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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 March 31, 2014, the Partnership operated 278 cemeteries in 27 states and Puerto Rico, of which 260 are owned and 18 are operated under management or operating agreements. The Partnership also owned and operated 90 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 March 31, 2014 and for the three months ended March 31, 2014 and 2013 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, 2013 condensed consolidated balance sheet data was derived from audited financial statements included in the Company’s 2013 Annual Report on Form 10-K (“2013 Form 10-K”) and has been adjusted to include the effects of retrospective adjustments resulting from the Company’s 2013 first quarter acquisition, but does not include all disclosures required by GAAP, which are presented in the Company’s 2013 Form 10-K.
Principles of Consolidation
The unaudited condensed consolidated financial statements include the accounts of each of the Company’s 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 trusts and perpetual care trusts, 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.
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2. | LONG-TERM ACCOUNTS RECEIVABLE, NET OF ALLOWANCE |
Long-term accounts receivable, net, consisted of the following:
As of | ||||||||
March 31, 2014 |
December 31, 2013 |
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(in thousands) | ||||||||
Customer receivables |
$ | 177,349 | $ | 174,062 | ||||
Unearned finance income |
(19,807 | ) | (20,005 | ) | ||||
Allowance for contract cancellations |
(21,249 | ) | (20,275 | ) | ||||
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136,293 | 133,782 | |||||||
Less: current portion, net of allowance |
55,809 | 55,415 | ||||||
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Long-term portion, net of allowance |
$ | 80,484 | $ | 78,367 | ||||
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Activity in the allowance for contract cancellations is as follows:
For the three months ended March 31, | ||||||||
2014 | 2013 | |||||||
(in thousands) | ||||||||
Balance—Beginning of period |
$ | 20,275 | $ | 17,933 | ||||
Provision for cancellations |
5,031 | 4,986 | ||||||
Charge-offs—net |
(4,057 | ) | (3,803 | ) | ||||
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Balance—End of period |
$ | 21,249 | $ | 19,116 | ||||
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3. | CEMETERY PROPERTY |
Cemetery property consists of the following:
As of | ||||||||
March 31, | December 31, | |||||||
2014 | 2013 | |||||||
(in thousands) | ||||||||
Developed land |
$ | 71,159 | $ | 72,458 | ||||
Undeveloped land |
164,335 | 163,997 | ||||||
Mausoleum crypts and lawn crypts |
69,617 | 70,216 | ||||||
Other land |
9,798 | 9,798 | ||||||
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Total |
$ | 314,909 | $ | 316,469 | ||||
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4. | PROPERTY AND EQUIPMENT |
Major classes of property and equipment follow:
As of | ||||||||
March 31, | December 31, | |||||||
2014 | 2013 | |||||||
(in thousands) | ||||||||
Building and improvements |
$ | 92,301 | $ | 91,575 | ||||
Furniture and equipment |
45,172 | 44,828 | ||||||
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137,473 | 136,403 | |||||||
Less: accumulated depreciation |
(52,918 | ) | (51,396 | ) | ||||
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Property and equipment—net |
$ | 84,555 | $ | 85,007 | ||||
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Depreciation expense was $2.0 million and $1.7 million during the three months ended March 31, 2014 and 2013, respectively.
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5. | MERCHANDISE TRUSTS |
At March 31, 2014, the Company’s 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 (“REIT’s”), 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 $8.0 million and $8.3 million of investments held in trust by the West Virginia Funeral Directors Association at March 31, 2014 and December 31, 2013, 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.
The cost and market value associated with the assets held in merchandise trusts at March 31, 2014 and December 31, 2013 were as follows:
As of March 31, 2014 |
Cost | Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
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(in thousands) | ||||||||||||||||
Short-term investments |
$ | 59,227 | $ | — | $ | — | $ | 59,227 | ||||||||
Fixed maturities: |
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U.S. Government and federal agency |
— | — | — | — | ||||||||||||
U.S. State and local government agency |
— | — | — | — | ||||||||||||
Corporate debt securities |
9,394 | 87 | (53 | ) | 9,428 | |||||||||||
Other debt securities |
5,849 | — | (7 | ) | 5,842 | |||||||||||
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Total fixed maturities |
15,243 | 87 | (60 | ) | 15,270 | |||||||||||
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Mutual funds—debt securities |
118,629 | 844 | (5,881 | ) | 113,592 | |||||||||||
Mutual funds—equity securities |
151,527 | 9,586 | (1,899 | ) | 159,214 | |||||||||||
Equity securities |
82,168 | 8,132 | (1,021 | ) | 89,279 | |||||||||||
Other invested assets |
5,414 | — | (176 | ) | 5,238 | |||||||||||
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Total managed investments |
$ | 432,208 | $ | 18,649 | $ | (9,037 | ) | $ | 441,820 | |||||||
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West Virginia Trust Receivable |
8,033 | — | — | 8,033 | ||||||||||||
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Total |
$ | 440,241 | $ | 18,649 | $ | (9,037 | ) | $ | 449,853 | |||||||
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As of December 31, 2013 |
Cost | Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
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(in thousands) | ||||||||||||||||
Short-term investments |
$ | 46,518 | $ | — | $ | — | $ | 46,518 | ||||||||
Fixed maturities: |
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U.S. Government and federal agency |
— | — | — | — | ||||||||||||
U.S. State and local government agency |
— | — | — | — | ||||||||||||
Corporate debt securities |
9,105 | 162 | (96 | ) | 9,171 | |||||||||||
Other debt securities |
7,336 | — | (12 | ) | 7,324 | |||||||||||
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Total fixed maturities |
16,441 | 162 | (108 | ) | 16,495 | |||||||||||
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Mutual funds—debt securities |
117,761 | 729 | (7,157 | ) | 111,333 | |||||||||||
Mutual funds—equity securities |
144,249 | 16,610 | (3,329 | ) | 157,530 | |||||||||||
Equity securities |
81,520 | 5,267 | (1,092 | ) | 85,695 | |||||||||||
Other invested assets |
5,809 | — | (86 | ) | 5,723 | |||||||||||
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Total managed investments |
$ | 412,298 | $ | 22,768 | $ | (11,772 | ) | $ | 423,294 | |||||||
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West Virginia Trust Receivable |
8,262 | — | — | 8,262 | ||||||||||||
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Total |
$ | 420,560 | $ | 22,768 | $ | (11,772 | ) | $ | 431,556 | |||||||
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The contractual maturities of debt securities as of March 31, 2014 were as follows:
As of March 31, 2014 |
Less than 1 year |
1 year through 5 years |
6 years through 10 years |
More than 10 years |
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(in thousands) | ||||||||||||||||
U.S. Government and federal agency |
$ | — | $ | — | $ | — | $ | — | ||||||||
U.S. State and local government agency |
— | — | — | — | ||||||||||||
Corporate debt securities |
— | 3,989 | 5,439 | — | ||||||||||||
Other debt securities |
650 | 5,192 | — | — | ||||||||||||
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Total fixed maturities |
$ | 650 | $ | 9,181 | $ | 5,439 | $ | — | ||||||||
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An aging of unrealized losses on the Company’s investments in fixed maturities and equity securities at March 31, 2014 and December 31, 2013 is presented below:
Less than 12 months | 12 Months or more | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
As of March 31, 2014 |
Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Fixed maturities: |
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U.S. Government and federal agency |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
U.S. State and local government agency |
— | — | — | — | — | — | ||||||||||||||||||
Corporate debt securities |
1,967 | 10 | 1,605 | 43 | 3,572 | 53 | ||||||||||||||||||
Other debt securities |
4,469 | 7 | — | — | 4,469 | 7 | ||||||||||||||||||
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Total fixed maturities |
6,436 | 17 | 1,605 | 43 | 8,041 | 60 | ||||||||||||||||||
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Mutual funds—debt securities |
1,984 | 25 | 91,694 | 5,856 | 93,678 | 5,881 | ||||||||||||||||||
Mutual funds—equity securities |
53,436 | 1,114 | 4,317 | 785 | 57,753 | 1,899 | ||||||||||||||||||
Equity securities |
11,552 | 786 | 1,427 | 235 | 12,979 | 1,021 | ||||||||||||||||||
Other invested assets |
2,125 | 176 | — | — | 2,125 | 176 | ||||||||||||||||||
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Total |
$ | 75,533 | $ | 2,118 | $ | 99,043 | $ | 6,919 | $ | 174,576 | $ | 9,037 | ||||||||||||
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Less than 12 months | 12 Months or more | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
As of December 31, 2013 |
Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Fixed maturities: |
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U.S. Government and federal agency |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
U.S. State and local government agency |
— | — | — | — | — | — | ||||||||||||||||||
Corporate debt securities |
2,812 | 43 | 1,249 | 53 | 4,061 | 96 | ||||||||||||||||||
Other debt securities |
5,329 | 8 | 995 | 4 | 6,324 | 12 | ||||||||||||||||||
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Total fixed maturities |
8,141 | 51 | 2,244 | 57 | 10,385 | 108 | ||||||||||||||||||
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Mutual funds—debt securities |
87,113 | 6,724 | 6,485 | 433 | 93,598 | 7,157 | ||||||||||||||||||
Mutual funds—equity securities |
29,993 | 2,444 | 4,217 | 885 | 34,210 | 3,329 | ||||||||||||||||||
Equity securities |
25,379 | 1,031 | 1,492 | 61 | 26,871 | 1,092 | ||||||||||||||||||
Other invested assets |
2,266 | 86 | — | — | 2,266 | 86 | ||||||||||||||||||
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Total |
$ | 152,892 | $ | 10,336 | $ | 14,438 | $ | 1,436 | $ | 167,330 | $ | 11,772 | ||||||||||||
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A reconciliation of the Company’s merchandise trust activities for the three months ended March 31, 2014 is presented below:
Fair Value at 12/31/2013 |
Contributions | Distributions | Interest/ Dividends |
Capital Gain Distributions |
Realized Gain/ Loss |
Taxes | Fees | Unrealized Change in Fair Value |
Fair Value at 3/31/2014 |
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(in thousands) | ||||||||||||||||||||||||||||||||||||||
$ | 431,556 | 16,699 | (8,891 | ) | 4,428 | 36 | 8,049 | (69 | ) | (571 | ) | (1,384 | ) | $ | 449,853 |
The Company made net contributions into the trusts of approximately $7.8 million during the three months ended March 31, 2014. During the three months ended March 31, 2014, purchases and sales of securities available for sale included in trust investments were approximately $155.3 million and $154.0 million, respectively. Contributions include $2.6 million of assets that were acquired through an acquisition during the three months ended March 31, 2014.
Other-Than-Temporary Impairments of Trust Assets
During the three months ended March 31, 2014, the Company determined that there were no other than temporary impairments to the investment portfolio for merchandise trusts. During the three months ended March 31, 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. 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.
