UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2013
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: 001-32270
STONEMOR PARTNERS L.P.
(Exact name of registrant as specified in its charter)
Delaware | 80-0103159 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
311 Veterans Highway, Suite B Levittown, Pennsylvania |
19056 | |
(Address of principal executive offices) | (Zip Code) |
(215) 826-2800
(Registrants telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
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 x 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 x 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 in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ | Accelerated filer | x | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The number of the registrants outstanding common units at July 31, 2013 was 21,350,236.
Page | ||||||
Part I |
||||||
Item 1. |
1 | |||||
Item 2. |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
28 | ||||
Item 3. |
52 | |||||
Item 4. |
53 | |||||
Part II |
||||||
Item 1. |
54 | |||||
Item 1A. |
54 | |||||
Item 2. |
55 | |||||
Item 3. |
55 | |||||
Item 4. |
55 | |||||
Item 5. |
55 | |||||
Item 6. |
56 | |||||
58 |
Part I Financial Information
StoneMor Partners L.P.
Condensed Consolidated Balance Sheet
(in thousands)
(unaudited)
June 30, | December 31, | |||||||
2013 | 2012 | |||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 14,075 | $ | 7,946 | ||||
Accounts receivable, net of allowance |
54,396 | 51,895 | ||||||
Prepaid expenses |
5,565 | 3,832 | ||||||
Other current assets |
18,679 | 17,418 | ||||||
|
|
|
|
|||||
Total current assets |
92,715 | 81,091 | ||||||
Long-term accounts receivable, net of allowance |
77,297 | 71,521 | ||||||
Cemetery property |
312,506 | 309,980 | ||||||
Property and equipment, net of accumulated depreciation |
84,793 | 79,740 | ||||||
Merchandise trusts, restricted, at fair value |
414,382 | 375,973 | ||||||
Perpetual care trusts, restricted, at fair value |
302,773 | 282,313 | ||||||
Deferred financing costs, net of accumulated amortization |
8,865 | 9,238 | ||||||
Deferred selling and obtaining costs |
82,501 | 76,317 | ||||||
Deferred tax assets |
381 | 381 | ||||||
Goodwill |
47,570 | 42,392 | ||||||
Other assets |
11,849 | 14,779 | ||||||
|
|
|
|
|||||
Total assets |
$ | 1,435,632 | $ | 1,343,725 | ||||
|
|
|
|
|||||
Liabilities and partners capital |
||||||||
Current liabilities: |
||||||||
Accounts payable and accrued liabilities |
$ | 32,992 | $ | 28,973 | ||||
Accrued interest |
1,625 | 1,833 | ||||||
Current portion, long-term debt |
6,936 | 2,175 | ||||||
|
|
|
|
|||||
Total current liabilities |
41,553 | 32,981 | ||||||
Other long-term liabilities |
1,616 | 1,835 | ||||||
Long-term debt |
266,290 | 252,774 | ||||||
Deferred cemetery revenues, net |
544,322 | 497,861 | ||||||
Deferred tax liabilities |
12,554 | 14,910 | ||||||
Merchandise liability |
127,875 | 125,869 | ||||||
Perpetual care trust corpus |
302,773 | 282,313 | ||||||
|
|
|
|
|||||
Total liabilities |
1,296,983 | 1,208,543 | ||||||
|
|
|
|
|||||
Commitments and contingencies |
||||||||
Partners capital |
||||||||
General partner |
(893 | ) | 386 | |||||
Common partners |
139,542 | 134,796 | ||||||
|
|
|
|
|||||
Total partners capital |
138,649 | 135,182 | ||||||
|
|
|
|
|||||
Total liabilities and partners capital |
$ | 1,435,632 | $ | 1,343,725 | ||||
|
|
|
|
See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
1
StoneMor Partners L.P.
Condensed Consolidated Statement of Operations
(in thousands, except per unit data)
(unaudited)
Three months ended | Six months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Revenues: |
||||||||||||||||
Cemetery |
||||||||||||||||
Merchandise |
$ | 28,669 | $ | 30,337 | $ | 55,321 | $ | 57,481 | ||||||||
Services |
11,072 | 11,265 | 22,371 | 23,347 | ||||||||||||
Investment and other |
12,005 | 12,051 | 22,248 | 23,475 | ||||||||||||
Funeral home |
||||||||||||||||
Merchandise |
4,517 | 3,569 | 9,470 | 7,587 | ||||||||||||
Services |
6,159 | 4,286 | 12,624 | 9,205 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenues |
62,422 | 61,508 | 122,034 | 121,095 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Costs and Expenses: |
||||||||||||||||
Cost of goods sold (exclusive of depreciation shown separately below): |
||||||||||||||||
Perpetual care |
1,500 | 1,415 | 2,781 | 2,782 | ||||||||||||
Merchandise |
6,212 | 5,821 | 11,221 | 10,874 | ||||||||||||
Cemetery expense |
15,408 | 14,775 | 28,193 | 27,567 | ||||||||||||
Selling expense |
12,218 | 13,123 | 23,442 | 24,910 | ||||||||||||
General and administrative expense |
7,898 | 7,195 | 15,480 | 14,388 | ||||||||||||
Corporate overhead (including $360 and $210 in unit-based compensation for the three months ended June 30, 2013 and 2012, and $690 and $409 for the six months ended June 30, 2013 and 2012, respectively) |
5,672 | 7,756 | 13,660 | 14,359 | ||||||||||||
Depreciation and amortization |
2,451 | 2,230 | 4,781 | 4,560 | ||||||||||||
Funeral home expense |
||||||||||||||||
Merchandise |
1,703 | 1,107 | 3,225 | 2,530 | ||||||||||||
Services |
4,768 | 3,302 | 9,325 | 6,707 | ||||||||||||
Other |
2,893 | 2,206 | 5,550 | 4,134 | ||||||||||||
Acquisition related costs, net of recoveries |
(625 | ) | 782 | 658 | 1,113 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total cost and expenses |
60,098 | 59,712 | 118,316 | 113,924 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating profit |
2,324 | 1,796 | 3,718 | 7,171 | ||||||||||||
Gain (loss) on termination of operating agreement |
| (83 | ) | | 1,737 | |||||||||||
Gain on settlement agreement, net |
11,349 | | 12,261 | | ||||||||||||
Gain on acquisition |
| 122 | | 122 | ||||||||||||
Loss on early extinguishment of debt |
21,595 | | 21,595 | | ||||||||||||
Gain on sale of other assets |
155 | | 155 | | ||||||||||||
Interest expense |
5,132 | 4,870 | 10,595 | 9,836 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net loss before income taxes |
(12,899 | ) | (3,035 | ) | (16,056 | ) | (806 | ) | ||||||||
Income tax expense (benefit) |
||||||||||||||||
State |
165 | 97 | 221 | 242 | ||||||||||||
Federal |
(1,255 | ) | (963 | ) | (2,268 | ) | (909 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total income tax benefit |
(1,090 | ) | (866 | ) | (2,047 | ) | (667 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net loss |
$ | (11,809 | ) | $ | (2,169 | ) | $ | (14,009 | ) | $ | (139 | ) | ||||
|
|
|
|
|
|
|
|
|||||||||
General partners interest in net loss for the period |
$ | (218 | ) | $ | (43 | ) | $ | (258 | ) | $ | (3 | ) | ||||
Limited partners interest in net loss for the period |
$ | (11,591 | ) | $ | (2,126 | ) | $ | (13,751 | ) | $ | (136 | ) | ||||
Net loss per limited partner unit (basic and diluted) |
$ | (.54 | ) | $ | (.11 | ) | $ | (.67 | ) | $ | (.01 | ) | ||||
Weighted average number of limited partners units outstanding (basic and diluted) |
21,345 | 19,375 | 20,541 | 19,372 | ||||||||||||
Distributions declared per unit |
$ | .595 | $ | .585 | $ | 1.185 | $ | 1.170 |
See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
2
StoneMor Partners L.P.
Condensed Consolidated Statement of
Partners Capital
(in thousands)
(unaudited)
Partners Capital | ||||||||||||
Common | General | |||||||||||
Unit Holders | Partner | Total | ||||||||||
Balance, December 31, 2012 |
$ | 134,796 | $ | 386 | $ | 135,182 | ||||||
Proceeds from public offering |
38,377 | | 38,377 | |||||||||
Issuance of common units |
3,718 | | 3,718 | |||||||||
Compensation related to units awards |
648 | | 648 | |||||||||
Net loss |
(13,751 | ) | (258 | ) | (14,009 | ) | ||||||
Cash distribution |
(24,246 | ) | (1,021 | ) | (25,267 | ) | ||||||
|
|
|
|
|
|
|||||||
Balance, June 30, 2013 |
$ | 139,542 | $ | (893 | ) | $ | 138,649 | |||||
|
|
|
|
|
|
See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
3
StoneMor Partners L.P.
