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 December 31, 2013, the Partnership operated 277 cemeteries in 27 states and Puerto Rico, of which 259 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 consolidated financial statements included in this Form 10-K have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

The Company’s presentation of income tax expense (benefit) within its consolidated statement of operations has changed. The components of the income tax expense (benefit), “State” and “Federal,” previously presented as two subcaptions, have been collapsed into one caption “Income tax expense (benefit).” This change in the income tax expense (benefit) presentation has no effect on previously reported net income (loss).

Principles of Consolidation

The 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 financial statements also include the effects of retrospective adjustments, resulting from one of the Company’s 2013 acquisitions (see Note 13).

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.

Total revenues derived from the cemeteries under long-term management or operating contracts totaled approximately $33.2 million, $39.2 million and $39.5 million for the years ended December 31, 2013, 2012 and 2011, respectively.

Summary of Significant Accounting Policies

The significant accounting policies followed by the Company are summarized below:

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less from the time they are acquired to be cash equivalents.

Cemetery Property

Cemetery property consists of developed and undeveloped cemetery property, constructed mausoleum crypts and lawn crypts and other cemetery property. Cemetery property is valued at cost, which is not in excess of market value.

Property and Equipment

        Property and equipment is recorded at cost and depreciated on a straight-line basis. Maintenance and repairs are charged to expense as incurred, whereas additions and major replacements are capitalized and depreciation is recorded over their estimated useful lives as follows:

 

Buildings and improvements		10 to 40 years
Furniture and equipment		3 to 10 years
Leasehold improvements		over the shorter of the term of the lease or the life of the asset

 

Merchandise Trusts

Pursuant to state law, a portion of the proceeds from pre-need sales of merchandise and services is put into trust (the “merchandise trust”) until such time that the Company meets the requirements for releasing trust principal, which is generally delivery of merchandise or performance of services. All investment earnings generated by the assets in the merchandise trusts (including realized gains and losses) are deferred until the associated merchandise is delivered or the services are performed (see Note 5).

Perpetual Care Trusts

Pursuant to state law, a portion of the proceeds from the sale of cemetery property is required to be paid into perpetual care trusts. The perpetual care trust principal does not belong to the Company and must remain in this trust into perpetuity while interest and dividends may be released and used to defray cemetery maintenance costs, which are expensed as incurred. The Company consolidates the trust into the Company’s financial statements in accordance with ASC 810-10-15-(13 through 22) because the trust is considered a variable interest entity for which the Company is the primary beneficiary. Earnings from the perpetual care trusts are recognized in current cemetery revenues (see Note 6).

Inventories

Inventories are classified within other current assets on the Company’s consolidated balance sheet and include cemetery and funeral home merchandise valued at the lower of cost or net realizable value. Cost is determined primarily on a specific identification basis on a first-in, first-out basis. Inventories were approximately $5.4 million and $4.7 million at December 31, 2013 and 2012, respectively.

Impairment of Long-Lived Assets

The Company monitors the recoverability of long-lived assets, including cemetery property, property and equipment and other assets, based on estimates using factors such as current market value, future asset utilization, business and regulatory climate and future undiscounted cash flows expected to result from the use of the related assets. The Company’s policy is to evaluate an asset for impairment when events or circumstances indicate that a long-lived asset’s carrying value may not be recovered. An impairment charge is recorded to write-down the asset to its fair value if the sum of future undiscounted cash flows is less than the carrying value of the asset. No impairment charges were recorded during the years ended December 31, 2013, 2012 and 2011, respectively.

Other-Than-Temporary Impairment of Trust Assets

The Company determines whether or not the impairment of a fixed maturity debt security is other-than-temporary by evaluating each of the following:

 

•

Whether it is the Company’s intent to sell the security. If there is intent to sell, the impairment is considered to be other-than-temporary.

 

•

If there is no intent to sell, the Company evaluates if it is not more likely than not that the Company will be required to sell the debt security before its anticipated recovery. If the Company determines that it is more likely than not that it will be required to sell an impaired investment before its anticipated recovery, the impairment is considered to be other-than-temporary.

The Company has further evaluated whether or not all assets in the merchandise trusts have other-than-temporary impairments based upon a number of criteria including the severity of the impairment, length of time a security has been in a loss position, changes in market conditions and concerns related to the specific issuer.

If an impairment is considered to be other-than-temporary, the cost basis of the security is adjusted downward to its fair value.

For assets held in the perpetual care trusts, any reduction in the cost basis due to an other-than-temporary impairment is offset with an equal and opposite reduction in the perpetual care trust corpus and has no impact on earnings.