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6. | PERPETUAL CARE TRUSTS |
At March 31, 2014, the Company’s 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 REIT’s, 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 cost and market value associated with the assets held in perpetual care trusts at March 31, 2014 and December 31, 2013 were as follows:
Gross | Gross | |||||||||||||||
Unrealized | Unrealized | Fair | ||||||||||||||
As of March 31, 2014 |
Cost | Gains | Losses | Value | ||||||||||||
(in thousands) | ||||||||||||||||
Short-term investments |
$ | 20,381 | $ | — | $ | — | $ | 20,381 | ||||||||
Fixed maturities: |
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U.S. Government and federal agency |
100 | 19 | — | 119 | ||||||||||||
U.S. State and local government agency |
— | — | — | — | ||||||||||||
Corporate debt securities |
24,533 | 507 | (103 | ) | 24,937 | |||||||||||
Other debt securities |
371 | — | — | 371 | ||||||||||||
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Total fixed maturities |
25,004 | 526 | (103 | ) | 25,427 | |||||||||||
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Mutual funds—debt securities |
121,250 | 550 | (4,867 | ) | 116,933 | |||||||||||
Mutual funds—equity securities |
93,132 | 21,270 | (143 | ) | 114,259 | |||||||||||
Equity securities |
26,241 | 14,745 | (11 | ) | 40,975 | |||||||||||
Other invested assets |
179 | — | — | 179 | ||||||||||||
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Total |
$ | 286,187 | $ | 37,091 | $ | (5,124 | ) | $ | 318,154 | |||||||
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Gross | Gross | |||||||||||||||
Unrealized | Unrealized | Fair | ||||||||||||||
As of December 31, 2013 |
Cost | Gains | Losses | Value | ||||||||||||
(in thousands) | ||||||||||||||||
Short-term investments |
$ | 16,686 | $ | — | $ | — | $ | 16,686 | ||||||||
Fixed maturities: |
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U.S. Government and federal agency |
302 | 70 | — | 372 | ||||||||||||
U.S. State and local government agency |
— | — | — | — | ||||||||||||
Corporate debt securities |
24,378 | 340 | (208 | ) | 24,510 | |||||||||||
Other debt securities |
371 | — | — | 371 | ||||||||||||
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Total fixed maturities |
25,051 | 410 | (208 | ) | 25,253 | |||||||||||
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Mutual funds—debt securities |
121,493 | 466 | (5,946 | ) | 116,013 | |||||||||||
Mutual funds—equity securities |
93,243 | 22,521 | (171 | ) | 115,593 | |||||||||||
Equity securities |
25,580 | 12,283 | (19 | ) | 37,844 | |||||||||||
Other invested assets |
172 | 210 | — | 382 | ||||||||||||
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Total |
$ | 282,225 | $ | 35,890 | $ | (6,344 | ) | $ | 311,771 | |||||||
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The contractual maturities of debt securities as of March 31, 2014 were as follows:
Less than | 1 year through | 6 years through | More than | |||||||||||||
As of March 31, 2014 |
1 year | 5 years | 10 years | 10 years | ||||||||||||
(in thousands) | ||||||||||||||||
U.S. Government and federal agency |
$ | — | $ | 119 | $ | — | $ | — | ||||||||
U.S. State and local government agency |
— | — | — | — | ||||||||||||
Corporate debt securities |
140 | 12,463 | 12,333 | 1 | ||||||||||||
Other debt securities |
371 | — | — | — | ||||||||||||
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Total fixed maturities |
$ | 511 | $ | 12,582 | $ | 12,333 | $ | 1 | ||||||||
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An aging of unrealized losses on the Company’s investments in fixed maturities and equity securities at March 31, 2014 and December 31, 2013 held in perpetual care trusts is presented below:
Less than 12 months | 12 Months or more | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
As of March 31, 2014 |
Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Fixed maturities: |
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U.S. Government and federal agency |
$ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
U.S. State and local government agency |
— | — | — | — | — | — | ||||||||||||||||||
Corporate debt securities |
1,319 | 6 | 4,612 | 97 | 5,931 | 103 | ||||||||||||||||||
Other debt securities |
— | — | — | — | — | — | ||||||||||||||||||
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Total fixed maturities |
1,319 | 6 | 4,612 | 97 | 5,931 | 103 | ||||||||||||||||||
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Mutual funds—debt securities |
1,705 | 41 | 108,678 | 4,826 | 110,383 | 4,867 | ||||||||||||||||||
Mutual funds—equity securities |
1,213 | 143 | — | — | 1,213 | 143 | ||||||||||||||||||
Equity securities |
175 | 11 | — | — | 175 | 11 | ||||||||||||||||||
Other invested assets |
— | — | — | — | — | — | ||||||||||||||||||
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Total |
$ | 4,412 | $ | 201 | $ | 113,290 | $ | 4,923 | $ | 117,702 | $ | 5,124 | ||||||||||||
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Less than 12 months | 12 Months or more | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
As of December 31, 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 |
5,664 | 93 | 3,122 | 115 | 8,786 | 208 | ||||||||||||||||||
Other debt securities |
— | — | — | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total fixed maturities |
5,664 | 93 | 3,122 | 115 | 8,786 | 208 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Mutual funds—debt securities |
93,473 | 4,781 | 16,367 | 1,165 | 109,840 | 5,946 | ||||||||||||||||||
Mutual funds—equity securities |
1,185 | 171 | — | — | 1,185 | 171 | ||||||||||||||||||
Equity securities |
513 | 19 | — | — | 513 | 19 | ||||||||||||||||||
Other invested assets |
— | — | — | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 100,835 | $ | 5,064 | $ | 19,489 | $ | 1,280 | $ | 120,324 | $ | 6,344 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the Company’s perpetual care trust activities for the three months ended March 31, 2014 is presented below:
Fair Value at 12/31/2013 |
Contributions | Distributions | Interest/ Dividends |
Capital Gain Distributions |
Realized Gain/ Loss |
Taxes | Fees | Unrealized Change in Fair Value |
Fair Value at 3/31/2014 |
|||||||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||||||||||||
$ | 311,771 | 4,352 | (4,096 | ) | 4,082 | — | 106 | (64 | ) | (418 | ) | 2,421 | $ | 318,154 |
The Company made net contributions into the trusts of approximately $0.3 million during the three months ended March 31, 2014. During the three months ended March 31, 2014, purchases and sales of securities available for sale included in trust investments were approximately $15.9 million and $14.5 million, respectively. Contributions include $0.7 million of assets that were acquired through an acquisition during the three months ended March 31, 2014.
Other-Than-Temporary Impairments of Trust Assets
During the three months ended March 31, 2014 and 2013, the Company determined that there were no other than temporary impairments to the investment portfolio in the perpetual care trusts.
|
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 Homes |
Total | ||||||||||||||||||
Southeast | Northeast | West | ||||||||||||||||||
(in thousands) | ||||||||||||||||||||
Balance as of December 31, 2013 |
$ | 6,174 | $ | — | $ | 11,948 | $ | 30,615 | $ | 48,737 | ||||||||||
Goodwill acquired from acquisitions during the three months ended March 31, 2014 |
— | — | — | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance as of March 31, 2014 |
$ | 6,174 | $ | — | $ | 11,948 | $ | 30,615 | $ | 48,737 | ||||||||||
|
|
|
|
|
|
|
|
|
|
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 | As of | |||||||||||||||||||||||
March 31, 2014 | December 31, 2013 | |||||||||||||||||||||||
Gross Carrying | Accumulated | Net Intangible | Gross Carrying | Accumulated | Net Intangible | |||||||||||||||||||
Amount | Amortization | Asset | Amount | Amortization | Asset | |||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Amortized intangible assets: |
||||||||||||||||||||||||
Underlying contract value |
$ | 6,239 | $ | (741 | ) | $ | 5,498 | $ | 6,239 | $ | (702 | ) | $ | 5,537 | ||||||||||
Non-compete agreements |
7,950 | (4,339 | ) | 3,611 | 7,950 | (4,003 | ) | 3,947 | ||||||||||||||||
Other intangible assets |
269 | (102 | ) | 167 | 269 | (98 | ) | 171 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total intangible assets |
$ | 14,458 | $ | (5,182 | ) | $ | 9,276 | $ | 14,458 | $ | (4,803 | ) | $ | 9,655 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
8. | LONG-TERM DEBT |
The Company had the following outstanding debt:
As of | ||||||||
March 31, | December 31, | |||||||
2014 | 2013 | |||||||
(in thousands) | ||||||||
7.875% Senior Notes, due 2021 |
$ | 175,000 | $ | 175,000 | ||||
Revolving Credit Facility, due January 2017 |
77,402 | 114,002 | ||||||
Notes payable—acquisition debt |
985 | 1,571 | ||||||
Notes payable—acquisition non-competes |
3,443 | 3,945 | ||||||
Insurance and vehicle financing |
743 | 1,529 | ||||||
|
|
|
|
|||||
Total |
257,573 | 296,047 | ||||||
Less current portion |
1,555 | 2,916 | ||||||
Less unamortized bond and note payable discounts |
3,964 | 4,115 | ||||||
|
|
|
|
|||||
Long-term portion |
$ | 252,054 | $ | 289,016 | ||||
|
|
|
|
This note includes a summary of material terms of the Company’s senior notes and revolving credit facility. For a more detailed description of the Company’s long-term debt agreements, see the Company’s 2013 Form 10-K.
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 a $150.0 million aggregate principal amount of 10.25% Senior Notes due 2017 (the “Prior Senior Notes”) 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 $4.6 million. These costs and fees are deferred and will be amortized over the life of these notes. Based on trades made on March 31, 2014, the Company has estimated the fair value of its Senior Notes to be in excess of par and trading at a premium of 4.06%, which would imply a fair value of $182.1 million at March 31, 2014. The Senior Notes are valued using Level 2 inputs as defined by the Fair Value Measurements and Disclosures topic of the ASC in Note 15. As of March 31, 2014, the Company was in compliance with all applicable covenants of the 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.
The Credit Agreement was amended three times in 2013. As amended, the Company has a revolving credit facility (the “Credit Facility”) with a borrowing limit of $140.0 million, of which $77.4 million was outstanding at March 31, 2014, and a maturity date of January 19, 2017. The Credit Facility may be used to finance working capital requirements, Permitted Acquisitions and Capital Expenditures. The Maximum Consolidated Leverage Ratio was 4.00 through December 31, 2013, 3.875 at March 31, 2014, and will be 3.750 for the measurement period ending on June 30, 2014 and thereafter. The Minimum Consolidated Debt Service Coverage Ratio is 2.50 for all measurement periods. The ranges of the Applicable Rates are 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 Company is not allowed to permit Consolidated EBITDA for any most recently completed four fiscal quarters to be less than the sum of (i) $57.8 million plus (ii) 80% of the aggregate of all Consolidated EBITDA for each Permitted Acquisition completed after March 31, 2013.
