | $ | (326) |  |  | $ | 3,117 |  |  | $ | (647) |
Corporate debt | 846 |  |  | (32) |  |  | — |  |  | — |  |  | 846 |  |  | (32) |
Preferred stock | 856 |  |  | (41) |  |  | 1,917 |  |  | (185) |  |  | 2,773 |  |  | (226) |
Total fixed income securities with an unrealized loss | $ | 4,351 |  |  | $ | (394) |  |  | $ | 2,385 |  |  | $ | (511) |  |  | $ | 6,736 |  |  | $ | (905) |

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

| December 31, 2020
| In Loss Position Less than 12 months |  | In Loss Position Greater than 12 months |  | Total
| Fair market value |  | Unrealized Losses |  | Fair market value |  | Unrealized Losses |  | Fair market value |  | Unrealized Losses
Fixed income securities: |  |  |  |  |  |  |  |  |  |  |
Foreign debt | $ | 1,728 |  |  | $ | (43) |  |  | $ | 312 |  |  | $ | (539) |  |  | $ | 2,040 |  |  | $ | (582) |
Corporate debt | 592 |  |  | (74) |  |  | 410 |  |  | (166) |  |  | 1,002 |  |  | (240) |
Preferred stock | 1,142 |  |  | (191) |  |  | 3,060 |  |  | (164) |  |  | 4,202 |  |  | (355) |
Mortgage-backed securities | — |  |  | — |  |  | 85 |  |  | (121) |  |  | 85 |  |  | (121) |
Total fixed income securities with an unrealized loss | $ | 3,462 |  |  | $ | (308) |  |  | $ | 3,867 |  |  | $ | (990) |  |  | $ | 7,329 |  |  | $ | (1,298) |

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

| Years ended December 31,
| 2019 |  | 2020 |  | 2021
Realized gains | $ | 1,663 |  |  | $ | 2,602 |  |  | $ | 2,474 |
Realized losses | (1,258) |  |  | (1,695) |  |  | (950) |
Unrealized gains, net | 2,964 |  |  | 4,355 |  |  | 4,421 |
Net change in Care trusts’ corpus | (3,369) |  |  | (5,262) |  |  | (5,945) |
Total | $ | — |  |  | $ | — |  |  | $ | — |

Perpetual care trust investment security transactions recorded in Other revenue are as follows (in thousands):

| Years ended December 31,
| 2019 |  | 2020 |  | 2021
Investment income | $ | 4,500 |  |  | $ | 8,461 |  |  | $ | 10,443 |
Realized losses | (377) |  |  | (387) |  |  | (118) |
Total | $ | 4,123 |  |  | $ | 8,074 |  |  | $ | 10,325 |

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

| Years ended December 31,
| 2019 |  | 2020 |  | 2021
Purchases | $ | (26,573) |  |  | $ | (38,168) |  |  | $ | (28,317) |
Sales | 17,588 |  |  | 34,316 |  |  | 29,829 |

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. RECEIVABLES FROM PRENEED FUNERAL TRUSTS
Our receivables from preneed funeral trusts represent assets in trusts which are controlled and operated by third parties in which we do not have a controlling financial interest (less than 50%) in the trust assets. We account for these investments at cost. Receivables from preneed funeral trusts are as follows (in thousands):

| December 31, 2020 |  | December 31, 2021
Preneed funeral trust funds, at cost | $ | 17,365 |  |  | $ | 19,597 |
Less: allowance for contract cancellation | (521) |  |  | (588) |
Receivables from preneed funeral trusts, net | $ | 16,844 |  |  | $ | 19,009 |

The following summary reflects the composition of the assets held in trust and controlled by third parties to satisfy our future obligations under preneed arrangements related to the preceding contracts at December 31, 2020 and 2021. The cost basis includes reinvested interest and dividends that have been earned on the trust assets. Fair value includes unrealized gains and losses on trust assets.
The composition of the preneed trust funds at December 31, 2021 is as follows (in thousands):

| Historical Cost Basis |  | Fair Value
As of December 31, 2021 |  |  |
Cash and cash equivalents | $ | 5,595 |  |  | $ | 5,595 |
Fixed income investments | 11,386 |  |  | 11,386 |
Mutual funds and common stocks | 2,611 |  |  | 2,682 |
Annuities | 5 |  |  | 5 |
Total | $ | 19,597 |  |  | $ | 19,668 |

The composition of the preneed trust funds at December 31, 2020 is as follows (in thousands):

| Historical Cost Basis |  | Fair Value
As of December 31, 2020 |  |  |
Cash and cash equivalents | $ | 4,604 |  |  | $ | 4,604 |
Fixed income investments | 10,355 |  |  | 10,355 |
Mutual funds and common stocks | 2,402 |  |  | 2,569 |
Annuities | 4 |  |  | 4 |
Total | $ | 17,365 |  |  | $ | 17,532 |

9. CONTRACTS FUNDED BY INSURANCE
When preneed funeral contracts are funded through third-party insurance policies, we earn a commission on the sale of the policies. Insurance commissions are subject to refund (charge-back) if the preneed policy is cancelled within a year or if there is an imminent death of beneficiary before the first year anniversary of the policy. We record these insurance commissions as Other revenue when the commission is no longer subject to refund, which is typically one year after the policy is issued. All selling costs incurred pursuant to the sale of the insurance funded preneed contracts are expensed as incurred.
Generally, at the time of the sale of either the preneed insurance or preneed trust contract, the intent is that the beneficiary has made a commitment to assign the proceeds to us for the fulfillment of the service and merchandise obligations on the preneed contract at the time of need. However, this commitment is generally revocable and the proceeds from the policy are portable, so the customer can choose to use an alternative provider at the time of need.
Preneed funeral contracts to be funded at maturity by third-party insurance policies totaled $395.4 million and $403.3 million at December 31, 2020 and 2021, respectively, and are not recorded as assets or liabilities on our Consolidated Balance Sheet.
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10. FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date applicable for items that are recognized or disclosed at fair value in the financial statements on a recurring basis. We disclose the extent to which fair value is used to measure financial assets and liabilities, the inputs utilized in calculating valuation measurements, and the effect of the measurement of significant unobservable inputs on earnings, or changes in net assets, as of the measurement date.
We evaluated our financial assets and liabilities for those that met the criteria of the disclosure requirements and fair value framework. The carrying values of cash and cash equivalents, accounts receivable and accounts payable approximate the fair values of those instruments due to the short-term nature of the instruments. The fair values of our receivables on preneed cemetery contracts are impracticable to estimate because of the lack of a trading market and the diverse number of individual contracts with varying terms. Our acquisition debt and Credit Facility (as defined in Note 12) and Senior Notes (as defined in Note 14) are classified within Level 2 of the Fair Value Measurements hierarchy.
At December 31, 2021, the carrying value and fair value of our Credit Facility was $155.4 million. We believe that our Credit Facility bears interest at a rate that approximates prevailing market rates for instruments with similar characteristics and therefore, the carrying value of our Credit Facility approximates fair value. We estimate the fair value of our acquisition debt utilizing an income approach, which uses a present value calculation to discount payments based on current market rates as of the reporting date. At December 31, 2021, the carrying value of our acquisition debt was $4.5 million, which approximated its fair value. The fair value of our Senior Notes was $401.6 million at December 31, 2021 based on the last traded or broker quoted price.
We identified investments in fixed income securities, common stock and mutual funds presented within the preneed and perpetual care trust investments categories on our Consolidated Balance Sheet as having met the criteria for fair value measurement. Our receivables from preneed funeral trusts represent assets in trusts which are controlled and operated by third parties in which we do not have a controlling financial interest (less than 50%) in the trust assets. We account for these investments at cost.
The following three-level valuation hierarchy based upon the transparency of inputs is utilized in the measurement and valuation of financial assets or liabilities as of the measurement date:
•Level 1—Fair value of securities based on unadjusted quoted prices for identical assets or liabilities in active markets. Our investments classified as Level 1 securities include cash, U.S. treasury debt, common stock and equity mutual funds;
•Level 2—Fair value of securities estimated based on quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs other than quoted market prices that are observable or that can be corroborated by observable market data by correlation. These inputs include interest rates, yield curves, credit risk, prepayment speeds, rating and tax-exempt status. Our investments classified as Level 2 securities include foreign debt, corporate debt, preferred stocks, mortgage-backed securities and fixed income mutual funds and other investments.
•Level 3—Unobservable inputs based upon the reporting entity’s internally developed assumptions, which market participants would use in pricing the asset or liability. As of December 31, 2020 and 2021, we did not have any assets that had fair values determined by Level 3 inputs and no liabilities measured at fair value.
See Notes 7 and 8 to our Consolidated Financial Statements herein for the fair value hierarchy levels of our trust investments.
11. INTANGIBLE AND OTHER NON-CURRENT ASSETS
Intangible and other non-current assets are as follows (in thousands):

| December 31, 2020 |  | December 31, 2021
Tradenames | $ | 23,565 |  |  | $ | 23,565 |
Prepaid agreements not-to-compete, net of accumulated amortization of $3,193 and $3,316, respectively | 2,785 |  |  | 2,247 |
Capitalized commissions on preneed contracts, net of accumulated amortization of $1,594 and $2,278, respectively | 3,141 |  |  | 3,560 |
Other | 51 |  |  | 6 |
Intangible and other non-current assets, net | $ | 29,542 |  |  | $ | 29,378 |

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Tradenames
Our tradenames have indefinite lives and therefore are not amortized. During the year ended December 31, 2020, we increased tradenames by $0.4 million related to our 2020 acquisitions described in Note 3 to the Consolidated Financial Statements included herein.
For our 2021 annual impairment test, we performed a qualitative assessment and concluded there that was no impairment to our intangible assets.
During 2020, as a result of economic conditions caused by COVID-19, we performed a quantitative assessment of our tradenames and we recorded an impairment to tradenames for certain of our funeral homes of $1.1 million, as the carrying amount of these tradenames exceeded the fair value.
For our 2020 annual impairment test, we performed a qualitative assessment and determined that there were no factors that would indicate the need to perform an additional quantitative impairment test and concluded there that was no additional impairment to our intangible assets.
See Notes 1, 3 and 5 to the Consolidated Financial Statements included herein, for a discussion of the methodology used for our indefinite lived intangible asset impairment test and discussion of our acquisitions and divestitures, respectively.
Prepaid Agreements
Prepaid agreements not-to-compete are amortized over the term of the respective agreements, ranging generally from one to ten years. Amortization expense was $673,000, $719,000 and $645,000 for the years ended December 31, 2019, 2020 and 2021, respectively. During the year ended December 31, 2020, we divested three funeral homes that had a carrying value of prepaid agreements not-to-compete of $537,000, which was included in the gain or loss on the sale of divestitures and recorded in Net loss on divestitures, disposals and impairment charges on our Consolidated Statements of Operations. See Note 5 to the Consolidated Financial Statements included herein, for a discussion of our divestitures.
Capitalized Commissions
We capitalize our selling costs related to preneed cemetery merchandise and services and preneed funeral trust contracts. These costs are amortized on a straight-line basis over the average maturity period for our preneed cemetery merchandise and services contracts and preneed funeral trust contracts, of eight and ten years, respectively. Amortization expense was $558,000, $580,000 and $640,000 for the years ended December 31, 2019, 2020 and 2021, respectively.
The aggregate amortization expense for our non-compete agreements and capitalized commissions as of December 31, 2021 is as follows (in thousands):

| Non-Compete Agreements |  | Capitalized Commissions
Years ending December 31, |  |  |
2022 | $ | 548 |  |  | $ | 660 |
2023 | 446 |  |  | 605 |
2024 | 381 |  |  | 544 |
2025 | 372 |  |  | 480 |
2026 | 257 |  |  | 413 |
Thereafter | 243 |  |  | 858 |
Total amortization expense | $ | 2,247 |  |  | $ | 3,560 |

