| GENERAL
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1. | GENERAL |
Nature of Operations
StoneMor Partners L.P. ( the “Partnership”) is a provider of funeral and cemetery products and services in the death care industry in the United States. As of December 31, 2015, the Partnership operated 307 cemeteries in 27 states and Puerto Rico, of which 276 are owned and 31 are operated under lease, management or operating agreements. The Partnership also owned and operated 105 funeral homes in 19 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 Partnership’s presentation of its deferred financing costs within its consolidated balance sheet has changed. These deferred costs were previously presented as under their own caption and are now presented as an offset to long-term debt using the caption, “Long-term debt, net of deferred financing cost.” Retrospective adjustment was made to the December 31, 2014 presentation of these deferred costs. This change in presentation has decreased the “Total assets” amount by $9.1 million and decreased “Total liabilities” by the same amount at December 31, 2014. There was no additional impact on other assets or any other previously reported amounts.
Certain amounts in the prior year’s financial statements have been reclassified to conform to the current year presentation.
The Partnership has revised its segment reporting and reporting units from prior presentations based on how it currently manages operations and makes business decisions. The Partnership now has two distinct reportable segments and reporting units, which are classified as Cemetery Operations and Funeral Homes, and are supported by corporate costs and expenses. Prior period balances and activities were adjusted to conform to this revised presentation.
Principles of Consolidation
The consolidated financial statements include the accounts of each of the Partnership’s wholly-owned subsidiaries. These statements also include the accounts of the merchandise and perpetual care trusts in which the Partnership has a variable interest and is the primary beneficiary. The Partnership operates 31 cemeteries under long-term lease, operating or management contracts. The operations of 16 of these managed cemeteries have been consolidated.
The Partnership operates 15 cemeteries under long-term leases and other agreements that do not qualify as acquisitions for accounting purposes, including 13 cemeteries related to the transaction with the Archdiocese of Philadelphia that closed in the second quarter of 2014. As a result, the Partnership did not consolidate all of the existing assets and liabilities related to these cemeteries. The Partnership has consolidated the existing assets and liabilities of the merchandise and perpetual care trusts associated with these cemeteries as variable interest entities since the Partnership controls and receives the benefits and absorbs any losses from operating these trusts. Under the long-term leases, and other agreements associated with these properties, which are subject to certain termination provisions, the Partnership is the exclusive operator of these cemeteries and earns revenues related to sales of merchandise, services, and interment rights, and incurs expenses related to such sales, including the maintenance and upkeep of these cemeteries. Upon termination of these contracts, the Partnership will retain all of the benefits and related contractual obligations incurred from sales generated during the contract period. The Partnership has also recognized the existing merchandise liabilities that it assumed as part of these agreements.
Total revenues derived from the cemeteries under these agreements totaled approximately $51.8 million, $42.5 million and $33.2 million for the years ended December 31, 2015, 2014 and 2013, respectively.
Summary of Significant Accounting Policies
Use of Estimates
The preparation of the Partnership’s consolidated financial statements in conformity with GAAP 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, as well as the reported amounts of revenue and expense during the reporting periods. The Partnership’s consolidated financial statements are based on a number of significant estimates, including revenue and expense accruals, depreciation and amortization, merchandise trusts and perpetual care trusts asset valuation, allowance for cancellations, unit-based compensation, merchandise liability, deferred sales revenue, deferred margin, deferred merchandise trust investment earnings, deferred obtaining costs, assets and liabilities obtained via business combinations and income taxes. As a result, actual results could differ from those estimates.
Accounts Receivable, Net of Allowance
The Partnership sells pre-need cemetery contracts whereby the customer enters into arrangements for future merchandise and services prior to the time of need. These sales are usually made using interest-bearing installment contracts not to exceed 60 months. The interest income is recorded when the interest amount is considered realizable and collectible, which typically coincides with cash payment. Interest income is not recognized until payments are collected in accordance with the contract. At the time of a pre-need sale, the Partnership records an account receivable in an amount equal to the total contract value less unearned finance income and any cash deposit paid, net of an estimated allowance for customer cancellations. The Partnership recognizes an allowance for cancellation of these receivables based upon its historical experience, which is recorded as a reduction in accounts receivable and a corresponding offset to deferred cemetery revenues, net.
Management evaluates customer receivables for impairment on an individual contract basis based upon its historical experience, including the age of the receivable and the customer’s payment history. Since the Partnership’s receivables primarily relate to pre-need sales, the Partnership has not performed the service or fulfilled all of its obligations for the merchandise to which the receivable relates and, as such, no risk of loss exists regarding accounts receivable.
Cash and Cash Equivalents
The Partnership 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 stated at cost or, upon acquisition of a business, at the fair value of the assets acquired.
Property and Equipment
Property and equipment is stated at cost or, upon acquisition of a business, at the fair value of the assets acquired 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 Partnership 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 6).
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 Partnership 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 Partnership consolidates the trust into its financial statements because the trust is considered a variable interest entity for which the Partnership is the primary beneficiary. Earnings from the perpetual care trusts are recognized in current cemetery revenues (see Note 7).
Inventories
Inventories are classified within other current assets on the Partnership’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 $9.7 million and $5.6 million at December 31, 2015 and 2014, respectively.
Impairment of Long-Lived Assets
The Partnership 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, at a location level. The Partnership’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.
Other-Than-Temporary Impairment of Trust Assets
The Partnership 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 Partnership’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 Partnership evaluates if it is not more likely than not that it will be required to sell the debt security before its anticipated recovery. If the Partnership 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 Partnership further evaluates whether or not all assets in the 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.
Goodwill
The Partnership tests goodwill for impairment at each year end by comparing its reporting units’ estimated fair values to carrying values. Because quoted market prices for the reporting units are not available, the Partnership’s management must apply judgment in determining the estimated fair value of these reporting units. The Partnership’s management uses all available information to make these fair value determinations, including the present values of expected future cash flows using discount rates commensurate with the risks involved in the Partnership’s assets and the available market data of the industry group. A key component of these fair value determinations is a reconciliation of the sum of the fair value calculations to the Partnership’s market capitalization. The observed market prices of individual trades of an entity’s equity securities (and thus its computed market capitalization) may not be representative of the fair value of the entity as a whole. Substantial value may arise from the ability to take advantage of synergies and other benefits that flow from control over another entity. Consequently, measuring the fair value of a collection of assets and liabilities that operate together in a controlled entity is different from measuring the fair value of that entity on a stand-alone basis. In most industries, including the Partnership’s, an acquiring entity typically is willing to pay more for equity securities that give it a controlling interest than an investor would pay for a number of equity securities representing less than a controlling interest. Therefore, once the above fair value calculations have been determined, the Partnership’s management also considers the inclusion of a control premium within the calculations. This control premium is judgmental and is based on, among other items, observed acquisitions in the Partnership’s industry. The resultant fair values calculated for the reporting units are compared to observable metrics on large mergers and acquisitions in the Partnership’s industry to determine whether those valuations appear reasonable in management’s judgment. Management will continue to evaluate goodwill at least annually, or when impairment indicators arise.
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 Partnership. The Partnership 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 Partnership acquired through acquisition. Deferred margin amounts are deferred until the merchandise is delivered or services are performed.
Cemetery Merchandise and Services Sales
The Partnership 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 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 Partnership 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 three years ended December 31, 2015, in order to segregate the principal and interest component of the total contract value.
At the time of a pre-need sale, the Partnership records an account receivable in an amount equal to the total contract value less unearned finance income and 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.
The allowance for customer cancellations is established based on management’s estimates of expected cancellations and historical experiences. 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 cemetery 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.
The Partnership 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 expensed as revenues are recognized.
The Partnership recognizes a merchandise liability equal to the estimated cost of services and merchandise for all outstanding and unfulfilled pre-need contracts. The merchandise liability is established and recognized at the time of the sale on the consolidated balance sheet, but is not recognized as an expense on the consolidated statement of operations 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. The merchandise liability is reduced when services are performed or when payment for merchandise is made by the Partnership and title is transferred to the customer.