The amount of aggregate consideration the Company may pay for a Permitted Acquisition after March 31, 2014, without Required Lender approval, is $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. In case of a Significant Permitted Acquisition Transaction, 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, the Borrowers are permitted, subject to certain limitations, to temporarily increase the Consolidated Leverage Ratio to 4.00 to 1.0 for one or more of the four immediately succeeding covenant measurement periods.
The interest rates on amounts outstanding under the Credit Facility were approximately 4.2% at March 31, 2014. 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 Company’s 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 Company’s 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 Company’s debt (and cause cross-default) which would have a material adverse effect on the Company’s business, financial condition or results of operations. The Company’s covenants include a certain measure of Consolidated EBITDA, a Consolidated Leverage Ratio and a Consolidated Debt Service Coverage Ratio. As of March 31, 2014, the Company was in compliance with all applicable financial covenants.
The Company routinely incurs debt financing costs and fees when borrowing under, or making amendments to the Credit Facility. These costs and fees are deferred and are amortized over the life of the Credit Facility.
|
9. | INCOME TAXES |
As of March 31, 2014, the Company’s taxable corporate subsidiaries had federal net operating loss carryforwards of approximately $194.3 million, which will begin to expire in 2019 and $238.2 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 Partnership’s tax attributes, except those of its corporate subsidiaries, are to be included in the individual tax returns of its partners. Neither the Partnership’s 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 Partnership’s 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 bases and operating loss and tax credit carryforwards.
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 months ended March 31, 2014 and 2013 is based upon the estimated annual effective tax rates expected to be applicable to the Company for 2014 and 2013, respectively. The Company’s effective tax rate differs from its statutory tax rate primarily because the Company’s 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 Company’s federal income tax return for the year ended December 31, 2010. The scope of this audit included an audit of the Company’s qualifying income. In order to be treated as a partnership for federal income tax purposes, at least 90% of the Company’s 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 opened from 2010 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 Company’s management that there are no pending assessments that will result in a material effect on the Company’s consolidated financial statements over the next twelve months.
|
10. | DEFERRED CEMETERY REVENUES, NET |
At March 31, 2014 and December 31, 2013, deferred cemetery revenues, net, consisted of the following:
As of | ||||||||
March 31, | December 31, | |||||||
2014 | 2013 | |||||||
(in thousands) | ||||||||
Deferred cemetery revenue |
$ | 417,298 | $ | 403,250 | ||||
Deferred merchandise trust revenue |
97,536 | 88,730 | ||||||
Deferred merchandise trust unrealized gains (losses) |
9,612 | 10,996 | ||||||
Deferred pre-acquisition margin |
130,037 | 131,274 | ||||||
Deferred cost of goods sold |
(56,324 | ) | (54,257 | ) | ||||
|
|
|
|
|||||
Deferred cemetery revenues, net |
$ | 598,159 | $ | 579,993 | ||||
|
|
|
|
|||||
Deferred selling and obtaining costs |
$ | 90,801 | $ | 87,998 |
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 Company’s financial position, results of operations or liquidity.
Leases
At March 31, 2014, 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 twenty five years and options to renew at varying terms. Expenses under operating leases were $0.6 million and $0.7 million during the three months ended March 31, 2014 and 2013, respectively.
At March 31, 2014, operating leases will result in future payments in the following approximate amounts from January 1, 2015 and beyond:
(in thousands) | ||||
2015 |
$ | 1,203 | ||
2016 |
1,054 | |||
2017 |
965 | |||
2018 |
899 | |||
2019 |
883 | |||
Thereafter |
1,215 | |||
|
|
|||
Total |
$ | 6,219 | ||
|
|
|
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 months ended March 31, 2014 and 2013 are summarized in the table below:
Three months ended | ||||||||
March 31, | ||||||||
2014 | 2013 | |||||||
(in thousands) | ||||||||
Unit appreciation rights |
$ | 19 | $ | 139 | ||||
Restricted phantom units |
252 | 191 | ||||||
|
|
|
|
|||||
Total unit-based compensation expense |
$ | 271 | $ | 330 | ||||
|
|
|
|
As of March 31, 2014, there was approximately $0.2 million in non-vested unit appreciation rights expense outstanding. These unit appreciation rights will be expensed through 2017.
The diluted weighted average number of limited partners’ units outstanding presented on the unaudited condensed consolidated statement of operations does not include 315,873 units for the three months ended March 31, 2013, as their effects would be anti-dilutive.
Other Unit Issuances
On February 27, 2014, the Company completed a follow-on public offering of 2,300,000 common units at a price of $24.45 per unit. Net proceeds of the offering, after deducting underwriting discounts and offering expenses, were approximately $53.2 million. The proceeds from the offering were used to pay down borrowings outstanding under the Credit Facility.
|
13. | ACQUISITIONS |
First Quarter 2014 Acquisition
On January 16, 2014, certain subsidiaries of the Company (collectively the “Buyer”) entered into an Asset Purchase and Sale Agreement with Carriage Cemetery Services, Inc. (the “Seller”). Pursuant to the Agreement, the Buyer acquired one cemetery in Florida, including certain related assets, and assumed certain related liabilities. In consideration for the net assets acquired, the Buyer paid the Seller $0.2 million in cash.
The table below reflects the Company’s preliminary assessment of the fair value of net assets acquired and the resulting gain on bargain purchase. These amounts may be retrospectively adjusted as additional information is received.
Preliminary | ||||
Assessment | ||||
(in thousands) | ||||
Assets: |
||||
Accounts receivable |
$ | 47 | ||
Cemetery property |
470 | |||
Property and equipment |
140 | |||
Merchandise trusts, restricted, at fair value |
2,607 | |||
Perpetual care trusts, restricted, at fair value |
691 | |||
|
|
|||
Total assets |
3,955 | |||
|
|
|||
Liabilities: |
||||
Deferred margin |
1,035 | |||
Merchandise liabilities |
956 | |||
Deferred tax liability |
641 | |||
Perpetual care trust corpus |
691 | |||
Other liabilities |
20 | |||
|
|
|||
Total liabilities |
3,343 | |||
|
|
|||
Fair value of net assets acquired |
612 | |||
|
|
|||
Consideration paid |
200 | |||
|
|
|||
Gain on bargain purchase |
$ | 412 | ||
|
|
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.
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 was payable on February 19, 2014 and bore 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 Company’s final assessment of the fair value of net assets acquired and displays the adjustments made to the revised values reported at December 31, 2013. The Company obtained additional information in the first quarter of 2014 and has retrospectively adjusted these values as noted below. The resulting goodwill is recorded in the Company’s Funeral Homes operating segment.
Revised | Final | |||||||||||
Assessment | Adjustments | Assessment | ||||||||||
(in thousands) | ||||||||||||
Assets: |
||||||||||||
Accounts receivable |
$ | 695 | $ | 311 | $ | 1,006 | ||||||
Property and equipment |
8,315 | — | 8,315 | |||||||||
Merchandise trusts, restricted, at fair value |
4,853 | — | 4,853 | |||||||||
Non-compete agreements |
1,927 | — | 1,927 | |||||||||
|
|
|
|
|
|
|||||||
Total assets |
15,790 | 311 | 16,101 | |||||||||
|
|
|
|
|
|
|||||||
Liabilities: |
||||||||||||
Deferred margin |
2,419 | (1,592 | ) | 827 | ||||||||
Merchandise liabilities |
2,233 | 2,606 | 4,839 | |||||||||
Other liabilities |
164 | — | 164 | |||||||||
|
|
|
|
|
|
|||||||
Total liabilities |
4,816 | 1,014 | 5,830 | |||||||||
|
|
|
|
|
|
|||||||
Fair value of net assets acquired |
10,974 | (703 | ) | 10,271 | ||||||||
|
|
|
|
|
|
|||||||
Consideration paid—cash |
9,100 | — | 9,100 | |||||||||
Consideration paid—units |
3,592 | — | 3,592 | |||||||||
Fair value of note payable |
3,000 | — | 3,000 | |||||||||
Fair value of debt assumed for non-compete agreement |
924 | — | 924 | |||||||||
|
|
|
|
|
|
|||||||
Total consideration paid |
16,616 | — | 16,616 | |||||||||
|
|
|
|
|
|
|||||||
Goodwill from purchase |
$ | 5,642 | $ | 703 | $ | 6,345 | ||||||
|
|
|
|
|
|
If the acquisitions from 2014 and 2013 had been consummated at the beginning of the comparable prior annual reporting period, on a pro forma basis, for the three months ended March 31, 2014 and 2013, consolidated revenues, consolidated net income (loss) and net income (loss) per limited partner unit (basic and diluted) would have been as follows:
As of March 31, | ||||||||
2014 | 2013 | |||||||
(in thousands) | ||||||||
Revenue |
$ | 64,398 | $ | 60,111 | ||||
Net income (loss) |
(2 | ) | (1,655 | ) | ||||
Net income (loss) per limited partner unit (basic and diluted) |
$ | — | $ | (.08 | ) |
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 and the recognition of a gain on acquisition occurring during 2014 in 2013 rather than in the current period. 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, 2013 or of future results of operations of the locations.
The property acquired in 2014 has contributed less than $0.1 million of revenue and operating profit for the three months ended March 31, 2014. The properties acquired in the first quarter of 2013 have contributed $1.0 million of revenue and incurred less than $0.1 million of operating loss for the three months ended March 31, 2014.
First Quarter 2013 Settlement
During the three months ended March 31, 2013, recovery was effectuated of $1.3 million related to the partial settlement of claims from locations that the Company acquired in 2010. A gain of $0.9 million had been recorded as gain on settlement agreement on the unaudited condensed consolidated statement of operations, which was net of legal fees of $0.4 million. The balance of the funds was returned to the Company as a repayment for funds advanced to trusts at the time of acquisition.
Agreements with the Archdiocese of Philadelphia
On September 26, 2013, StoneMor Operating, LLC (“Operating Company”), StoneMor Pennsylvania LLC (“StoneMor Pennsylvania”) and StoneMor Pennsylvania Subsidiary LLC (“Subsidiary” and together with the Operating Company and StoneMor Pennsylvania, “Tenant”), each of which is a direct or indirect subsidiary of StoneMor Partners L.P. (“StoneMor”), and the Archdiocese of Philadelphia, an archdiocese governed by Canon Law of the Roman Catholic Church (“Landlord”) entered into a Lease Agreement (the “Lease”) and a Management Agreement (the “Management Agreement”), pursuant to which Tenant will operate 13 cemeteries in Pennsylvania. StoneMor joined the Lease and the Management Agreement as a guarantor of all Tenant’s obligations under this operating arrangement.