Condensed Consolidated Statement of Cash Flows
(in thousands)
(unaudited)
For the six months ended June 30, | ||||||||
2013 | 2012 | |||||||
Operating activities: |
||||||||
Net loss |
$ | (14,009 | ) | $ | (139 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating activities: |
||||||||
Cost of lots sold |
4,194 | 3,979 | ||||||
Depreciation and amortization |
4,781 | 4,560 | ||||||
Unit-based compensation |
690 | 409 | ||||||
Accretion of debt discounts |
1,011 | 723 | ||||||
Gain on termination of operating agreement |
| (1,737 | ) | |||||
Gain on acquisition |
| (122 | ) | |||||
Gain on sale of other assets |
(155 | ) | | |||||
Loss on early extinguishment of debt |
21,595 | | ||||||
Changes in assets and liabilities that provided (used) cash: |
||||||||
Accounts receivable |
(7,199 | ) | (8,180 | ) | ||||
Allowance for doubtful accounts |
(83 | ) | 3,293 | |||||
Merchandise trust fund |
(22,611 | ) | (1,917 | ) | ||||
Prepaid expenses |
(1,733 | ) | (1,169 | ) | ||||
Other current assets |
(1,261 | ) | (860 | ) | ||||
Other assets |
3,972 | 139 | ||||||
Accounts payable and accrued and other liabilities |
3,677 | 348 | ||||||
Deferred selling and obtaining costs |
(6,184 | ) | (3,380 | ) | ||||
Deferred cemetery revenue |
33,766 | 23,699 | ||||||
Deferred taxes (net) |
(2,356 | ) | (1,000 | ) | ||||
Merchandise liability |
(1,612 | ) | (4,451 | ) | ||||
|
|
|
|
|||||
Net cash provided by operating activities |
16,483 | 14,195 | ||||||
|
|
|
|
|||||
Investing activities: |
||||||||
Cash paid for cemetery property |
(2,252 | ) | (3,600 | ) | ||||
Purchase of subsidiaries |
(9,100 | ) | (3,426 | ) | ||||
Cash paid for property and equipment |
(3,920 | ) | (1,835 | ) | ||||
Proceeds from sales of other assets |
155 | | ||||||
|
|
|
|
|||||
Net cash used in investing activities |
(15,117 | ) | (8,861 | ) | ||||
|
|
|
|
|||||
Financing activities: |
||||||||
Cash distribution |
(25,267 | ) | (23,563 | ) | ||||
Additional borrowings on long-term debt |
217,106 | 29,200 | ||||||
Repayments of long-term debt |
(205,800 | ) | (13,422 | ) | ||||
Proceeds from public offering |
38,377 | | ||||||
Fees paid related to early extinguishment of debt |
(14,920 | ) | | |||||
Cost of financing activities |
(4,733 | ) | (1,820 | ) | ||||
|
|
|
|
|||||
Net cash provided by (used in) financing activities |
4,763 | (9,605 | ) | |||||
|
|
|
|
|||||
Net increase (decrease) in cash and cash equivalents |
6,129 | (4,271 | ) | |||||
Cash and cash equivalents - Beginning of period |
7,946 | 12,058 | ||||||
|
|
|
|
|||||
Cash and cash equivalents - End of period |
$ | 14,075 | $ | 7,787 | ||||
|
|
|
|
|||||
Supplemental disclosure of cash flow information: |
||||||||
Cash paid during the period for interest |
$ | 9,754 | $ | 9,048 | ||||
Cash paid during the period for income taxes |
$ | 3,132 | $ | 3,655 | ||||
Non-cash investing and financing activities: |
||||||||
Acquisition of assets by financing |
$ | 92 | $ | 53 | ||||
Issuance of limited partner units for cemetery acquisition |
$ | 3,718 | $ | 603 | ||||
Acquisition of asset by assumption of directly related liability |
$ | 3,924 | $ | 544 |
See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
4
1. | NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Nature of Operations
StoneMor Partners L.P. (StoneMor, the Company or the Partnership) is a provider of funeral and cemetery products and services in the death care industry in the United States. Through its subsidiaries, StoneMor offers a complete range of funeral merchandise and services, along with cemetery property, merchandise and services, both at the time of need and on a pre-need basis. As of June 30, 2013, the Partnership owned 258 and operated 276 cemeteries in 27 states and Puerto Rico and owned and operated 92 funeral homes in 18 states and Puerto Rico.
Basis of Presentation
The unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). All interim financial data is unaudited. However, in the opinion of management, the interim financial data as of June 30, 2013 and for the three and six months ended June 30, 2013 and 2012 includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim periods. The results of operations for interim periods are not necessarily indicative of the results of operations to be expected for a full year. The December 31, 2012 condensed consolidated balance sheet data was derived from audited financial statements included in the Companys 2012 Annual Report on Form 10-K (2012 Form 10-K), but does not include all disclosures required by GAAP, which are presented in the Companys 2012 Form 10-K.
Principles of Consolidation
The unaudited condensed consolidated financial statements include the accounts of each of the Companys subsidiaries. These statements also include the accounts of the merchandise and perpetual care trusts in which the Company has a variable interest and is the primary beneficiary. The Company operates 18 cemeteries under long-term operating or management contracts. The operations of 16 of these managed cemeteries have been consolidated in accordance with the provisions of Accounting Standards Codification (ASC) 810.
The Company operates 2 cemeteries under long-term operating agreements that do not qualify as acquisitions for accounting purposes. As a result, the Company did not consolidate all of the existing assets and liabilities related to these cemeteries. The Company has consolidated the existing assets and liabilities of each of these cemeteries merchandise and perpetual care trusts as variable interest entities since the Company controls and receives the benefits and absorbs any losses from operating these trusts. Under these long-term operating agreements, which are subject to certain termination provisions, the Company is the exclusive operator of these cemeteries. The Company earns revenues related to sales of merchandise, services, and interment rights and incurs expenses related to such sales and the maintenance and upkeep of these cemeteries. Upon termination of these contracts, the Company will retain all of the benefits and related contractual obligations incurred from sales generated during the contract period. The Company has also recognized the existing merchandise liabilities that it assumed as part of these agreements.
Use of Estimates
Preparation of these unaudited condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the unaudited condensed consolidated financial statements and the reported amounts of revenue and expense during the reporting periods. As a result, actual results could differ from those estimates. The most significant estimates in the unaudited condensed consolidated financial statements are the valuation of assets in the merchandise trust and perpetual care trust, allowance for cancellations, unit-based compensation, merchandise liability, deferred sales revenue, deferred margin, deferred merchandise trust investment earnings, deferred obtaining costs and income taxes. Deferred sales revenue, deferred margin and deferred merchandise trust investment earnings are included in deferred cemetery revenues, net, on the unaudited condensed consolidated balance sheet.
5
2. | LONG-TERM ACCOUNTS RECEIVABLE, NET OF ALLOWANCE |
Long-term accounts receivable, net, consist of the following:
As of | ||||||||
June 30, | December 31, | |||||||
2013 | 2012 | |||||||
(in thousands) | ||||||||
Customer receivables |
$ | 172,320 | $ | 159,726 | ||||
Unearned finance income |
(19,929 | ) | (18,377 | ) | ||||
Allowance for contract cancellations |
(20,698 | ) | (17,933 | ) | ||||
|
|
|
|
|||||
131,693 | 123,416 | |||||||
Less: current portion, net of allowance |
54,396 | 51,895 | ||||||
|
|
|
|
|||||
Long-term portion, net of allowance |
$ | 77,297 | $ | 71,521 | ||||
|
|
|
|
Activity in the allowance for contract cancellations is as follows:
For the six months ended June 30, | ||||||||
2013 | 2012 | |||||||
(in thousands) | ||||||||
Balance - Beginning of period |
$ | 17,933 | $ | 17,582 | ||||
Provision for cancellations |
10,651 | 9,791 | ||||||
Charge-offs - net |
(7,886 | ) | (7,356 | ) | ||||
|
|
|
|
|||||
Balance - End of period |
$ | 20,698 | $ | 20,017 | ||||
|
|
|
|
3. | CEMETERY PROPERTY |
Cemetery property consists of the following:
As of | ||||||||
June 30, | December 31, | |||||||
2013 | 2012 | |||||||
(in thousands) | ||||||||
Developed land |
$ | 70,241 | $ | 71,318 | ||||
Undeveloped land |
162,746 | 162,275 | ||||||
Mausoleum crypts and lawn crypts |
69,721 | 69,525 | ||||||
Other land |
9,798 | 6,862 | ||||||
|
|
|
|
|||||
Total |
$ | 312,506 | $ | 309,980 | ||||
|
|
|
|
6
4. | PROPERTY AND EQUIPMENT |
Major classes of property and equipment follow:
As of | ||||||||
June 30, | December 31, | |||||||
2013 | 2012 | |||||||
(in thousands) | ||||||||
Building and improvements |
$ | 88,278 | $ | 82,056 | ||||
Furniture and equipment |
44,336 | 42,353 | ||||||
|
|
|
|
|||||
132,614 | 124,409 | |||||||
Less: accumulated depreciation |
(47,821 | ) | (44,669 | ) | ||||
|
|
|
|
|||||
Property and equipment - net |
$ | 84,793 | $ | 79,740 | ||||
|
|
|
|
Depreciation expense was $1.8 million and $3.5 million for the three and six months ended June 30, 2013, respectively, as compared to $1.7 million and $3.5 million during the same periods last year.
5. | MERCHANDISE TRUSTS |
At June 30, 2013, the Companys merchandise trusts consisted of the following types of assets:
| Money Market Funds that invest in low risk short term securities; |
| Publicly traded mutual funds that invest in underlying debt securities; |
| Publicly traded mutual funds that invest in underlying equity securities; |
| Equity investments that are currently paying dividends or distributions. These investments include Real Estate Investment Trusts (REITs), Master Limited Partnerships and global equity securities; |
| Fixed maturity debt securities issued by various corporate entities; |
| Fixed maturity debt securities issued by the U.S. Government and U.S. Government agencies; and |
| Fixed maturity debt securities issued by U.S. states and local government agencies. |
All of these investments are classified as Available for Sale as defined by the Investments in Debt and Equity topic of the ASC. Accordingly, all of the assets are carried at fair value. All of these investments are considered to be either Level 1 or Level 2 assets as defined by the Fair Value Measurements and Disclosures topic of the ASC. See Note 15 for further details. There were no Level 3 assets.
The merchandise trusts are variable interest entities (VIE) for which the Company is the primary beneficiary. The assets held in the merchandise trusts are required to be used to purchase the merchandise to which they relate. If the value of these assets falls below the cost of purchasing such merchandise, the Company may be required to fund this shortfall.
The Company has included $7.7 million and $7.6 million of investments held in trust by the West Virginia Funeral Directors Association at June 30, 2013 and December 31, 2012, respectively, in its merchandise trust assets. As required by law, the Company deposits a portion of certain funeral merchandise sales in West Virginia into a trust that is held by the West Virginia Funeral Directors Association. These trusts are recorded at their account value, which approximates their fair value.