Funeral Home Service and Insurance Policy Sales
Revenue from funeral home services is recognized as services are performed and merchandise is delivered. The Partnership’s funeral home operations also include revenues related to the sale of term and final expense whole life insurance. As an agent for these insurance sales, the Partnership earns and recognizes commission-related revenue streams from the sales of these policies.
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 Partnership is not subject to U.S. federal and most state income taxes. The partners of the Partnership are liable for income tax in regard to their distributive share of the Partnership’s taxable income. Such taxable income may vary substantially from net income reported in the accompanying consolidated financial statements. Certain corporate subsidiaries are subject to federal and state income tax. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and tax 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 Partnership 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 (Loss) per Common Unit
Basic net income (loss) attributable to common limited partners per unit is computed by dividing net income (loss) attributable to common limited partners, which is determined after the deduction of the general partner’s interest, by the weighted average number of common limited partner units outstanding during the period. Net income (loss) attributable to common limited partners is determined by deducting net income attributable to participating securities, if applicable and net income (loss) attributable to the general partner’s units. The general partner’s interest in net income (loss) is calculated on a quarterly basis based upon its units and incentive distributions to be distributed for the quarter, with a priority allocation of net income to the general partner’s incentive distributions, if any, in accordance with the partnership agreement, and the remaining net income (loss) allocated with respect to the general partner’s and limited partners’ ownership interests.
The Partnership presents net income (loss) per unit under the two-class method for master limited partnerships, which considers whether the incentive distributions of a master limited partnership represent a participating security when considered in the calculation of earnings per unit under the two-class method. The two-class method considers whether the partnership agreement contains any contractual limitations concerning distributions to the incentive distribution rights that would impact the amount of earnings to allocate to the incentive distribution rights for each reporting period. If distributions are contractually limited to the incentive distribution rights’ share of currently designated available cash for distributions as defined under the partnership agreement, undistributed earnings in excess of available cash should not be allocated to the incentive distribution rights. Under the two-class method, management of the Partnership believes the partnership agreement contractually limits cash distributions to available cash; therefore, undistributed earnings are not allocated to the incentive distribution rights.
Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are included in the computation of earnings per unit pursuant to the two-class method. Phantom unit awards, which consist of common units issuable under the terms of its long-term incentive plan (see Note 12), contain non-forfeitable rights to distribution equivalents of the Partnership. The participation rights would result in a non-contingent transfer of value each time the Partnership declares a distribution or distribution equivalent right during the award’s vesting period. However, unless the contractual terms of the participating securities require the holders to share in the losses of the entity, net loss is not allocated to the participating securities. As such, the net income utilized in the calculation of net income (loss) per unit must be after the allocation of only net income to the phantom units on a pro-rata basis.
The following is a reconciliation of net income (loss) allocated to the common limited partners for purposes of calculating net income (loss) attributable to common limited partners per unit (in thousands, except unit data):
Years Ended December 31, | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
Net loss |
$ | (24,244 | ) | $ | (10,773 | ) | $ | (19,032 | ) | |||
Less: General partner’s interest |
(315 | ) | (155 | ) | (350 | ) | ||||||
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Net loss attributable to common limited partners |
$ | (23,929 | ) | $ | (10,618 | ) | $ | (18,682 | ) | |||
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Diluted net income (loss) attributable to common limited partners per unit is calculated by dividing net income (loss) attributable to common limited partners, less income allocable to participating securities, by the sum of the weighted average number of common limited partner units outstanding and the dilutive effect of unit option awards, as calculated by the treasury stock or if converted methods, as applicable. Unit options consist of common units issuable upon payment of an exercise price by the participant under the terms of the Partnership’s long-term incentive plan (see Note 12).
The following table sets forth the reconciliation of the Partnership’s weighted average number of common limited partner units used to compute basic net income (loss) attributable to common limited partners per unit with those used to compute diluted net income (loss) attributable to common limited partners per unit (in thousands):
Years Ended December 31, | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
Weighted average number of common limited partner units—basic |
30,472 | 26,582 | 20,954 | |||||||||
Add effect of dilutive incentive awards (1) |
— | — | — | |||||||||
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Weighted average number of common limited partner units—diluted |
30,472 | 26,582 | 20,954 | |||||||||
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(1) | The diluted weighted average number of limited partners’ units outstanding presented on the consolidated statement of operations does not include 282,093 units, 164,709 units and 297,078 units for the years ended December 31, 2015, 2014 and 2013, respectively, as their effects would be anti-dilutive. |
New Accounting Pronouncements
In the second quarter of 2014, the Financial Accounting Standards Board (“FASB”) issued Update No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”), which supersedes the revenue recognition requirements in “Topic 605 - Revenue Recognition” and most industry-specific guidance. The core principle of ASU 2014-09 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. During the third quarter of 2015, Update No. 2015-14, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2015-14”) was released, deferring the effective date of the amendments to annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early application is permitted, only as of an annual reporting period beginning after December 15, 2016. The Partnership will adopt the requirements of ASU 2014-09 upon its effective date of January 1, 2018, and is evaluating the potential impact of the adoption on its financial position, results of operations or related disclosures.
In the first quarter of 2015, the FASB issued Update No. 2015-02, “Consolidation (Topic 810)” (“ASU 2015-02”), which amends previous consolidation analysis guidance. ASU 2015-02 requires companies to consider revised consolidation criteria regarding limited partnerships and similar legal entities. The amendments are effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period. Early application is permitted. The Partnership will adopt the requirements of ASU 2015-02 upon its effective date of January 1, 2016, and it does not anticipate it having a material impact on its financial position, results of operations, and related disclosures.
In the second quarter of 2015, the FASB issued Update No. 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”), which changes the presentation of debt issuance costs. During the third quarter of 2015, Update No. 2015-15, “Interest - Imputation of Interest (Subtopic 835-30) (“ASU 2015-15”) was released clarifying the treatment of debt issuance costs associated with line-of-credit arrangements. ASU 2015-03 requires that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by ASU 2015-03. ASU 2015-15 allows the deferral and presentation of debt issuance costs pertaining to line-of-credit arrangements as an asset. The amendments in the update are effective for annual reporting periods beginning after December 15, 2015, including interim periods within those reporting periods. Early application is permitted. The Partnership has elected to early adopt the presentation change regarding its deferred financing cost within its consolidated balance sheets. These deferred financing costs were previously presented as a separate asset caption and are now presented as a direct reduction to long-term debt under the caption, “Long-term debt, net of deferred financing costs.” This change in presentation has decreased “Total assets” and “Total liabilities” by $9.1 million at December 31, 2014.
In the third quarter of 2015, the FASB issued Update No. 2015-16, “Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments” (“ASU 2015-16”). ASU 2015-16 requires that an acquirer recognize adjustments to estimated amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments are effective for fiscal years beginning after December 15, 2015 and early application is permitted. The Partnership has elected to early adopt the requirements of ASU 2015-16 during the fourth quarter of 2015, and it did not have a material impact on its financial position, results of operations and related disclosures.
In the first quarter of 2016, the FASB issued Update No. 2016-01, “Financial Instruments (Subtopic 825-10)” (“ASU 2016-01”). The core principle of ASU 2016-01 is that all equity investments should be measured at fair value with changes in the fair value recognized through net income. The amendment is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early application is not permitted for the key aspects of the amendment. The Partnership will adopt the requirements of ASU 2016-01 upon its effective date of January 1, 2018, and is evaluating the potential impact of the adoption on its financial position, results of operations and related disclosures.