On March 20, 2014, Tenant entered into Amendment No. 1 (the “Amendment”) to the Lease, which extended the period for satisfying certain conditions precedent under the Lease to May 30, 2014 (the “Pre-Commencement Expiration Date”), after which each of Tenant and Landlord has the right to terminate the Lease if the conditions precedent are not satisfied. These conditions include, but are not limited to, the Tenant’s obtaining of financing for the Up-Front Rent, as defined below, and commencement of the Lease is a condition precedent to commencement of the Management Agreement. The parties to the Amendment also acknowledged that certain conditions precedent set forth in the Lease had expired or been satisfied, including obtaining the approval of the Orphans’ Division of the Court of Common Pleas of Philadelphia County.
Subject to certain closing conditions set forth in the Lease, Landlord agreed to lease to Tenant eight cemetery sites in the Philadelphia area. The Lease granted Tenant a sole and exclusive license (the “License”) to maintain and construct improvements in the operation of the cemeteries and to sell burial rights and all related merchandise and services, subject to the terms and conditions of the Lease. The Management Agreement enabled Tenant, subject to certain closing conditions, to serve as the exclusive operator of the remaining five cemeteries.
The term of the Lease and the Management Agreement shall commence (the “Commencement Date”) after the satisfaction or waiver of the Tenant’s and Landlord’s Pre-Commencement Conditions, and shall expire on the last day of the month on which the 60th anniversary of the Commencement Date occurs, subject to earlier termination as provided in the Lease (such date, the “Termination Date”). The Lease may be terminated pursuant to the terms of the Lease, including, but not limited to, by notice of termination given by Landlord to Tenant at any time during Lease year 11 (a “Lease Year 11 Termination”) or by either party due to the default or bankruptcy of the other party in accordance with the termination provisions of the Lease. If the Lease is terminated by Landlord or Tenant pursuant to the terms of the Lease, the Management Agreement will also be terminated. The term of the License shall commence on the Commencement Date and shall expire upon the Termination Date, at which time Tenant’s rights under the License shall revert to Landlord.
Tenant shall pay to Landlord an up-front rental payment of $53.0 million (the “Up-Front Rent”) on the Commencement Date. Tenant shall also pay to Landlord aggregate fixed rent of $36.0 million (the “Fixed Rent”) for the Cemeteries in the following amounts:
Lease Years 1-5 |
None | |
Lease Years 6-20 |
$1,000,000 per Lease Year | |
Lease Years 21-25 |
$1,200,000 per Lease Year | |
Lease Years 26-35 |
$1,500,000 per Lease Year | |
Lease Years 36-60 |
None |
The Fixed Rent for Lease Years 6 through 11 (the “Deferred Fixed Rent”) shall be deferred. If Landlord terminates the Lease pursuant to a Lease Year 11 Termination or Tenant terminates the Lease as a result of a Landlord’s default prior to the end of Lease Year 11 (collectively, a “Covered Termination”), the Deferred Fixed Rent shall be forfeited by Landlord and shall be retained by Tenant. If the Lease is not terminated by a Covered Termination, the Deferred Fixed Rent shall become due and payable 30 days after the end of Lease Year 11.
If Landlord terminates the Lease pursuant to a Lease Year 11 Termination, Landlord must repay to Tenant all $53.0 million of the Up-Front Rent. If the Lease is terminated for cause at any time, Landlord must repay to Tenant the unamortized portion of the Up-Front Rent: (i) based on a 60 year amortization schedule if terminated by Tenant due to Landlord’s default and (ii) based on a 30 year amortization schedule if terminated by Landlord due to Tenant’s default.
Generally, 51% of gross revenues from any source received by Tenant on account of the Cemeteries but unrelated to customary operations of the Cemeteries less Tenant’s and Landlord’s reasonable costs and expenses applicable to such unrelated activity shall be paid to Landlord as additional rent. In addition, Tenant shall have the right to request from time to time that Landlord sell (to a party that is independent and not an affiliate of StoneMor or any party that is a Tenant) all or portions of undeveloped land at the leased Cemeteries. If Landlord approves the sale of such undeveloped land, Tenant shall pay to Landlord, as additional rent, 51% of the net proceeds of any such sale.
|
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 Company’s 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 Company’s 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.
The Company’s 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 Company’s 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 March 31, 2014:
Cemeteries | Funeral Homes |
Corporate | Adjustment | Total | ||||||||||||||||||||||||
Southeast | Northeast | West | ||||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||
Revenues |
||||||||||||||||||||||||||||
Sales |
$ | 22,101 | $ | 7,410 | $ | 9,821 | $ | — | $ | — | $ | (10,458 | ) | $ | 28,874 | |||||||||||||
Service and other |
11,626 | 10,604 | 10,923 | — | — | (9,387 | ) | 23,766 | ||||||||||||||||||||
Funeral home |
— | — | — | 13,254 | — | (1,507 | ) | 11,747 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total revenues |
33,727 | 18,014 | 20,744 | 13,254 | — | (21,352 | ) | 64,387 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Costs and expenses |
||||||||||||||||||||||||||||
Cost of sales |
4,792 | 1,678 | 2,777 | — | — | (1,743 | ) | 7,504 | ||||||||||||||||||||
Cemetery |
6,395 | 3,235 | 3,699 | — | — | — | 13,329 | |||||||||||||||||||||
Selling |
7,248 | 2,802 | 3,234 | — | 545 | (2,640 | ) | 11,189 | ||||||||||||||||||||
General and administrative |
4,096 | 1,492 | 2,057 | — | — | — | 7,645 | |||||||||||||||||||||
Corporate overhead |
— | — | — | — | 7,456 | — | 7,456 | |||||||||||||||||||||
Depreciation and amortization |
633 | 236 | 521 | 736 | 242 | — | 2,368 | |||||||||||||||||||||
Funeral home |
— | — | — | 9,504 | — | (218 | ) | 9,286 | ||||||||||||||||||||
Acquisition related costs, net of recoveries |
— | — | — | — | 349 | — | 349 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total costs and expenses |
23,164 | 9,443 | 12,288 | 10,240 | 8,592 | (4,601 | ) | 59,126 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Operating profit |
$ | 10,563 | $ | 8,571 | $ | 8,456 | $ | 3,014 | $ | (8,592 | ) | $ | (16,751 | ) | $ | 5,261 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total assets |
$ | 580,359 | $ | 318,937 | $ | 434,562 | $ | 135,819 | $ | 23,290 | $ | — | $ | 1,492,967 | ||||||||||||||
Amortization of cemetery property |
$ | 1,251 | $ | 583 | $ | 1,223 | $ | — | $ | — | $ | (334 | ) | $ | 2,723 | |||||||||||||
Long lived asset additions |
$ | 1,564 | $ | 442 | $ | 1,041 | $ | 57 | $ | 52 | $ | — | $ | 3,156 | ||||||||||||||
Goodwill |
$ | 6,174 | $ | — | $ | 11,948 | $ | 30,615 | $ | — | $ | — | $ | 48,737 |
As of and for the three months ended March 31, 2013:
Cemeteries | Funeral Homes |
Corporate | Adjustment | Total | ||||||||||||||||||||||||
Southeast | Northeast | West | ||||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||
Revenues |
||||||||||||||||||||||||||||
Sales |
$ | 21,870 | $ | 8,977 | $ | 9,760 | $ | — | $ | — | $ | (10,621 | ) | $ | 29,986 | |||||||||||||
Service and other |
11,105 | 6,551 | 9,129 | — | — | (8,577 | ) | 18,208 | ||||||||||||||||||||
Funeral home |
— | — | — | 12,827 | — | (1,409 | ) | 11,418 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total revenues |
32,975 | 15,528 | 18,889 | 12,827 | — | (20,607 | ) | 59,612 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Costs and expenses |
||||||||||||||||||||||||||||
Cost of sales |
4,375 | 1,867 | 1,511 | — | — | (1,463 | ) | 6,290 | ||||||||||||||||||||
Cemetery |
5,972 | 3,233 | 3,580 | — | — | — | 12,785 | |||||||||||||||||||||
Selling |
7,213 | 3,159 | 3,091 | — | 372 | (2,611 | ) | 11,224 | ||||||||||||||||||||
General and administrative |
3,986 | 1,583 | 2,013 | — | — | — | 7,582 | |||||||||||||||||||||
Corporate overhead |
— | — | — | — | 7,988 | — | 7,988 | |||||||||||||||||||||
Depreciation and amortization |
529 | 222 | 540 | 659 | 380 | — | 2,330 | |||||||||||||||||||||
Funeral home |
— | — | — | 8,923 | — | (187 | ) | 8,736 | ||||||||||||||||||||
Acquisition related costs, net of recoveries |
— | — | — | — | 1,283 | — | 1,283 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total costs and expenses |
22,075 | 10,064 | 10,735 | 9,582 | 10,023 | (4,261 | ) | 58,218 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Operating profit |
$ | 10,900 | $ | 5,464 | $ | 8,154 | $ | 3,245 | $ | (10,023 | ) | $ | (16,346 | ) | $ | 1,394 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total assets |
$ | 538,893 | $ | 312,930 | $ | 414,580 | $ | 130,375 | $ | 23,931 | $ | — | $ | 1,420,709 | ||||||||||||||
Amortization of cemetery property |
$ | 851 | $ | 622 | $ | 247 | $ | — | $ | — | $ | (34 | ) | $ | 1,686 | |||||||||||||
Long lived asset additions |
$ | 910 | $ | 877 | $ | 512 | $ | 8,654 | $ | 31 | $ | — | $ | 10,984 | ||||||||||||||
Goodwill |
$ | 6,174 | $ | — | $ | 11,948 | $ | 30,615 | $ | — | $ | — | $ | 48,737 |
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 Company’s 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 unaudited condensed 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 unaudited condensed 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 unaudited condensed consolidated financial statements reflect Deferred Cemetery Revenue, Net, and Deferred Selling and Obtaining Costs on the unaudited condensed consolidated balance sheet, whereas the Company’s management accounting practices exclude these items.
|
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, 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 Company’s unaudited condensed consolidated balance sheet, current assets, long-term accounts receivable and current liabilities are recorded at amounts that approximate fair value.
The following table displays the Company’s assets measured at fair value as of March 31, 2014 and December 31, 2013.