For assets held in the merchandise trusts, any reduction in the cost basis due to an other-than-temporary impairment is recorded in deferred revenue.

The trust footnotes (Notes 5 and 6) disclose the adjusted cost basis of the assets in both the merchandise and perpetual care trust. This adjusted cost basis includes any adjustments to the original cost basis due to other-than-temporary impairments.

 

Goodwill

Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired. The Company tests goodwill for impairment using a two-step test. In the first step of the test, the Company compares the fair value of the reporting unit to its carrying amount, including goodwill. The Company determines the fair value of each reporting unit using the income approach. The Company does not record an impairment of goodwill in instances where the fair value of a reporting unit exceeds its carrying amount. If the aggregate fair value of a reporting unit is less than the related carrying amount, the Company proceeds to the second step of the test in which it records an impairment loss in an amount equal to the excess of the carrying amount of goodwill over the implied fair value. The goodwill impairment test is performed annually or more frequently if events or circumstances indicate that impairment may exist.

Deferred Cemetery Revenues, Net

Revenues from the sale of services and merchandise, as well as any investment income from the merchandise trust is deferred until such time that the services are performed or the merchandise is delivered.

In addition to amounts deferred on new contracts, and investment income and unrealized gains on our merchandise trust, deferred cemetery revenues, net, includes deferred revenues from pre-need sales that were entered into by entities prior to the acquisition of those entities by the Company, including entities that were acquired by Cornerstone Family Services, Inc. upon its formation in 1999. The Company provides for a reasonable profit margin for these deferred revenues (deferred margin) to account for the future costs of delivering products and providing services on pre-need contracts that the Company acquired through acquisition. Deferred margin amounts are deferred until the merchandise is delivered or services are performed.

Sales of Cemetery Merchandise and Services

The Company sells its merchandise and services on both a pre-need and at-need basis. Sales of at-need cemetery services and merchandise are recognized as revenue when the service is performed or merchandise is delivered.

Pre-need sales are usually made on an installment contract basis. Contracts are usually for a period not to exceed 60 months with payments of principal and interest required. For those contracts that do not bear a market rate of interest, the Company imputes such interest based upon the prime rate plus 150 basis points, which resulted in a rate of 4.75% for contracts entered into during the years ended December 31, 2013, 2012 and 2011, in order to segregate the principal and interest component of the total contract value.

At the time of a pre-need sale, the Company records an account receivable in an amount equal to the total contract value less any cash deposit paid, net of an estimated allowance for customer cancellations. The revenue from both the sales and interest component is deferred. Interest revenue is recognized utilizing the effective interest method. Sales revenue is recognized in accordance with the rules discussed below.

The allowance for customer cancellations is established based on management’s estimates of expected cancellations and historical experiences and is currently averaging approximately 10% of total contract values. Future cancellation rates may differ from this current estimate. Management will continue to evaluate cancellation rates and will make changes to the estimate should the need arise. Actual cancellations did not vary significantly from the estimates of expected cancellations at December 31, 2013 and December 31, 2012, respectively.

Revenue recognition related to sales of cemetery merchandise and services is governed by Securities and Exchange Commission Staff Accounting Bulletin No. 104, Revenue Recognition in Financial Statements (“SAB No. 104”), and the retail land sales provisions of ASC 976. Per this guidance, revenue from the sale of burial lots and constructed mausoleum crypts is deferred until such time that 10% of the sales price has been collected, at which time it is fully earned; revenues from the sale of unconstructed mausoleums are recognized using the percentage-of-completion method of accounting while revenues from merchandise and services are recognized once such merchandise is delivered (title has transferred to the customer and the merchandise is either installed or stored, at the direction of the customer, at the vendor’s warehouse or a third-party warehouse at no additional cost to us) or services are performed.

In order to appropriately match revenue and expenses, the Company defers certain pre-need cemetery and prearranged funeral direct obtaining costs that vary with and are primarily related to the acquisition of new pre-need cemetery and prearranged funeral business. Such costs are accounted for under the provisions of ASC 944, and are expensed as revenues are recognized.

The Company records a merchandise liability equal to the estimated cost to provide services and purchase merchandise for all outstanding and unfulfilled pre-need contracts. The merchandise liability is established and recorded at the time of the sale but is not recognized as an expense until such time that the associated revenue for the underlying contract is also recognized. The merchandise liability is established based on actual costs incurred or an estimate of future costs, which may include a provision for inflation. The merchandise liability is reduced when services are performed or when payment for merchandise is made by the Company and title is transferred to the customer.