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2. | ACQUISITIONS |
2015 Acquisitions
During the year ended December 31, 2015, the Partnership acquired the following properties and related assets, net of certain assumed liabilities:
• | One funeral home for cash consideration of $0.9 million on July 21, 2015; |
• | Three funeral homes and one cemetery for cash consideration of $5.7 million on August 6, 2015; |
• | Two cemeteries for cash consideration of $1.5 million on August 20, 2015; |
• | One funeral home for cash consideration of $5.0 million on August 31, 2015, and an additional $1.0 million paid in 5 annual installments beginning on the 1st anniversary of the closing date; and |
• | One cemetery and two funeral homes for cash consideration of $5.7 million on December 1, 2015. |
The Partnership accounted for these transactions under the acquisition method of accounting. Accordingly, the Partnership evaluated the identifiable assets acquired and liabilities assumed at their respective acquisition date fair values. All other costs incurred associated with the acquisition of the assets noted were expensed as incurred. The following table presents the Partnership’s values assigned to the assets acquired and liabilities assumed in the acquisitions, based on their estimated fair values at the dates of the acquisition, which may be prospectively adjusted as additional information is received (in thousands):
Assets: |
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Accounts receivable |
$ | 2,761 | ||
Cemetery and funeral home property |
7,018 | |||
Property and equipment |
5,941 | |||
Inventory |
53 | |||
Merchandise trusts, restricted |
15,075 | |||
Perpetual care trusts, restricted |
4,134 | |||
Intangible assets |
406 | |||
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Total assets |
35,388 | |||
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Liabilities: |
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Deferred margin |
6,618 | |||
Merchandise liabilities |
14,414 | |||
Perpetual care trust corpus |
4,134 | |||
Other liabilities |
21 | |||
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Total liabilities |
25,187 | |||
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Fair value of net assets acquired |
10,201 | |||
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Consideration paid—cash |
18,800 | |||
Deferred cash consideration |
876 | |||
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Total consideration paid |
19,676 | |||
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Gain on bargain purchase |
$ | 1,540 | ||
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Goodwill from purchase |
$ | 11,015 | ||
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The Partnership recorded goodwill of $1.1 million and $9.9 million in the Cemetery and Funeral Home reporting units, respectively, with regard to the properties acquired during the year ended December 31, 2015.
2014 Acquisitions
During the year ended December 31, 2014, the Partnership acquired the following properties and related assets, net of certain assumed liabilities:
• | One cemetery for cash consideration of $0.2 million on January 16, 2014; and |
• | Two funeral homes for cash consideration of $2.4 million on December 4, 2014. |
The Partnership accounted for these transactions under the acquisition method of accounting. Accordingly, the Partnership evaluated the identifiable assets acquired and liabilities assumed at their respective acquisition date fair values. All other costs incurred associated with the acquisition of the assets noted were expensed as incurred. The following table presents the Partnership’s final values assigned to the assets acquired and liabilities assumed in the acquisitions, based on their estimated fair values at the dates of the acquisition (in thousands):
Assets: |
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Accounts receivable |
$ | 104 | ||
Cemetery property |
470 | |||
Property and equipment |
193 | |||
Merchandise trusts, restricted |
2,685 | |||
Perpetual care trusts, restricted |
691 | |||
Other assets |
22 | |||
Deferred tax assets |
87 | |||
Non-compete agreement |
520 | |||
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Total assets |
4,772 | |||
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Liabilities: |
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Deferred margin |
1,046 | |||
Merchandise liabilities |
1,007 | |||
Deferred tax liability |
641 | |||
Perpetual care trust corpus |
691 | |||
Other liabilities |
20 | |||
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Total liabilities |
3,405 | |||
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Fair value of net assets acquired |
1,367 | |||
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Consideration paid—cash |
2,581 | |||
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Total consideration paid |
2,581 | |||
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Gain on bargain purchase |
$ | 412 | ||
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Goodwill from purchase |
$ | 1,626 | ||
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The Partnership recorded goodwill of $1.6 million in the Funeral Home reporting unit with regard to the properties acquired and included in the table above during the year ended December 31, 2014.
In addition to the properties noted above, on June 10, 2014, the Partnership acquired twelve cemeteries and nine funeral homes and their related assets, net of certain assumed liabilities, in a single transaction for cash consideration of $53.8 million.
The Partnership accounted for this transaction under the acquisition method of accounting. Accordingly, the Partnership evaluated the identifiable assets acquired and liabilities assumed at their respective acquisition date fair values. All other costs incurred associated with the acquisition of the assets noted were expensed as incurred. The following table presents the Partnership’s final values assigned to the assets acquired and liabilities assumed in the acquisition, based on their estimated fair values at the date of the acquisition (in thousands):
Assets: |
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Accounts receivable |
$ | 6,188 | ||
Cemetery property |
26,029 | |||
Property and equipment |
15,776 | |||
Merchandise trusts, restricted |
31,534 | |||
Perpetual care trusts, restricted |
16,913 | |||
Intangible assets |
1,170 | |||
Other assets |
178 | |||
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Total assets |
97,788 | |||
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Liabilities: |
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Deferred margin |
13,570 | |||
Merchandise liabilities |
19,905 | |||
Deferred tax liability |
2,010 | |||
Perpetual care trust corpus |
16,913 | |||
Other liabilities |
63 | |||
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Total liabilities |
52,461 | |||
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Fair value of net assets acquired |
45,327 | |||
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Consideration paid |
53,800 | |||
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Goodwill from purchase |
$ | 8,473 | ||
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The Partnership recorded goodwill of $6.1 million and $2.4 million in the Cemetery and Funeral Home reporting units, respectively, with regard to the properties acquired and included in the table above during the year ended December 31, 2014.
Agreements with the Archdiocese of Philadelphia
On May 28, 2014, certain subsidiaries of the Partnership (“Tenant”) and the Archdiocese of Philadelphia (“Landlord”) entered into a lease agreement (the “Lease”) and a management agreement (the “Management Agreement”), pursuant to which the Tenant will operate 13 cemeteries in Pennsylvania for a term of 60 years and allow the tenant to, among other things and subject to certain limitations, sell burial rights and all related merchandise and services. The Partnership joined the Lease and the Management Agreement as a guarantor of all of the Tenant’s obligations under this operating arrangement.
Under the terms of the Lease and Management Agreements:
• | the Tenant paid $53.0 million to the Landlord at closing, and agreed to make aggregate future rental payments of $36.0 million in accordance with the following schedule: |
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 Lease and Management Agreements may be terminated by the Landlord during the 11th year of the lease in its sole discretion, or by either party due to default or bankruptcy by the end of the 11th year of the lease, subject to certain limitations; |
• | lease payments for years 6 through 11 shall be deferred until the Landlord determines whether to continue or terminate the Lease during the 11th year of the Lease, or the Tenant terminates the Lease by the end of the 11th year of the lease due to default or bankruptcy. If the Lease is terminated for either reason noted, the lease payments for years 6 through 11 shall be forfeited by the Landlord. Otherwise, the deferred lease payments for years 6 through 11 shall be due and payable 30 days after the end of the 11th year of the lease. If the Landlord terminates the Lease during the 11th year of the Lease, it must repay the $53.0 million paid at closing by the Tenant. If the Lease is terminated for cause at anytime, the $53.0 million paid by the Tenant at closing is subject to repayment, subject to certain amortization and other limitations; and |
• | the Tenant also agreed to make additional rental payments equal to 51% of gross revenues generated from non-ordinary course revenues and property dispositions associated with the properties, less reasonable costs and expenses. |
The Partnership accounted for this transaction as a contract-based intangible asset at the present value of the consideration, less the fair value of net assets received at the acquisition date, consisting of acquired accounts receivable. The Partnership also recognized an $8.4 million liability for the present value of the $36.0 million of lease payments to be made in future periods at a discount rate of 8.3%. The following table presents the assets acquired and liabilities assumed in the transaction based on their estimated fair values (in thousands):
Assets: |
||||
Accounts receivable |
$ | 1,610 | ||
Intangible asset |
59,758 | |||
|
|
|||
Total assets |
61,368 | |||
|
|
|||
Liabilities: |
||||
Obligation for lease and management agreements |
36,000 | |||
Discount on obligation for lease and management agreements |
(27,632 | ) | ||
|
|
|||
Obligation for lease and management agreements, net |
8,368 | |||
|
|
|||
Total liabilities |
8,368 | |||
|
|
|||
Total net assets |
$ | 53,000 | ||
|
|
2013 Acquisitions
During the year ended December 31, 2013, the Partnership acquired the following properties and related assets, net of certain assumed liabilities:
• | Six funeral homes on February 19, 2013 for cash consideration of $9.1 million, 159,635 common units with an estimated fair value at issuance of $3.6 million, a promissory note in the amount of $3.0 million that was payable on February 19, 2014and an additional $1.2 million in cash consideration to be paid in six annual installments beginning on February 19, 2014; and |
• | One cemetery for cash consideration of $5.0 million on August 1, 2013; |
The Partnership accounted for these transactions under the acquisition method of accounting. Accordingly, the Partnership evaluated the identifiable assets acquired and liabilities assumed at their respective acquisition date fair values. All other costs incurred associated with the acquisition of the assets noted were expensed as incurred. The following table presents the Partnership’s final values assigned to the assets acquired and liabilities assumed in the acquisitions, based on their estimated fair values at the dates of the acquisition (in thousands):
Assets: |
||||
Accounts receivable |
$ | 1,531 | ||
Cemetery property |
3,900 | |||
Property and equipment |
9,362 | |||
Merchandise trusts, restricted |
10,314 | |||
Perpetual care trusts, restricted |
5,888 | |||
Non-compete agreements |
1,927 | |||
|
|
|||
Total assets |
32,922 | |||
|
|
|||
Liabilities: |
||||
Deferred margin |
2,183 | |||
Merchandise liabilities |
6,091 | |||
Deferred tax liability |
701 | |||
Perpetual care trust corpus |
5,888 | |||
Other liabilities |
258 | |||
|
|
|||
Total liabilities |
15,121 | |||
|
|
|||
Fair value of net assets acquired |
17,801 | |||
|
|
|||
Consideration paid—cash |
14,100 | |||
Consideration paid—units |
3,592 | |||
Fair value of Notes Payable |
3,000 | |||
Fair value of debt assumed for non-compete agreements |
924 | |||
|
|
|||
Total consideration paid |
21,616 | |||
|
|
|||
Gain on bargain purchase |
$ | 2,530 | ||
|
|
|||
Goodwill from purchase |
$ | 6,345 | ||
|
|
The Partnership recorded goodwill of $6.3 million in the Funeral Home reporting unit with regard to the properties acquired and included in the table above during the year ended December 31, 2013.