As of March 31, 2014
Merchandise Trust
Level 1 | Level 2 | Total | ||||||||||
(in thousands) | ||||||||||||
Assets |
||||||||||||
Short-term investments |
$ | 59,227 | $ | — | $ | 59,227 | ||||||
Fixed maturities: |
||||||||||||
U.S. government and federal agency |
— | — | — | |||||||||
U.S. state and local government agency |
— | — | — | |||||||||
Corporate debt securities |
— | 9,428 | 9,428 | |||||||||
Other debt securities |
— | 5,842 | 5,842 | |||||||||
|
|
|
|
|
|
|||||||
Total fixed maturity investments |
— | 15,270 | 15,270 | |||||||||
|
|
|
|
|
|
|||||||
Mutual funds—debt securities |
113,592 | — | 113,592 | |||||||||
Mutual funds—equity securities—real estate sector |
51,210 | — | 51,210 | |||||||||
Mutual funds—equity securities—energy sector |
7,823 | — | 7,823 | |||||||||
Mutual funds—equity securities—MLP’s |
26,404 | — | 26,404 | |||||||||
Mutual funds—equity securities—other |
73,777 | — | 73,777 | |||||||||
Equity securities: |
||||||||||||
Preferred REIT’s |
— | — | — | |||||||||
Master limited partnerships |
61,254 | — | 61,254 | |||||||||
Global equity securities |
28,025 | — | 28,025 | |||||||||
Other invested assets |
— | 5,238 | 5,238 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 421,312 | $ | 20,508 | $ | 441,820 | ||||||
|
|
|
|
|
|
Perpetual Care Trust
Level 1 | Level 2 | Total | ||||||||||
(in thousands) | ||||||||||||
Assets |
||||||||||||
Short-term investments |
$ | 20,381 | $ | — | $ | 20,381 | ||||||
Fixed maturities: |
||||||||||||
U.S. government and federal agency |
119 | — | 119 | |||||||||
U.S. state and local government agency |
— | — | — | |||||||||
Corporate debt securities |
— | 24,937 | 24,937 | |||||||||
Other debt securities |
— | 371 | 371 | |||||||||
|
|
|
|
|
|
|||||||
Total fixed maturity investments |
119 | 25,308 | 25,427 | |||||||||
|
|
|
|
|
|
|||||||
Mutual funds—debt securities |
116,933 | — | 116,933 | |||||||||
Mutual funds—equity securities—real estate sector |
42,673 | — | 42,673 | |||||||||
Mutual funds—equity securities—energy sector |
14,987 | — | 14,987 | |||||||||
Mutual funds—equity securities—MLP’s |
43,246 | — | 43,246 | |||||||||
Mutual funds—equity securities—other |
13,353 | — | 13,353 | |||||||||
Equity securities: |
||||||||||||
Preferred REIT’s |
— | — | — | |||||||||
Master limited partnerships |
40,051 | — | 40,051 | |||||||||
Global equity securities |
924 | — | 924 | |||||||||
Other invested assets |
— | 179 | 179 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 292,667 | $ | 25,487 | $ | 318,154 | ||||||
|
|
|
|
|
|
As of December 31, 2013
Merchandise Trust
Level 1 | Level 2 | Total | ||||||||||
(in thousands) | ||||||||||||
Assets |
||||||||||||
Short-term investments |
$ | 46,518 | $ | — | $ | 46,518 | ||||||
Fixed maturities: |
||||||||||||
U.S. government and federal agency |
— | — | — | |||||||||
U.S. state and local government agency |
— | — | — | |||||||||
Corporate debt securities |
— | 9,171 | 9,171 | |||||||||
Other debt securities |
— | 7,324 | 7,324 | |||||||||
|
|
|
|
|
|
|||||||
Total fixed maturity investments |
— | 16,495 | 16,495 | |||||||||
|
|
|
|
|
|
|||||||
Mutual funds—debt securities |
111,333 | — | 111,333 | |||||||||
Mutual funds—equity securities—real estate sector |
49,103 | — | 49,103 | |||||||||
Mutual funds—equity securities—energy sector |
— | — | — | |||||||||
Mutual funds—equity securities—MLP’s |
36,193 | — | 36,193 | |||||||||
Mutual funds—equity securities—other |
72,234 | — | 72,234 | |||||||||
Equity securities: |
||||||||||||
Preferred REIT’s |
— | — | — | |||||||||
Master limited partnerships |
57,258 | — | 57,258 | |||||||||
Global equity securities |
28,437 | — | 28,437 | |||||||||
Other invested assets |
— | 5,723 | 5,723 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 401,076 | $ | 22,218 | $ | 423,294 | ||||||
|
|
|
|
|
|
Perpetual Care Trust
Level 1 | Level 2 | Total | ||||||||||
(in thousands) | ||||||||||||
Assets |
||||||||||||
Short-term investments |
$ | 16,686 | $ | — | $ | 16,686 | ||||||
Fixed maturities: |
||||||||||||
U.S. government and federal agency |
372 | — | 372 | |||||||||
U.S. state and local government agency |
— | — | — | |||||||||
Corporate debt securities |
— | 24,510 | 24,510 | |||||||||
Other debt securities |
— | 371 | 371 | |||||||||
|
|
|
|
|
|
|||||||
Total fixed maturity investments |
372 | 24,881 | 25,253 | |||||||||
|
|
|
|
|
|
|||||||
Mutual funds—debt securities |
116,013 | — | 116,013 | |||||||||
Mutual funds—equity securities—real estate sector |
40,763 | — | 40,763 | |||||||||
Mutual funds—equity securities—energy sector |
14,761 | — | 14,761 | |||||||||
Mutual funds—equity securities—MLP’s |
46,817 | — | 46,817 | |||||||||
Mutual funds—equity securities—other |
13,252 | — | 13,252 | |||||||||
Equity securities: |
||||||||||||
Preferred REIT’s |
— | — | — | |||||||||
Master limited partnerships |
36,925 | — | 36,925 | |||||||||
Global equity securities |
919 | — | 919 | |||||||||
Other invested assets |
— | 382 | 382 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 286,508 | $ | 25,263 | $ | 311,771 | ||||||
|
|
|
|
|
|
Level 2 securities primarily consist of corporate and other fixed income debt securities. The Company obtains pricing information for these securities from an independent pricing vendor. The pricing vendor uses various pricing models for each asset class that are consistent with what other market participants would use. The inputs and assumptions to the pricing vendor’s model are derived from market observable sources including benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers, and other market-related data. Since many fixed income securities do not trade on a daily basis, the pricing vendor uses available information as applicable such as benchmark curves, benchmarking of like securities, sector groupings and matrix pricing. Thus, certain securities may not be priced using quoted prices, but rather determined from market observable information. These investments are included in Level 2. The Company reviews the information provided by the pricing vendor on a regular basis. In addition, the pricing vendor has an established process in place for the identification and resolution of potentially erroneous prices.
There were no level 3 assets.
|
16. | SUBSEQUENT EVENTS |
On April 2, 2014, StoneMor Operating LLC and certain other subsidiaries of StoneMor Partners L.P. (the “Company”) entered into two Asset Sale Agreements (collectively, the “Agreements”) with certain subsidiaries of Service Corporation International (“SCI”) to acquire 9 funeral homes, 12 cemeteries, 2 crematories and certain related assets in Central Florida, North Carolina, Southeastern Pennsylvania and Virginia.
In consideration for the transfer of the assets and in addition to the assumption of certain liabilities pursuant to the Agreements, the Company will pay an aggregate purchase price of $53.8 million, subject to certain adjustments. The closing of the transactions is subject to the satisfaction of certain closing conditions, including obtaining all necessary regulatory approvals, including the approval of the Federal Trade Commission (“FTC”), and financing for the purchase price.
SCI can terminate the Agreements if, among other conditions, (i) all regulatory approvals are not obtained by June 30, 2014, subject to certain extensions; or (ii) the Company does not obtain the necessary financing within 20 business days after all regulatory approvals are obtained. If the Agreements are terminated due to the Company’s inability to obtain the financing for the purchase price within 20 business days after all regulatory approvals are obtained, and the Company did not use its best efforts to obtain such financing, the Company will be obligated to pay a break-up fee of $1.0 million.
|
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 March 31, 2014, the Partnership operated 278 cemeteries in 27 states and Puerto Rico, of which 260 are owned and 18 are operated under management or operating agreements. The Partnership also owned and operated 90 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 March 31, 2014 and for the three months ended March 31, 2014 and 2013 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, 2013 condensed consolidated balance sheet data was derived from audited financial statements included in the Company’s 2013 Annual Report on Form 10-K (“2013 Form 10-K”) and has been adjusted to include the effects of retrospective adjustments resulting from the Company’s 2013 first quarter acquisition, but does not include all disclosures required by GAAP, which are presented in the Company’s 2013 Form 10-K.
Principles of Consolidation
The unaudited condensed consolidated financial statements include the accounts of each of the Company’s 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 trusts and perpetual care trusts, 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.
