Acquisition Level 1 (Notes)

12 Months Ended

Dec. 31, 2019

Business Combination Disclosure [Text Block]

Acquisitions

In June 2018, we acquired fifteen funeral homes and seven cemeteries in four states (the “acquired businesses”) for $82.2 million in cash. Additionally, we paid $49.8 million of the acquired businesses' existing debt in conjunction with the closing of the acquisition.

The primary reasons for the merger and the principal factors that contributed to the recognition of goodwill in this acquisition were:


•	the acquisition enhances our network footprint, enabling us to serve a number of new, complementary areas and


•	the acquisition of the preneed backlog of deferred revenues enhances our long-term stability.

The following table summarizes the adjusted fair values of the assets acquired and liabilities assumed in the acquisition (in thousands):



Other current assets	$	3,388
Cemetery property	32,266
Property and equipment	25,896
Preneed receivables, net and trust investments	107,444
Finite-lived intangible assets	32,371
Indefinite-lived intangible assets	18,000
Deferred charges and other assets	1,717
Cemetery perpetual care trust investments	52,747
Goodwill	37,908
Total assets acquired	$	311,737
Current liabilities	7,666
Deferred revenue and deferred receipts held in trust	113,173
Deferred income taxes	4,704
Other liabilities	1,439
Care trusts' corpus	52,747
Total liabilities assumed	179,729
Net assets acquired	$	132,008

Included in preneed receivables, net and trust investments are receivables under preneed contracts with a fair value of $8.4 million. The gross amount due under the contracts is $8.9 million, of which $0.5 million is not expected to be collected.

We have completed our purchase price allocation. During the twelve months of 2019, we made the following adjustments to our estimates of the fair value of assets and liabilities (in thousands):



Increase in the fair value of other current assets	$	(67	)
Increase in the fair value of cemetery property	(3,583		)
Increase in property and equipment, net	(179		)
Increase in the fair value of preneed receivables, net and trust investments	(4,910		)
Decrease in the fair value of finite-lived intangible assets	10,428
Increase in the fair value of current liabilities	3,075
Decrease in the fair value of deferred revenue and deferred receipts held in trust	(7,349		)
Decrease in the fair value of deferred income taxes	(7,026		)
Increase in the fair value of other liabilities	1,439
Total adjustment to goodwill	$	(8,172	)

Goodwill, land, and certain identifiable intangible assets recorded in the acquisition are not subject to amortization; however, the goodwill and intangible assets will be tested periodically for impairment. Of the $37.9 million in goodwill recognized, $21.2 million was allocated to our cemetery segment and $16.7 million was allocated to our funeral segment. $23.7 million of this goodwill is deductible for tax purposes. The identified intangible assets comprise the following:



	Useful life
	Minimum	Maximum	Fair Value
	(Years)		(In thousands)
Other preneed customer relationships	10	20	$	9,347
Selling and management agreements	89	89	13,176
Operating leases	89	89	2,848
Tradenames	89	89	7,000
Tradenames		Indefinite	18,000
Total intangible assets			$	50,371

Included in our results of operations for the twelve months ended December 31, 2018 is revenue of $17.9 million and net income of $1.7 million for the period from the acquisition date (June 8, 2018) through December 31, 2018. The following unaudited pro forma summary presents financial information as if the acquisition had occurred on January 1, 2017:



	2018		2017
	(In thousands)
	(unaudited)
Revenue	$	32,434	$	29,193
Net income	$	4,669	$	2,531

Excluding the June 2018 acquisition described above, we spent $107.0 million, $62.8 million, and $76.2 million for real estate, funeral service locations, and cemeteries for the three years ended December 31, 2019, 2018, and 2017, respectively. These amounts include the use of $13.6 million, $5.9 million, and $26.2 million in 1031 exchange funds for the three years ended December 31, 2019, 2018, and 2017, respectively.

Divestiture-Related Activities

As divestitures occur in the normal course of business, gains or losses on the sale of such locations are recognized in the income statement line item Gains on divestitures and impairment charges, net, which consist of the following:



	Years Ended December 31,
	2019			2018			2017
	(In thousands)
Gains on divestitures, net	$	41,835		$	20,340		$	29,053
Impairment losses	(8,916		)	(4,407		)	(22,038		)
Gains on divestitures and impairment charges, net	$	32,919		$	15,933		$	7,015