12. CREDIT FACILITY AND ACQUISITION DEBT
At December 31, 2020, our senior secured revolving credit facility (the "Former Credit Facility") was comprised of: (i) a $190.0 million revolving credit facility, including a $15.0 million subfacility for letters of credit and a $10.0 million swingline, and (ii) an accordion or incremental option allowing for future increases in the facility size by an additional amount of up to $75.0 million in the form of increased revolving commitments or incremental term loans. The final maturity of the Former Credit Facility was to occur on May 31, 2023.
On May 13, 2021, in connection with the issuance of the Senior Notes (defined in Note 14), we entered into an amended and restated $150.0 million senior secured revolving credit facility (the “Credit Facility”) with the Credit Facility Subsidiary Guarantors (as defined below), the financial institutions party thereto, as lenders, and Bank of America, N.A., as administrative agent. We incurred $0.8 million in transactions costs related to the Credit Facility, which were capitalized and will be amortized over the remaining term of the related debt using the straight-line method.
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On May 13, 2021, we used $21.4 million of the availability under the Credit Facility to repay the then outstanding balances under our Former Credit Facility and all commitments thereunder were terminated. In connection with the repayment in full of all amounts due thereunder, the Former Credit Facility was retired and $2.1 million of letters of credit previously issued under the Former Credit Facility were deemed issued under (and remain outstanding under) the Credit Facility. In connection with the termination of the Former Credit Facility, we recognized a loss on the write-off of $0.1 million in unamortized debt issuance costs, which was recorded in Loss on extinguishment of debt.
On November 22, 2021, we entered into a first amendment and commitment increase to the Credit Facility with the financial institutions party thereto, as lenders, and Bank of America, N.A., as administrative agent. Pursuant to this amendment, the revolving credit commitment was increased from $150.0 million to $200.0 million. We incurred $0.1 million in transactions costs related to this amendment, which were capitalized and will be amortized over the remaining term of the related debt using the straight-line method.
Our obligations under the Credit Facility are unconditionally guaranteed on a joint and several basis by the same subsidiaries which guarantee the Senior Notes and certain of our subsequently acquired or organized domestic subsidiaries (collectively, the “Subsidiary Guarantors”). The Credit Facility allows for future increases in the facility size in the form of increased revolving commitments or new incremental term loans by an additional amount of up to $75.0 million in the aggregate. The final maturity of the Credit Facility will occur on May 13, 2026.
The Credit Facility is secured by a first-priority perfected security interest in and lien on substantially all of the Company’s personal property assets and those of the Subsidiary Guarantors. In addition, the Credit Facility includes provisions which require the Company and the Subsidiary Guarantors, upon the occurrence of an event of default or in the event the Company’s actual Total Leverage Ratio is not at least 0.25 less than the required Total Leverage Ratio covenant level under the Credit Facility, to grant additional liens on real property assets accounting for no less than 50% of the Company’s and the Subsidiary Guarantors’ funeral operations if requested by the administrative agent.
The Credit Facility contains customary affirmative covenants, including, but not limited to, covenants with respect to the use of proceeds, payment of taxes and other obligations, continuation of the Company’s business and the maintenance of existing rights and privileges, the maintenance of property and insurance, amongst others.
In addition, the Credit Facility also contains customary negative covenants, including, but not limited to, covenants that restrict (subject to certain exceptions) the ability of the Company and the Subsidiary Guarantors to incur indebtedness, grant liens, make investments, engage in mergers and acquisitions, and pay dividends and other restricted payments, and certain financial maintenance covenants. At December 31, 2021, we were subject to the following financial covenants under our Credit Facility: (A) a Total Leverage Ratio not to exceed, (i) 5.00 to 1.00 and (B) a Fixed Charge Coverage Ratio (as defined in the Credit Facility) of not less than 1.20 to 1.00 as of the end of any period of four consecutive fiscal quarters. These financial maintenance covenants are calculated for the Company and its subsidiaries on a consolidated basis.
We were in compliance with all of the covenants contained in our Credit Facility at December 31, 2021.
Our Credit Facility and Acquisition debt consisted of the following (in thousands):

| December 31, 2020 |  | December 31, 2021
Credit Facility | $ | 47,200 |  |  | $ | 155,400 |
Debt issuance costs, net of accumulated amortization of $819 and $1,324, respectively | (1,136) |  |  | (1,543) |
Total Credit Facility | $ | 46,064 |  |  | $ | 153,857 |
Acquisition debt | $ | 5,509 |  |  | $ | 4,500 |
Less: current portion | (1,027) |  |  | (521) |
Total acquisition debt, net of current portion | $ | 4,482 |  |  | $ | 3,979 |

At December 31, 2021, we had outstanding borrowings under the Credit Facility of $155.4 million. We also had one letter of credit for $2.1 million under the Credit Facility, which was increased to $2.3 million on September 1, 2021. The letter of credit will expire on November 25, 2022 and is expected to automatically renew annually and secures our obligations under our various self-insured policies. At December 31, 2021, we had $42.3 million of availability under the Credit Facility.
Outstanding borrowings under our Credit Facility bear interest at either a prime rate or a LIBOR rate, plus an applicable margin based upon our leverage ratio. At December 31, 2021, the prime rate margin was equivalent to 0.75% and the LIBOR rate margin was 1.75%. The weighted average interest rate on our Credit Facility for the year ended December 31, 2021 was 2.4%. The weighted average interest rate on our Former Credit Facility for the year ended December 31, 2020 was 3.8%.
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We have no material assets or operations independent of Subsidiary Guarantors, as all of our assets and operations are held and conducted by the Subsidiary Guarantors. Additionally, we do not currently have any significant restrictions on our ability to receive dividends or loans from any Subsidiary Guarantors.
The interest expense and amortization of debt issuance costs related to our Credit Facility are as follows (in thousands):

| Years ended December 31,
| 2019 |  | 2020 |  | 2021
Credit Facility interest expense | $ | 1,601 |  |  | $ | 3,738 |  |  | $ | 1,820 |
Credit Facility amortization of debt issuance costs | 229 |  |  | 482 |  |  | 380 |

Acquisition debt consists of deferred purchase price and promissory notes payable to sellers. A majority of the deferred purchase price and notes bear no interest and are discounted at imputed interest rates ranging from 7.3% to 10.0%. Original maturities typically range from five to twenty years.
The imputed interest expense related to our acquisition debt is as follows (in thousands):

| Years ended December 31,
| 2019 |  | 2020 |  | 2021
Acquisition debt imputed interest expense | $ | 622 |  |  | $ | 489 |  |  | $ | 364 |

The aggregate maturities of our Credit Facility and acquisition debt for the next five years subsequent to December 31, 2021 and thereafter, excluding debt issuance costs, are as follows (in thousands):

| Credit Facility |  | Acquisition Debt
Years ending December 31, |  |  |
2022 | $ | — |  |  | $ | 825 |
2023 | — |  |  | 825 |
2024 | — |  |  | 772 |
2025 | — |  |  | 772 |
2026 | 155,400 |  |  | 325 |
Thereafter | — |  |  | 3,007 |
Total Credit Facility and acquisition debt | $ | 155,400 |  |  | $ | 6,526 |
Less: Interest | — |  |  | (2,026) |
Present value of Credit Facility and acquisition debt | $ | 155,400 |  |  | $ | 4,500 |

13. CONVERTIBLE SUBORDINATED NOTES
On March 19, 2014, we issued $143.75 million aggregate principal amount of our 2.75% convertible subordinated notes due 2021 (the “Convertible Notes”). The Convertible Notes were due on March 15, 2021 and bear interest at 2.75% per year, which was payable semi-annually in arrears on March 15 and September 15 of each year.
In May 2018, we exchanged $115.0 million in aggregate principal amount of Convertible Notes in a privately-negotiated exchange with a limited number of convertible noteholders. We completed privately-negotiated repurchases of $22.4 million, $25,000 and $3.8 million in aggregate principal amount of our Convertible Notes in December 2018, April 2019 and September 2020, respectively.
During the year ended December 31, 2021, we converted $2.4 million in aggregate principal amount of our Convertible Notes held by certain holders for $3.8 million in cash and recorded $1.4 million for the reacquisition of the equity component. The Convertible Notes matured on March 15, 2021, at which time all Convertible Notes outstanding, $0.2 million in aggregate principal amount, were paid in full in cash at par value. Therefore, no Convertible Notes remain outstanding at December 31, 2021.
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The carrying values of the liability and equity components of the Convertible Notes are reflected on our Consolidated Balance Sheet as follows (in thousands):

| December 31, 2020 |  | December 31, 2021
Long-term liabilities: |  |  |
Principal amount | $ | 2,559 |  |  | $ | — |
Unamortized discount of liability component | (20) |  |  | — |
Convertible Notes issuance costs, net of accumulated amortization of $63 | (1) |  |  | — |
Carrying value of the liability component | $ | 2,538 |  |  | $ | — |
Carrying value of the equity component | $ | 319 |  |  | $ | — |

The carrying value of the liability component and the carrying value of the equity component are recorded in Convertible subordinated notes due 2021 and Additional paid-in capital, respectively, on our Consolidated Balance Sheet at December 31, 2020.
The interest expense and accretion of debt discount and debt issuance costs related to our Convertible Notes are as follows (in thousands):

| Years ended December 31,
| 2019 |  | 2020 |  | 2021
Convertible Notes interest expense | $ | 174 |  |  | $ | 149 |  |  | $ | 18 |
Convertible Notes accretion of debt discount | 241 |  |  | 216 |  |  | 20 |
Convertible Notes amortization of debt issuance costs | 24 |  |  | 20 |  |  | 1 |