|
Long-term accounts receivable, net, consisted of the following:
As of | ||||||||
March 31, 2014 |
December 31, 2013 |
|||||||
(in thousands) | ||||||||
Customer receivables |
$ | 177,349 | $ | 174,062 | ||||
Unearned finance income |
(19,807 | ) | (20,005 | ) | ||||
Allowance for contract cancellations |
(21,249 | ) | (20,275 | ) | ||||
|
|
|
|
|||||
136,293 | 133,782 | |||||||
Less: current portion, net of allowance |
55,809 | 55,415 | ||||||
|
|
|
|
|||||
Long-term portion, net of allowance |
$ | 80,484 | $ | 78,367 | ||||
|
|
|
|
Activity in the allowance for contract cancellations is as follows:
For the three months ended March 31, | ||||||||
2014 | 2013 | |||||||
(in thousands) | ||||||||
Balance—Beginning of period |
$ | 20,275 | $ | 17,933 | ||||
Provision for cancellations |
5,031 | 4,986 | ||||||
Charge-offs—net |
(4,057 | ) | (3,803 | ) | ||||
|
|
|
|
|||||
Balance—End of period |
$ | 21,249 | $ | 19,116 | ||||
|
|
|
|
|
Major classes of property and equipment follow:
As of | ||||||||
March 31, | December 31, | |||||||
2014 | 2013 | |||||||
(in thousands) | ||||||||
Building and improvements |
$ | 92,301 | $ | 91,575 | ||||
Furniture and equipment |
45,172 | 44,828 | ||||||
|
|
|
|
|||||
137,473 | 136,403 | |||||||
Less: accumulated depreciation |
(52,918 | ) | (51,396 | ) | ||||
|
|
|
|
|||||
Property and equipment—net |
$ | 84,555 | $ | 85,007 | ||||
|
|
|
|
Cemetery property consists of the following:
As of | ||||||||
March 31, | December 31, | |||||||
2014 | 2013 | |||||||
(in thousands) | ||||||||
Developed land |
$ | 71,159 | $ | 72,458 | ||||
Undeveloped land |
164,335 | 163,997 | ||||||
Mausoleum crypts and lawn crypts |
69,617 | 70,216 | ||||||
Other land |
9,798 | 9,798 | ||||||
|
|
|
|
|||||
Total |
$ | 314,909 | $ | 316,469 | ||||
|
|
|
|
|
The cost and market value associated with the assets held in merchandise trusts at March 31, 2014 and December 31, 2013 were as follows:
As of March 31, 2014 |
Cost | Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
||||||||||||
(in thousands) | ||||||||||||||||
Short-term investments |
$ | 59,227 | $ | — | $ | — | $ | 59,227 | ||||||||
Fixed maturities: |
||||||||||||||||
U.S. Government and federal agency |
— | — | — | — | ||||||||||||
U.S. State and local government agency |
— | — | — | — | ||||||||||||
Corporate debt securities |
9,394 | 87 | (53 | ) | 9,428 | |||||||||||
Other debt securities |
5,849 | — | (7 | ) | 5,842 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total fixed maturities |
15,243 | 87 | (60 | ) | 15,270 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Mutual funds—debt securities |
118,629 | 844 | (5,881 | ) | 113,592 | |||||||||||
Mutual funds—equity securities |
151,527 | 9,586 | (1,899 | ) | 159,214 | |||||||||||
Equity securities |
82,168 | 8,132 | (1,021 | ) | 89,279 | |||||||||||
Other invested assets |
5,414 | — | (176 | ) | 5,238 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total managed investments |
$ | 432,208 | $ | 18,649 | $ | (9,037 | ) | $ | 441,820 | |||||||
|
|
|
|
|
|
|
|
|||||||||
West Virginia Trust Receivable |
8,033 | — | — | 8,033 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 440,241 | $ | 18,649 | $ | (9,037 | ) | $ | 449,853 | |||||||
|
|
|
|
|
|
|
|
|||||||||
As of December 31, 2013 |
Cost | Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
||||||||||||
(in thousands) | ||||||||||||||||
Short-term investments |
$ | 46,518 | $ | — | $ | — | $ | 46,518 | ||||||||
Fixed maturities: |
||||||||||||||||
U.S. Government and federal agency |
— | — | — | — | ||||||||||||
U.S. State and local government agency |
— | — | — | — | ||||||||||||
Corporate debt securities |
9,105 | 162 | (96 | ) | 9,171 | |||||||||||
Other debt securities |
7,336 | — | (12 | ) | 7,324 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total fixed maturities |
16,441 | 162 | (108 | ) | 16,495 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Mutual funds—debt securities |
117,761 | 729 | (7,157 | ) | 111,333 | |||||||||||
Mutual funds—equity securities |
144,249 | 16,610 | (3,329 | ) | 157,530 | |||||||||||
Equity securities |
81,520 | 5,267 | (1,092 | ) | 85,695 | |||||||||||
Other invested assets |
5,809 | — | (86 | ) | 5,723 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total managed investments |
$ | 412,298 | $ | 22,768 | $ | (11,772 | ) | $ | 423,294 | |||||||
|
|
|
|
|
|
|
|
|||||||||
West Virginia Trust Receivable |
8,262 | — | — | 8,262 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 420,560 | $ | 22,768 | $ | (11,772 | ) | $ | 431,556 | |||||||
|
|
|
|
|
|
|
|
The contractual maturities of debt securities as of March 31, 2014 were as follows:
As of March 31, 2014 |
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 |
— | 3,989 | 5,439 | — | ||||||||||||
Other debt securities |
650 | 5,192 | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total fixed maturities |
$ | 650 | $ | 9,181 | $ | 5,439 | $ | — | ||||||||
|
|
|
|
|
|
|
|
An aging of unrealized losses on the Company’s investments in fixed maturities and equity securities at March 31, 2014 and December 31, 2013 is presented below:
Less than 12 months | 12 Months or more | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
As of March 31, 2014 |
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 |
1,967 | 10 | 1,605 | 43 | 3,572 | 53 | ||||||||||||||||||
Other debt securities |
4,469 | 7 | — | — | 4,469 | 7 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total fixed maturities |
6,436 | 17 | 1,605 | 43 | 8,041 | 60 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Mutual funds—debt securities |
1,984 | 25 | 91,694 | 5,856 | 93,678 | 5,881 | ||||||||||||||||||
Mutual funds—equity securities |
53,436 | 1,114 | 4,317 | 785 | 57,753 | 1,899 | ||||||||||||||||||
Equity securities |
11,552 | 786 | 1,427 | 235 | 12,979 | 1,021 | ||||||||||||||||||
Other invested assets |
2,125 | 176 | — | — | 2,125 | 176 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 75,533 | $ | 2,118 | $ | 99,043 | $ | 6,919 | $ | 174,576 | $ | 9,037 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Less than 12 months | 12 Months or more | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
As of December 31, 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 |
2,812 | 43 | 1,249 | 53 | 4,061 | 96 | ||||||||||||||||||
Other debt securities |
5,329 | 8 | 995 | 4 | 6,324 | 12 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total fixed maturities |
8,141 | 51 | 2,244 | 57 | 10,385 | 108 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Mutual funds—debt securities |
87,113 | 6,724 | 6,485 | 433 | 93,598 | 7,157 | ||||||||||||||||||
Mutual funds—equity securities |
29,993 | 2,444 | 4,217 | 885 | 34,210 | 3,329 | ||||||||||||||||||
Equity securities |
25,379 | 1,031 | 1,492 | 61 | 26,871 | 1,092 | ||||||||||||||||||
Other invested assets |
2,266 | 86 | — | — | 2,266 | 86 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 152,892 | $ | 10,336 | $ | 14,438 | $ | 1,436 | $ | 167,330 | $ | 11,772 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the Company’s merchandise trust activities for the three months ended March 31, 2014 is presented below:
Fair Value at 12/31/2013 |
Contributions | Distributions | Interest/ Dividends |
Capital Gain Distributions |
Realized Gain/ Loss |
Taxes | Fees | Unrealized Change in Fair Value |
Fair Value at 3/31/2014 |
|||||||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||||||||||||
$ | 431,556 | 16,699 | (8,891 | ) | 4,428 | 36 | 8,049 | (69 | ) | (571 | ) | (1,384 | ) | $ | 449,853 |
The cost and market value associated with the assets held in perpetual care trusts at March 31, 2014 and December 31, 2013 were as follows:
Gross | Gross | |||||||||||||||
Unrealized | Unrealized | Fair | ||||||||||||||
As of March 31, 2014 |
Cost | Gains | Losses | Value | ||||||||||||
(in thousands) | ||||||||||||||||
Short-term investments |
$ | 20,381 | $ | — | $ | — | $ | 20,381 | ||||||||
Fixed maturities: |
||||||||||||||||
U.S. Government and federal agency |
100 | 19 | — | 119 | ||||||||||||
U.S. State and local government agency |
— | — | — | — | ||||||||||||
Corporate debt securities |
24,533 | 507 | (103 | ) | 24,937 | |||||||||||
Other debt securities |
371 | — | — | 371 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total fixed maturities |
25,004 | 526 | (103 | ) | 25,427 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Mutual funds—debt securities |
121,250 | 550 | (4,867 | ) | 116,933 | |||||||||||
Mutual funds—equity securities |
93,132 | 21,270 | (143 | ) | 114,259 | |||||||||||
Equity securities |
26,241 | 14,745 | (11 | ) | 40,975 | |||||||||||
Other invested assets |
179 | — | — | 179 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 286,187 | $ | 37,091 | $ | (5,124 | ) | $ | 318,154 | |||||||
|
|
|
|
|
|
|
|
|||||||||
Gross | Gross | |||||||||||||||
Unrealized | Unrealized | Fair | ||||||||||||||
As of December 31, 2013 |
Cost | Gains | Losses | Value | ||||||||||||
(in thousands) | ||||||||||||||||
Short-term investments |
$ | 16,686 | $ | — | $ | — | $ | 16,686 | ||||||||
Fixed maturities: |
||||||||||||||||
U.S. Government and federal agency |
302 | 70 | — | 372 | ||||||||||||
U.S. State and local government agency |
— | — | — | — | ||||||||||||
Corporate debt securities |
24,378 | 340 | (208 | ) | 24,510 | |||||||||||
Other debt securities |
371 | — | — | 371 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total fixed maturities |
25,051 | 410 | (208 | ) | 25,253 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Mutual funds—debt securities |