The following data presents pro forma revenues, net income (loss) and basic and diluted net income (loss) per unit for the Partnership as if the acquisitions consummated during the years ended December 31, 2015 and 2014, including the related financings, had occurred as of January 1, 2014. The Partnership prepared these pro forma unaudited financial results for comparative purposes only; they may not be indicative of the results that would have occurred if the acquisitions consummated during the years ended December 31, 2015 and 2014 and the related financings had occurred on January 1, 2014 or the results that will be attained in future periods (in thousands, except per unit data; unaudited):
Years Ended December 31, | ||||||||
2015 | 2014 | |||||||
Revenue |
$ | 310,712 | $ | 309,746 | ||||
Net loss |
(25,340 | ) | (8,188 | ) | ||||
Net loss per limited partner unit (basic and diluted) |
$ | (.82 | ) | $ | (.28 | ) |
Since their respective dates of acquisition, the properties acquired in 2015 have contributed $2.1 million of revenue and $0.2 million of operating profit for the year ended December 31, 2015. The properties acquired in 2014 have contributed $43.9 million of revenue and $5.4 million of operating profit for the year ended December 31, 2015 and $19.3 million of revenue and $1.6 million of operating profit for the year ended December 31, 2014. The properties acquired in 2013 have contributed $6.6 million of revenue and $0.7 million of operating profit for the year ended December 31, 2015, $6.0 million of revenue and $0.7 million of operating profit for the year ended December 31, 2014 and $3.9 million of revenue and $0.1 million of operating profit for the year ended December 31, 2013.
During the year ended December 31, 2013, the Partnership recovered $18.4 million, net of legal fees, costs and contractual obligations, related to the settlement of claims from locations that it acquired in prior years. Of the amount recovered, $11.9 million was received in cash proceeds and $6.5 million was contributed to the related perpetual care and merchandise trusts. The Partnership recognized a gain on settlement agreement of $12.3 million for this transaction during the year ended December 31, 2013.
|
3. | ACCOUNTS RECEIVABLE, NET OF ALLOWANCE |
Long-term accounts receivable, net, consisted of the following at the dates indicated (in thousands):
December 31, | ||||||||
2015 | 2014 | |||||||
Customer receivables |
$ | 207,645 | $ | 194,537 | ||||
Unearned finance income |
(20,078 | ) | (20,360 | ) | ||||
Allowance for contract cancellations |
(23,985 | ) | (22,138 | ) | ||||
|
|
|
|
|||||
Accounts receivable, net of allowance |
163,582 | 152,039 | ||||||
Less: current portion—net of allowance |
68,415 | 62,503 | ||||||
|
|
|
|
|||||
Long-term portion—net of allowance |
$ | 95,167 | $ | 89,536 | ||||
|
|
|
|
Activity in the allowance for contract cancellations is as follows (in thousands):
Years Ended December 31, | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
Balance—beginning of period |
$ | 22,138 | $ | 20,275 | $ | 17,933 | ||||||
Provision for cancellations |
25,307 | 20,870 | 20,069 | |||||||||
Charge-offs—net |
(23,460 | ) | (19,007 | ) | (17,727 | ) | ||||||
|
|
|
|
|
|
|||||||
Balance—end of period |
$ | 23,985 | $ | 22,138 | $ | 20,275 | ||||||
|
|
|
|
|
|
|
4. | CEMETERY PROPERTY |
Cemetery property consists of the following at the dates indicated (in thousands):
December 31, | ||||||||
2015 | 2014 | |||||||
Developed land |
$ | 83,834 | $ | 79,058 | ||||
Undeveloped land |
169,482 | 172,238 | ||||||
Mausoleum crypts and lawn crypts |
77,526 | 78,524 | ||||||
Other land |
11,797 | 10,028 | ||||||
|
|
|
|
|||||
Cemetery property |
$ | 342,639 | $ | 339,848 | ||||
|
|
|
|
|
5. | PROPERTY AND EQUIPMENT |
Property and equipment consists of the following at the dates indicated (in thousands):
December 31, | ||||||||
2015 | 2014 | |||||||
Building and improvements |
$ | 117,034 | $ | 108,178 | ||||
Furniture and equipment |
54,346 | 49,290 | ||||||
|
|
|
|
|||||
Property and equipment—gross |
171,380 | 157,468 | ||||||
Less: accumulated depreciation |
(67,050 | ) | (57,077 | ) | ||||
|
|
|
|
|||||
Property and equipment, net of accumulated depreciation |
$ | 104,330 | $ | 100,391 | ||||
|
|
|
|
Depreciation expense was $10.6 million, $8.9 million and $7.5 million for the years ended December 31, 2015, 2014 and 2013, respectively.
|
6. | MERCHANDISE TRUSTS |
At December 31, 2015 and 2014, the Partnership’s merchandise trusts consisted of investments in debt and equity marketable securities and cash equivalents, both directly as well as through mutual and investment funds. Certain assets related to 2015 acquisitions have not yet been received. Accordingly, a portion of the assets are shown in a single line item in the disclosures below as “Assets acquired via acquisition” and the cost basis and fair value of such assets are based upon preliminary estimates that the Partnership is required to make in accordance with Accounting Topic 805.
All of these investments are classified as Available for Sale and accordingly, all of the assets are carried at fair value. All of these investments are considered either Level 1 or Level 2 assets pursuant to the three-level hierarchy (see Note 14). There were no Level 3 assets.
The merchandise trusts are variable interest entities (VIE) for which the Partnership 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 Partnership may be required to fund this shortfall.
The Partnership included $8.2 million and $8.3 million of investments held in trust by the West Virginia Funeral Directors Association at December 31, 2015 and December 31, 2014, respectively in its merchandise trust assets. As required by law, the Partnership 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 recognized at their account value, which approximates fair value.