7
The cost and market value associated with the assets held in merchandise trusts at June 30, 2013 and December 31, 2012 were as follows:
As of June 30, 2013 |
Cost | Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
||||||||||||
(in thousands) | ||||||||||||||||
Short-term investments |
$ | 50,280 | $ | 6 | $ | | $ | 50,286 | ||||||||
Fixed maturities: |
||||||||||||||||
U.S. Government and federal agency |
| | | | ||||||||||||
U.S. State and local government agency |
| | | | ||||||||||||
Corporate debt securities |
9,067 | 78 | (184 | ) | 8,961 | |||||||||||
Other debt securities |
7,810 | | (7 | ) | 7,803 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total fixed maturities |
16,877 | 78 | (191 | ) | 16,764 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Mutual funds - debt securities |
110,875 | 20 | (7,606 | ) | 103,289 | |||||||||||
Mutual funds - equity securities |
139,974 | 12,583 | (809 | ) | 151,748 | |||||||||||
Equity securities |
73,537 | 6,990 | (1,309 | ) | 79,218 | |||||||||||
Other invested assets |
4,849 | 492 | | 5,341 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total managed investments |
$ | 396,392 | $ | 20,169 | $ | (9,915 | ) | $ | 406,646 | |||||||
|
|
|
|
|
|
|
|
|||||||||
West Virginia Trust Receivable |
7,736 | | | 7,736 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 404,128 | $ | 20,169 | $ | (9,915 | ) | $ | 414,382 | |||||||
|
|
|
|
|
|
|
|
As of December 31, 2012 |
Cost | Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
||||||||||||
(in thousands) | ||||||||||||||||
Short-term investments |
$ | 27,890 | $ | | $ | | $ | 27,890 | ||||||||
Fixed maturities: |
||||||||||||||||
U.S. Government and federal agency |
| | | | ||||||||||||
U.S. State and local government agency |
| | | | ||||||||||||
Corporate debt securities |
8,590 | 165 | (41 | ) | 8,714 | |||||||||||
Other debt securities |
4,320 | | (3 | ) | 4,317 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total fixed maturities |
12,910 | 165 | (44 | ) | 13,031 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Mutual funds - debt securities |
105,388 | 3,425 | (892 | ) | 107,921 | |||||||||||
Mutual funds - equity securities |
145,538 | 6,229 | (6,697 | ) | 145,070 | |||||||||||
Equity securities |
68,714 | 3,448 | (4,755 | ) | 67,407 | |||||||||||
Other invested assets |
7,376 | 165 | (444 | ) | 7,097 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total managed investments |
$ | 367,816 | $ | 13,432 | $ | (12,832 | ) | $ | 368,416 | |||||||
|
|
|
|
|
|
|
|
|||||||||
West Virginia Trust Receivable |
7,557 | | | 7,557 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 375,373 | $ | 13,432 | $ | (12,832 | ) | $ | 375,973 | |||||||
|
|
|
|
|
|
|
|
The contractual maturities of debt securities as of June 30, 2013 are as follows:
As of June 30, 2013 |
Less than 1 year |
1 year through 5 years |
6 years through 10 years |
More than 10 years |
||||||||||||
(in thousands) | ||||||||||||||||
U.S. Government and federal agency |
$ | | $ | | $ | | $ | | ||||||||
U.S. State and local government agency |
| | | | ||||||||||||
Corporate debt securities |
| 4,131 | 4,830 | | ||||||||||||
Other debt securities |
6,518 | 1,285 | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total fixed maturities |
$ | 6,518 | $ | 5,416 | $ | 4,830 | $ | | ||||||||
|
|
|
|
|
|
|
|
8
An aging of unrealized losses on the Companys investments in fixed maturities and equity securities at June 30, 2013 and December 31, 2012 is presented below:
Less than 12 months | 12 Months or more | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
As of June 30, 2013 |
Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Fixed maturities: |
||||||||||||||||||||||||
U.S. Government and federal agency |
$ | | $ | | $ | | $ | | $ | | $ | | ||||||||||||
U.S. State and local government agency |
| | | | | | ||||||||||||||||||
Corporate debt securities |
5,599 | 176 | 309 | 8 | 5,908 | 184 | ||||||||||||||||||
Other debt securities |
3,984 | 7 | | | 3,984 | 7 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total fixed maturities |
9,583 | 183 | 309 | 8 | 9,892 | 191 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Mutual funds - debt securites |
93,810 | 6,637 | 7,575 | 969 | 101,385 | 7,606 | ||||||||||||||||||
Mutual funds - equity securites |
57,015 | 457 | 4,228 | 352 | 61,243 | 809 | ||||||||||||||||||
Equity securities |
8,838 | 524 | 5,956 | 785 | 14,794 | 1,309 | ||||||||||||||||||
Other invested assets |
| | | | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 169,246 | $ | 7,801 | $ | 18,068 | $ | 2,114 | $ | 187,314 | $ | 9,915 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months | 12 Months or more | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
As of December 31, 2012 |
Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Fixed maturities: |
||||||||||||||||||||||||
U.S. Government and federal agency |
$ | | $ | | $ | | $ | | $ | | $ | | ||||||||||||
U.S. State and local government agency |
| | | | | | ||||||||||||||||||
Corporate debt securities |
2,140 | 20 | 297 | 21 | 2,437 | 41 | ||||||||||||||||||
Other debt securities |
4,317 | 3 | | | 4,317 | 3 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total fixed maturities |
6,457 | 23 | 297 | 21 | 6,754 | 44 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Mutual funds - debt securites |
6,388 | 463 | 4,198 | 429 | 10,586 | 892 | ||||||||||||||||||
Mutual funds - equity securites |
48,255 | 5,500 | 19,655 | 1,197 | 67,910 | 6,697 | ||||||||||||||||||
Equity securities |
17,932 | 1,527 | 15,538 | 3,228 | 33,470 | 4,755 | ||||||||||||||||||
Other invested assets |
2,558 | 444 | | | 2,558 | 444 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 81,590 | $ | 7,957 | $ | 39,688 | $ | 4,875 | $ | 121,278 | $ | 12,832 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the Companys merchandise trust activities for the six months ended June 30, 2013 is presented below:
Fair Value @ |
Contributions | Distributions | Interest/ Dividends |
Capital Gain Distributions |
Realized Gain/ Loss |
Taxes | Fees | Unrealized Change in Fair Value |
Fair Value @ 6/30/2013 |
|||||||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||||||||||||
$ | 375,973 | 37,602 | (20,454 | ) | 8,361 | | 7,324 | (2,722 | ) | (1,356 | ) | 9,654 | $ | 414,382 |
The Company made net contributions into the trusts of approximately $17.1 million during the six months ended June 30, 2013. During the six months ended June 30, 2013, purchases and sales of securities available for sale included in trust investments were approximately $313.4 million and $324.2 million, respectively. Contributions include $4.9 million of assets that were acquired through acquisitions during the six months ended June 30, 2013.
9
Other-Than-Temporary Impairments of Trust Assets
During the six months ended June 30, 2013, the Company determined that there were 4 securities with an aggregate cost basis of approximately $1.4 million and an aggregate fair value of approximately $0.7 million, resulting in an impairment of $0.7 million, wherein such impairment was considered to be other-than-temporary. During the three and six months ended June 30, 2012, the Company determined that there were six securities with an aggregate cost basis of approximately $1.6 million and an aggregate fair value of approximately $0.8 million, resulting in an impairment of $0.8 million, wherein such impairment was considered to be other-than-temporary. Accordingly, the Company adjusted the cost basis of these assets to their current value and offset this change against deferred revenue. This reduction in deferred revenue will be reflected in earnings in future periods as the underlying merchandise is delivered or the underlying service is performed.
During the three months ended June 30, 2013, the Company determined that there were no other than temporary impairments to the investment portfolio in the merchandise trusts.
6. | PERPETUAL CARE TRUSTS |
At June 30, 2013, the Companys perpetual care trusts consisted of the following types of assets:
| Money Market Funds that invest in low risk short term securities; |
| Publicly traded mutual funds that invest in underlying debt securities; |
| Publicly traded mutual funds that invest in underlying equity securities; |
| Equity investments that are currently paying dividends or distributions. These investments include REITs, Master Limited Partnerships and global equity securities; |
| Fixed maturity debt securities issued by various corporate entities; |
| Fixed maturity debt securities issued by the U.S. Government and U.S. Government agencies; and |
| Fixed maturity debt securities issued by U.S. states and local government agencies. |
All of these investments are classified as Available for Sale as defined by the Investments in Debt and Equity topic of the ASC. Accordingly, all of the assets are carried at fair value. All of these investments are considered to be either Level 1 or Level 2 assets as defined by the Fair Value Measurements and Disclosures topic of the ASC. See Note 15 for further details. There were no Level 3 assets.