121,493 | 466 | (5,946 | ) | 116,013 | |||||||||||
Mutual funds—equity securities |
93,243 | 22,521 | (171 | ) | 115,593 | |||||||||||
Equity securities |
25,580 | 12,283 | (19 | ) | 37,844 | |||||||||||
Other invested assets |
172 | 210 | — | 382 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 282,225 | $ | 35,890 | $ | (6,344 | ) | $ | 311,771 | |||||||
|
|
|
|
|
|
|
|
The contractual maturities of debt securities as of March 31, 2014 were as follows:
Less than | 1 year through | 6 years through | More than | |||||||||||||
As of March 31, 2014 |
1 year | 5 years | 10 years | 10 years | ||||||||||||
(in thousands) | ||||||||||||||||
U.S. Government and federal agency |
$ | — | $ | 119 | $ | — | $ | — | ||||||||
U.S. State and local government agency |
— | — | — | — | ||||||||||||
Corporate debt securities |
140 | 12,463 | 12,333 | 1 | ||||||||||||
Other debt securities |
371 | — | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total fixed maturities |
$ | 511 | $ | 12,582 | $ | 12,333 | $ | 1 | ||||||||
|
|
|
|
|
|
|
|
An aging of unrealized losses on the Company’s investments in fixed maturities and equity securities at March 31, 2014 and December 31, 2013 held in perpetual care trusts is presented below:
Less than 12 months | 12 Months or more | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
As of March 31, 2014 |
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 |
1,319 | 6 | 4,612 | 97 | 5,931 | 103 | ||||||||||||||||||
Other debt securities |
— | — | — | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total fixed maturities |
1,319 | 6 | 4,612 | 97 | 5,931 | 103 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Mutual funds—debt securities |
1,705 | 41 | 108,678 | 4,826 | 110,383 | 4,867 | ||||||||||||||||||
Mutual funds—equity securities |
1,213 | 143 | — | — | 1,213 | 143 | ||||||||||||||||||
Equity securities |
175 | 11 | — | — | 175 | 11 | ||||||||||||||||||
Other invested assets |
— | — | — | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 4,412 | $ | 201 | $ | 113,290 | $ | 4,923 | $ | 117,702 | $ | 5,124 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Less than 12 months | 12 Months or more | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
As of December 31, 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 |
5,664 | 93 | 3,122 | 115 | 8,786 | 208 | ||||||||||||||||||
Other debt securities |
— | — | — | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total fixed maturities |
5,664 | 93 | 3,122 | 115 | 8,786 | 208 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Mutual funds—debt securities |
93,473 | 4,781 | 16,367 | 1,165 | 109,840 | 5,946 | ||||||||||||||||||
Mutual funds—equity securities |
1,185 | 171 | — | — | 1,185 | 171 | ||||||||||||||||||
Equity securities |
513 | 19 | — | — | 513 | 19 | ||||||||||||||||||
Other invested assets |
— | — | — | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 100,835 | $ | 5,064 | $ | 19,489 | $ | 1,280 | $ | 120,324 | $ | 6,344 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the Company’s perpetual care trust activities for the three months ended March 31, 2014 is presented below:
Fair Value at 12/31/2013 |
Contributions | Distributions | Interest/ Dividends |
Capital Gain Distributions |
Realized Gain/ Loss |
Taxes | Fees | Unrealized Change in Fair Value |
Fair Value at 3/31/2014 |
|||||||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||||||||||||
$ | 311,771 | 4,352 | (4,096 | ) | 4,082 | — | 106 | (64 | ) | (418 | ) | 2,421 | $ | 318,154 |
|
A rollforward of goodwill by reportable segment is as follows:
Cemeteries | Funeral Homes |
Total | ||||||||||||||||||
Southeast | Northeast | West | ||||||||||||||||||
(in thousands) | ||||||||||||||||||||
Balance as of December 31, 2013 |
$ | 6,174 | $ | — | $ | 11,948 | $ | 30,615 | $ | 48,737 | ||||||||||
Goodwill acquired from acquisitions during the three months ended March 31, 2014 |
— | — | — | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance as of March 31, 2014 |
$ | 6,174 | $ | — | $ | 11,948 | $ | 30,615 | $ | 48,737 | ||||||||||
|
|
|
|
|
|
|
|
|
|
All of the intangible assets are subject to amortization. The major classes of intangible assets are as follows:
As of | As of | |||||||||||||||||||||||
March 31, 2014 | December 31, 2013 | |||||||||||||||||||||||
Gross Carrying | Accumulated | Net Intangible | Gross Carrying | Accumulated | Net Intangible | |||||||||||||||||||
Amount | Amortization | Asset | Amount | Amortization | Asset | |||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Amortized intangible assets: |
||||||||||||||||||||||||
Underlying contract value |
$ | 6,239 | $ | (741 | ) | $ | 5,498 | $ | 6,239 | $ | (702 | ) | $ | 5,537 | ||||||||||
Non-compete agreements |
7,950 | (4,339 | ) | 3,611 | 7,950 | (4,003 | ) | 3,947 | ||||||||||||||||
Other intangible assets |
269 | (102 | ) | 167 | 269 | (98 | ) | 171 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total intangible assets |
$ | 14,458 | $ | (5,182 | ) | $ | 9,276 | $ | 14,458 | $ | (4,803 | ) | $ | 9,655 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company had the following outstanding debt:
As of | ||||||||
March 31, | December 31, | |||||||
2014 | 2013 | |||||||
(in thousands) | ||||||||
7.875% Senior Notes, due 2021 |
$ | 175,000 | $ | 175,000 | ||||
Revolving Credit Facility, due January 2017 |
77,402 | 114,002 | ||||||
Notes payable—acquisition debt |
985 | 1,571 | ||||||
Notes payable—acquisition non-competes |
3,443 | 3,945 | ||||||
Insurance and vehicle financing |
743 | 1,529 | ||||||
|
|
|
|
|||||
Total |
257,573 | 296,047 | ||||||
Less current portion |
1,555 | 2,916 | ||||||
Less unamortized bond and note payable discounts |
3,964 | 4,115 | ||||||
|
|
|
|
|||||
Long-term portion |
$ | 252,054 | $ | 289,016 | ||||
|
|
|
|
|
At March 31, 2014 and December 31, 2013, deferred cemetery revenues, net, consisted of the following:
As of | ||||||||
March 31, | December 31, | |||||||
2014 | 2013 | |||||||
(in thousands) | ||||||||
Deferred cemetery revenue |
$ | 417,298 | $ | 403,250 | ||||
Deferred merchandise trust revenue |
97,536 | 88,730 | ||||||
Deferred merchandise trust unrealized gains (losses) |
9,612 | 10,996 | ||||||
Deferred pre-acquisition margin |
130,037 | 131,274 | ||||||
Deferred cost of goods sold |
(56,324 | ) | (54,257 | ) | ||||
|
|
|
|
|||||
Deferred cemetery revenues, net |
$ | 598,159 | $ | 579,993 | ||||
|
|
|
|
|||||
Deferred selling and obtaining costs |
$ | 90,801 | $ | 87,998 |
|
At March 31, 2014, operating leases will result in future payments in the following approximate amounts from January 1, 2015 and beyond:
(in thousands) | ||||
2015 |
$ | 1,203 | ||
2016 |
1,054 | |||
2017 |
965 | |||
2018 |
899 | |||
2019 |
883 | |||
Thereafter |
1,215 | |||
|
|
|||
Total |
$ | 6,219 | ||
|
|
|
Compensation expense recognized related to unit appreciation rights and restricted phantom unit awards for the three months ended March 31, 2014 and 2013 are summarized in the table below:
Three months ended | ||||||||
March 31, | ||||||||
2014 | 2013 | |||||||
(in thousands) | ||||||||
Unit appreciation rights |
$ | 19 | $ | 139 | ||||
Restricted phantom units |
252 | 191 | ||||||
|
|
|
|
|||||
Total unit-based compensation expense |
$ | 271 | $ | 330 | ||||
|
|
|
|
|
If the acquisitions from 2014 and 2013 had been consummated at the beginning of the comparable prior annual reporting period, on a pro forma basis, for the three months ended March 31, 2014 and 2013, consolidated revenues, consolidated net income (loss) and net income (loss) per limited partner unit (basic and diluted) would have been as follows:
As of March 31, | ||||||||
2014 | 2013 | |||||||
(in thousands) | ||||||||
Revenue |
$ | 64,398 | $ | 60,111 | ||||
Net income (loss) |
(2 | ) | (1,655 | ) | ||||
Net income (loss) per limited partner unit (basic and diluted) |
$ | — | $ | (.08 | ) |
Tenant shall also pay to Landlord aggregate fixed rent of $36.0 million (the “Fixed Rent”) for the Cemeteries in the following amounts:
Lease Years 1-5 |
None | |
Lease Years 6-20 |
$1,000,000 per Lease Year | |
Lease Years 21-25 |
$1,200,000 per Lease Year | |
Lease Years 26-35 |
$1,500,000 per Lease Year | |
Lease Years 36-60 |
None |
The table below reflects the Company’s preliminary assessment of the fair value of net assets acquired and the resulting gain on bargain purchase. These amounts may be retrospectively adjusted as additional information is received.
Preliminary | ||||
Assessment | ||||
(in thousands) | ||||
Assets: |
||||
Accounts receivable |
$ | 47 | ||
Cemetery property |
470 | |||
Property and equipment |
140 | |||
Merchandise trusts, restricted, at fair value |
2,607 | |||
Perpetual care trusts, restricted, at fair value |
691 | |||
|
|
|||
Total assets |
3,955 | |||
|
|
|||
Liabilities: |
||||
Deferred margin |
1,035 | |||
Merchandise liabilities |
956 | |||
Deferred tax liability |
641 | |||
Perpetual care trust corpus |
691 | |||
Other liabilities |
20 | |||
|
|
|||
Total liabilities |
3,343 | |||
|
|
|||
Fair value of net assets acquired |
612 | |||
|
|
|||
Consideration paid |
200 | |||
|
|
|||
Gain on bargain purchase |
$ | 412 | ||
|
|
The table below reflects the Company’s final assessment of the fair value of net assets acquired and displays the adjustments made to the revised values reported at December 31, 2013. The Company obtained additional information in the first quarter of 2014 and has retrospectively adjusted these values as noted below. The resulting goodwill is recorded in the Company’s Funeral Homes operating segment.