A reconciliation of the Partnership’s merchandise trust activities for the years ended December 31, 2015 and 2014 is presented below (in thousands):
Years Ended December 31, | ||||||||
2015 | 2014 | |||||||
Balance—beginning of period |
$ | 484,820 | $ | 431,556 | ||||
Contributions |
80,693 | 87,271 | ||||||
Distributions |
(50,987 | ) | (57,788 | ) | ||||
Interest and dividends |
21,859 | 21,827 | ||||||
Capital gain distributions |
2,413 | 1,242 | ||||||
Realized gains and losses |
13,941 | 14,857 | ||||||
Other than temporary impairment |
(54,527 | ) | — | |||||
Taxes |
(3,271 | ) | (2,543 | ) | ||||
Fees |
(3,296 | ) | (2,890 | ) | ||||
Unrealized change in fair value |
(26,969 | ) | (8,712 | ) | ||||
|
|
|
|
|||||
Balance—end of period |
$ | 464,676 | $ | 484,820 | ||||
|
|
|
|
During the year ended December 31, 2015, purchases and sales of securities available for sale included in trust investments were approximately $554.7 million and $522.2 million, respectively. During the year ended December 31, 2014, purchases and sales of securities available for sale included in trust investments were approximately $430.5 million and $440.8 million, respectively.
The cost and market value associated with the assets held in the merchandise trusts at December 31, 2015 and 2014 were as follows (in thousands):
Gross | Gross | |||||||||||||||||
Fair Value | Unrealized | Unrealized | Fair | |||||||||||||||
December 31, 2015 |
Hierarchy Level | Cost | Gains | Losses | Value | |||||||||||||
Short-term investments |
1 | $ | 35,150 | $ | — | $ | — | $ | 35,150 | |||||||||
Fixed maturities: |
||||||||||||||||||
U.S. State and local government agency |
2 | 98 | 6 | (3 | ) | 101 | ||||||||||||
Corporate debt securities |
2 | 11,922 | 8 | (546 | ) | 11,384 | ||||||||||||
Other debt securities |
2 | 7,150 | 11 | (7 | ) | 7,154 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total fixed maturities |
19,170 | 25 | (556 | ) | 18,639 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Mutual funds—debt securities |
1 | 232,096 | 86 | (10,713 | ) | 221,469 | ||||||||||||
Mutual funds—equity securities |
1 | 139,341 | 69 | (12,249 | ) | 127,161 | ||||||||||||
Equity securities |
1 | 49,563 | 1,127 | (2,474 | ) | 48,216 | ||||||||||||
Other invested assets |
2 | 1,681 | — | — | 1,681 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total managed investments |
$ | 477,001 | $ | 1,307 | $ | (25,992 | ) | $ | 452,316 | |||||||||
|
|
|
|
|
|
|
|
|||||||||||
Assets acquired via acquisition |
4,185 | — | — | 4,185 | ||||||||||||||
West Virginia Trust Receivable |
8,175 | — | — | 8,175 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 489,361 | $ | 1,307 | $ | (25,992 | ) | $ | 464,676 | |||||||||
|
|
|
|
|
|
|
|
|||||||||||
Gross | Gross | |||||||||||||||||
Fair Value | Unrealized | Unrealized | Fair | |||||||||||||||
December 31, 2014 |
Hierarchy Level | Cost | Gains | Losses | Value | |||||||||||||
Short-term investments |
1 | $ | 52,521 | $ | — | $ | — | $ | 52,521 | |||||||||
Fixed maturities: |
||||||||||||||||||
U.S. State and local government agency |
2 | 270 | — | (1 | ) | 269 | ||||||||||||
Corporate debt securities |
2 | 9,400 | 23 | (447 | ) | 8,976 | ||||||||||||
Other debt securities |
2 | 7,157 | — | (18 | ) | 7,139 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total fixed maturities |
16,827 | 23 | (466 | ) | 16,384 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Mutual funds—debt securities |
1 | 150,477 | 869 | (8,666 | ) | 142,680 | ||||||||||||
Mutual funds—equity securities |
1 | 167,353 | 12,568 | (463 | ) | 179,458 | ||||||||||||
Equity securities |
1 | 81,639 | 4,167 | (5,507 | ) | 80,299 | ||||||||||||
Other invested assets |
2 | 5,400 | — | (241 | ) | 5,159 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total managed investments |
$ | 474,217 | $ | 17,627 | $ | (15,343 | ) | $ | 476,501 | |||||||||
|
|
|
|
|
|
|
|
|||||||||||
West Virginia Trust Receivable |
8,319 | — | — | 8,319 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 482,536 | $ | 17,627 | $ | (15,343 | ) | $ | 484,820 | |||||||||
|
|
|
|
|
|
|
|
The contractual maturities of debt securities held within the merchandise trusts as of December 31, 2015 were as follows (in thousands):
December 31, 2015 |
Less than 1 year |
1 year through 5 years |
6 years through 10 years |
More than 10 years |
||||||||||||
U.S. State and local government agency |
$ | — | $ | 23 | $ | 78 | $ | — | ||||||||
Corporate debt securities |
— | 8,152 | 3,232 | — | ||||||||||||
Other debt securities |
3,520 | 3,634 | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total fixed maturities |
$ | 3,520 | $ | 11,809 | $ | 3,310 | $ | — | ||||||||
|
|
|
|
|
|
|
|
Temporary Declines in Fair Value
The Partnership evaluates declines in fair value below cost for each asset held in the merchandise trusts on a quarterly basis.
An aging of unrealized losses on the Partnership’s investments in debt and equity securities within the merchandise trusts at December 31, 2015 and December 31, 2014 is presented below:
Less than 12 months | 12 Months or more | Total | ||||||||||||||||||||||
December 31, 2015 |
Fair Value |
Unrealized Losses |
Fair Value |
Unrealized Losses |
Fair Value |
Unrealized Losses |
||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Fixed maturities: |
||||||||||||||||||||||||
U.S. State and local government agency |
$ | — | $ | — | $ | 33 | $ | 3 | $ | 33 | $ | 3 | ||||||||||||
Corporate debt securities |
7,247 | 411 | 1,513 | 135 | 8,760 | 546 | ||||||||||||||||||
Other debt securities |
2,883 | 7 | — | — | 2,883 | 7 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total fixed maturities |
10,130 | 418 | 1,546 | 138 | 11,676 | 556 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Mutual funds—debt securities |
121,777 | 6,938 | 36,682 | 3,775 | 158,459 | 10,713 | ||||||||||||||||||
Mutual funds—equity securities |
58,467 | 10,994 | 5,465 | 1,255 | 63,932 | 12,249 | ||||||||||||||||||
Equity securities |
21,480 | 2,275 | 649 | 199 | 22,129 | 2,474 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 211,854 | $ | 20,625 | $ | 44,342 | $ | 5,367 | $ | 256,196 | $ | 25,992 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months | 12 Months or more | Total | ||||||||||||||||||||||
December 31, 2014 |
Fair Value |
Unrealized Losses |
Fair Value |
Unrealized Losses |
Fair Value |
Unrealized Losses |
||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Fixed maturities: |
||||||||||||||||||||||||
U.S. State and local government agency |
$ | 143 | $ | 1 | $ | — | $ | — | $ | 143 | $ | 1 | ||||||||||||
Corporate debt securities |
5,905 | 342 | 1,506 | 105 | 7,411 | 447 | ||||||||||||||||||
Other debt securities |
2,370 | 8 | 4,769 | 10 | 7,139 | 18 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total fixed maturities |
8,418 | 351 | 6,275 | 115 | 14,693 | 466 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Mutual funds—debt securities |
32,072 | 1,039 | 95,629 | 7,627 | 127,701 | 8,666 | ||||||||||||||||||
Mutual funds—equity securities |
4,147 | 463 | — | — | 4,147 | 463 | ||||||||||||||||||
Equity securities |
44,563 | 4,641 | 3,909 | 866 | 48,472 | 5,507 | ||||||||||||||||||
Other invested assets |
— | — | 4,881 | 241 | 4,881 | 241 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 89,200 | $ | 6,494 | $ | 110,694 | $ | 8,849 | $ | 199,894 | $ | 15,343 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
For all securities in an unrealized loss position, the Partnership evaluated the severity of the impairment and length of time that a security has been in a loss position and concluded the decline in fair value below the asset’s cost was temporary in nature. In addition, the Partnership is not aware of any circumstances that would prevent the future market value recovery for these securities.