10
The cost and market value associated with the assets held in perpetual care trusts at June 30, 2013 and December 31, 2012 were as follows:
As of June 30, 2013 |
Cost | Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
||||||||||||
(in thousands) | ||||||||||||||||
Short-term investments |
$ | 12,662 | $ | | $ | | $ | 12,662 | ||||||||
Fixed maturities: |
||||||||||||||||
U.S. Government and federal agency |
408 | 95 | | 503 | ||||||||||||
U.S. State and local government agency |
| | | | ||||||||||||
Corporate debt securities |
24,188 | 212 | (464 | ) | 23,936 | |||||||||||
Other debt securities |
371 | | | 371 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total fixed maturities |
24,967 | 307 | (464 | ) | 24,810 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Mutual funds - debt securities |
117,429 | 211 | (3,407 | ) | 114,233 | |||||||||||
Mutual funds - equity securities |
94,098 | 20,907 | | 115,005 | ||||||||||||
Equity securities |
25,637 | 10,465 | (39 | ) | 36,063 | |||||||||||
Other invested assets |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 274,793 | $ | 31,890 | $ | (3,910 | ) | $ | 302,773 | |||||||
|
|
|
|
|
|
|
|
As of December 31, 2012 |
Cost | Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
||||||||||||
(in thousands) | ||||||||||||||||
Short-term investments |
$ | 21,419 | $ | | $ | | $ | 21,419 | ||||||||
Fixed maturities: |
||||||||||||||||
U.S. Government and federal agency |
408 | 104 | | 512 | ||||||||||||
U.S. State and local government agency |
| | | | ||||||||||||
Corporate debt securities |
22,690 | 702 | (101 | ) | 23,291 | |||||||||||
Other debt securities |
371 | | | 371 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total fixed maturities |
23,469 | 806 | (101 | ) | 24,174 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Mutual funds - debt securities |
103,909 | 3,429 | (150 | ) | 107,188 | |||||||||||
Mutual funds - equity securities |
94,239 | 5,222 | (249 | ) | 99,212 | |||||||||||
Equity securities |
23,797 | 6,563 | (455 | ) | 29,905 | |||||||||||
Other invested assets |
113 | 302 | | 415 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 266,946 | $ | 16,322 | $ | (955 | ) | $ | 282,313 | |||||||
|
|
|
|
|
|
|
|
The contractual maturities of debt securities as of June 30, 2013 are as follows:
As of June 30, 2013 |
Less than 1 year |
1 year through 5 years |
6 years through 10 years |
More than 10 years |
||||||||||||
(in thousands) | ||||||||||||||||
U.S. Government and federal agency |
$ | 382 | $ | 121 | $ | | $ | | ||||||||
U.S. State and local government agency |
| | | | ||||||||||||
Corporate debt securities |
154 | 10,792 | 12,990 | | ||||||||||||
Other debt securities |
371 | | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total fixed maturities |
$ | 907 | $ | 10,913 | $ | 12,990 | $ | | ||||||||
|
|
|
|
|
|
|
|
11
An aging of unrealized losses on the Companys investments in fixed maturities and equity securities at June 30, 2013 and December 31, 2012 held in perpetual care trusts is presented below:
Less than 12 months | 12 Months or more | Total | ||||||||||||||||||||||
As of June 30, 2013 |
Fair Value |
Unrealized Losses |
Fair Value |
Unrealized Losses |
Fair Value |
Unrealized Losses |
||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Fixed maturities: |
||||||||||||||||||||||||
U.S. Government and federal agency |
$ | | $ | | $ | | $ | | $ | | $ | | ||||||||||||
U.S. State and local government agency |
| | | | | | ||||||||||||||||||
Corporate debt securities |
13,959 | 441 | 897 | 23 | 14,856 | 464 | ||||||||||||||||||
Other debt securities |
| | | | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total fixed maturities |
13,959 | 441 | 897 | 23 | 14,856 | 464 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Mutual funds - debt securities |
94,480 | 3,003 | 16,002 | 404 | 110,482 | 3,407 | ||||||||||||||||||
Mutual funds - equity securities |
| | | | | | ||||||||||||||||||
Equity securities |
1,098 | 39 | | | 1,098 | 39 | ||||||||||||||||||
Other invested assets |
| | | | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 109,537 | $ | 3,483 | $ | 16,899 | $ | 427 | $ | 126,436 | $ | 3,910 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months | 12 Months or more | Total | ||||||||||||||||||||||
As of December 31, 2012 |
Fair Value |
Unrealized Losses |
Fair Value |
Unrealized Losses |
Fair Value |
Unrealized Losses |
||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Fixed maturities: |
||||||||||||||||||||||||
U.S. Government and federal agency |
$ | | $ | | $ | | $ | | $ | | $ | | ||||||||||||
U.S. State and local government agency |
| | | | | | ||||||||||||||||||
Corporate debt securities |
4,630 | 48 | 711 | 53 | 5,341 | 101 | ||||||||||||||||||
Other debt securities |
| | | | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total fixed maturities |
4,630 | 48 | 711 | 53 | 5,341 | 101 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Mutual funds - debt securities |
859 | 35 | 870 | 115 | 1,729 | 150 | ||||||||||||||||||
Mutual funds - equity securities |
34,805 | 249 | | | 34,805 | 249 | ||||||||||||||||||
Equity securities |
4,269 | 238 | 545 | 217 | 4,814 | 455 | ||||||||||||||||||
Other invested assets |
| | | | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 44,563 | $ | 570 | $ | 2,126 | $ | 385 | $ | 46,689 | $ | 955 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the Companys perpetual care trust activities for the six months ended June 30, 2013 is presented below:
Fair Value @ 12/31/2012 |
Contributions | Distributions | Interest/ Dividends |
Capital Gain Distributions |
Realized Gain/ Loss |
Taxes | Fees | Unrealized Change in Fair Value |
Fair Value @ 6/30/2013 |
|||||||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||||||||||||
$ | 282,313 | 5,166 | (6,118 | ) | 7,345 | | 3,191 | (637 | ) | (1,100 | ) | 12,613 | $ | 302,773 |
The Company made net distributions from the trusts of approximately $1.0 million during the six months ended June 30, 2013. During the six months ended June 30, 2013, purchases and sales of securities available for sale included in trust investments were approximately $83.0 million and $84.2 million, respectively.
Other-Than-Temporary Impairments of Trust Assets
During the three and six months ended June 30, 2013 and 2012, the Company determined that there were no other than temporary impairments to the investment portfolio in the perpetual care trusts.
12
7. | GOODWILL AND INTANGIBLE ASSETS |
Goodwill
Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in acquisitions.
A rollforward of goodwill by reportable segment is as follows:
Cemeteries | Funeral | |||||||||||||||||||
Southeast | Northeast | West | Homes | Total | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Balance as of December 31, 2012 |
$ | 6,174 | $ | | $ | 11,948 | $ | 24,270 | $ | 42,392 | ||||||||||
Goodwill acquired from acquisitions during the six months ended June 30, 2013 |
| | | 5,178 | 5,178 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance as of June 30, 2013 |
$ | 6,174 | $ | | $ | 11,948 | $ | 29,448 | $ | 47,570 | ||||||||||
|
|
|
|
|
|
|
|
|
|
Other Acquired Intangible Assets
The Company has other acquired intangible assets, most of which have been recognized as a result of acquisitions and long-term operating agreements. These amounts are included within other assets on the unaudited condensed consolidated balance sheet. All of the intangible assets are subject to amortization. The major classes of intangible assets are as follows:
As of June 30, 2013 |
Net | As of December 31, 2012 |
Net | |||||||||||||||||||||
Gross Carrying | Accumulated | Intangible | Gross Carrying | Accumulated | Intangible | |||||||||||||||||||
Amount | Amortization | Asset | Amount | Amortization | Asset | |||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Amortized intangible assets: |
||||||||||||||||||||||||
Underlying contract value |
$ | 6,239 | $ | (624 | ) | $ | 5,615 | $ | 6,239 | $ | (555 | ) | $ | 5,684 | ||||||||||
Non-compete agreements |
7,950 | (3,332 | ) | 4,618 | 6,023 | (2,553 | ) | 3,470 | ||||||||||||||||
Other intangible assets |
269 | (89 | ) | 180 | 269 | (81 | ) | 188 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total intangible assets |
$ | 14,458 | $ | (4,045 | ) | $ | 10,413 | $ | 12,531 | $ | (3,189 | ) | $ | 9,342 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The increase in non-compete agreements was the result of an acquisition consummated in the first quarter of 2013. The fair value was determined by comparing the discounted cash flows of the acquired business with and without competition as of the date of acquisition. See Note 13 for further details.
8. | LONG-TERM DEBT |
The Company had the following outstanding debt:
As of | ||||||||
June 30, 2013 |
December 31, 2012 |
|||||||
(in thousands) | ||||||||
7.875% Senior Notes, due 2021 |
$ | 175,000 | $ | | ||||
10.25% Senior Notes, due 2017 |
| 150,000 | ||||||
Revolving Credit Facility, due January 2017 |
91,002 | 101,700 | ||||||
Notes payable - acquisition debt |
4,244 | 1,465 | ||||||
Notes payable - acquisition non-competes |
4,695 | 3,830 | ||||||
Insurance and vehicle financing |
2,889 | 1,298 | ||||||
|
|
|
|
|||||
Total |
277,830 | 258,293 | ||||||
Less current portion |
6,936 | 2,175 | ||||||
Less unamortized bond and note payable discounts |
4,604 | 3,344 | ||||||
|
|
|
|
|||||
Long-term portion |
$ | 266,290 | $ | 252,774 | ||||
|
|
|
|
13
This note includes a summary of material terms of the Companys senior notes and credit facility. For a more detailed description of the Companys long-term debt agreements, see the Companys 2012 Form 10-K. The increase in notes payable acquisition debt and acquisition non-competes was the result of an acquisition consummated in the first quarter of 2013. See Note 13 for further details.
7.875% Senior Notes due 2021
On May 28, 2013, the Company issued $175.0 million aggregate principal amount of 7.875% Senior Notes due 2021 (the Senior Notes). The Company pays 7.875% interest per annum on the principal amount of the Senior Notes, payable in cash semi-annually in arrears on June 1 and December 1 of each year, commencing on December 1, 2013. The net proceeds from the offering were used to retire 10.25% Senior Notes due 2017 and the remaining proceeds were used for general corporate purposes. The Senior Notes were issued at 97.832% of par resulting in gross proceeds of $171.2 million with an original issue discount of approximately $3.8 million. The Company incurred debt issuance costs and fees of approximately $4.2 million. These costs and fees are deferred and will be amortized over the life of these notes. Based on trades made at the end of the quarter, the Company has estimated the fair value of its Senior Notes to be below par and trading at a discount of 0.9%, which would imply a fair value of $173.4 million at June 30, 2013. As of June 30, 2013, the Company was in compliance with all applicable covenants of the Senior Notes.
10.25% Senior Notes due 2017
Prior to their retirement in the second quarter of 2013, the Company had outstanding a $150.0 million aggregate principal amount of 10.25% Senior Notes due 2017 (the Prior Senior Notes), with an original issue discount of approximately $4.0 million. The Company paid 10.25% interest per annum on the principal amount of the Prior Senior Notes, payable in cash semi-annually in arrears on June 1 and December 1 of each year. The Prior Senior Notes were due to mature on December 1, 2017. In the second quarter of 2013, the Company retired the notes using the proceeds from the Senior Notes offering described above. The Company made a tender offer to repurchase the Prior Senior Notes and paid $14.9 million to retire the Prior Senior Notes inclusive of the tender premium and accrued interest from the date of repurchase through December 1, 2013, the first redemption date for the Prior Senior Notes. In addition the Company incurred expenses of $6.7 million related to the refinancing event inclusive of $2.6 million of unamortized original issue discount and $4.1 million of unamortized capitalized debt issue costs related to the Prior Senior Notes.
Credit Facility
On January 19, 2012, the Company entered into the Third Amended and Restated Credit Agreement (the Credit Agreement). The terms of the Credit Agreement are substantially the same as the terms of the Second Amended and Restated Credit Agreement, as amended. Capitalized terms which are not defined in the following description shall have the meaning assigned to such terms in the Credit Agreement.