Sales of Funeral Home Services

Revenue from funeral home services is recognized as services are performed and merchandise is delivered.

 

Pursuant to state law, a portion of proceeds received from pre-need funeral service contracts is put into trust while amounts used to defray the initial administrative costs are not. All investment earnings generated by the assets in the trust (including realized gains and losses) are deferred until the associated merchandise is delivered or the services are performed. The balance of the amounts in these trusts is included within the merchandise trusts above.

Income Taxes

The Company’s subsidiaries are subject to both federal and state income taxes. The Company records deferred tax assets and deferred tax liabilities to recognize temporary differences between the bases of assets and liabilities in its tax and GAAP balance sheets and for federal and state net operating loss carryforwards and alternative minimum tax credits. The Company records a valuation allowance against its deferred tax assets if it deems that it is more likely than not that some portion or all of the recorded deferred tax assets will not be realizable in future periods.

Net Income per Unit

Basic net income per unit is determined by dividing net income, after deducting the amount of net income allocated to the general partner interest from its issuance date of September 20, 2004, by the weighted average number of units outstanding during the period. Diluted net income per unit is calculated in the same manner as basic net income per unit, except that the weighted average number of outstanding units is increased to include the dilutive effect of outstanding unit options and phantom unit awards. All outstanding unit appreciation rights (See Note 11) that would have a dilutive effect were assumed to be exercised and converted to common units using the average fair market value of a common unit for the period presented. Also, the average phantom units outstanding during the period were assumed to be converted to common units for the period presented. The diluted weighted average number of limited partners’ units outstanding presented on the consolidated statement of operations does not include 297,078 units, 253,384 units and 322,866 units for the years ended December 31, 2013, 2012 and 2011, respectively, as their effects would be anti-dilutive.

New Accounting Pronouncements

In the third quarter of 2013, the Financial Accounting Standards Board issued Update No. 2013-11, Income Taxes (Topic 740) (“ASU 2013-11”). ASU 2013-11 provides guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. This amendment requires an entity to present in the financial statements an unrecognized tax benefit, or a portion of an unrecognized tax benefit, as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent that (i) a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position; or (ii) the tax law of the applicable jurisdiction does not require, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The Company applied the provisions of ASU 2013-11 to all unrecognized tax benefits that existed at the effective date of December 15, 2013. This adoption did not have a significant impact on our financial position, results of operations, or cash flows.

Use of Estimates

Preparation of these 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 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 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 consolidated balance sheet.

2.	LONG-TERM ACCOUNTS RECEIVABLE, NET OF ALLOWANCE

Long-term accounts receivable, net, consisted of the following:

 

		As of December 31,
		2013				2012
		(in thousands)
Customer receivables		$	173,751			$	159,726
Unearned finance income			(20,005	)			(18,377	)
Allowance for contract cancellations			(20,275	)			(17,933	)
			133,471				123,416
Less: current portion - net of allowance			55,115				51,895
Long-term portion - net of allowance		$	78,356			$	71,521

Activity in the allowance for contract cancellations is as follows:

 

		For the Year Ended December 31,
		2013				2012				2011
		(in thousands)
Balance - Beginning of period		$	17,933			$	17,582			$	15,832
Provision for cancellations			20,069				16,768				18,649
Charge-offs - net			(17,727	)			(16,417	)			(16,899	)
Balance - End of period		$	20,275			$	17,933			$	17,582

The Company’s customer receivables are considered financing receivables as they primarily relate to pre-need sales which are usually made on an installment contract basis. Contracts are usually for a period not to exceed 60 months with payments of principal and interest required. The Company has a standard contractual agreement that it executes related to these receivables and therefore the Company only has one portfolio segment of receivables with no separate classes of receivables within that segment.

Management evaluates customer receivables for impairment on an individual contract basis based upon the age of the receivable and the customer’s payment history. The Company’s receivables primarily relate to pre-need sales and therefore the Company has not performed the service or fulfilled all of its obligations for the merchandise to which the receivable relates. As a result, the Company has some leverage with its customers in terms of collecting its receivables. Further, the Company is flexible with customers who have difficulty making payments and will try to create revised or alternative payment arrangements with such customers. As a result, the Company does not write-off a receivable until all possible collection efforts have been exhausted. As of December 31, 2013 and 2012, approximately 10% and 9%, respectively, of the Company’s gross accounts receivable balance was 90 days past due.