Other-Than-Temporary Impairment of Trust Assets
The Partnership assesses its merchandise trust assets for other-than-temporary declines in fair value on a quarterly basis. During the year ended December 31, 2015, the Partnership determined that there were securities with an aggregate cost basis of approximately $196.8 million and an aggregate fair value of approximately $142.3 million, resulting in an impairment of $54.5 million, with such impairment considered to be other-than-temporary. During the year ended December 31, 2014, the Partnership determined that there were securities with an aggregate cost basis of approximately $0.9 million and an aggregate fair value of approximately $0.5 million, resulting in an impairment of $0.4 million, with such impairment considered to be other-than-temporary. Accordingly, the Partnership adjusted the cost basis of these assets to their fair value, with a corresponding adjustment to deferred cemetery revenue, net on the consolidated balance sheet. This adjustment to deferred cemetery revenue, net will be reflected within the Partnership’s consolidated statement of operations in future periods as the underlying merchandise is delivered or the underlying service is performed.
|
7. | PERPETUAL CARE TRUSTS |
At December 31, 2015 and 2014, the Partnership’s perpetual care trusts consisted of investments in debt and equity marketable securities and cash equivalents, both directly as well as through mutual and investment funds. Certain assets related to 2015 acquisitions have not yet been received. Accordingly, a portion of the assets are shown in a single line item in the disclosures below as “Assets acquired via acquisition” and the cost basis and fair value of such assets are based upon preliminary estimates that the Partnership is required to make in accordance with Accounting Topic 805.
All of these investments are classified as Available for Sale and accordingly, all of the assets are carried at fair value. All of these investments are considered either Level 1 or Level 2 assets pursuant to the three-level hierarchy (see Note 14). There were no Level 3 assets. The perpetual care trusts are VIEs for which the Partnership is the primary beneficiary.
A reconciliation of the Partnership’s perpetual care trust activities for the years ended December 31, 2015 and 2014 is presented below (in thousands):
Years Ended December 31, | ||||||||
2015 | 2014 | |||||||
Balance - beginning of period |
$ | 345,105 | $ | 311,771 | ||||
Contributions |
15,919 | 34,332 | ||||||
Distributions |
(15,003 | ) | (14,308 | ) | ||||
Interest and dividends |
18,019 | 15,044 | ||||||
Capital gain distributions |
1,952 | 125 | ||||||
Realized gains and losses |
12,323 | (164 | ) | |||||
Other than temporary impairment |
(29,047 | ) | — | |||||
Taxes |
(631 | ) | (654 | ) | ||||
Fees |
(2,163 | ) | (2,054 | ) | ||||
Unrealized change in fair value |
(38,670 | ) | 1,013 | |||||
|
|
|
|
|||||
Balance - end of period |
$ | 307,804 | $ | 345,105 | ||||
|
|
|
|
During the year ended December 31, 2015, purchases and sales of securities available for sale included in trust investments were approximately $359.3 million and $349.0 million, respectively. During the year ended December 31, 2014, purchases and sales of securities available for sale included in trust investments were approximately $157.5 million and $165.7 million, respectively.
The cost and market value associated with the assets held in the perpetual care trusts at December 31, 2015 and 2014 were as follows (in thousands):
Gross | Gross | |||||||||||||||||
Fair Value | Unrealized | Unrealized | Fair | |||||||||||||||
December 31, 2015 |
Hierarchy Level | Cost | Gains | Losses | Value | |||||||||||||
Short-term investments |
1 | $ | 36,618 | $ | — | $ | — | $ | 36,618 | |||||||||
Fixed maturities: |
||||||||||||||||||
U.S. State and local government agency |
2 | 126 | 14 | — | 140 | |||||||||||||
Corporate debt securities |
2 | 22,837 | 57 | (845 | ) | 22,049 | ||||||||||||
Other debt securities |
2 | 36 | — | (1 | ) | 35 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total fixed maturities |
22,999 | 71 | (846 | ) | 22,224 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Mutual funds - debt securities |
1 | 184,866 | 35 | (7,180 | ) | 177,721 | ||||||||||||
Mutual funds - equity securities |
1 | 68,079 | 1,054 | (1,713 | ) | 67,420 | ||||||||||||
Equity securities |
1 | 2,319 | 636 | (7 | ) | 2,948 | ||||||||||||
Other invested assets |
2 | 473 | 1 | (162 | ) | 312 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total managed investments |
$ | 315,354 | $ | 1,797 | $ | (9,908 | ) | $ | 307,243 | |||||||||
|
|
|
|
|
|
|
|
|||||||||||
Assets acquired via acquisition |
561 | — | — | 561 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 315,915 | $ | 1,797 | $ | (9,908 | ) | $ | 307,804 | |||||||||
|
|
|
|
|
|
|
|
|||||||||||
Gross | Gross | |||||||||||||||||
Fair Value | Unrealized | Unrealized | Fair | |||||||||||||||
December 31, 2014 |
Hierarchy Level | Cost | Gains | Losses | Value | |||||||||||||
Short-term investments |
1 | $ | 26,644 | $ | — | $ | — | $ | 26,644 | |||||||||
Fixed maturities: |
||||||||||||||||||
U.S. Government and federal agency |
1 | 100 | 16 | — | 116 | |||||||||||||
U.S. State and local government agency |
2 | 78 | 1 | — | 79 | |||||||||||||
Corporate debt securities |
2 | 24,275 | 104 | (913 | ) | 23,466 | ||||||||||||
Other debt securities |
2 | 371 | — | — | 371 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total fixed maturities |
24,824 | 121 | (913 | ) | 24,032 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Mutual funds - debt securities |
1 | 128,735 | 379 | (5,220 | ) | 123,894 | ||||||||||||
Mutual funds - equity securities |
1 | 103,701 | 23,003 | (1,268 | ) | 125,436 | ||||||||||||
Equity securities |
1 | 30,617 | 14,704 | (247 | ) | 45,074 | ||||||||||||
Other invested assets |
2 | 25 | — | — | 25 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 314,546 | $ | 38,207 | $ | (7,648 | ) | $ | 345,105 | |||||||||
|
|
|
|
|
|
|
|
The contractual maturities of debt securities held in the perpetual care trusts as of December 31, 2015 were as follows (in thousands):
Less than | 1 year through | 6 years through | More than | |||||||||||||
December 31, 2015 |
1 year | 5 years | 10 years | 10 years | ||||||||||||
U.S. State and local government agency |
— | 112 | 28 | — | ||||||||||||
Corporate debt securities |
202 | 16,138 | 5,650 | 59 | ||||||||||||
Other debt securities |
35 | — | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total fixed maturities |
$ | 237 | $ | 16,250 | $ | 5,678 | $ | 59 | ||||||||
|
|
|
|
|
|
|
|
Temporary Declines in Fair Value
The Partnership evaluates declines in fair value below cost of each individual asset held in the perpetual care trusts on a quarterly basis.