On February 19, 2013, the Company entered into the First Amendment to the Credit Agreement, which increased the total availability under the Revolving Credit Facility (the Credit Facility) by $10.0 million to $140.0 million (the Credit Facility) of which $91.0 million was outstanding at June 30, 2013. The Credit Facility may be used to finance working capital requirements, Permitted Acquisitions and Capital Expenditures. The maturity date of the Credit Facility is January 19, 2017.
On May 8, 2013, the Company entered into the Second Amendment to the Credit Agreement, which allowed the Company to incur additional indebtedness to be evidenced by the 2021 Senior Notes, to enter into the related indenture and to use the proceeds of the Senior Notes offering, in part, to fund the retirement of the Prior Senior Notes.
On June 18, 2013, the Company entered into the Third Amendment to the Credit Agreement. The Third Amendment amended certain financial covenants under the Credit Agreement as follows:
(i) | for any most recently completed four fiscal quarters, consolidated EBITDA shall not be less than the sum of $57,822,000 plus 80% of the aggregate of all consolidated EBITDA for each Permitted Acquisition completed after March 31, 2013; and |
14
(ii) | for the periods set forth below, Maximum Consolidated Leverage Ratio shall not be greater than as set forth below, subject to the Borrowers option to temporarily increase the Consolidated Leverage Ratio in connection with a Significant Permitted Acquisition Transaction as described below: |
Measurement Period Ending |
Maximum Consolidated Leverage Ratio | |
June 30, 2013 through December 31, 2013 |
4.000 to 1.0 | |
March 31, 2014 |
3.875 to 1.0 | |
June 30, 2014 and thereafter |
3.750 to 1.0 |
The Third Amendment also increased the ranges of the Applicable Rates to 3.00%, 4.00%, and .800% for Base Rate loans, Eurodollar Rate Loans and Letter of Credit Fees, and Commitment Fees, respectively, when the Consolidated Leverage Ratio is greater than or equal to 3.75 to 1.0.
The Third Amendment also increased the amount of aggregate consideration that the Company may pay for a Permitted Acquisition after March 31, 2014, without Required Lender approval, to $10.0 million on an individual basis and $50.0 million when aggregated with the total Aggregate Consideration paid by or on behalf of the Company for all other Permitted Acquisitions which closed within the immediately preceding 365 days.
The Third Amendment added a defined term for Significant Permitted Acquisition Transaction to describe a Permitted Acquisition in which the Aggregate Consideration exceeds $35.0 million when aggregated with the total Aggregate Consideration for all other Permitted Acquisitions which closed within the immediately preceding 180 days. In the case of a Significant Permitted Acquisition Transaction, the Third Amendment permits the Borrowers, subject to certain limitations, to temporarily increase the Consolidated Leverage Ratio to 4.00 to 1.0 for one or more the four immediately succeeding covenant measurement periods.
In addition, the Third Amendment includes certain conforming changes to reflect the issuance of the Senior Notes.
At June 30, 2013, amounts outstanding under the Credit Facility bore interest at rates between 3.5% and 4.0%. Amounts borrowed may be either Base Rate Loans or Eurodollar Rate Loans and amounts repaid or prepaid during the term may be reborrowed. Depending on the type of loan, borrowings bear interest at the Base Rate or Eurodollar Rate, plus applicable margins ranging from 1.25% to 3.00% and 2.25% to 4.00%, respectively, depending on the Companys Consolidated Leverage Ratio. The Base Rate is the highest of the Prime Rate, the Federal Funds Rate plus 0.50%, or the Eurodollar Rate plus 1.0%. The Eurodollar rate is the British Bankers Association LIBOR Rate. Amounts outstanding under the Credit Facility approximate their fair value.
The Credit Agreement requires the Company to pay an unused Commitment Fee, which is calculated based on the amount by which the commitments under the Credit Agreement exceed the usage of such commitments. The Commitment Fee Rate ranges from 0.375% to 0.800% depending on the Companys Consolidated Leverage Ratio.
The Credit Agreement contains restrictive covenants that, among other things, prohibit distributions upon defined events of default, restrict investments and sales of assets and require the Company to maintain certain financial covenants, including specified financial ratios. A material decrease in revenues could cause the Company to breach certain of its financial covenants. Any such breach could allow the Lenders to accelerate the Companys debt which would have a material adverse effect on the Companys business, financial condition or results of operations. The Companys covenants include a Consolidated Leverage Ratio and a Consolidated Debt Service Coverage Ratio. As of June 30, 2013, the Company was in compliance with all applicable financial covenants.
9. | INCOME TAXES |
As of June 30, 2013, the Companys taxable corporate subsidiaries had federal net operating loss carryforwards of approximately $163.6 million, which will begin to expire in 2019 and $201.8 million in state net operating losses, a portion of which expires annually.
The Partnership is not a taxable entity for federal and state income tax purposes; rather, the Partnerships tax attributes (except those of its corporate subsidiaries) are to be included in the individual tax returns of its partners. Neither the Partnerships financial reporting income, nor the cash distributions to unit-holders, can be used as a substitute for the detailed tax calculations that the Partnership must perform annually for its partners. Net income from the Partnership is not treated as passive income for federal income tax purposes. As a result, partners subject to the passive activity loss rules are not permitted to offset income from the Partnership with passive losses from other sources.
The Partnerships corporate subsidiaries account for their income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carryforwards.
15
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The provision for income taxes for the three and six months ended June 30, 2013 and 2012 is based upon the estimated annual effective tax rates expected to be applicable to the Company for 2013 and 2012, respectively. The Companys effective tax rate differs from its statutory tax rate primarily because the Companys legal entity structure includes different tax filing entities, including a significant number of partnerships that are not subject to paying tax.
The Internal Revenue Service (IRS) audited the Companys federal income tax return for the year ended December 31, 2010. The scope of this audit included an audit of the Companys qualifying income. In order to be treated as a partnership for federal income tax purposes, at least 90% of the Companys gross income must be qualifying income. The IRS concluded its audit and notified the Company on April 11, 2013 that it was not proposing any adjustments to the return as filed.
The Company is not currently under examination by any federal or state jurisdictions. The federal statute of limitations and certain state statutes of limitations are open from 2009 forward. Management believes that the accrual for tax liabilities is adequate for all open years. This assessment relies on estimates and assumptions and may involve a series of complex judgments about future events. On the basis of present information, it is the opinion of the Companys management that there are no pending assessments that will result in a material effect on the Companys consolidated financial statements over the next twelve months.
10. | DEFERRED CEMETERY REVENUES, NET |
At June 30, 2013 and December 31, 2012, deferred cemetery revenues, net, consisted of the following:
As of | ||||||||
June 30, 2013 |
December 31, 2012 |
|||||||
(in thousands) | ||||||||
Deferred cemetery revenue |
$ | 376,027 | $ | 346,621 | ||||
Deferred merchandise trust revenue |
76,100 | 65,728 | ||||||
Deferred merchandise trust unrealized gains (losses) |
10,254 | 600 | ||||||
Deferred pre-acquisition margin |
132,987 | 132,221 | ||||||
Deferred cost of goods sold |
(51,046 | ) | (47,309 | ) | ||||
|
|
|
|
|||||
Deferred cemetery revenues, net |
$ | 544,322 | $ | 497,861 | ||||
|
|
|
|
|||||
Deferred selling and obtaining costs |
$ | 82,501 | $ | 76,317 |
Deferred selling and obtaining costs are carried as an asset on the unaudited condensed consolidated balance sheet in accordance with the Financial Services Insurance topic of the ASC.
11. | COMMITMENTS AND CONTINGENCIES |
Legal
The Company is party to legal proceedings in the ordinary course of its business but does not expect the outcome of any proceedings, individually or in the aggregate, to have a material effect on the Companys financial position, results of operations or liquidity.
Leases
At June 30, 2013, the Company was committed to operating lease payments for premises, automobiles and office equipment under various operating leases with initial terms ranging from one to ten years and options to renew at varying terms. Expenses under operating leases were $0.6 million and $1.3 million for the three and six months ended June 30, 2013, respectively, and $0.7 million and $1.3 million for the three and six months ended June 30, 2012, respectively.
16
At June 30, 2013, operating leases will result in future payments in the following approximate amounts from January 1, 2014 and beyond:
(in thousands) | ||||
2014 |
$ | 1,504 | ||
2015 |
952 | |||
2016 |
844 | |||
2017 |
796 | |||
2018 |
778 | |||
Thereafter |
1,751 | |||
|
|
|||
Total |
$ | 6,625 | ||
|
|
12. | PARTNERS CAPITAL |
Unit-Based Compensation
The Company has issued to certain key employees and management unit-based compensation in the form of unit appreciation rights and phantom partnership units.
Compensation expense recognized related to unit appreciation rights and restricted phantom unit awards for the three and six months ended June 30, 2013 and 2012 are summarized in the table below:
Three months ended June 30, |
Six months ended June 30, |
|||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Unit appreciation rights |
$ | 140 | $ | 129 | $ | 279 | $ | 248 | ||||||||
Restricted phantom units |
220 | 81 | 411 | 161 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total unit-based compensation expense |
$ | 360 | $ | 210 | $ | 690 | $ | 409 | ||||||||
|
|
|
|
|
|
|
|
As of June 30, 2013, there was approximately $0.4 million in non-vested unit appreciation rights outstanding. These unit appreciation rights will be expensed through the first half of 2017.
The diluted weighted average number of limited partners units outstanding presented on the unaudited condensed consolidated statement of operations does not include 335,547 units and 325,083 units for the three and six months ended June 30, 2013, respectively, as their effects would be anti-dilutive.
Other Unit Issuances
On February 19, 2013, the Company issued 159,635 units in connection with an acquisition. See Note 13. On June 21, 2013 and 2012, the Company issued 4,923 units and 9,853 units, respectively, in connection with an acquisition consummated in the second quarter of 2010. On June 6, 2012, the Company issued 13,720 units in connection with an acquisition. See Note 13.
On March 26, 2013, the Company completed a follow-on public offering of 1,610,000 common units at a price of $25.35 per unit. Net proceeds of the offering, after deducting underwriting discounts and offering expenses, were approximately $38.4 million. The proceeds from the offering were used to pay off debt on the Credit Facility.