The effective interest rate on the unamortized debt discount and debt issuance costs for both years ended December 31, 2020 and 2021 was 11.4% and 3.1%, respectively.
14. SENIOR NOTES
On May 13, 2021, we issued $400.0 million in aggregate principal amount of 4.25% Senior Notes due 2029 (the “Senior Notes”) and related guarantees by the Subsidiary Guarantors in a private offering under Rule 144A and Regulation S of the Securities Act.
We used the proceeds of $395.5 million from the offering of the Senior Notes, which are net of a 1.125% debt discount of $4.5 million, together with cash on hand and borrowings under the Credit Facility, to redeem all of our existing $400.0 million in aggregate principal amount of 6.625% senior notes due 2026 (the “Original Senior Notes”). We paid a premium of $19.9 million to redeem the Original Senior Notes on June 1, 2021 at a redemption price of 104.97% of the principal amount thereof, plus accrued and unpaid interest of $13.25 million. During the year ended December 31, 2021, we incurred $1.3 million in transaction costs related to the Senior Notes.
For the year ended December 31, 2021, we recognized a net loss of $23.7 million related to the redemption of the Original Senior Notes, which was recorded in Loss on extinguishment of debt. The loss is composed of the $19.9 million call premium, the write-off of $3.4 million in unamortized debt discount, the write-off of $1.8 million in unamortized debt issuance costs, offset by the write-off of $1.4 million in unamortized debt premium.
The Senior Notes were issued under an indenture, dated as of May 13, 2021 (the “Indenture”), among the Company, the Subsidiary Guarantors and Wilmington Trust, National Association, as trustee (“Collateral Trustee”).
The Senior Notes bear interest at 4.25% per year. Interest on the Senior Notes is payable semi-annually in arrears on May 15 and November 15 of each year, beginning on November 15, 2021. The Senior Notes mature on May 15, 2029, unless earlier redeemed or purchased. The Senior Notes are unsecured, senior obligations and are fully and unconditionally guaranteed on a senior unsecured basis, jointly and severally by each of the Subsidiary Guarantors.
We may redeem the Senior Notes, in whole or in part, at the redemption price of 102.13% on or after May 15, 2024, 101.06% on or after May 15, 2025 and 100% on or after May 15, 2026, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. At any time before May 15, 2024, we may also redeem all or part of the Senior Notes at the redemption prices described in the Indenture, plus accrued and unpaid interest, if any, to (but excluding) the date of redemption. In addition, before May 15, 2024, we may redeem up to 40% of the aggregate principal amount of the Senior Notes outstanding using an amount of cash equal to the net proceeds of certain equity offerings, at a price of 104.25% of the principal amount of the Senior Notes, plus accrued and unpaid interest, if any, to (but excluding) the date of redemption; provided that (1) at least 50% of the aggregate principal amount of the Senior Notes (including any additional Senior Notes) outstanding under the
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Indenture remain outstanding immediately after the occurrence of such redemption (unless all Senior Notes are redeemed concurrently), and (2) each such redemption must occur within 180 days of the date of the consummation of any such equity offering.
If a “change of control” occurs, holders of the Senior Notes will have the option to require us to purchase for cash all or a portion of their Senior Notes at a price equal to 101% of the principal amount of the Senior Notes, plus accrued and unpaid interest. In addition, if we make certain asset sales and do not reinvest the proceeds thereof or use such proceeds to repay certain debt, we will be required to use the proceeds of such asset sales to make an offer to purchase the Senior Notes at a price equal to 100% of the principal amount of the Senior Notes, plus accrued and unpaid interest.
The Indenture contains restrictive covenants limiting our ability and our Restricted Subsidiaries (as defined in the Indenture) to, among other things, incur additional indebtedness or issue certain preferred shares, create liens on certain assets to secure debt, pay dividends or make other equity distributions, purchase or redeem capital stock, make certain investments, sell assets, agree to certain restrictions on the ability of Restricted Subsidiaries to make payments to us, consolidate, merge, sell or otherwise dispose of all or substantially all assets, or engage in transactions with affiliates. The Indenture also contains customary events of default.
The debt discount and the debt issuance costs are being amortized using the effective interest method over the remaining term of 89 months of the Senior Notes. The effective interest rate on the unamortized debt discount and the unamortized debt issuance costs for the Senior Notes for the year ended December 31, 2021 was 4.42% and 4.30%, respectively.
The carrying value of our Senior Notes is reflected on our Consolidated Balance Sheet as follows (in thousands):

| December 31, 2020 |  | December 31, 2021
Long-term liabilities: |  |  |
Principal amount | $ | 400,000 |  |  | $ | 400,000 |
Debt premium, net of accumulated amortization of $221 | 1,467 |  |  | — |
Debt discount, net of accumulated amortization of $1,293 and $301, respectively | (3,582) |  |  | (4,199) |
Debt issuance costs, net of accumulated amortization of $496 and $86, respectively | (1,917) |  |  | (1,191) |
Carrying value of the Senior Notes | $ | 395,968 |  |  | $ | 394,610 |

The fair value of the Senior Notes, which are Level 2 measurements, was $401.6 million at December 31, 2021.
The effective interest rate on the unamortized debt discount and the unamortized debt issuance costs for the Original Senior Notes, issued in May 2018, for the year ended December 31, 2020 was 6.69%. The effective interest rate on the unamortized debt premium and the unamortized debt issuance costs for the additional Original Senior Notes, issued in December 2019, for year ended December 31, 2020 was 6.90%.
The interest expense and amortization of debt discount, debt premium and debt issuance costs related to our Senior Notes are as follows (in thousands):

| Years ended December 31,
| 2019 |  | 2020 |  | 2021
Senior Notes interest expense | $ | 21,711 |  |  | $ | 26,500 |  |  | $ | 21,767 |
Senior Notes amortization of debt discount | 493 |  |  | 528 |  |  | 504 |
Senior Notes amortization of debt premium | — |  |  | 221 |  |  | 85 |
Senior Notes amortization of debt issuance costs | 139 |  |  | 280 |  |  | 195 |

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The aggregate maturities of our Senior Notes for the next five years subsequent to December 31, 2021 and thereafter are as follows (in thousands):

|  | Principal Maturity |  | Discount Amortization |  |  |  | Carrying Value
Years ending December 31, |  |  |  |  |  |  |  |
2022 |  | $ | — |  |  | $ | (493) |  |  |  |  | $ | (493) |
2023 |  | — |  |  | (515) |  |  |  |  | (515) |
2024 |  | — |  |  | (539) |  |  |  |  | (539) |
2025 |  | — |  |  | (563) |  |  |  |  | (563) |
2026 |  | — |  |  | (588) |  |  |  |  | (588) |
Thereafter |  | 400,000 |  |  | (1,501) |  |  |  |  | 398,499 |
Total |  | $ | 400,000 |  |  | $ | (4,199) |  |  |  |  | $ | 395,801 |

15. LEASES
Our lease obligations consist of operating and finance leases related to real estate and equipment. The components of lease cost are as follows (in thousands):

|  |  | Years Ended December 31,
| Income Statement Classification |  | 2019 |  |  |  |  | 2020 |  | 2021
Operating lease cost | Facilities and grounds expense(1) |  | $ | 3,722 |  |  |  |  |  | $ | 3,795 |  |  | $ | 3,762 |
Short-term lease cost | Facilities and grounds expense(1) |  | 250 |  |  |  |  |  | 185 |  |  | 193 |
Variable lease cost | Facilities and grounds expense(1) |  | 27 |  |  |  |  |  | 39 |  |  | 160 |
Finance lease cost: |  |  |  |  |  |  |  |  |  |
Depreciation of leased assets | Depreciation and amortization(2) |  | $ | 498 |  |  |  |  |  | $ | 439 |  |  | $ | 438 |
Interest on lease liabilities | Interest expense |  | 520 |  |  |  |  |  | 496 |  |  | 471 |
Total finance lease cost |  |  | 1,018 |  |  |  |  |  | 935 |  |  | 909 |
Total lease cost |  |  | $ | 5,017 |  |  |  |  |  | $ | 4,954 |  |  | $ | 5,024 |

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

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

| Years Ended December 31,
| 2019 |  | 2020 |  | 2021
Cash paid for operating leases included in operating activities | $ | 3,910 |  |  | $ | 3,383 |  |  | $ | 3,822 |
Cash paid for finance leases included in financing activities | 872 |  |  | 828 |  |  | 835 |

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

| Years Ended December 31,
| 2020 |  | 2021
Right-of-use assets obtained in exchange for new operating lease liabilities | $ | 782 |  |  | $ | (1,313) |
Right-of-use assets obtained in exchange for new finance lease liabilities | — |  |  | — |

During the year ended December 31, 2021, we received a leasehold improvement allowance of $1.4 million for the renovation of our home office space in Houston, Texas from our lessor. We recorded a leasehold improvement asset as property,
plant and equipment and reduced our right-of-use asset by $1.4 million. The leasehold improvement allowance will be recognized prospectively by ratably reducing the lease expense over the remaining lease term.
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Supplemental balance sheet information related to leases is as follows (in thousands):

Lease Type |  | Balance Sheet Classification |  | December 31, 2020 |  | December 31, 2021
Operating lease right-of-use assets |  | Operating lease right-of-use assets |  | $ | 21,201 |  |  | $ | 17,881 |
Finance lease right-of-use assets |  | Property, plant and equipment, net |  | 6,770 |  |  | 6,770 |
Accumulated depreciation |  | Property, plant and equipment, net |  | (2,005) |  |  | (2,443) |
Finance lease right-of-use assets, net |  |  |  | $ | 4,765 |  |  | $ | 4,327 |
Operating lease current liabilities |  | Current portion of operating lease obligations |  | $ | 2,082 |  |  | $ | 1,913 |
Finance lease current liabilities |  | Current portion of finance lease obligations |  | 323 |  |  | 375 |
Total current lease liabilities |  |  |  | $ | 2,405 |  |  | $ | 2,288 |
Operating lease non-current liabilities |  | Obligations under operating leases, net of current portion |  | $ | 20,302 |  |  | $ | 18,520 |
Finance lease non-current liabilities |  | Obligations under finance leases, net of current portion |  | 5,531 |  |  | 5,157 |
Total non-current lease liabilities |  |  |  | $ | 25,833 |  |  | $ | 23,677 |
Total lease liabilities |  |  |  | $ | 28,238 |  |  | $ | 25,965 |

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

| Weighted-average remaining lease term (years) |  | Weighted-average discount rate
Operating leases | 9.8 |  | 8.1 | %
Finance leases | 12.1 |  | 8.2 | %

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

| Operating |  | Finance
Lease payments due: |  |  |
2022 | $ | 3,470 |  |  | $ | 868 |
2023 | 3,342 |  |  | 860 |
2024 | 3,316 |  |  | 791 |
2025 | 3,161 |  |  | 736 |
2026 | 3,129 |  |  | 745 |
Thereafter | 13,059 |  |  | 4,810 |
Total lease payments | $ | 29,477 |  |  | $ | 8,810 |
Less: Interest | (9,044) |  |  | (3,278) |
Present value of lease liabilities | $ | 20,433 |  |  | $ | 5,532 |

At December 31, 2021, we had no additional significant operating or finance leases that had not yet commenced.
16. COMMITMENTS AND CONTINGENCIES
Non-Compete, Consulting and Employment Agreements
We have various non-compete agreements with former owners and employees. These agreements are generally for one to ten years and provide for periodic future payments over the term of the agreements.
We have various consulting agreements with former owners of businesses we have acquired. Payments for such agreements are generally not made in advance. These agreements are generally for one to five years and provide for bi-weekly or monthly payments.
We have employment agreements with our executive officers and certain of our senior leadership. These agreements are generally for three to five years and provide for participation in various incentive compensation arrangements. These
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agreements generally renew automatically on an annual basis after their initial term has expired, with the exception of our Chairman of the Board and Chief Executive Officer, which does not renew after the current term expiring in February 2028.
At December 31, 2021, the maximum estimated future cash commitments under these agreements with remaining commitment terms, and with original terms of more than one year, are as follows (in thousands):

| Non-Compete |  | Consulting |  | Employment(a) |  | Total
Years ending December 31, |  |  |  |  |  |  |
2022 | $ | 2,263 |  |  | $ | 719 |  |  | $ | 3,333 |  |  | $ | 6,315 |
2023 | 1,761 |  |  | 322 |  |  | 1,211 |  |  | 3,294 |
2024 | 1,186 |  |  | 148 |  |  | 900 |  |  | 2,234 |
2025 | 832 |  |  | 51 |  |  | 900 |  |  | 1,783 |
2026 | 458 |  |  | — |  |  | 900 |  |  | 1,358 |
Thereafter | 308 |  |  | — |  |  | 1,012 |  |  | 1,320 |
Total | $ | 6,808 |  |  | $ | 1,240 |  |  | $ | 8,256 |  |  | $ | 16,304 |

(a) | Melvin C. Payne, our Chairman of the Board and Chief Executive Officer, has an employment agreement that does not renew after the initial term.