3.	CEMETERY PROPERTY

Cemetery property consists of the following:

 

		As of December 31,
		2013				2012
		(in thousands)
Developed land		$	72,458			$	71,318
Undeveloped land			163,997				162,275
Mausoleum crypts and lawn crypts			70,216				69,525
Other land			9,798				6,862
Total		$	316,469			$	309,980

4.	PROPERTY AND EQUIPMENT

Major classes of property and equipment follow:

 

		As of December 31,
		2013				2012
		(in thousands)
Building and improvements		$	91,575			$	82,056
Furniture and equipment			44,828				42,353
			136,403				124,409
Less: accumulated depreciation			(51,396	)			(44,669	)
Property and equipment - net		$	85,007			$	79,740

Depreciation expense was $7.5 million, $7.2 million and $5.9 million for the years ended December 31, 2013, 2012 and 2011, respectively.

5.	MERCHANDISE TRUSTS

At December 31, 2013 and December 31, 2012, 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 $8.3 million and $7.6 million of investments held in trust by the West Virginia Funeral Directors Association at December 31, 2013 and December 31, 2012, respectively, in its merchandise trust assets. As required by law, the Company deposits a portion of certain funeral merchandise sales in West Virginia into a trust that is held by the West Virginia Funeral Directors Association. These trusts are recorded at their account value, which approximates their fair value.

 

The cost and market value associated with the assets held in the merchandise trusts at December 31, 2013 and December 31, 2012 is presented below:

 

						Gross				Gross
						Unrealized				Unrealized				Fair
As of December 31, 2013		Cost				Gains				Losses				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
						Gross				Gross
						Unrealized				Unrealized				Fair
As of December 31, 2012		Cost				Gains				Losses				Value
		(in thousands)
Short-term investments		$	27,890			$	—			$	—			$	27,890
Fixed maturities:
U.S. Government and federal agency			—				—				—				—
U.S. State and local government agency			—				—				—				—
Corporate debt securities			8,590				165				(41	)			8,714
Other debt securities			4,320				—				(3	)			4,317
Total fixed maturities			12,910				165				(44	)			13,031
Mutual funds - debt securities			105,388				3,425				(892	)			107,921
Mutual funds - equity securities			145,538				6,229				(6,697	)			145,070
Equity securities			68,714				3,448				(4,755	)			67,407
Other invested assets			7,376				165				(444	)			7,097
Total managed investments		$	367,816			$	13,432			$	(12,832	)		$	368,416
West Virginia Trust Receivable			7,557				—				—				7,557
Total		$	375,373			$	13,432			$	(12,832	)		$	375,973

 

The contractual maturities of debt securities as of December 31, 2013 and December 31, 2012 are presented below:

 

		Less than				1 year through				6 years through				More than
As of December 31, 2013		1 year				5 years				10 years				10 years
		(in thousands)
U.S. Government and federal agency		$	—			$	—			$	—			$	—
U.S. State and local government agency			—				—				—				—
Corporate debt securities			—				4,332				4,839				—
Other debt securities			2,150				5,174				—				—
Total fixed maturities		$	2,150			$	9,506			$	4,839			$	—
		Less than				1 year through				6 years through				More than
As of December 31, 2012		1 year				5 years				10 years				10 years
		(in thousands)
U.S. Government and federal agency		$	—			$	—			$	—			$	—
U.S. State and local government agency			—				—				—				—
Corporate debt securities			—				3,861				4,853				—
Other debt securities			4,317				—				—				—
Total fixed maturities		$	4,317			$	3,861			$	4,853			$	—

 

An aging of unrealized losses on the Company’s investments in fixed maturities and equity securities at December 31, 2013 and December 31, 2012 is presented below:

 

		Less than 12 months								12 Months or more								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
As of 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

 

		Less than 12 months								12 Months or more								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
As of December 31, 2012		Value				Losses				Value				Losses				Value				Losses
		(in thousands)
Fixed maturities:
U.S. Government and federal agency		$	—			$	—			$	—			$	—			$	—			$	—
U.S. State and local government agency			—				—				—				—				—				—
Corporate debt securities			2,140				20				297				21				2,437				41
Other debt securities			4,317				3				—				—				4,317				3
Total fixed maturities			6,457				23				297				21				6,754				44
Mutual funds - debt securities			6,388				463				4,198				429				10,586				892
Mutual funds - equity securities			48,255				5,500				19,655				1,197				67,910				6,697
Equity securities			17,932				1,527				15,538				3,228				33,470				4,755
Other invested assets			2,558				444				—				—				2,558				444
Total		$	81,590			$	7,957			$	39,688			$	4,875			$	121,278			$	12,832