13. | ACQUISITIONS |
First Quarter 2013 Acquisition
On February 19, 2013, StoneMor Florida Subsidiary LLC, a subsidiary of the Company, (the Buyer) entered into an Asset Purchase and Sale Agreement (the Seawinds Agreement) with several Florida limited liability companies and one individual (collectively the Seller). Pursuant to the Agreement, the Buyer acquired six funeral homes in Florida, including certain related assets, and assumed certain related liabilities.
17
In consideration for the net assets acquired, the Buyer paid the Seller $9.1 million in cash and issued 159,635 common units, which equates to approximately $3.6 million worth of common units under the terms of the Seawinds Agreement. The Buyer also issued an unsecured promissory note in the amount of $3.0 million that is payable on February 19, 2014 and bears interest at 5.0%. In addition, the Buyer will also pay an aggregate amount of $1.2 million in six equal annual installments commencing on February 19, 2014 in exchange for a non-compete agreement with the Seller. The non-compete agreement will be amortized over the 6 year term of the agreement.
The table below reflects the Companys preliminary assessment of the fair value of net assets acquired. The resulting goodwill is recorded in the Companys Funeral Homes operating segment. These amounts may be retrospectively adjusted as additional information is received.
Preliminary Assessment |
||||
(in thousands) | ||||
Assets: |
||||
Accounts receivable |
$ | 995 | ||
Property and equipment |
8,315 | |||
Merchandise trusts, restricted, at fair value |
4,853 | |||
Non-compete agreements |
1,927 | |||
|
|
|||
Total assets |
16,090 | |||
|
|
|||
Liabilities: |
||||
Deferred margin |
2,419 | |||
Merchandise liabilities |
2,233 | |||
|
|
|||
Total liabilities |
4,652 | |||
|
|
|||
Fair value of net assets acquired |
11,438 | |||
|
|
|||
Consideration paid - cash |
9,100 | |||
Consideration paid - units |
3,592 | |||
Fair value of note payable |
3,000 | |||
Fair value of debt assumed for non-compete agreements |
924 | |||
|
|
|||
Total consideration paid |
16,616 | |||
|
|
|||
Goodwill from purchase |
$ | 5,178 | ||
|
|
First Quarter 2012 Acquisition
In the second quarter of 2009, the Company entered into a long-term operating agreement (the Operating Agreement) with Kingwood Memorial Park Association (Kingwood) wherein the Company became the exclusive operator of the cemetery. At that time, the Operating Agreement did not qualify as an acquisition for accounting purposes. However, the existing merchandise and perpetual care trusts were consolidated as variable interest entities. In addition, merchandise and other liabilities assumed by the Company were also recorded as of the initial contract date. The consideration paid for this transaction, including cash and an assumed liability, exceeded the net assets recorded as of the initial contract date and an intangible asset was recorded for this amount.
In January of 2012, the Company entered into an amended and restated operating agreement (the Amended Operating Agreement), that supersedes the Operating Agreement. The Amended Operating Agreement has a term of 40 years and the Company remains the exclusive operator of the cemetery. As consideration for entering into the Amended Operating Agreement, the Company paid $1.7 million in cash and was relieved of a note payable to Kingwood. In addition, the prior trustees of Kingwood have resigned in favor of new trustees appointed by the Company. As a result of the changes in the Amended Operating Agreement, for accounting purposes, the Company has gained control of Kingwood, and acquisition accounting is now applicable.
18
The table below reflects the Companys final assessment of the fair value of net assets acquired, the elimination of debt and other assets, and the purchase price, which results in the recognition of goodwill recorded in the Companys Cemetery Operations Southeast segment.
Final Assessment |
||||
(in thousands) | ||||
Net assets acquired: |
||||
Accounts receivable |
$ | 66 | ||
Cemetery property |
3,001 | |||
Property and equipment |
102 | |||
|
|
|||
Total net assets acquired |
3,169 | |||
|
|
|||
Assets and liabilities divested: |
||||
Note payable to Kingwood |
519 | |||
Intangible asset representing underlying contract value |
(2,236 | ) | ||
|
|
|||
Fair value of net assets acquired and divested |
1,452 | |||
|
|
|||
Consideration paid |
1,652 | |||
|
|
|||
Goodwill from purchase |
$ | 200 | ||
|
|
Second Quarter 2012 Acquisitions
On April 10, 2012, certain subsidiaries of the Company (collectively the Buyer) entered into a Stock Purchase Agreement with several individuals (collectively the Seller) to purchase all of the stock of Bronswood Cemetery, Inc., an Illinois Corporation. Through the purchase, the Buyer acquired one cemetery in Illinois, including certain related assets, and assumed certain related liabilities. In consideration for the net assets acquired, the Buyer paid the Seller $0.9 million in cash.
The table below reflects the Companys final assessment of the fair value of net assets acquired, the purchase price and the resulting gain on bargain purchase.
Final Assessment |
||||
(in thousands) | ||||
Assets: |
||||
Accounts receivable |
$ | 72 | ||
Cemetery property |
842 | |||
Property and equipment |
518 | |||
Perpetual care trusts, restricted, at fair value |
2,780 | |||
Non-compete agreements |
12 | |||
|
|
|||
Total assets |
4,224 | |||
|
|
|||
Liabilities: |
||||
Perpetual care trust corpus |
2,780 | |||
Other liabilities |
24 | |||
Deferred tax liability |
374 | |||
|
|
|||
Total liabilities |
3,178 | |||
|
|
|||
Fair value of net assets acquired |
1,046 | |||
|
|
|||
Consideration paid |
924 | |||
|
|
|||
Gain on bargain purchase |
$ | 122 | ||
|
|
19
In addition, on June 6, 2012, certain subsidiaries of the Company (collectively the Buyer) entered into a Purchase Agreement with several individuals and Lodi Funeral Home, Inc. (collectively the Seller) to purchase certain assets and assume certain liabilities of Lodi Funeral Home, Inc., a California corporation and all of the stock of Lodi All Faiths Cremation, a California corporation. Through the purchase, the Buyer acquired two funeral homes in California including certain related assets, and assumed certain related liabilities. As part of the agreement, the building and underlying real estate of Lodi Funeral Home, Inc. is being leased from the Seller. The lease agreement is a ten year agreement that contains one five year renewal term at the Buyers election. In addition, at the end of the original lease or renewal term, the Buyer can elect to purchase the property for fair value less 10% of any rental amounts previously paid under the lease agreement. The Buyer also has a right of first refusal related to any potential sale of the property occurring during the lease term.
In consideration for the net assets acquired, the Buyer paid the Seller $0.85 million in cash and issued 13,720 units, which equates to $0.35 million worth of units. The Buyer will also pay an aggregate amount of $0.6 million in equal quarterly installments commencing on January 2, 2013 in exchange for non-compete agreements with the Seller.
The table below reflects the Companys final assessment of the fair value of net assets acquired. The resulting goodwill is recorded in the Companys Funeral Homes operating segment.
Final Assessment |
||||
(in thousands) | ||||
Assets: |
||||
Property and equipment |
$ | 48 | ||
Merchandise trusts, restricted, at fair value |
105 | |||
Underlying lease value |
64 | |||
Non-compete agreements |
40 | |||
|
|
|||
Total assets |
257 | |||
|
|
|||
Liabilities: |
||||
Merchandise liabilities |
105 | |||
|
|
|||
Total liabilities |
105 | |||
|
|
|||
Fair value of net assets acquired |
152 | |||
|
|
|||
Consideration paid - cash |
850 | |||
Consideration paid - units |
350 | |||
Fair value of debt assumed for non-compete agreements |
544 | |||
|
|
|||
Total consideration paid |
1,744 | |||
|
|
|||
Goodwill from purchase |
$ | 1,592 | ||
|
|
If the acquisitions from 2013 and 2012 had been consummated on January 1, 2012, on a pro forma basis, for the three and six months ended June 30, 2013 and 2012, consolidated revenues, consolidated net income (loss), and net income (loss) per limited partner unit (basic and diluted) would have been as follows:
Three months ended June 30, |
Six months ended June 30, |
|||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Revenue |
$ | 62,422 | $ | 62,779 | $ | 122,609 | $ | 123,981 | ||||||||
Net income (loss) |
(11,809 | ) | (1,948 | ) | (13,888 | ) | 353 | |||||||||
Net income (loss) per limited partner unit (basic and diluted) |
$ | (.54 | ) | $ | (.10 | ) | $ | (.66 | ) | $ | .02 |
These pro forma results are unaudited and have been prepared for comparative purposes only and include certain adjustments such as increased interest on the acquisition of debt. They do not purport to be indicative of the results of operations which actually would have resulted had the combination been in effect on January 1, 2012 or of future results of operations of the locations. The Companys first quarter 2012 acquisition relates to the Amended Operating Agreement as noted above. Therefore, the results of operations for this property have been included in the Companys results since 2009.
20
Since their respective dates of acquisition, the properties acquired in 2013 have contributed $1.1 million and $1.5 million of revenue and $0.4 million and $0.5 million of operating profit for the three and six months ended June 30, 2013. The properties acquired in the first half 2012 have contributed $0.9 million and $1.6 million of revenue and $0.3 million and $0.4 million of operating profit for the three and six months ended June 30, 2013.
First Quarter 2012 Contract Termination
During the third quarter of 2010, certain subsidiaries of the Company entered into a long-term operating agreement (the Operating Agreement) with the Archdiocese of Detroit (the Archdiocese) wherein the Company became the exclusive operator of certain cemeteries in Michigan owned by the Archdiocese. The Operating Agreement did not qualify as an acquisition for accounting purposes. However, the existing merchandise trust had been consolidated as a variable interest entity as the Company controlled and directly benefited from the operations of the merchandise trust. In addition, liabilities assumed were also recorded as of the contract date. As no consideration was paid in this transaction, the Company had recorded a deferred gain of approximately $3.1 million within deferred cemetery revenues, net, which represented the excess of the value of the merchandise trust over the liabilities assumed.
Effective March 31, 2012, the Company and the Archdiocese agreed to terminate the Operating Agreement. As of the termination date, the Company no longer operated these properties. All activity occurring after March 31, 2012 is the responsibility of the Archdiocese and the Company has no remaining obligation to fulfill any merchandise liabilities or responsibility to perform any obligations of the properties.