Defined Contribution Plan
We sponsor a defined contribution plan, a 401K plan, for the benefit of our employees. Matching contributions and plan administrative expenses totaled $2.0 million, $2.3 million and $2.5 million during the years ended December 31, 2019, 2020 and 2021, respectively. We do not offer any post-retirement or post-employment benefits.
Litigation
We are a party to various litigation matters and proceedings. For each of our outstanding legal matters, we evaluate the merits of the case, our exposure to the matter, possible legal or settlement strategies, and the likelihood of an unfavorable outcome. If we determine that an unfavorable outcome is probable and can be reasonably estimated, we establish the necessary accruals. We hold certain insurance policies that may reduce cash outflows with respect to an adverse outcome of certain of these litigation matters.
Chinchilla v. Carriage Services, Inc., et al., Superior Court of California, San Joaquin County, Case No. STK-CV-UOE-2021-0004661. On May 19, 2021, a putative class action against the Company and several of our subsidiaries was filed. Plaintiff, a former employee, seeks monetary damages on behalf of himself and other similarly situated current and former non-exempt employees. Plaintiff claims that the Company failed to, among other things, pay minimum wages, provide meal and rest breaks, pay overtime, provide accurately itemized wage statements, reimburse employees for business expenses, and provide wages when due. See Note 24 to the Consolidated Financial Statements included herein for further discussion of the expected final settlement of this matter.
17. INCOME TAXES
The provision for income taxes consisted of the following (in thousands):

| Years Ended December 31,
| 2019 |  | 2020 |  | 2021
Current: |  |  |  |  |
U. S. federal provision (benefit) | $ | (2,039) |  |  | $ | 1,778 |  |  | $ | 8,848 |
State provision (benefit) | (195) |  |  | 2,177 |  |  | 2,989 |
Total current provision (benefit) | $ | (2,234) |  |  | $ | 3,955 |  |  | $ | 11,837 |
Deferred: |  |  |  |  |
U. S. federal provision (benefit) | $ | 8,056 |  |  | $ | 3,994 |  |  | $ | (452) |
State provision (benefit) | 2,061 |  |  | 603 |  |  | (240) |
Total deferred provision (benefit) | $ | 10,117 |  |  | $ | 4,597 |  |  | $ | (692) |
Total income tax provision | $ | 7,883 |  |  | $ | 8,552 |  |  | $ | 11,145 |

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A reconciliation of income taxes calculated at the U.S. federal statutory rate to those reflected in the Consolidated Statements of Operations is as follows (dollars in thousands):

| Years Ended December 31, |
| 2019 |  | 2020 |  | 2021 |
| Amount |  | Percent |  | Amount |  | Percent |  | Amount |  | Percent |
Federal statutory rate | $ | 4,707 |  |  | 21.0 |  | % | $ | 5,175 |  |  | 21.0 |  | % | $ | 9,304 |  |  | 21.0 |  | %
Effect of state income taxes, net of federal benefit | 1,352 |  |  | 6.0 |  |  | 2,080 |  |  | 8.4 |  |  | 2,180 |  |  | 4.9 |  |
Effect of non-deductible expenses and other, net | 947 |  |  | 4.2 |  |  | 460 |  |  | 1.9 |  |  | (423) |  |  | (1.0) |  |
Effect of divestitures and impairment of businesses | 911 |  |  | 4.10 |  |  | 846 |  |  | 3.40 |  |  | 103 |  |  | 0.2 |  |
Change in valuation allowance, net of federal benefit | (34) |  |  | (0.2) |  |  | (9) |  |  | — |  |  | (19) |  |  | — |  |
Total | $ | 7,883 |  |  | 35.1 |  | % | $ | 8,552 |  |  | 34.7 |  | % | $ | 11,145 |  |  | 25.1 |  | %

The discrete tax adjustment for the year ended December 31, 2021 includes a $1.2 million excess tax benefit related to share-based payments and other adjustments including return to provision analysis and state legislative changes.
We are subject to taxation in the United States and various states. As of December 31, 2021, tax years 2013 to 2020 are subject to examination by taxing authorities. On May 10, 2017, we filed amended federal returns for the tax years ended December 31, 2013, 2014 and 2015, which generated refunds of $1.9 million. The amended returns are under audit and as a result, the administrative processing of the carryback claims requires that the statute for tax years 2013 to 2015 remains open.
On June 30, 2020, we filed a carryback claim for a refund for the tax year ended December 31, 2018 for $7.0 million. The requested refund was received on August 7, 2020. As our refund claim filed for the tax year 2018 exceeded $5 million, our 2018 federal return is under IRS under audit as required in order to receive Joint Committee approval for the refund.
On November 3, 2020, we filed a carryback claim for refund for the tax year ended December 31, 2019 for $1.2 million, which has not yet been received. On December 4, 2020, we filed an amended federal return for the tax year ended December 31, 2018, in order to take full advantage of the CARES Act legislative changes. The changes reported in the amended return resulted in additional $2.3 million of loss. The additional losses generated from the amended filing will be administratively carried back and processed as part of the Joint Committee review of the 2018 carryback claim.
The majority of the NOLs generated in tax years 2018 and 2019 are primarily the result of filing non-automatic accounting method changes relating to cemetery property and merchandise and services deferred revenue. These losses were carried back 5 years to tax years in which the enacted federal rate was 35%, under the CARES Act.
On October 11, 2021, we received an adverse ruling from the IRS for the accounting method change filed in 2018 for revenue recognition of cemetery property. Approval is still pending for the accounting method change filed for revenue recognition of cemetery merchandise and services. Upon receiving the adverse ruling on the revenue recognition of cemetery property accounting method change, we filed an automatic method change on Form 3115, to adopt the IRS’ preferred revenue recognition method for cemetery property. The accounting method change application was submitted under the “three-month window” rule, which would grant audit protection for the cumulative effect of the adverse ruling for revenue recognition of cemetery property, at the discretion of the IRS agent conducting the audit.
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The tax effects of temporary differences from total operations that give rise to significant deferred tax assets and liabilities are as follows (in thousands):

| Years Ended December 31,
| 2020 |  | 2021
Deferred income tax assets: |  |  |
Net operating loss carryforwards | $ | 1,570 |  |  | $ | 1,268 |
Interest expense limitation | 18 |  |  | 2,777 |
Tax credit carryforwards | 100 |  |  | 88 |
State depreciation | 1,264 |  |  | 1,195 |
Accrued and other liabilities | 6,313 |  |  | 7,552 |
Amortization of non-compete agreements | 1,117 |  |  | 1,172 |
Prepaid and other assets | 741 |  |  | 616 |
Total deferred income tax assets | 11,123 |  |  | 14,668 |
Less valuation allowance | (222) |  |  | (198) |
Total deferred income tax assets | $ | 10,901 |  |  | $ | 14,470 |
Deferred income tax liabilities: |  |  |
Depreciation and amortization | $ | (50,946) |  |  | $ | (56,030) |
Preneed liabilities | (6,427) |  |  | (4,224) |
Convertible Notes | (5) |  |  | — |
Total deferred income tax liabilities | (57,378) |  |  | (60,254) |
Total net deferred tax liabilities | $ | (46,477) |  |  | $ | (45,784) |

Our deferred tax assets and liabilities, along with related valuation allowances, are classified as non-current on our Consolidated Balance Sheet at December 31, 2020 and 2021.
We record a valuation allowance to reflect the estimated amount of deferred tax assets for which realization is uncertain. Management reviews the valuation allowance at the end of each quarter and makes adjustments if it is determined that it is more-likely-than not that the tax benefits will be realized. We recognized an immaterial net decrease in our valuation allowance during 2020 and 2021.
For state reporting purposes, we have $24.4 million of net operating loss carryforwards that will expire between 2022 and 2041, if not utilized. Based on management’s assessment of the various state net operating losses, it was determined that it is more-likely-than not that we will be able to realize tax benefits on some portion of the amount of the state losses. The valuation allowance at December 31, 2021 was attributable to the deferred tax asset related to a portion of the state operating losses.
We analyze tax benefits for uncertain tax positions and how they are to be recognized, measured, and derecognized in financial statements; provide certain disclosures of uncertain tax matters; and specify how reserves for uncertain tax positions should be classified on our Consolidated Balance Sheet. The deferred tax assets recognized for those NOLs are presented net of these unrecognized tax benefits.
At December 31, 2021, the Company’s unrecognized tax benefits reserve for uncertain tax positions primarily relates to the uncertainty of receiving audit protection for revenue recognition of cemetery property and not yet receiving the IRS approval of the cemetery merchandise and services accounting method change filed in 2018. Our unrecognized tax benefit reserve for the years ended December 31, 2020 and 2021 was $3.7 million and $3.8 million, respectively.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

| Years Ended December 31,
| 2019 |  | 2020 |  | 2021
Unrecognized tax benefit at beginning of year | $ | — |  |  | $ | 691 |  |  | $ | 3,656 |
Gross increases - tax positions in prior period | 691 |  |  | — |  |  | — |
Gross decreases - tax positions in prior period | — |  |  | (691) |  |  | — |
Gross increases - tax positions in current period | — |  |  | 3,656 |  |  | 105 |
Unrecognized tax benefit at end of year | $ | 691 |  |  | $ | 3,656 |  |  | $ | 3,761 |

At December 31, 2021, we expect that the $3.8 million of unrecognized tax benefit will be recognized in the next twelve months. We recognize interest accrued related to unrecognized tax benefit as income tax expense. As of December 31, 2021, we accrued $0.1 million of interest related to the unrecognized tax benefit.
18. STOCKHOLDERS’ EQUITY
Share Authorization
We are authorized to issue 80,000,000 shares of common stock, $0.01 per share par value. We had 26,020,494 and 26,264,245 shares issued and 17,995,155 and 15,331,923 shares outstanding, net of 8,025,339 and 10,932,322 shares held in treasury at par, at December 31, 2020 and 2021, respectively.
Stock Based Compensation Plans
During the year ended December 31, 2021, we had two stock benefits plans in effect under which stock, restricted stock, stock options and performance awards have been granted or remain outstanding: the Second Amended and Restated 2006 Long-Term Incentive Plan (as amended, the “Amended and Restated 2006 Plan”) and the 2017 Omnibus Incentive Plan (as amended, the “2017 Plan”). The Amended and Restated 2006 Plan was terminated upon the approval of the 2017 Plan at the annual shareholders meeting on May 17, 2017. The 2017 Plan expires on May 17, 2027. All stock-based plans are administered by the Compensation Committee appointed by our Board of Directors (our “Board”).
At December 31, 2021, we had 2,427,279 shares available to issue under our 2017 Plan. The termination of the Amended and Restated 2006 Plan does not affect the awards previously issued and outstanding.
Restricted Stock
Restricted stock activity is as follows (in thousands, except shares):

| Year Ended December 31,
| 2020 |  | 2021
| Shares | Fair Value |  | Shares | Fair Value
Granted(1) | 10,200 |  | $ | 255 |  |  | 9,300 |  | $ | 324 |
Returned for payroll taxes | 10,588 |  | $ | 250 |  |  | 10,399 |  | $ | 375 |
Cancelled | — |  | $ | — |  |  | 966 |  | $ | 27 |

(1) | Restricted stock granted during the years ended December 31, 2020 and 2021 will vest over a three-year period, if the employee has remained continuously employed by us during the vesting period, at a weighted average stock price of $25.00 and $34.79, respectively.