An aging of unrealized losses on the Partnership’s investments in fixed maturities and equity securities at December 31, 2015 and 2014 is presented below:
Less than 12 months | 12 Months or more | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
December 31, 2015 |
Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Fixed maturities: |
||||||||||||||||||||||||
U.S. State and local government agency |
$ | — | $ | — | $ | 112 | $ | — | $ | 112 | $ | — | ||||||||||||
Corporate debt securities |
12,482 | 535 | 4,505 | 310 | 16,987 | 845 | ||||||||||||||||||
Other debt securities |
35 | 1 | — | — | 35 | 1 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total fixed maturities |
12,517 | 536 | 4,617 | 310 | 17,134 | 846 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Mutual funds - debt securities |
81,215 | 4,263 | 50,774 | 2,917 | 131,989 | 7,180 | ||||||||||||||||||
Mutual funds - equity securities |
16,514 | 1,363 | 4,308 | 350 | 20,822 | 1,713 | ||||||||||||||||||
Equity securities |
488 | 6 | 1,137 | 1 | 1,625 | 7 | ||||||||||||||||||
Other invested assets |
— | — | 315 | 162 | 315 | 162 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 110,734 | $ | 6,168 | $ | 61,151 | $ | 3,740 | $ | 171,885 | $ | 9,908 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months | 12 Months or more | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
December 31, 2014 |
Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Fixed maturities: |
||||||||||||||||||||||||
Corporate debt securities |
$ | 14,434 | $ | 798 | $ | 2,519 | $ | 115 | $ | 16,953 | $ | 913 | ||||||||||||
Other debt securities |
— | — | — | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total fixed maturities |
14,434 | 798 | 2,519 | 115 | 16,953 | 913 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Mutual funds - debt securities |
30,345 | 768 | 86,814 | 4,452 | 117,159 | 5,220 | ||||||||||||||||||
Mutual funds - equity securities |
13,035 | 1,268 | — | — | 13,035 | 1,268 | ||||||||||||||||||
Equity securities |
3,866 | 245 | 620 | 2 | 4,486 | 247 | ||||||||||||||||||
Other invested assets |
— | — | — | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 61,680 | $ | 3,079 | $ | 89,953 | $ | 4,569 | $ | 151,633 | $ | 7,648 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
For all securities in an unrealized loss position, the Partnership evaluated the severity of the impairment and length of time that a security has been in a loss position and concluded the decline in fair value below the asset’s cost was temporary in nature. In addition, the Partnership is not aware of any circumstances that would prevent the future market value recovery for these securities.
Other-Than-Temporary Impairment of Trust Assets
The Partnership assesses its perpetual care trust assets for other-than-temporary declines in fair value on a quarterly basis. During the year ended December 31, 2015, the Partnership determined that there were securities with an aggregate cost basis of approximately $107.7 million and an aggregate fair value of approximately $78.7 million, resulting in an impairment of $29.0 million, with such impairment considered to be other-than-temporary. During the year ended December 31, 2014, the Partnership determined that there were securities with an aggregate cost basis of approximately $1.4 million and an aggregate fair value of approximately $0.8 million, resulting in an impairment of $0.6 million, with such impairment considered to be other-than-temporary. Accordingly, the Partnership adjusted the cost basis of these assets to their current value and offset this change against the liability for perpetual care trust corpus.
|
8. | GOODWILL AND INTANGIBLE ASSETS |
Goodwill
The Partnership has revised its reporting units from prior presentations based on how it currently manages the operating segments. There are now two reporting units, which are classified as Cemetery Operations and Funeral Homes. The Partnership has recorded goodwill of approximately $69.9 million and $58.8 million as of December 31, 2015 and 2014, respectively. This amount represents the excess of the purchase price over the fair value of identifiable net assets acquired (see Note 2).
A rollforward of goodwill by reportable segment is as follows (in thousands):
Cemeteries | Funeral Homes | Total | ||||||||||
Balance at December 31, 2013 |
$ | 18,122 | $ | 30,615 | $ | 48,737 | ||||||
Goodwill from acquisitions during 2014 |
6,064 | 4,035 | 10,099 | |||||||||
|
|
|
|
|
|
|||||||
Balance at December 31, 2014 |
24,186 | 34,650 | 58,836 | |||||||||
Goodwill from acquisitions during 2015 |
1,134 | 9,881 | 11,015 | |||||||||
|
|
|
|
|
|
|||||||
Balance at December 31, 2015 |
$ | 25,320 | $ | 44,531 | $ | 69,851 | ||||||
|
|
|
|
|
|
The Partnership tests goodwill for impairment at each year end by comparing its reporting units’ estimated fair values to carrying values (see Note 1). There were no goodwill impairments recognized by the Partnership during the years ended December 31, 2015, 2014 and 2013. Management will continue to evaluate goodwill at least annually or when impairment indicators arise.
Intangible Assets
The Partnership has intangible assets with finite lives recognized in connection with acquisitions and long-term lease, management and operating agreements. The Partnership amortizes these intangible assets over their estimated useful lives. The following table reflects the components of intangible assets at December 31, 2015 and 2014 (in thousands):
December 31, 2015 | December 31, 2014 | |||||||||||||||||||||||
Gross Carrying | Accumulated | Net Intangible | Gross Carrying | Accumulated | Net Intangible | |||||||||||||||||||
Amount | Amortization | Asset | Amount | Amortization | Asset | |||||||||||||||||||
Lease and management agreements |
$ | 59,758 | $ | (1,577 | ) | $ | 58,181 | $ | 59,758 | $ | (581 | ) | $ | 59,177 | ||||||||||
Underlying contract value |
6,239 | (1,014 | ) | 5,225 | 6,239 | (858 | ) | 5,381 | ||||||||||||||||
Non-compete agreements |
5,656 | (3,112 | ) | 2,544 | 5,250 | (2,126 | ) | 3,124 | ||||||||||||||||
Other intangible assets |
1,439 | (180 | ) | 1,259 | 1,439 | (131 | ) | 1,308 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total intangible assets |
$ | 73,092 | $ | (5,883 | ) | $ | 67,209 | $ | 72,686 | $ | (3,696 | ) | $ | 68,990 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for intangible assets was $2.2 million, $2.1 million, and $2.0 million for the years ended December 31, 2015, 2014, and 2013 respectively. The following is estimated amortization expense related to intangible assets with finite lives for the five years subsequent to December 31, 2015 (in thousands):
2016 |
$ | 2,181 | ||
2017 |
$ | 1,956 | ||
2018 |
$ | 1,708 | ||
2019 |
$ | 1,440 | ||
2020 |
$ | 1,266 |
|
9. | LONG-TERM DEBT |
Total debt consists of the following at the dates indicated (in thousands):
December 31, | ||||||||
2015 | 2014 | |||||||
Credit Facility: |
||||||||
Working Capital Draws |
$ | 105,000 | $ | 85,902 | ||||
Acquisition Draws |
44,500 | 25,000 | ||||||
7.875% Senior Notes, due June 2021 |
172,186 | 171,783 | ||||||
Notes payable - acquisition debt |
687 | 861 | ||||||
Notes payable - acquisition non-competes |
1,629 | 2,451 | ||||||
Insurance and vehicle financing |
2,336 | 1,632 | ||||||
Less deferred financing costs, net of accumulated amortization |
(7,499 | ) | (9,089 | ) | ||||
|
|
|
|
|||||
Total debt |
318,839 | 278,540 | ||||||
Less current maturities |
(2,440 | ) | (2,251 | ) | ||||
|
|
|
|
|||||
Total long-term debt |
$ | 316,399 | $ | 276,289 | ||||
|
|
|
|
Credit Facility
The Partnership is a party to the Fourth Amended and Restated Credit Agreement (the “Credit Agreement”) which provides for a single revolving credit facility of $180.0 million (the “Credit Facility”) maturing on December 19, 2019. Additionally the Credit Agreement provides for an uncommitted ability to increase the Credit Facility by an additional $70.0 million. The Partnership’s obligations under the Credit Facility are secured by substantially all of the assets of the Partnership, excluding those held in trust. Borrowings under the Credit Facility are classified as either acquisition draws or working capital draws. Acquisition draws may be utilized to finance permitted acquisitions, the purchase and construction of mausoleums and related costs or the net amount of merchandise trust deposits. Working capital draws may be utilized to finance working capital requirements, capital expenditures and for other general corporate purposes. The amount of the Credit Facility that is available for working capital draws is subject to a borrowing formula equal to 85% of eligible accounts receivable, as defined within the Credit Agreement. At December 31, 2015, the amount available under the Credit Facility for working capital advances under this limit was $139.0 million.
Each individual acquisition draw is subject to equal quarterly amortization of the principal amount, with annual principal payments comprised of ten percent of the related advance amount, commencing on the second anniversary of such advance, with the remaining principal due on December 19, 2019, subject to certain mandatory prepayment requirements. Up to $10.0 million of the Credit Facility may be in the form of standby letters of credit, of which there were none outstanding at December 31, 2015 and 2014.