The Company received payments of approximately $2.0 million from the Archdiocese as a result of the termination. Consequently, the Company recognized a gain of $1.7 million during the six months ended June 30, 2012, which is the amount by which the payments from the Archdiocese exceeded the value of the net assets transferred to the Archdiocese.
First and Second Quarter 2013 Settlement
During the six months ended June 30, 2013 the Company recovered $18.4 million, net of legal fees, costs, and contractual obligations related to the settlement of claims from locations that the Company acquired in 2010 and 2011. Of this amount $6.5 million was contributed directly to the related perpetual care and merchandise trusts on the Companys behalf. $3.4 million of these direct payments represent a gain on settlement agreement on the unaudited condensed consolidated statement of operations due to an increase in the merchandise trusts not previously accrued for in purchase accounting.
The Company received $11.9 million in cash proceeds from the settlement. Of this amount, $1.7 million and $1.3 million are for the reimbursement of legal fees and are recorded as recoveries to corporate overhead and acquisition related costs, respectively. The remaining proceeds were recorded as a gain on settlement agreement on the unaudited condensed consolidated statement of operations. The total gain on settlement for the six months ended June 30, 2013 was $12.3 million. Of the amounts noted above, $1.3 million, inclusive of a gain on settlement agreement of $0.9 million and $0.4 million of recovery of legal fees, was recognized during the first quarter of 2013.
14. | SEGMENT INFORMATION |
The Company is organized into five distinct reportable segments which are classified as Cemetery Operations Southeast, Cemetery Operations Northeast, Cemetery Operations West, Funeral Homes, and Corporate.
The Company has chosen this level of organization of reportable segments due to the fact that a) each reportable segment has unique characteristics that set it apart from other segments; b) the Company has organized its management personnel at these operational levels; and c) it is the level at which the Companys chief decision makers and other senior management evaluate performance.
The cemetery operations segments sell interment rights, caskets, burial vaults, cremation niches, markers and other cemetery related merchandise. The nature of the Companys customers differs in each of its regionally based cemetery operating segments. Cremation rates in the West region are substantially higher than they are in the Southeast region. Rates in the Northeast region tend to be somewhere between the two. Statistics indicate that customers who select cremation services have certain attributes that differ from customers who select other methods of interment. The disaggregation of cemetery operations into the three distinct regional segments is primarily due to these differences in customer attributes along with the previously mentioned management structure and senior management analysis methodologies.
21
The Companys Funeral Homes segment offers a range of funeral-related services such as family consultation, the removal of and preparation of remains and the use of funeral home facilities for visitation. These services are distinctly different than the cemetery merchandise and services sold and provided by the cemetery operations segments.
The Companys Corporate segment includes various home office selling and administrative expenses that are not allocable to the other operating segments.
Segment information is as follows:
As of and for the three months ended June 30, 2013:
Cemeteries | Funeral | |||||||||||||||||||||||||||
Southeast | Northeast | West | Homes | Corporate | Adjustment | Total | ||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||
Revenues |
||||||||||||||||||||||||||||
Sales |
$ | 24,767 | $ | 9,724 | $ | 12,284 | $ | | $ | | $ | (14,479 | ) | $ | 32,296 | |||||||||||||
Service and other |
8,474 | 5,754 | 6,611 | | | (1,389 | ) | 19,450 | ||||||||||||||||||||
Funeral home |
| | | 11,983 | | (1,307 | ) | 10,676 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total revenues |
33,241 | 15,478 | 18,895 | 11,983 | | (17,175 | ) | 62,422 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Costs and expenses |
||||||||||||||||||||||||||||
Cost of sales |
5,399 | 2,658 | 2,088 | | | (2,433 | ) | 7,712 | ||||||||||||||||||||
Cemetery |
6,987 | 3,885 | 4,536 | | | | 15,408 | |||||||||||||||||||||
Selling |
7,932 | 3,435 | 3,669 | | 461 | (3,279 | ) | 12,218 | ||||||||||||||||||||
General and administrative |
4,216 | 1,608 | 2,074 | | | | 7,898 | |||||||||||||||||||||
Corporate overhead |
| | | | 5,672 | | 5,672 | |||||||||||||||||||||
Depreciation and amortization |
584 | 233 | 525 | 749 | 360 | | 2,451 | |||||||||||||||||||||
Funeral home |
| | | 9,498 | | (134 | ) | 9,364 | ||||||||||||||||||||
Acquisition related costs, net of recoveries |
| | | | (625 | ) | | (625 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total costs and expenses |
25,118 | 11,819 | 12,892 | 10,247 | 5,868 | (5,846 | ) | 60,098 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Operating profit |
$ | 8,123 | $ | 3,659 | $ | 6,003 | $ | 1,736 | $ | (5,868 | ) | $ | (11,329 | ) | $ | 2,324 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total assets |
$ | 546,851 | $ | 310,187 | $ | 419,902 | $ | 130,832 | $ | 27,860 | $ | | $ | 1,435,632 | ||||||||||||||
Amortization of cemetery property |
$ | 1,179 | $ | 737 | $ | 314 | $ | | $ | | $ | (304 | ) | $ | 1,926 | |||||||||||||
Long lived asset additions |
$ | 1,416 | $ | 382 | $ | 746 | $ | 271 | $ | 717 | $ | | $ | 3,532 | ||||||||||||||
Goodwill |
$ | 6,174 | $ | | $ | 11,948 | $ | 29,448 | $ | | $ | | $ | 47,570 |
22
As of and for the six months ended June 30, 2013:
Cemeteries | Funeral | |||||||||||||||||||||||||||
Southeast | Northeast | West | Homes | Corporate | Adjustment | Total | ||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||
Revenues |
||||||||||||||||||||||||||||
Sales |
$ | 46,637 | $ | 18,701 | $ | 22,044 | $ | | $ | | $ | (25,102 | ) | $ | 62,280 | |||||||||||||
Service and other |
19,580 | 12,305 | 15,741 | | | (9,966 | ) | 37,660 | ||||||||||||||||||||
Funeral home |
| | | 24,810 | | (2,716 | ) | 22,094 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total revenues |
66,217 | 31,006 | 37,785 | 24,810 | | (37,784 | ) | 122,034 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Costs and expenses |
||||||||||||||||||||||||||||
Cost of sales |
9,774 | 4,526 | 3,598 | | | (3,896 | ) | 14,002 | ||||||||||||||||||||
Cemetery |
12,959 | 7,118 | 8,116 | | | | 28,193 | |||||||||||||||||||||
Selling |
15,144 | 6,593 | 6,762 | | 833 | (5,890 | ) | 23,442 | ||||||||||||||||||||
General and administrative |
8,202 | 3,192 | 4,086 | | | | 15,480 | |||||||||||||||||||||
Corporate overhead |
| | | | 13,660 | | 13,660 | |||||||||||||||||||||
Depreciation and amortization |
1,112 | 455 | 1,065 | 1,409 | 740 | | 4,781 | |||||||||||||||||||||
Funeral home |
| | | 18,421 | | (321 | ) | 18,100 | ||||||||||||||||||||
Acquisition related costs, net of recoveries |
| | | | 658 | | 658 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total costs and expenses |
47,191 | 21,884 | 23,627 | 19,830 | 15,891 | (10,107 | ) | 118,316 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Operating profit |
$ | 19,026 | $ | 9,122 | $ | 14,158 | $ | 4,980 | $ | (15,891 | ) | $ | (27,677 | ) | $ | 3,718 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total assets |
$ | 546,851 | $ | 310,187 | $ | 419,902 | $ | 130,832 | $ | 27,860 | $ | | $ | 1,435,632 | ||||||||||||||
Amortization of cemetery property |
$ | 2,030 | $ | 1,358 | $ | 561 | $ | | $ | | $ | (338 | ) | $ | 3,611 | |||||||||||||
Long lived asset additions |
$ | 2,326 | $ | 1,259 | $ | 1,258 | $ | 8,925 | $ | 748 | $ | | $ | 14,516 | ||||||||||||||
Goodwill |
$ | 6,174 | $ | | $ | 11,948 | $ | 29,448 | $ | | $ | | $ | 47,570 |
As of and for the three months ended June 30, 2012:
Cemeteries | Funeral | |||||||||||||||||||||||||||
Southeast | Northeast | West | Homes | Corporate | Adjustment | Total | ||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||
Revenues |
||||||||||||||||||||||||||||
Sales |
$ | 23,812 | $ | 9,545 | $ | 10,292 | $ | | $ | | $ | (9,535 | ) | $ | 34,114 | |||||||||||||
Service and other |
9,255 | 7,138 | 7,373 | | | (4,227 | ) | 19,539 | ||||||||||||||||||||
Funeral home |
| | | 8,189 | | (334 | ) | 7,855 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total revenues |
33,067 | 16,683 | 17,665 | 8,189 | | (14,096 | ) | 61,508 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Costs and expenses |
||||||||||||||||||||||||||||
Cost of sales |
4,972 | 2,028 | 1,739 | | 49 | (1,552 | ) | 7,236 | ||||||||||||||||||||
Cemetery |
6,746 | 3,814 | 4,215 | | | | 14,775 | |||||||||||||||||||||
Selling |
7,691 | 3,322 | 3,395 | | 370 | (1,655 | ) | 13,123 | ||||||||||||||||||||
General and administrative |
3,813 | 1,487 | 1,883 | | 12 | | 7,195 | |||||||||||||||||||||
Corporate overhead |
| | | | 7,756 | | 7,756 | |||||||||||||||||||||
Depreciation and amortization |
510 | 215 | 547 | 518 | 440 | | 2,230 | |||||||||||||||||||||
Funeral home |
| | | 6,688 | | (73 | ) | 6,615 | ||||||||||||||||||||
Acquisition related costs, net of recoveries |
| | | | 782 | | 782 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total costs and expenses |
23,732 | 10,866 | 11,779 | 7,206 | 9,409 | (3,280 | ) | 59,712 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Operating profit |
$ | 9,335 | $ | 5,817 | $ | 5,886 | $ | 983 | $ | (9,409 | ) | $ | (10,816 | ) | $ | 1,796 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total assets |
$ | 490,736 | $ | 291,245 | $ | 384,949 | $ | 79,938 | $ | 26,195 | $ | | $ | 1,273,063 | ||||||||||||||