A summary of the status of unvested restricted stock as of December 31, 2021, and changes during 2021, is presented below:

Restricted stock awards | Shares |  | Weighted Average Grant Date Fair Value
Unvested at January 1, 2021 | 45,130 |  |  | $ | 23.34 |
Granted | 9,300 |  |  | 34.79 |
Vested | (30,821) |  |  | 23.81 |
Cancelled | (966) |  |  | 28.18 |
Unvested at December 31, 2021 | 22,643 |  |  | $ | 27.21 |

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
We recorded stock-based compensation expense, which is included in Regional and unallocated funeral and cemetery costs and General, administrative and other expenses, for restricted stock awards of $828,000, $735,000 and $390,000 for the years ended December 31, 2019, 2020 and 2021, respectively.
At December 31, 2021, we had $616,000 of total unrecognized compensation costs related to unvested restricted stock awards, which are expected to be recognized over a weighted average period of 1.2 years.
Stock Options
During the year ended December 31, 2021, we granted 150,000 options to a certain key employee at a weighted average price of $34.79. These options will vest when the price of our common stock closes at or above $53.39 (50,000 options) and $77.34 (100,000 options) for three consecutive days within the ten-year term and the employee has remained continuously employed by us through such date. The fair value of these options was $1.7 million and was calculated using the Monte-Carlo simulation pricing model.
During the year ended December 31, 2021, our stock price closed at or above $53.39 for three consecutive days, which triggered the vesting of the 50,000 options granted during 2021. As a result, we accelerated the recognition of the grant date fair value of these options and recognized stock-based compensation expense of $511,000 during the year ended December 31, 2021. Additionally, we recognized an additional $129,000 of stock-based compensation expense when we accelerated 12,980 options in connection with the resignation of an employee in accordance with the terms of the separation agreement we entered into in connection with such resignation.
Additional stock option activity is as follows (in thousands, except shares):

| Year Ended December 31,
| 2020 |  | 2021
| Shares | Fair Value |  | Shares | Fair Value
Granted(1) | 20,000 |  | $ | 92 |  |  | 701,400 |  | $ | 7,115 |
Cancelled | 146,034 |  | $ | 846 |  |  | 74,688 |  | $ | 722 |

(1) | Stock options granted during the years ended December 31, 2020 and 2021 had a weighted average price of $18.02 and $34.79, respectively. The fair value of these options was calculated using the Black-Scholes option pricing model. The options granted in 2020 vest over a three-year period and have a ten-year term. The options granted in 2021 vest over a five-year period and have a ten-year term. These options will vest if the employee has remained continuously employed by us through the vesting period.

| Year Ended December 31,
| 2020 |  | 2021
| Shares | Cash |  | Shares | Cash
Exercised(1) | 40,365 |  | N/A |  | 423,294 |  | N/A
Returned for option price(2) | 18,640 |  | $ | 19 |  |  | 211,088 |  | $ | 1,013 |
Returned for payroll taxes(3) | 2,954 |  | $ | 89 |  |  | 43,534 |  | $ | 2,272 |

(1) | Stock options exercised during the years ended December 31, 2020 and 2021 had a weighted average exercise price of $13.72 and $21.99, respectively, with an aggregate intrinsic value of $0.5 million and $8.2 million, respectively.
(2) | Represents cash received for the payment of the option price.
(3) | Represents cash withheld for the payment of payroll taxes.

Stock options are granted with an exercise price equal to the closing price of our common stock on the date of grant. All of the options granted and outstanding under this plan have either a seven or ten-year term. We utilized the Black-Scholes option pricing model and Monte-Carlo simulation pricing model for estimating the fair value of our stock options. These models allow for the use of a range of assumptions related to volatility, risk-free interest rate, expected holding period and dividend yield. The expected volatility utilized in these valuation models is based on the historical volatility of our stock price. The dividend yield and expected holding period are based on historical experience and management's estimate of future events. The risk-free interest rate is derived from the U.S. Treasury yield curve based on the expected life of the option in effect at the time of grant.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The fair value of the options granted using the Monte-Carlo simulation pricing model was estimated on the date of grant with the following assumptions:

| Year ended December 31, 2021
Awards granted | 150,000
Dividend yield | 1.15 | %
Expected volatility | 34.08 | %
Risk-free interest rate | 1.29 | %

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

| Years Ended December 31,
| 2019 |  | 2020 |  | 2021
Awards granted | 100,000 |  | 20,000 |  | 701,400
Dividend yield | 1.23 | % |  | 1.67 | % |  | 1.15 | %
Expected volatility | 27.45 | % |  | 38.54 | % |  | 36.72 | %
Risk-free interest rate | 1.65 | % |  | 0.25 | % |  | 0.57 | %
Expected holding period (years) | 5.0 |  | 3.7 |  | 5.0
Black-Scholes value | $5.70 |  | $4.61 |  | $10.14

A summary of the stock options at and changes during the three years ended December 31, 2021 is presented in the table below (shares in thousands):

| Years Ended December 31,
| 2019 |  | 2020 |  | 2021
| Shares |  | Wtd. Avg. Ex. Price |  | Shares |  | Wtd. Avg. Ex. Price |  | Shares |  | Wtd. Avg. Ex. Price
Outstanding at January 1 | 1,523 |  |  | $ | 21.95 |  |  | 1,078 |  |  | $ | 23.22 |  |  | 912 |  |  | $ | 23.40 |
Granted | 100 |  |  | $ | 24.35 |  |  | 20 |  |  | $ | 18.02 |  |  | 851 |  |  | $ | 34.79 |
Exercised | (247) |  |  | $ | 17.37 |  |  | (40) |  |  | $ | 13.72 |  |  | (423) |  |  | $ | 21.99 |
Cancelled or expired | (298) |  |  | $ | 21.96 |  |  | (146) |  |  | $ | 23.97 |  |  | (75) |  |  | $ | 33.56 |
Outstanding at December 31 | 1,078 |  |  | $ | 23.22 |  |  | 912 |  |  | $ | 23.40 |  |  | 1,265 |  |  | $ | 30.94 |
Exercisable at December 31 | 643 |  |  | $ | 22.02 |  |  | 668 |  |  | $ | 22.90 |  |  | 426 |  |  | $ | 25.71 |

A summary of the intrinsic value of stock options exercised and the fair value of stock options vested for the three years ended December 31, 2021 is presented in the table below (in thousands):

| Years Ended December 31,
| 2019 |  | 2020 |  | 2021
Intrinsic value of options exercised | $ | 1,197 |  |  | $ | 517 |  |  | $ | 8,229 |
Fair value of stock options vested | $ | 853 |  |  | $ | 735 |  |  | $ | 1,413 |

The following table further describes our outstanding stock options at December 31, 2021:

| Options Outstanding |  | Options Exercisable
Actual Ranges of Exercise Prices | Number Outstanding at 12/31/21 |  | Weighted-Average Remaining Contractual Life |  | Weighted-Average Exercise Price |  | Number Exercisable at 12/31/21 |  | Weighted-Average Remaining Contractual Life |  | Weighted-Average Exercise Price
$18.02 - $18.02 | 13,333 |  |  | 3.48 |  | $ | 18.02 |  |  | — |  |  | — |  |  | $ | — |
$20.06 - $26.54 | 464,921 |  |  | 5.18 |  | $ | 24.80 |  |  | 375,793 |  |  | 5.07 |  | $ | 24.51 |
$34.79 - $34.79 | 786,900 |  |  | 9.14 |  | $ | 34.79 |  |  | 50,000 |  |  | 9.14 |  | $ | 34.79 |
$18.02 - $34.79 | 1,265,154 |  |  | 7.63 |  | $ | 30.94 |  |  | 425,793 |  |  | 5.55 |  | $ | 25.71 |

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The aggregate intrinsic value of the outstanding and exercisable stock options was $42.4 million and $16.5 million, respectively, at December 31, 2021. We had $6.1 million of unrecognized compensation cost, net of estimated forfeitures, related to unvested stock options expected to be recognized over a weighted average period of approximately 4.79 years at December 31, 2021.
We recorded stock-based compensation expense, which is included in Regional and unallocated funeral and cemetery costs and General, administrative and other expenses, for stock options, including the accelerated stock options discussed above of $682,000, $669,000 and $2,355,000 for the years ended December 31, 2019, 2020 and 2021, respectively.
Performance Awards
During the year ended December 31, 2020, we issued 237,500 performance awards to certain employees, payable in shares, with a fair value of $2.8 million. On May 19, 2020, we cancelled all performance award agreements previously awarded to all individuals during 2019, as well as the 237,500 performance awards previously granted in 2020. Concurrently with the cancellation of those performance awards, the Compensation Committee of the Board approved 368,921 new performance awards to be issued to certain employees. These new performance awards were treated as a modification of the cancelled awards and resulted in an additional $1.7 million of incremental compensation expense. These awards will vest (if at all) on December 31, 2024, provided that the Company’s common stock reaches the predetermined growth targets for a sustained period beginning on the grant date and ending on December 31, 2024.
On June 1, 2021, we amended the performance award agreements granted on May 19, 2020 for three of our executives. The amendment increased the amount of performance awards payable in shares for the last three predetermined growth targets. It was treated as a modification of the original performance award agreement and resulted in an additional $2.6 million of incremental compensation expense, expected to be recognized over the remaining term of 36 months.
Additional performance award activity is as follows (in thousands, except shares):

| Years Ended December 31,
| 2020 |  | 2021
| Shares | Fair Value |  | Shares | Fair Value
Granted | 30,743 |  | $ | 733 |  |  | 55,302 |  | $ | 2,116 |
Cancelled | 33,538 |  | $ | 631 |  |  | 55,896 |  | $ | 799 |

A summary of the new performance award and changes during the year ended December 31, 2021 is presented in the table and below:

Performance Awards | Shares |  | Weighted Average Grant Date Fair Value
At January 1, 2021 | 366,124 |  |  | $ | 10.89 |
Granted | 55,302 |  |  | 38.27 |
Amended | 70,236 |  |  | 36.36 |
Cancelled | (55,896) |  |  | 14.29 |
At December 31, 2021 | 435,766 |  |  | $ | 21.76 |

The following table reflects the new performance awards granted during the year ended December 31, 2021, their respective fair values and the assumptions utilized in the Monte-Carlo simulation pricing model:

Grant date |  | April 16, 2021 |  | June 1, 2021 |  | August 12, 2021 |  | September 15, 2021 |  | November 29, 2021
Simulation period (years) |  | 3.71 |  | 3.58 |  | 3.39 |  | 3.29 |  | 3.09
Share price at grant date |  | $35.83 |  | $38.78 |  | $39.48 |  | $45.27 |  | $51.15
Expected volatility |  | 41.17 | % |  | 41.79 | % |  | 42.85 | % |  | 43.44 | % |  | 45.50 | %
Risk-free interest rate |  | 0.52 | % |  | 0.46 | % |  | 0.53 | % |  | 0.49 | % |  | 0.85 | %

At December 31, 2021, there was $7.2 million of unrecognized compensation cost related to performance awards expected to be recognized over a weighted average period of 36 months. If all of the predetermined growth targets are met as of December 31, 2024, a total of 1,052,532 shares of common stock would be awarded to participants under this program.
We recorded stock-based compensation expense, which is included in Regional and unallocated funeral and cemetery costs and General, administrative and other expenses, for performance awards of $196,000, $894,000 and $1,573,000 during the years ended December 31, 2019, 2020 and 2021, respectively.
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Employee Stock Purchase Plan
We provide all employees the opportunity to purchase common stock through payroll deductions in our ESPP. Purchases are made quarterly; the price being 85% of the lower of the price on the first day of the plan entry date (beginning of the fiscal year) or the actual date of purchase (end of quarter).
ESPP activity is as follows (in thousands, except shares):

| Years Ended December 31,
| 2019 |  | 2020 |  | 2021
| Shares | Price |  | Shares | Price |  | Shares | Price
ESPP | 73,731 |  | $ | 13.18 |  |  | 71,908 |  | $ | 16.71 |  |  | 61,904 |  | $ | 26.32 |