Revised | Final | |||||||||||
Assessment | Adjustments | Assessment | ||||||||||
(in thousands) | ||||||||||||
Assets: |
||||||||||||
Accounts receivable |
$ | 695 | $ | 311 | $ | 1,006 | ||||||
Property and equipment |
8,315 | — | 8,315 | |||||||||
Merchandise trusts, restricted, at fair value |
4,853 | — | 4,853 | |||||||||
Non-compete agreements |
1,927 | — | 1,927 | |||||||||
|
|
|
|
|
|
|||||||
Total assets |
15,790 | 311 | 16,101 | |||||||||
|
|
|
|
|
|
|||||||
Liabilities: |
||||||||||||
Deferred margin |
2,419 | (1,592 | ) | 827 | ||||||||
Merchandise liabilities |
2,233 | 2,606 | 4,839 | |||||||||
Other liabilities |
164 | — | 164 | |||||||||
|
|
|
|
|
|
|||||||
Total liabilities |
4,816 | 1,014 | 5,830 | |||||||||
|
|
|
|
|
|
|||||||
Fair value of net assets acquired |
10,974 | (703 | ) | 10,271 | ||||||||
|
|
|
|
|
|
|||||||
Consideration paid—cash |
9,100 | — | 9,100 | |||||||||
Consideration paid—units |
3,592 | — | 3,592 | |||||||||
Fair value of note payable |
3,000 | — | 3,000 | |||||||||
Fair value of debt assumed for non-compete agreement |
924 | — | 924 | |||||||||
|
|
|
|
|
|
|||||||
Total consideration paid |
16,616 | — | 16,616 | |||||||||
|
|
|
|
|
|
|||||||
Goodwill from purchase |
$ | 5,642 | $ | 703 | $ | 6,345 | ||||||
|
|
|
|
|
|
|
Segment information is as follows:
As of and for the three months ended March 31, 2014:
Cemeteries | Funeral Homes |
Corporate | Adjustment | Total | ||||||||||||||||||||||||
Southeast | Northeast | West | ||||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||
Revenues |
||||||||||||||||||||||||||||
Sales |
$ | 22,101 | $ | 7,410 | $ | 9,821 | $ | — | $ | — | $ | (10,458 | ) | $ | 28,874 | |||||||||||||
Service and other |
11,626 | 10,604 | 10,923 | — | — | (9,387 | ) | 23,766 | ||||||||||||||||||||
Funeral home |
— | — | — | 13,254 | — | (1,507 | ) | 11,747 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total revenues |
33,727 | 18,014 | 20,744 | 13,254 | — | (21,352 | ) | 64,387 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Costs and expenses |
||||||||||||||||||||||||||||
Cost of sales |
4,792 | 1,678 | 2,777 | — | — | (1,743 | ) | 7,504 | ||||||||||||||||||||
Cemetery |
6,395 | 3,235 | 3,699 | — | — | — | 13,329 | |||||||||||||||||||||
Selling |
7,248 | 2,802 | 3,234 | — | 545 | (2,640 | ) | 11,189 | ||||||||||||||||||||
General and administrative |
4,096 | 1,492 | 2,057 | — | — | — | 7,645 | |||||||||||||||||||||
Corporate overhead |
— | — | — | — | 7,456 | — | 7,456 | |||||||||||||||||||||
Depreciation and amortization |
633 | 236 | 521 | 736 | 242 | — | 2,368 | |||||||||||||||||||||
Funeral home |
— | — | — | 9,504 | — | (218 | ) | 9,286 | ||||||||||||||||||||
Acquisition related costs, net of recoveries |
— | — | — | — | 349 | — | 349 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total costs and expenses |
23,164 | 9,443 | 12,288 | 10,240 | 8,592 | (4,601 | ) | 59,126 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Operating profit |
$ | 10,563 | $ | 8,571 | $ | 8,456 | $ | 3,014 | $ | (8,592 | ) | $ | (16,751 | ) | $ | 5,261 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total assets |
$ | 580,359 | $ | 318,937 | $ | 434,562 | $ | 135,819 | $ | 23,290 | $ | — | $ | 1,492,967 | ||||||||||||||
Amortization of cemetery property |
$ | 1,251 | $ | 583 | $ | 1,223 | $ | — | $ | — | $ | (334 | ) | $ | 2,723 | |||||||||||||
Long lived asset additions |
$ | 1,564 | $ | 442 | $ | 1,041 | $ | 57 | $ | 52 | $ | — | $ | 3,156 | ||||||||||||||
Goodwill |
$ | 6,174 | $ | — | $ | 11,948 | $ | 30,615 | $ | — | $ | — | $ | 48,737 |
As of and for the three months ended March 31, 2013:
Cemeteries | Funeral Homes |
Corporate | Adjustment | Total | ||||||||||||||||||||||||
Southeast | Northeast | West | ||||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||
Revenues |
||||||||||||||||||||||||||||
Sales |
$ | 21,870 | $ | 8,977 | $ | 9,760 | $ | — | $ | — | $ | (10,621 | ) | $ | 29,986 | |||||||||||||
Service and other |
11,105 | 6,551 | 9,129 | — | — | (8,577 | ) | 18,208 | ||||||||||||||||||||
Funeral home |
— | — | — | 12,827 | — | (1,409 | ) | 11,418 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total revenues |
32,975 | 15,528 | 18,889 | 12,827 | — | (20,607 | ) | 59,612 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Costs and expenses |
||||||||||||||||||||||||||||
Cost of sales |
4,375 | 1,867 | 1,511 | — | — | (1,463 | ) | 6,290 | ||||||||||||||||||||
Cemetery |
5,972 | 3,233 | 3,580 | — | — | — | 12,785 | |||||||||||||||||||||
Selling |
7,213 | 3,159 | 3,091 | — | 372 | (2,611 | ) | 11,224 | ||||||||||||||||||||
General and administrative |
3,986 | 1,583 | 2,013 | — | — | — | 7,582 | |||||||||||||||||||||
Corporate overhead |
— | — | — | — | 7,988 | — | 7,988 | |||||||||||||||||||||
Depreciation and amortization |
529 | 222 | 540 | 659 | 380 | — | 2,330 | |||||||||||||||||||||
Funeral home |
— | — | — | 8,923 | — | (187 | ) | 8,736 | ||||||||||||||||||||
Acquisition related costs, net of recoveries |
— | — | — | — | 1,283 | — | 1,283 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total costs and expenses |
22,075 | 10,064 | 10,735 | 9,582 | 10,023 | (4,261 | ) | 58,218 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Operating profit |
$ | 10,900 | $ | 5,464 | $ | 8,154 | $ | 3,245 | $ | (10,023 | ) | $ | (16,346 | ) | $ | 1,394 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total assets |
$ | 538,893 | $ | 312,930 | $ | 414,580 | $ | 130,375 | $ | 23,931 | $ | — | $ | 1,420,709 | ||||||||||||||
Amortization of cemetery property |
$ | 851 | $ | 622 | $ | 247 | $ | — | $ | — | $ | (34 | ) | $ | 1,686 | |||||||||||||
Long lived asset additions |
$ | 910 | $ | 877 | $ | 512 | $ | 8,654 | $ | 31 | $ | — | $ | 10,984 | ||||||||||||||
Goodwill |
$ | 6,174 | $ | — | $ | 11,948 | $ | 30,615 | $ | — | $ | — | $ | 48,737 |
|
The following table displays the Company’s assets measured at fair value as of March 31, 2014 and December 31, 2013.
As of March 31, 2014
Merchandise Trust
Level 1 | Level 2 | Total | ||||||||||
(in thousands) | ||||||||||||
Assets |
||||||||||||
Short-term investments |
$ | 59,227 | $ | — | $ | 59,227 | ||||||
Fixed maturities: |
||||||||||||
U.S. government and federal agency |
— | — | — | |||||||||
U.S. state and local government agency |
— | — | — | |||||||||
Corporate debt securities |
— | 9,428 | 9,428 | |||||||||
Other debt securities |
— | 5,842 | 5,842 | |||||||||
|
|
|
|
|
|
|||||||
Total fixed maturity investments |
— | 15,270 | 15,270 | |||||||||
|
|
|
|
|
|
|||||||
Mutual funds—debt securities |
113,592 | — | 113,592 | |||||||||
Mutual funds—equity securities—real estate sector |
51,210 | — | 51,210 | |||||||||
Mutual funds—equity securities—energy sector |
7,823 | — | 7,823 | |||||||||
Mutual funds—equity securities—MLP’s |
26,404 | — | 26,404 | |||||||||
Mutual funds—equity securities—other |
73,777 | — | 73,777 | |||||||||
Equity securities: |
||||||||||||
Preferred REIT’s |
— | — | — | |||||||||
Master limited partnerships |
61,254 | — | 61,254 | |||||||||
Global equity securities |
28,025 | — | 28,025 | |||||||||
Other invested assets |
— | 5,238 | 5,238 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 421,312 | $ | 20,508 | $ | 441,820 | ||||||
|
|
|
|
|
|
Perpetual Care Trust
Level 1 | Level 2 | Total | ||||||||||
(in thousands) | ||||||||||||
Assets |
||||||||||||
Short-term investments |
$ | 20,381 | $ | — | $ | 20,381 | ||||||
Fixed maturities: |
||||||||||||
U.S. government and federal agency |
119 | — | 119 | |||||||||
U.S. state and local government agency |
— | — | — | |||||||||
Corporate debt securities |
— | 24,937 | 24,937 | |||||||||
Other debt securities |
— | 371 | 371 | |||||||||
|
|
|
|
|
|
|||||||
Total fixed maturity investments |
119 | 25,308 | 25,427 | |||||||||
|
|
|
|
|
|
|||||||
Mutual funds—debt securities |
116,933 | — | 116,933 | |||||||||
Mutual funds—equity securities—real estate sector |
42,673 | — | 42,673 | |||||||||
Mutual funds—equity securities—energy sector |
14,987 | — | 14,987 | |||||||||
Mutual funds—equity securities—MLP’s |
43,246 | — | 43,246 | |||||||||
Mutual funds—equity securities—other |
13,353 | — | 13,353 | |||||||||
Equity securities: |
||||||||||||
Preferred REIT’s |
— | — | — | |||||||||
Master limited partnerships |
40,051 | — | 40,051 | |||||||||
Global equity securities |
924 | — | 924 | |||||||||
Other invested assets |
— | 179 | 179 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 292,667 | $ | 25,487 | $ | 318,154 | ||||||
|
|
|
|
|
|
As of December 31, 2013
Merchandise Trust
Level 1 | Level 2 | Total | ||||||||||
(in thousands) | ||||||||||||
Assets |
||||||||||||
Short-term investments |
$ | 46,518 | $ | — | $ | 46,518 | ||||||
Fixed maturities: |
||||||||||||
U.S. government and federal agency |
— | — | — | |||||||||
U.S. state and local government agency |
— | — | — | |||||||||
Corporate debt securities |
— | 9,171 | 9,171 | |||||||||
Other debt securities |
— | 7,324 | 7,324 | |||||||||
|
|
|
|
|
|
|||||||
Total fixed maturity investments |
— | 16,495 | 16,495 | |||||||||
|
|
|
|
|
|
|||||||
Mutual funds—debt securities |
111,333 | — | 111,333 | |||||||||
Mutual funds—equity securities—real estate sector |
49,103 | — | 49,103 | |||||||||
Mutual funds—equity securities—energy sector |
— | — | — | |||||||||
Mutual funds—equity securities—MLP’s |
36,193 | — | 36,193 | |||||||||
Mutual funds—equity securities—other |
72,234 | — | 72,234 | |||||||||
Equity securities: |
||||||||||||
Preferred REIT’s |
— | — | — | |||||||||
Master limited partnerships |
57,258 | — | 57,258 | |||||||||
Global equity securities |
28,437 | — | 28,437 | |||||||||
Other invested assets |
— | 5,723 | 5,723 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 401,076 | $ | 22,218 | $ | 423,294 | ||||||
|
|
|
|
|
|
Perpetual Care Trust
Level 1 | Level 2 | Total | ||||||||||
(in thousands) | ||||||||||||
Assets |
||||||||||||
Short-term investments |
$ | 16,686 | $ | — | $ | 16,686 | ||||||
Fixed maturities: |
||||||||||||
U.S. government and federal agency |
372 | — | 372 | |||||||||
U.S. state and local government agency |
— | — | — | |||||||||
Corporate debt securities |
— | 24,510 | 24,510 | |||||||||
Other debt securities |
— | 371 | 371 | |||||||||
|
|
|
|
|
|
|||||||
Total fixed maturity investments |
372 | 24,881 | 25,253 | |||||||||
|
|
|
|
|
|
|||||||
Mutual funds—debt securities |
116,013 | — | 116,013 | |||||||||
Mutual funds—equity securities—real estate sector |
40,763 | — | 40,763 | |||||||||
Mutual funds—equity securities—energy sector |
14,761 | — | 14,761 | |||||||||
Mutual funds—equity securities—MLP’s |
46,817 | — | 46,817 | |||||||||
Mutual funds—equity securities—other |
13,252 | — | 13,252 | |||||||||
Equity securities: |
||||||||||||
Preferred REIT’s |
— | — | — | |||||||||
Master limited partnerships |
36,925 | — | 36,925 | |||||||||
Global equity securities |
919 | — | 919 | |||||||||
Other invested assets |
— | 382 | 382 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 286,508 | $ | 25,263 | $ | 311,771 | ||||||
|
|
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|
|
|
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