Amortization of cemetery property |
$ | 1,022 | $ | 853 | $ | 275 | $ | | $ | | $ | (21 | ) | $ | 2,129 | |||||||||||||
Long lived asset additions |
$ | 802 | $ | 825 | $ | 2,630 | $ | 401 | $ | 194 | $ | | $ | 4,852 | ||||||||||||||
Goodwill |
$ | 5,934 | $ | | $ | 11,948 | $ | 16,056 | $ | | $ | | $ | 33,938 |
23
As of and for the six months ended June 30, 2012:
Cemeteries | Funeral | |||||||||||||||||||||||||||
Southeast | Northeast | West | Homes | Corporate | Adjustment | Total | ||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||
Revenues |
||||||||||||||||||||||||||||
Sales |
$ | 44,692 | $ | 18,003 | $ | 20,324 | $ | | $ | | $ | (17,882 | ) | $ | 65,137 | |||||||||||||
Service and other |
18,783 | 13,713 | 14,894 | | | (8,224 | ) | 39,166 | ||||||||||||||||||||
Funeral home |
| | | 17,462 | | (670 | ) | 16,792 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total revenues |
63,475 | 31,716 | 35,218 | 17,462 | | (26,776 | ) | 121,095 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Costs and expenses |
||||||||||||||||||||||||||||
Cost of sales |
9,263 | 3,701 | 3,403 | | 52 | (2,763 | ) | 13,656 | ||||||||||||||||||||
Cemetery |
12,451 | 6,879 | 8,237 | | | | 27,567 | |||||||||||||||||||||
Selling |
14,716 | 6,458 | 6,607 | | 831 | (3,702 | ) | 24,910 | ||||||||||||||||||||
General and administrative |
7,436 | 3,013 | 3,923 | | 16 | | 14,388 | |||||||||||||||||||||
Corporate overhead |
| | | | 14,359 | | 14,359 | |||||||||||||||||||||
Depreciation and amortization |
1,046 | 440 | 1,114 | 1,138 | 822 | | 4,560 | |||||||||||||||||||||
Funeral home |
| | | 13,487 | | (116 | ) | 13,371 | ||||||||||||||||||||
Acquisition related costs, net of recoveries |
| | | | 1,113 | | 1,113 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total costs and expenses |
44,912 | 20,491 | 23,284 | 14,625 | 17,193 | (6,581 | ) | 113,924 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Operating profit |
$ | 18,563 | $ | 11,225 | $ | 11,934 | $ | 2,837 | $ | (17,193 | ) | $ | (20,195 | ) | $ | 7,171 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total assets |
$ | 490,736 | $ | 291,245 | $ | 384,949 | $ | 79,938 | $ | 26,195 | $ | | $ | 1,273,063 | ||||||||||||||
Amortization of cemetery property |
$ | 2,001 | $ | 1,413 | $ | 569 | $ | | $ | | $ | (3 | ) | $ | 3,980 | |||||||||||||
Long lived asset additions |
$ | 4,765 | $ | 1,374 | $ | 3,100 | $ | 460 | $ | 606 | $ | | $ | 10,305 | ||||||||||||||
Goodwill |
$ | 5,934 | $ | | $ | 11,948 | $ | 16,056 | $ | | $ | | $ | 33,938 |
Results of individual business units are presented based on our management accounting practices and management structure. There is no comprehensive, authoritative body of guidance for management accounting equivalent to GAAP; therefore, the financial results of individual business units are not necessarily comparable with similar information for any other company. The management accounting process uses assumptions and allocations to measure performance of the business units. Methodologies are refined from time to time as management accounting practices are enhanced and businesses change. Revenues and associated expenses are not deferred in accordance with SAB No. 104; therefore, the deferral of these revenues and expenses is provided in the adjustment column to reconcile the Companys managerial financial statements to those prepared in accordance with GAAP. Pre-need sales revenues included within the sales category consist primarily of the sale of burial lots, burial vaults, mausoleum crypts, grave markers and memorials, and caskets. Management accounting practices included in the Southeast, Northeast, and Western Regions reflect these pre-need sales when contracts are signed by the customer and accepted by the Company. Pre-need sales reflected in the consolidated financial statements, prepared in accordance with GAAP, recognize revenues for the sale of burial lots and mausoleum crypts when the product is constructed and at least 10% of the sales price is collected. With respect to the other products, the consolidated financial statements prepared under GAAP recognize sales revenues when the criteria for delivery under SAB No. 104 are met. These criteria include, among other things, purchase of the product, delivery and installation of the product in the ground, and transfer of title to the customer. In each case, costs are accrued in connection with the recognition of revenues; therefore, the consolidated financial statements reflect Deferred Cemetery Revenue, Net, and Deferred Selling and Obtaining Costs on the consolidated balance sheet, whereas the Companys management accounting practices exclude these items.
24
15. | FAIR VALUE MEASUREMENTS |
The Fair Value Measurements and Disclosures topic of the ASC defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. This topic also establishes a fair value hierarchy that gives the highest priority to observable inputs and the lowest priority to unobservable inputs. The three levels of the fair value hierarchy defined by this topic are described below.
Level 1: Quoted market prices available in active markets for identical assets or liabilities. The Company includes short-term investments, consisting primarily of money market funds, U.S. Government debt securities and publicly traded equity securities and mutual funds in its level 1 investments.
Level 2: Quoted prices in active markets for similar assets; quoted prices in non-active markets for identical or similar assets; inputs other than quoted prices that are observable. The Company includes U.S. state and municipal, corporate and other fixed income debt securities in its level 2 investments.
Level 3: Any and all pricing inputs that are generally unobservable and not corroborated by market data.
On the Companys unaudited condensed consolidated balance sheet, current assets, long-term accounts receivable and current liabilities are recorded at amounts that approximate fair value.
25
The following table allocates the Companys assets measured at fair value as of June 30, 2013 and December 31, 2012.
As of June 30, 2013
Merchandise Trust
Description |
Level 1 | Level 2 | Total | |||||||||
(in thousands) | ||||||||||||
Assets |
||||||||||||
Short-term investments |
$ | 50,286 | $ | | $ | 50,286 | ||||||
Fixed maturities: |
||||||||||||
U.S. government and federal agency |
| | | |||||||||
U.S. state and local government agency |
| | | |||||||||
Corporate debt securities |
| 8,961 | 8,961 | |||||||||
Other debt securities |
| 7,803 | 7,803 | |||||||||
|
|
|
|
|
|
|||||||
Total fixed maturity investments |
| 16,764 | 16,764 | |||||||||
|
|
|
|
|
|
|||||||
Mutual funds - debt securities |
103,289 | | 103,289 | |||||||||
Mutual funds - equity securities - real estate sector |
53,575 | | 53,575 | |||||||||
Mutual funds - equity securities - energy sector |
| | | |||||||||
Mutual funds - equity securities - MLPs |
37,966 | | 37,966 | |||||||||
Mutual funds - equity securities - other |
60,207 | | 60,207 | |||||||||
Equity securities: |
||||||||||||
Preferred REITs |
65 | | 65 | |||||||||
Master limited partnerships |
46,951 | | 46,951 | |||||||||
Global equity securities |
32,202 | | 32,202 | |||||||||
Other invested assets |
| 5,341 | 5,341 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 384,541 | $ | 22,105 | $ | 406,646 | ||||||
|
|
|
|
|
|
Perpetual Care Trust
Description |
Level 1 | Level 2 | Total | |||||||||
(in thousands) | ||||||||||||
Assets |
||||||||||||
Short-term investments |
$ | 12,662 | $ | | $ | 12,662 | ||||||
Fixed maturities: |
||||||||||||
U.S. government and federal agency |
503 | | 503 | |||||||||
U.S. state and local government agency |
| | | |||||||||
Corporate debt securities |
| 23,936 | 23,936 | |||||||||
Other debt securities |
| 371 | 371 | |||||||||
|
|
|
|
|
|
|||||||
Total fixed maturity investments |
503 | 24,307 | 24,810 | |||||||||
|
|
|
|
|
|
|||||||
Mutual funds - debt securities |
114,233 | | 114,233 | |||||||||
Mutual funds - equity securities - real estate sector |
44,443 | | 44,443 | |||||||||
Mutual funds - equity securities - energy sector |
15,707 | | 15,707 | |||||||||
Mutual funds - equity securities - MLPs |
45,721 | | 45,721 | |||||||||
Mutual funds - equity securities - other |
9,134 | | 9,134 | |||||||||
Equity securities: |
||||||||||||
Preferred REITs |
38 | | 38 | |||||||||
Master limited partnerships |
35,234 | | 35,234 | |||||||||
Global equity securities |
791 | | 791 | |||||||||
Other invested assets |
| | | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 278,466 | $ | 24,307 | $ | 302,773 | ||||||
|
|
|
|
|
|
26
As of December 31, 2012
Merchandise Trust
Description |
Level 1 | Level 2 | Total | |||||||||
(in thousands) | ||||||||||||
Assets |
||||||||||||
Short-term investments |
$ | 27,890 | $ | | $ | 27,890 | ||||||
Fixed maturities: |
||||||||||||
U.S. government and federal agency |
| | | |||||||||
U.S. state and local government agency |
| | | |||||||||
Corporate debt securities |
| 8,714 | 8,714 | |||||||||
Other debt securities |
| 4,317 | 4,317 | |||||||||
|
|
|
|
|
|
|||||||
Total fixed maturity investments |
| 13,031 | 13,031 | |||||||||
|
|
|
|
|
|
|||||||
Mutual funds - debt securities |
107,921 | | 107,921 | |||||||||
Mutual funds - equity securities - real estate sector |
51,986 | | 51,986 | |||||||||
Mutual funds - equity securities - energy sector |
5,666 | | 5,666 | |||||||||
Mutual funds - equity securities - MLPs |
29,336 | | 29,336 | |||||||||
Mutual funds - equity securities - other |
58,082 | | 58,082 | |||||||||
Equity securities: |
||||||||||||
Preferred REITs |
563 | | 563 | |||||||||
Master limited partnerships |
42,410 | | 42,410 | |||||||||
Global equity securities |
24,434 | | 24,434 | |||||||||
Other invested assets |
| 7,097 | 7,097 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 348,288 | $ | 20,128 | $ | 368,416 | ||||||