We recorded stock-based compensation expense, which is included in Regional and unallocated funeral and cemetery costs and General, administrative and other expenses, for our ESPP of $292,000, $434,000 and $552,000 during the years ended December 31, 2019, 2020 and 2021, respectively.
The fair values of the right to purchase shares under the ESPP are estimated at the date of purchase with the four quarterly purchase dates using the following assumptions:

| Years Ended December 31,
| 2019 |  | 2020 |  | 2021
Dividend yield | 1.4 | % |  | 1.5 | % |  | 0.01 | %
Expected volatility | 36.1 | % |  | 48.6 | % |  | 48.1 | %
Risk-free interest rate | 2.42%, 2.51%, 2.56%, 2.60% |  | 1.54%, 1.57%, 1.57%,1.56% |  | 0.09%, 0.09%, 0.10%, 0.10%
Expected life (years) | 0.25, 0.50, 0.75, 1.00 |  | 0.25, 0.50, 0.75, 1.00 |  | 0.25, 0.50, 0.75, 1.00

Expected volatilities are based on the historical volatility during the previous twelve months of the underlying common stock. The risk-free rate for the quarterly purchase periods is based on the U.S. Treasury yields in effect at the time of purchase. The expected life of the ESPP grants represents the calendar quarters from the beginning of the year to the purchase date (end of each quarter).
Good To Great Incentive Program
We did not issue any shares of common stock in 2021 related to our Good To Great program.
On February 19, 2020, we issued 17,991 shares of our common stock to certain employees, which were valued at $449,000 at a grant date stock price of $25.00.
During 2019, we issued 14,844 shares of our common stock to certain employees, which were valued at $294,000 at a grant date stock price of $19.92.
Non-Employee Director and Board Advisor Compensation
Our Director Compensation Policy provides that each independent director is entitled to a quarterly retainer of $35,000 payable in cash and/or unrestricted shares of our common stock at the end of each quarter. The Lead Director and chairman of our Audit Committee are entitled to an additional annual retainer of $10,000, payable in quarterly installments of $2,500 each at the end of each quarter, and the chairman of our Corporate Governance and Compensation Committees are entitled to an additional annual retainer of $5,000, payable in quarterly installments of $1,250 each at the end of each quarter. Any new independent director will receive upon admission to the Board a grant of $25,000 (in addition to the independent director annual retainer prorated at the time the new director is admitted to the Board) which can be taken in cash or unrestricted shares of our common stock. The Board Advisor is entitled to a quarterly retainer of $18,750 payable in cash and/or unrestricted shares of our common stock at the end of each quarter. The number of shares of such common stock will be determined by dividing the cash amount by the closing price of our common stock on the date of grant, which will be the date of admission to the Board.
On May 17, 2021, James R. Schenck provided notice of his resignation from the Board effective on that date. He served as the chairman of the Corporate Governance Committee and as a member of the Audit Committee and the Compensation Committee. On June 1, 2021, the Board appointed Dr. Achille Messac to be the chairman of the Corporate Governance Committee.
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Non-Employee Director and Board Advisor common stock activity is as follows (in thousands, except shares):

| Years Ended December 31,
| 2019 |  | 2020 |  | 2021
| Shares | Fair Value |  | Shares | Fair Value |  | Shares | Fair Value
Board of Directors | 7,458 |  | $ | 155 |  |  | 30,883 |  | $ | 654 |  |  | 14,744 |  | $ | 622 |
Advisor to the Board | — |  | $ | — |  |  | 967 |  | $ | 20 |  |  | 466 |  | $ | 20 |

(1) | Common stock granted during the years ended December 31, 2019, 2020 and 2021 had a weighted average price of $20.78, $21.16 and $42.14, respectively.

We recorded compensation expense, which is included in General, administrative and other expenses, related to annual retainers, including the value of stock granted to non-employee Directors and an advisor to our Board, of $455,000, $889,000 and $858,000 during the years ended December 31, 2019, 2020 and 2021, respectively.
Cash Dividends
On October 27, 2021, our Board approved an annual increase of $0.05 per share for a total annual dividend of $0.45 per share beginning with the dividend declaration in the fourth quarter.
Our Board declared the following dividends payable on the dates below (in thousands, except per share amounts):

2021 | Per Share |  | Dollar Value
March 1st | $ | 0.1000 |  |  | $ | 1,799 |
June 1st | $ | 0.1000 |  |  | $ | 1,808 |
September 1st | $ | 0.1000 |  |  | $ | 1,783 |
December 1st | $ | 0.1125 |  |  | $ | 1,873 |
2020 | Per Share |  | Dollar Value
March 1st | $ | 0.0750 |  |  | $ | 1,339 |
June 1st | $ | 0.0750 |  |  | $ | 1,343 |
September 1st | $ | 0.0875 |  |  | $ | 1,569 |
December 1st | $ | 0.1000 |  |  | $ | 1,797 |

19. SHARE REPURCHASE PROGRAM
Subject to market conditions, normal trading restrictions and satisfying certain financial covenants in our Credit Facility, and in the Indenture governing our Senior Notes, we may make purchases in the open market or through privately negotiated transactions under our Board authorized share repurchase program, in accordance with Rule 10b-18 of the Securities Exchange Act.
On May 18, 2021, July 26, 2021 and October 27, 2021, our Board increased our share repurchase authorization by an additional $25.0 million, $25.0 million and $75.0 million, respectively, that including amounts previously authorized and outstanding, totaled up to $190.0 million in share repurchase authorizations.
Share repurchase activity is as follows (dollar value in thousands):

| Years Ended December 31,
| 2019 |  | 2020 |  | 2021 |  |  |
Number of Shares Repurchased(1) | 400,000 |  |  | — |  |  | 2,906,983 |  |  |  |
Average Price Paid Per Share | $ | 19.39 |  |  | $ | — |  |  | $ | 49.01 |  |  |  |
Dollar Value of Shares Repurchased(1) | $ | 7,756 |  |  | $ | — |  |  | $ | 142,469 |  |  |  |

(1) | These amounts may differ from the repurchases of common stock amounts in the consolidated statements of cash flows due to unsettled share repurchases at the end of a period. In December 2021, we repurchased 37,408 shares for $2.4 million, the settlement of which occurred in January 2022.

Our shares were purchased in the open market at times and in amounts as management determined appropriate based on factors such as market conditions, legal requirements and other business considerations. Shares purchased pursuant to the repurchase program are currently held as treasury stock. At December 31, 2021, we had $8.1 million remaining available for repurchase under our authorized program.
See Note 24 to the Consolidated Financial Statements included herein for additional information related to our share repurchases.
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20. EARNINGS PER SHARE
Share-based awards that contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are participating securities and included in the computation of both basic and diluted earnings per share. Our grants of stock awards to our employees are considered participating securities and we have prepared our earnings per share calculations to exclude earnings allocated to unvested restricted stock awards, using the two-class method, in the basic and diluted weighted average shares outstanding calculation.
The following table sets forth the computation of the basic and diluted earnings per share (in thousands, except per share data):

| Years Ended December 31,
| 2019 |  | 2020 |  | 2021
Numerator for basic and diluted earnings per share: |  |  |  |  |
Net income | $ | 14,533 |  |  | $ | 16,090 |  |  | $ | 33,159 |
Less: Earnings allocated to unvested restricted stock | (62) |  |  | (46) |  |  | (53) |
Income attributable to common stockholders | $ | 14,471 |  |  | $ | 16,044 |  |  | $ | 33,106 |
Denominator: |  |  |  |  |
Denominator for basic earnings per common share - weighted average shares outstanding | 17,877 |  |  | 17,872 |  |  | 17,409 |
Effect of dilutive securities: |  |  |  |  |
Stock options | 118 |  |  | 196 |  |  | 475 |
Convertible Notes | 10 |  |  | 9 |  |  | — |
Performance awards | — |  |  | — |  |  | 382 |
Denominator for diluted earnings per common share - weighted average shares outstanding | 18,005 |  |  | 18,077 |  |  | 18,266 |
Basic earnings per common share | $ | 0.81 |  |  | $ | 0.90 |  |  | $ | 1.90 |
Diluted earnings per common share | $ | 0.80 |  |  | $ | 0.89 |  |  | $ | 1.81 |

The fully diluted weighted average shares outstanding for the years ended December 31, 2019 and 2020, and the corresponding calculation of fully diluted earnings per share, included approximately 10,000 and 9,000 shares that would have been issued upon the conversion of our Convertible Notes as a result of the application of the if-converted method prescribed by the FASB ASC 260. At December 31, 2021, we had no Convertible Notes outstanding.
For the year ended December 31, 2019, there were 338,440 stock options excluded from the computation of diluted earnings per share because the inclusion of such stock options would result in an antidilutive effect. For the years ended December 31, 2020 and 2021, no stock options were excluded from the computation of diluted earnings per share.
Our performance awards are considered to be contingently issuable shares because their issuance is contingent upon the satisfaction of certain performance and service conditions. At December 31, 2021, we had satisfied certain performance criteria for the first, second and third predetermined growth targets of our performance awards to be considered outstanding. Therefore, we included these awards in the computation of diluted earnings per share as of the beginning of the reporting period.
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21. SEGMENT REPORTING
Revenue, disaggregated by major source for each of our reportable segments was as follows (in thousands):

Year Ended, December 31, 2021 |  |  |  |  |  |
|  | Funeral |  | Cemetery |  | Total
Services |  | $ | 164,082 |  |  | $ | 16,490 |  |  | $ | 180,572 |
Merchandise |  | 92,023 |  |  | 13,741 |  |  | 105,764 |
Cemetery property |  | — |  |  | 61,957 |  |  | 61,957 |
Other revenue |  | 13,982 |  |  | 13,611 |  |  | 27,593 |
Total |  | $ | 270,087 |  |  | $ | 105,799 |  |  | $ | 375,886 |

Year Ended, December 31, 2020 |  |  |  |  |  |
|  | Funeral |  | Cemetery |  | Total
Services |  | $ | 150,283 |  |  | $ | 14,701 |  |  | $ | 164,984 |
Merchandise |  | 84,787 |  |  | 10,778 |  |  | 95,565 |
Cemetery property |  | — |  |  | 44,065 |  |  | 44,065 |
Other revenue |  | 14,068 |  |  | 10,766 |  |  | 24,834 |
Total |  | $ | 249,138 |  |  | $ | 80,310 |  |  | $ | 329,448 |

Year Ended, December 31, 2019 |  |  |  |  |  |
|  | Funeral |  | Cemetery |  | Total
Services |  | $ | 131,636 |  |  | $ | 10,918 |  |  | $ | 142,554 |
Merchandise |  | 75,682 |  |  | 7,665 |  |  | 83,347 |
Cemetery property |  | — |  |  | 31,167 |  |  | 31,167 |
Other revenue |  | 9,550 |  |  | 7,489 |  |  | 17,039 |
Total |  | $ | 216,868 |  |  | $ | 57,239 |  |  | $ | 274,107 |