A reconciliation of the Company’s merchandise trust activities for the years ended December 31, 2013 and December 31, 2012 is presented below:

 

Year ended December 31, 2013

Fair

Capital

Realized

Unrealized

Fair

Value at

Interest/

Gain

Gain/

Change in

Value at

12/31/2012

Contributions

Distributions

Dividends

Distributions

Loss

Taxes

Fees

Fair Value

12/31/2013

(in thousands)

$375,973

68,305

(55,891)

18,176

968

19,502

(2,986)

(2,887)

10,396

$431,556

 

Year ended December 31, 2012

Fair

Capital

Realized

Unrealized

Fair

Value at

Interest/

Gain

Gain/

Change in

Value at

12/31/2011

Contributions

Distributions

Dividends

Distributions

Loss

Taxes

Fees

Fair Value

12/31/2012

(in thousands)

$344,515

55,754

(52,618)

16,045

788

8,862

(3,486)

(2,424)

8,537

$375,973

 

The Company made net contributions into the trusts of approximately $12.4 million and $3.1 million during the years ended December 31, 2013 and 2012, respectively. During the year ended December 31, 2013, purchases and sales of securities available for sale included in trust investments were approximately $536.2 million and $540.9 million, respectively. During the year ended December 31, 2012, purchases and sales of securities available for sale included in trust investments were approximately $464.7 million and $461.0 million, respectively. Contributions include $10.3 million and $12.0 million of assets that were acquired through acquisitions during the years ended December 31, 2013 and 2012, respectively. Distributions include $5.8 million of assets that were divested as a result of the termination of an operating agreement during the year ended December 31, 2012.

Other-Than-Temporary Impairment of Trust Assets

In accordance with ASC 320-10-65-1, the Company assesses whether an impairment is other-than-temporary by performing each of the following:

Fixed Maturity Debt Securities

 

•

The Company assesses whether it has the intent to sell any impaired debt security; or

 

•

The Company assesses whether it is more likely than not it will be required to sell any impaired debt security before its anticipated recovery;

 

•

If either of these conditions exists, the impairment is considered to be other than temporary;

 

•

The Company assesses whether or not there is a credit loss on an impaired security. A credit loss is the excess of the amortized cost of the security over the present value of future expected cash flows. If there is a credit loss, the Company recognizes an other-than-temporary impairment in earnings in an amount equal to the credit loss. This amount becomes the new cost basis of the asset and will not be adjusted for subsequent changes in the fair value of the asset;

 

•

The Company assesses the overall credit quality of each issue by evaluating its credit rating as reported by any credit rating agency. The Company also determines if there has been any downgrade in its creditworthiness as reported by such credit rating agency;

 

•

The Company determines if there has been any suspension of interest payments or any announcements of any intention to do so;

 

•

The Company evaluates the length of time until the principal becomes due and whether the ability to satisfy this payment has been impaired.

Equity Securities

 

•

The Company compares the proportional decline in value to the overall sector decline as measured via certain specific indices;

 

•

The Company determines whether there has been further periodic decline from prior periods or whether there has been a recovery in value.

For all securities

 

•

The Company evaluates the severity of the impairment and length of time that a security has been in a loss position;

 

•

The Company determines if there is any publicly available information that would cause the Company to believe that impairment is other than temporary in nature.

During the year ended December 31, 2013, the Company determined that there were 7 securities with an aggregate cost basis of approximately $2.6 million and an aggregate fair value of approximately $1.6 million, resulting in an impairment of $1.0 million, wherein such impairment was considered to be other-than-temporary. During the year ended December 31, 2012, the Company determined that there were 8 securities with an aggregate cost basis of approximately $2.0 million and an aggregate fair value of approximately $1.0 million, resulting in an impairment of $1.0 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.