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table presents operating income (loss), income (loss) before income taxes, depreciation and amortization, interest expense, income tax expense (benefit), total assets, long-lived assets, goodwill, capital expenditures and number of operating locations by segment (in thousands, except number of operating locations):

| Funeral |  | Cemetery |  | Corporate |  | Consolidated
Operating income (loss): |  |  |  |  |  |  |
2021 | $ | 88,591 |  |  | $ | 40,353 |  |  | $ | (35,284) |  |  | $ | 93,660 |
2020 | 57,622 |  |  | 26,859 |  |  | (27,254) |  |  | 57,227 |
2019 | 58,756 |  |  | 15,983 |  |  | (27,296) |  |  | 47,443 |
Income (loss) before income taxes: |  |  |  |  |  |  |
2021 | $ | 88,015 |  |  | $ | 40,473 |  |  | $ | (84,184) |  |  | $ | 44,304 |
2020 | 56,875 |  |  | 27,087 |  |  | (59,320) |  |  | 24,642 |
2019 | 58,844 |  |  | 16,025 |  |  | (52,453) |  |  | 22,416 |
Depreciation and amortization: |  |  |  |  |  |  |
2021 | $ | 11,062 |  |  | $ | 8,217 |  |  | $ | 1,241 |  |  | $ | 20,520 |
2020 | 11,586 |  |  | 6,376 |  |  | 1,427 |  |  | 19,389 |
2019 | 11,128 |  |  | 5,227 |  |  | 1,416 |  |  | 17,771 |
Interest expense: |  |  |  |  |  |  |
2021 | $ | 835 |  |  | $ | — |  |  | $ | 24,610 |  |  | $ | 25,445 |
2020 | 1,004 |  |  | 13 |  |  | 31,498 |  |  | 32,515 |
2019 | 1,142 |  |  | — |  |  | 24,380 |  |  | 25,522 |
Income tax expense (benefit): |  |  |  |  |  |  |
2021 | $ | 22,141 |  |  | $ | 10,181 |  |  | $ | (21,177) |  |  | $ | 11,145 |
2020 | 19,738 |  |  | 9,401 |  |  | (20,587) |  |  | 8,552 |
2019 | 20,694 |  |  | 5,635 |  |  | (18,446) |  |  | 7,883 |
Total assets: |  |  |  |  |  |  |
2021 | $ | 769,539 |  |  | $ | 390,344 |  |  | $ | 18,748 |  |  | $ | 1,178,631 |
2020 | 764,535 |  |  | 366,964 |  |  | 14,326 |  |  | 1,145,825 |
2019 | 790,459 |  |  | 314,413 |  |  | 24,883 |  |  | 1,129,755 |
Long-lived assets: |  |  |  |  |  |  |
2021 | $ | 611,181 |  |  | $ | 176,398 |  |  | $ | 3,839 |  |  | $ | 791,418 |
2020 | 619,588 |  |  | 172,122 |  |  | 995 |  |  | 792,705 |
2019 | 650,179 |  |  | 145,158 |  |  | 1,303 |  |  | 796,640 |
Goodwill: |  |  |  |  |  |  |
2021 | $ | 344,823 |  |  | $ | 47,149 |  |  | $ | — |  |  | $ | 391,972 |
2020 | 345,829 |  |  | 47,149 |  |  | — |  |  | 392,978 |
2019 | 361,451 |  |  | 36,841 |  |  | — |  |  | 398,292 |
Capital expenditures: |  |  |  |  |  |  |
2021 | $ | 11,511 |  |  | $ | 9,704 |  |  | $ | 3,668 |  |  | $ | 24,883 |
2020 | 6,997 |  |  | 7,025 |  |  | 1,176 |  |  | 15,198 |
2019 | 8,403 |  |  | 5,772 |  |  | 1,204 |  |  | 15,379 |
Number of operating locations at year end: |  |  |  |  |  |  |
2021 | 170 |  | 31 |  | — |  |  | 201
2020 | 178 |  | 32 |  | — |  |  | 210
2019 | 186 |  | 31 |  | — |  |  | 217

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
22. SUPPLEMENTARY DATA
Balance Sheet
The detail of certain balance sheet accounts is as follows (in thousands):

| December 31,
| 2020 |  | 2021
Prepaids and other current assets: |  |  |
Prepaid expenses | $ | 1,919 |  |  | $ | 2,215 |
Federal income tax receivable | — |  |  | 4,064 |
Other current assets | 157 |  |  | 125 |
Total prepaid and other current assets | $ | 2,076 |  |  | $ | 6,404 |
Current portion of debt and lease obligations: |  |  |
Acquisition debt | $ | 1,027 |  |  | $ | 521 |
Finance lease obligations | 323 |  |  | 375 |
Operating lease obligations | 2,082 |  |  | 1,913 |
Total current portion of debt and lease obligations | $ | 3,432 |  |  | $ | 2,809 |
Accrued and other liabilities: |  |  |
Incentive compensation | $ | 11,139 |  |  | $ | 19,121 |
Insurance | 3,016 |  |  | 4,089 |
Unrecognized tax benefit | 3,656 |  |  | 3,761 |
Vacation | 3,271 |  |  | 3,334 |
Natural disaster liability | — |  |  | 2,628 |
Interest | 2,291 |  |  | 2,250 |
Salaries and wages | 1,392 |  |  | 2,193 |
Employer payroll tax deferral | 1,773 |  |  | 1,773 |
Employee meetings and award trips | 801 |  |  | 1,462 |
Income tax payable | 798 |  |  | 485 |
Commissions | 634 |  |  | 684 |
Perpetual care trust payable | 908 |  |  | 389 |
Ad valorem and franchise taxes | 435 |  |  | 450 |
Other accrued liabilities | 1,024 |  |  | 1,154 |
Total accrued and other liabilities | $ | 31,138 |  |  | $ | 43,773 |
Other long-term liabilities: |  |  |
Incentive compensation | $ | 2,975 |  |  | $ | 1,291 |
Employer payroll tax deferral | 1,773 |  |  | — |
Severance | — |  |  | 128 |
Total other long-term liabilities | $ | 4,748 |  |  | $ | 1,419 |

23. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The following information is supplemental disclosure for the Consolidated Statements of Cash Flows (in thousands):

| Years Ended December 31,
| 2019 |  | 2020 |  | 2021
Cash paid for interest and financing costs | $ | 23,870 |  |  | $ | 30,935 |  |  | $ | 24,127 |
Cash paid (refunded) for taxes | 378 |  |  | (4,457) |  |  | 16,110 |
Unsettled share repurchases | 1,396 |  |  | — |  |  | 2,429 |
Fair value of donated real property | — |  |  | — |  |  | 635 |

24. SUBSEQUENT EVENTS
On January 5, 2022, the Company and the Plaintiff, a former employee, mediated the Chinchilla v. Carriage Services, Inc., et al., matter and executed a Memorandum of Understanding for class settlement in the amount of $1.0 million. The parties will seek preliminary approval of the class settlement after executing a long-form class settlement agreement. At December 31, 2021, we accrued $1.1 million for the expected settlement amount and associated legal fees.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
On February 23, 2022, our Board increased our share repurchase program authorization by an additional $75 million. Prior to the Board’s approval of the increase, at December 31, 2021, we had $8.1 million remaining available for repurchase under our authorized program. At February 23, 2022, we had $83.1 million of share repurchase authorization remaining under the revised repurchase program.
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CARRIAGE SERVICES, INC.
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
(in thousands)

Description | Balance at beginning of year |  | Charged to costs and expenses |  | Deduction |  | Balance at end of year
Year ended December 31, 2019: |  |  |  |  |  |  |
Allowance for bad debts, current portion | $ | 769 |  |  | $ | 1,088 |  |  | $ | 1,008 |  |  | $ | 849 |
Allowance for bad debts of preneed cemetery receivables, non-current portion | $ | 1,227 |  |  | $ | 532 |  |  | $ | 469 |  |  | $ | 1,290 |
Employee severance accruals | $ | 1,141 |  |  | $ | 1,265 |  |  | $ | 1,569 |  |  | $ | 837 |
Valuation allowance of the deferred tax asset | $ | 276 |  |  | $ | — |  |  | $ | 43 |  |  | $ | 233 |
Year ended December 31, 2020: |  |  |  |  |  |  |
Allowance for credit losses, current portion | $ | 849 |  |  | $ | 1,617 |  |  | $ | 1,179 |  |  | $ | 1,287 |
Allowance for credit losses of preneed cemetery receivables, non-current portion | $ | 1,290 |  |  | $ | 701 |  |  | $ | 347 |  |  | $ | 1,644 |
Employee severance accruals | $ | 837 |  |  | $ | 596 |  |  | $ | 1,271 |  |  | $ | 162 |
Valuation allowance of the deferred tax asset | $ | 233 |  |  | $ | — |  |  | $ | 11 |  |  | $ | 222 |
Year ended December 31, 2021: |  |  |  |  |  |  |
Allowance for credit losses, current portion | $ | 1,287 |  |  | $ | 1,240 |  |  | $ | 1,537 |  |  | $ | 990 |
Allowance for credit losses of preneed cemetery receivables, non-current portion | $ | 1,644 |  |  | $ | 543 |  |  | $ | 1,108 |  |  | $ | 1,079 |
Employee severance accruals | $ | 162 |  |  | $ | 1,431 |  |  | $ | 952 |  |  | $ | 641 |
Valuation allowance of the deferred tax asset | $ | 222 |  |  | $ | — |  |  | $ | 24 |  |  | $ | 198 |

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
Management’s Evaluation of Disclosure Controls and Procedures
Our management, including our principal executive and financial officers, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act) as of the end of the period covered by this Form 10-K. Our disclosure controls and procedures are designed to ensure that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and to ensure that such information is accumulated and communicated to management, including our principal executive and financial officers, as appropriate, to allow timely decisions regarding required disclosure. Based on such evaluation, our principal executive and financial officers have concluded that our disclosure controls and procedures were effective as of December 31, 2021 (the end of the period covered by this Annual Report on Form 10-K).
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Management’s report on our internal control over financial reporting is presented on the following page of this Form 10-K. Grant Thornton LLP, the independent registered public accounting firm that audited the financial statements included in this Form 10-K, has issued an attestation report on our internal control over financial reporting.
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MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined under Rule 13a-15(f) promulgated under the Securities Exchange Act of 1934, as amended.
Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s Consolidated Financial Statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that:
(i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the U.S., and that our receipts and expenditures are being made only in accordance with authorizations of management and our directors; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our Consolidated Financial Statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management conducted an assessment of the Company’s internal control over financial reporting as of December 31, 2021 using the framework specified in Internal Control — Integrated Framework (2013), published by the Committee of Sponsoring Organizations of the Treadway Commission. Based on such assessment, management has concluded that the Company’s internal control over financial reporting was effective as of December 31, 2021.
The Company’s internal control over financial reporting as of December 31, 2021 has been audited by Grant Thornton LLP, an independent registered public accounting firm, which also audited the financial statements of the Company for the year ended December 31, 2021, as stated in their report that is presented in this Annual Report.

/s/ Melvin C. Payne
Melvin C. Payne
Chief Executive Officer and Chairman of the Board
(Principal Executive Officer)

/s/ C. Benjamin Brink
C. Benjamin Brink
Executive Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer)

March 2, 2022
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Changes in Internal Control Over Financial Reporting
During the three months ended December 31, 2021, there was no change in our system of internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION.
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Code of Ethics
We have adopted a Code of Business Conduct and Ethics (the “Code”), which is applicable to each of our Directors, Officers, and employees, including our principal executive officer and other senior financial officers, who include our principal financial officer, principal accounting officer or controller, and persons performing similar functions. The Code is available on our internet website at www.carriageservices.com. To the extent required by SEC rules, we intend to disclose any amendments to this code and any waiver of a provision of the Code for the benefit of our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, on our website within four business days following any such amendment of waiver, or within any other period that may be required under SEC rules from time to time.
The information required by Item 10 is incorporated in this Annual Report on Form 10-K by reference to our definitive proxy statement or an amendment to this Annual Report on Form 10-K to be filed with the SEC not later than 120 days after the end of the fiscal year ended December 31, 2021.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 11 is incorporated in this Annual Report on Form 10-K by reference to our definitive proxy statement or an amendment to this Annual Report on Form 10-K to be filed with the SEC not later than 120 days after the end of the fiscal year ended December 31, 2021.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The information required by Item 12 is incorporated in this Annual Report on Form 10-K by reference to our definitive proxy statement or an amendment to this Annual Report on Form 10-K to be filed with the SEC not later than 120 days after the end of the fiscal year ended December 31, 2021.
The following table, required by Item 201(d) of Regulation S-K, summarizes information regarding the number of shares of our common stock that are available for issuance under all of our existing equity compensation plans as of December 31, 2021.

Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) |  | Weighted-average exercise price of outstanding options, warrants and rights (b) |  | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders | 1,265,154 |  |  | $ | 30.94 |  |  | 2,427,279 |
Equity compensation plans not approved by security holders | — |  |  | — |  |  | — |
Total | 1,265,154 |  |  | $ | 30.94 |  |  | 2,427,279 |

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.
The information required by Item 13 is incorporated in this Annual Report on Form 10-K by reference to our definitive proxy statement or an amendment to this Annual Report on Form 10-K to be filed with the SEC not later than 120 days after the end of the fiscal year ended December 31, 2021.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The information required by Item 14 is incorporated in this Annual Report on Form 10-K by reference to our definitive proxy statement or an amendment to this Annual Report on Form 10-K to be filed with the SEC not later than 120 days after the end of the fiscal year ended December 31, 2021.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(1) FINANCIAL STATEMENTS
The following financial statements and the Report of Independent Registered Public Accounting Firm are filed as a part of this Form 10-K on the pages indicated:

| Page
Reports of Independent Registered Public Accounting Firm | 45
Consolidated Balance Sheet as of December 31, 2020 and 2021 | 47
Consolidated Statements of Operations for the Years Ended December 31, 2019, 2020 and 2021 | 48
Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2019, 2020 and 2021 | 49
Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, 2020 and 2021 | 50
Notes to Consolidated Financial Statements | 50
Management’s Report on Internal Control over Financial Reporting | 97

(2) FINANCIAL STATEMENT SCHEDULES
The following Financial Statement Schedule is included in this Form 10-K on the page indicated:

| Page
Financial Statement Schedule II — Valuation and Qualifying Accounts | 95

All other schedules are omitted as the required information is inapplicable or the information is presented in the Consolidated Financial Statements or related notes.
(3) EXHIBITS
A copy of this Form 10-K, excluding exhibits, will be furnished at no charge to each person to whom a proxy statement for our 2022 annual meeting of stockholders is delivered upon the request of such person. Exhibits to this Form 10-K are available upon payment of a reasonable fee, which is limited to our expenses in furnishing the requested exhibit. Requests for copies should be directed to our Corporate Secretary, by mail at 3040 Post Oak Boulevard, Suite 300, Houston, Texas 77056 or by phone at 1-866-332-8400 or 713-332-8400.

Exhibit No. |  | Description
3.1 |  | Amended and Restated Certificate of Incorporation, as amended, of the Company. Incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 1996, filed on March 20, 1997.
3.2 |  | Certificate of Amendment dated May 7, 1997. Incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for its fiscal quarter ended September 30, 1997, filed on November 14, 1997.
3.3 |  | Certificate of Amendment dated May 7, 2002. Incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for its fiscal quarter ended June 30, 2002, filed on August 13,2002.

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*3.4 |  | Second Amended and Restated By-Laws of Carriage Services, Inc. dated July 28, 2021.
4.1 |  | Indenture, dated as of May 13, 2021, among the Company, the Guarantors (as defined therein) and Wilmington Trust, National Association, as Trustee. Incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed May 13, 2021.
4.2 |  | Form of 4.25% Senior Notes due 2029 (included with the Indenture filed as Exhibit 4.1). Incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K filed on May 13, 2021.
4.3 |  | Second Amended and Restated 2006 Long-Term Incentive Plan. Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for its quarter ended June 30, 2012. †
4.4 |  | First Amendment to Carriage Services, Inc. Second Amended and Restated 2006 Long-Term Incentive Plan. Incorporated by reference to Exhibit 10.28 to the Company's Annual Report on Form 10-K filed March 5, 2014. †
4.5 |  | Amended and Restated Carriage Services, Inc. 2007 Employee Stock Purchase Plan. Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for its quarter ended September 30, 2013. †
4.6 |  | First Amendment to the Amended and Restated Carriage Services, Inc. 2007 Employee Stock Purchase Plan. Incorporated by reference to Appendix B to the Company’s Definitive Proxy Statement on Schedule 14A filed on April 4, 2018. †
4.7 |  | Second and Third Amendments to the Amended and Restated Carriage Services, Inc. 2007 Employee Stock Purchase Plan. Incorporated by reference to Appendix A and B, respectively, to the Company's Definitive Proxy Statement on Schedule 14A filed with the SEC on April 5, 2021 and Amendment No. 1 to our Definitive Proxy Statement on Schedule 14A filed with the SEC on April 6, 2021. †
4.8 |  | Carriage Services, Inc. 2017 Omnibus Incentive Plan. Incorporated by reference to Appendix A of the Proxy Statement on Schedule 14A filed on April 5, 2017. †
4.9 |  | First Amendment to the Carriage Services, Inc. 2017 Omnibus Incentive Plan. Incorporated by reference to Appendix C to the Company’s Definitive Proxy Statement on Schedule 14A filed on April 5, 2021 and Amendment No. 1 to our Definitive Proxy Statement on Schedule 14A filed with the SEC on April 6, 2021.†
*4.10 |  | Summary of Securities Registered under Section 12.
10.1 |  | Indemnity Agreement with Melvin C. Payne dated December 18, 2000. Incorporated by reference to Exhibit 10.20 to the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2000. †
*10.2 |  | Director Compensation Policy dated February 19, 2020. †
10.3 |  | Form of Incentive Stock Option Agreement under Carriage Services, Inc. Second Amended and Restated 2006 Long-Term Incentive Plan. Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for its quarter ended June 30, 2013. †
10.4 |  | Form of Restricted Stock Agreement under Carriage Services, Inc. Second and Amended and Restated 2006 Long-Term Incentive Plan. Incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for its quarter ended June 30, 2013. †
10.5 |  | Form of Employee Restricted Stock Agreement under Carriage Services, Inc. 2017 Omnibus Incentive Plan. Incorporated by reference to Exhibit 10.30 to the Company's Annual Report on Form 10-K for its fiscal year ended December 31, 2017. †
10.6 |  | Form of Employee Incentive Stock Option Agreement under Carriage Services, Inc. 2017 Omnibus Incentive Plan. Incorporated by reference to Exhibit 10.31 to the Company's Annual Report on Form 10-K for its fiscal year ended December 31, 2017. †

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10.7 |  | Form of Employee Stock Option Agreement under Carriage Services, Inc. 2017 Omnibus Incentive Plan. Incorporated by reference to Exhibit 10.33 to the Company's Annual Report on Form 10-K for its fiscal year ended December 31, 2017. †
10.8 |  | Employment Agreement dated November 5, 2019, by and between the Company and Melvin C. Payne. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 8, 2019.†
10.9 |  | First Amendment to Employment Agreement dated February 17, 2021 by and between the Company and Melvin C. Payne. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 18, 2021. †
10.10 |  | Form of First Amendment to Employment Agreement Consideration $77.34 Option Grant dated February 17, 2021 by and between the Company and Melvin C. Payne. †
10.11 |  | Form of First Amendment to Employment Agreement Consideration $53.39 Option Grant dated February 17, 2021 by and between the Company and Melvin C. Payne. †
10.12 |  | Employment Agreement dated November 5, 2019, by and between the Company and Shawn Phillips. Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on November 8, 2019. †
10.13 |  | Employment Agreement dated November 5, 2019, by and between the Company and Paul Elliott. Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on November 8, 2019. †
10.14 |  | Employment Agreement dated November 5, 2019, by and between the Company and Carl Benjamin Brink. Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on November 8, 2019. †
*10.15 |  | Employment Agreement dated November 5, 2019, by and between the Company and Steven D. Metzger. †
*10.16 |  | Employment Agreement dated June 25, 2020, by and between the Company and Carlos Quezada. †
*10.17 |  | First Amendment to Employment Agreement dated June 1, 2021, by and between the Company and Carl Benjamin Brink. †
*10.18 |  | First Amendment to Employment Agreement dated June 1, 2021, by and between the Company and Steven D. Metzger. †
*10.19 |  | First Amendment to Employment Agreement dated June 1, 2021, by and between the Company and Carlos Quezada. †
10.20 |  | Form of Performance Award Agreement under Carriage Services, Inc. 2017 Omnibus Incentive Plan. Incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on May 22, 2020. †
*10.21 |  | Form of First Amendment to Performance Award Agreement under Carriage Services, Inc. 2017 Omnibus Incentive Plan dated as of June 1, 2021. †
10.23 |  | First Amended and Restated Credit Agreement dated as of May 13, 2021, among Carriage Services, Inc., the guarantors party thereto, the financial institutions party thereto, as lenders, and Bank of America, N.A., as administrative agent. Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on May 13, 2021.
10.24 |  | First Amendment and Commitment Increase to First Amended and Restated Credit Agreement dated as of November 22, 2021, among Carriage Services, Inc., the financial institutions party thereto, as lenders, and Bank of America, N.A., as administrative agent, swing line lender and L/C issuer. Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on November 23, 2021.
10.25 |  | Form of Notes Repurchase Agreement, Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on September 4, 2020.

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10.26 |  | Release and Separation Agreement by and between Carriage Services, Inc. and Viki K. Blinderman, dated February 2, 2021 and effective March 31, 2021. Incorporated by reference to Exhibit 10.40 to the Company's Annual Report on Form 10-K filed on March 2, 2021. †
*21.1 |  | Subsidiaries of the Company.
*23.1 |  | Consent of Grant Thornton LLP.
*31.1 |  | Certification of Periodic Financial Reports by Melvin C. Payne in satisfaction of Section 302 of the Sarbanes-Oxley Act of 2002.
*31.2 |  | Certification of Periodic Financial Reports by C. Benjamin Brink in satisfaction of Section 302 of the Sarbanes-Oxley Act of 2002.
**32 |  | Certification of Periodic Financial Reports by Melvin C. Payne and C. Benjamin Brink in satisfaction of Section 906 of the Sarbanes-Oxley Act of 2002 and 18 U.S.C. Section 1350.
*101 |  | Interactive Data Files.

__________________

(*) | Filed herewith.

(**) | Furnished herewith.

(†) | Management contract or compensatory plan or arrangement.

ITEM 16. FORM 10-K SUMMARY.
None.
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SIGNATURES
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 on March 2, 2022.

CARRIAGE SERVICES, INC.
By: |  | /s/ Melvin C. Payne
|  | Melvin C. Payne Chief Executive Officer and Chairman of the Board

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature |  | Title |  | Date
/s/ Melvin C. Payne |  | Chief Executive Officer and Chairman of the Board |  |
Melvin C. Payne |  | (Principal Executive Officer) |  | March 2, 2022
/s/ C. Benjamin Brink |  | Executive Vice President, Chief Financial Officer and Treasurer |  | March 2, 2022
C. Benjamin Brink |  | (Principal Financial Officer) |  |
/s/ Adeola Olaniyan |  | Corporate Controller and Principal Accounting Officer |  | March 2, 2022
Adeola Olaniyan |  |  |  |
/s/ Donald D. Patteson Jr. |  | Director |  | March 2, 2022
Donald D. Patteson Jr. |  |  |  |
/s/ Barry K. Fingerhut |  | Director |  | March 2, 2022
Barry K. Fingerhut |  |  |  |
/s/ Bryan D. Leibman |  | Director |  | March 2, 2022
Bryan D. Leibman |  |  |  |
/s/ Douglas Meehan |  | Director |  | March 2, 2022
Douglas Meehan |  |  |  |
/s/ Achille Messac |  | Director |  | March 2, 2022
Achille Messac |  |  |  |

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