6.	PERPETUAL CARE TRUSTS

At December 31, 2013 and December 31, 2012, 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 December 31, 2013 and December 31, 2012 were as follows:

 

						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
						Gross				Gross
						Unrealized				Unrealized				Fair
As of December 31, 2012		Cost				Gains				Losses				Value
		(in thousands)
Short-term investments		$	21,419			$	—			$	—			$	21,419
Fixed maturities:
U.S. Government and federal agency			408				104				—				512
U.S. State and local government agency			—				—				—				—
Corporate debt securities			22,690				702				(101	)			23,291
Other debt securities			371				—				—				371
Total fixed maturities			23,469				806				(101	)			24,174
Mutual funds - debt securities			103,909				3,429				(150	)			107,188
Mutual funds - equity securities			94,239				5,222				(249	)			99,212
Equity securities			23,797				6,563				(455	)			29,905
Other invested assets			113				302				—				415
Total		$	266,946			$	16,322			$	(955	)		$	282,313

 

The contractual maturities of debt securities as of December 31, 2013 and December 31, 2012 are as follows:

 

		Less than				1 year through				6 years through				More than
As of December 31, 2013		1 year				5 years				10 years				10 years
		(in thousands)
U.S. Government and federal agency		$	253			$	119			$	—			$	—
U.S. State and local government agency			—				—				—				—
Corporate debt securities			115				11,943				12,451				1
Other debt securities			371				—				—				—
Total fixed maturities		$	739			$	12,062			$	12,451			$	1
		Less than				1 year through				6 years through				More than
As of December 31, 2012		1 year				5 years				10 years				10 years
		(in thousands)
U.S. Government and federal agency		$	128			$	384			$	—			$	—
U.S. State and local government agency			—				—				—				—
Corporate debt securities			78				10,847				12,366				—
Other debt securities			371				—				—				—
Total fixed maturities		$	577			$	11,231			$	12,366			$	—

An aging of unrealized losses on the Company’s investments in fixed maturities and equity securities at December 31, 2013 and December 31, 2012 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 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

 

		Less than 12 months								12 Months or more								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
As of December 31, 2012		Value				Losses				Value				Losses				Value				Losses
		(in thousands)
Fixed maturities:
U.S. Government and federal agency		$	—			$	—			$	—			$	—			$	—			$	—
U.S. State and local government agency			—				—				—				—				—				—
Corporate debt securities			4,630				48				711				53				5,341				101
Other debt securities			—				—				—				—				—				—
Total fixed maturities			4,630				48				711				53				5,341				101
Mutual funds - debt securities			859				35				870				115				1,729				150
Mutual funds - equity securities			34,805				249				—				—				34,805				249
Equity securities			4,269				238				545				217				4,814				455
Other invested assets			—				—				—				—				—				—
Total		$	44,563			$	570			$	2,126			$	385			$	46,689			$	955

A reconciliation of the Company’s perpetual care trust activities for the years ended December 31, 2013 and 2012 is presented below:

 

Year ended December 31, 2013

Fair

Capital

Realized

Unrealized

Fair

Value at

Interest/

Gain

Gain/

Change in

Value at

12/31/2012

Contributions

Distributions

Dividends

Distributions

Loss

Taxes

Fees

Fair Value

12/31/2013

(in thousands)

$282,313

11,000

(13,176)

15,699

—

4,725

(739)

(2,230)

14,179

$311,771

 

Year ended December 31, 2012

Fair

Capital

Realized

Unrealized

Fair

Value at

Interest/

Gain

Gain/

Change in

Value at

12/31/2011

Contributions

Distributions

Dividends

Distributions

Loss

Taxes

Fees

Fair Value

12/31/2012

(in thousands)

$254,679

12,535

(15,025)

16,740

123

2,208

(659)

(1,837)

13,549

$282,313

The Company made net withdrawals out of the trust of approximately $2.2 million and $2.5 million during the years ended December 31, 2013 and 2012, respectively. During the year ended December 31, 2013, purchases and sales of securities available for sale included in trust investments were approximately $114.6 million and $110.8 million, respectively. During the year ended December 31, 2012, purchases and sales of securities available for sale included in trust investments were approximately $299.9 million and $297.8 million, respectively. Contributions include $5.9 million and $5.0 million of assets that were acquired through acquisitions during the years ended December 31, 2013 and 2012, respectively.

Other-Than-Temporary Impairment of Trust Assets

Refer to Note 5 for a detailed discussion of the accounting rules related to other-than-temporarily impaired assets and the Company’s procedures for evaluating whether impairment to assets is other than temporary.

During the year ended December 31, 2013, the Company determined that there were no other than temporary impairments to the investment portfolio in the perpetual care trusts.

During the year ended December 31, 2012, the Company determined that there were 2 securities with an aggregate cost basis of approximately $10.6 million and an aggregate fair value of approximately $7.8 million, resulting in an impairment of $2.8 million, wherein such impairment was considered to be other-than-temporary. Accordingly, the Company adjusted the cost basis of these assets to their current value and offset this change against the liability for perpetual care trusts corpus.