Borrowings under the Credit Facility bear interest, at the Partnership’s election, at either an adjusted LIBOR rate plus an applicable margin between 2.25% and 4.00% per annum or the base rate (which is the higher of the bank’s prime rate, the Federal funds rate plus 0.5% or one-month LIBOR plus 1.00%) plus an applicable margin between 1.25% and 3.00% per annum. The Partnership is also required to pay a fee on the unused portion of the Credit Facility at a rate between 0.375% and 0.8% per annum, which is included within interest expense on the Partnership’s consolidated statements of operations. At December 31, 2015, the weighted average interest rate on outstanding borrowings under the Credit Facility was 3.8%.
The Credit Agreement contains customary covenants that limit the Partnership’s ability to incur additional indebtedness, grant liens, make loans or investments, make cash distributions if a default exists or would result from the distribution, merger or consolidation with other persons, or engage in certain asset dispositions including the sale of all or substantially all of its assets. The Partnership was in compliance with these covenants as of December 31, 2015. The Credit Agreement also requires the Partnership to maintain:
• | Consolidated EBITDA (as defined in the Credit Agreement), calculated over a period of four consecutive fiscal quarters, to be no less than the sum of (i) $80.0 million plus (ii) 80% of the aggregate Consolidated EBITDA for each permitted acquisition completed after June 30, 2014; |
• | the ratio of Consolidated EBITDA (as defined in the Credit Agreement) to Consolidated Debt Service (as defined in the Credit Agreement), calculated over a period of four fiscal quarters, or the Consolidated Debt Service Coverage Ratio, of not less than 2.50 to 1.00 for any period; and |
• | the ratio of Consolidated Funded Indebtedness (as defined in the Credit Agreement) to Consolidated EBITDA (as defined in the Credit Agreement), calculated over a period of four fiscal quarters, or the Consolidated Leverage Ratio, of not greater than 4.00 to 1.00 for any period. |
At December 31, 2015, the Partnership’s Consolidated Leverage Ratio and the Consolidated Debt Service Coverage Ratio were 3.23 and 4.62, respectively.
Senior Notes
On May 28, 2013, the Partnership issued $175.0 million aggregate principal amount of 7.875% Senior Notes due 2021 (the “Senior Notes”). The Partnership 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. The net proceeds from the offering were used to retire a $150.0 million aggregate principal amount of 10.25% Senior Notes due 2017 and the remaining proceeds were used for general corporate purposes. The Senior Notes were issued at 97.832% of par resulting in gross proceeds of $171.2 million with an original issue discount of approximately $3.8 million. The Partnership 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 the Senior Notes. The Senior Notes mature on June 1, 2021.
At any time prior to June 1, 2016, the Partnership may redeem up to 35% of the aggregate principal amount of the Senior Notes with the net cash proceeds of certain equity offerings at the redemption price of 107.875%, plus accrued and unpaid interest, if any, to the redemption date, provided that (i) at least 65% of the aggregate principal amount of the Senior Notes remain outstanding and (ii) the redemption occurs within 180 days of the closing date of such equity offering. At any time on or after June 1, 2016, we may redeem the Senior Notes, in whole or in part, at the redemption prices (expressed as percentages of the principal amount) set forth below, together with accrued and unpaid interest, if any, to the redemption date, if redeemed during the 12-month period beginning June 1 of the years indicated:
Year |
Percentage | |||
2016 |
105.906 | % | ||
2017 |
103.938 | % | ||
2018 |
101.969 | % | ||
2019 and thereafter |
100.000 | % |
In addition, at any time prior to June 1, 2016, the Partnership may also redeem all or any portion of the Senior Notes, at a redemption price equal to 100% of the principal amount of the Senior Notes redeemed, plus the Applicable Premium (as defined in the Indenture), including accrued and unpaid interest.
Subject to certain exceptions, upon the occurrence of a Change of Control (as defined in the Indenture), each holder of the Senior Notes will have the right to require the Partnership to purchase that holder’s Senior Notes for a cash price equal to 101% of the principal amounts to be purchased, plus accrued and unpaid interest.
The Senior Notes are jointly and severally guaranteed by certain of our material subsidiaries. The Indenture governing the Senior Notes contains covenants, including limitations of the Partnership’s ability to incur additional indebtedness and liens, make certain dividends, distributions, redemptions or investments, enter into certain transactions with affiliates, make certain asset sales, and engage in certain mergers, consolidations or sales of all or substantially all of the Partnership’s assets. As of December 31, 2015, the Partnership was in compliance with these covenants.
|
10. | INCOME TAXES |
The Partnership is not subject to U.S. federal and most state income taxes. The partners of the Partnership are liable for income tax in regard to their distributive share of the Partnership’s taxable income. Such taxable income may vary substantially from net income reported in the accompanying consolidated financial statements. Certain corporate subsidiaries are subject to federal and state income tax. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and tax 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 Partnership 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.
Income tax expense (benefit) for the years ended December 31, 2015, 2014 and 2013 consisted of the following (in thousands):
Years Ended December 31, | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
Current provision: |
||||||||||||
State |
$ | 723 | $ | 869 | $ | 685 | ||||||
Federal |
— | — | — | |||||||||
Foreign |
229 | 302 | (125 | ) | ||||||||
|
|
|
|
|
|
|||||||
Total |
952 | 1,171 | 560 | |||||||||
|
|
|
|
|
|
|||||||
Deferred provision: |
||||||||||||
State |
(355 | ) | 313 | 292 | ||||||||
Federal |
387 | 2,429 | (3,156 | ) | ||||||||
Foreign |
124 | — | — | |||||||||
|
|
|
|
|
|
|||||||
Total |
156 | 2,742 | (2,864 | ) | ||||||||
|
|
|
|
|
|
|||||||
Total income tax expense (benefit) |
$ | 1,108 | $ | 3,913 | $ | (2,304 | ) | |||||
|
|
|
|
|
|
A reconciliation of the federal statutory tax rate to the Partnership’s effective tax rate is as follows (in thousands):
Years Ended December 31, | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
Computed tax provision (benefit) at the applicable statutory tax rate |
35.0 | % | 35.0 | % | 35.0 | % | ||||||
State and local taxes net of federal income tax benefit |
-2.6 | % | -15.6 | % | -2.2 | % | ||||||
Tax exempt (income) loss |
-4.4 | % | -15.0 | % | -7.2 | % | ||||||
Change in valuation allowance |
-65.1 | % | -158.2 | % | -43.1 | % | ||||||
Partnership earnings not subject to tax |
32.0 | % | 96.6 | % | 12.0 | % | ||||||
Permanent differences |
0.2 | % | 0.9 | % | 15.6 | % | ||||||
Other |
0.1 | % | -0.7 | % | 0.7 | % | ||||||
|
|
|
|
|
|
|||||||
Income tax expense (benefit) |
-4.8 | % | -57.0 | % | 10.8 | % | ||||||
|
|
|
|
|
|
Significant components of the deferred tax assets and liabilities were as follows (in thousands):
December 31, | ||||||||
2015 | 2014 | |||||||
Deferred tax assets: |
||||||||
Prepaid expenses |
$ | 7,626 | $ | 5,373 | ||||
State net operating loss |
14,260 | 13,015 | ||||||
Federal net operating loss |
91,571 | 78,084 | ||||||
Other |
67 | (831 | ) | |||||
Valuation allowance |
(75,344 | ) | (57,148 | ) | ||||
|
|
|
|
|||||
Total deferred tax assets |
38,180 | 38,493 | ||||||
|
|
|
|
|||||
Deferred tax liabilities: |
||||||||
Property, plant and equipment |
9,290 | 8,058 | ||||||
Deferred revenue related to future revenues and accounts receivable |
37,475 | 39,164 | ||||||
Deferred revenue related to cemetery property |
9,208 | 8,939 | ||||||
|
|
|
|
|||||
Total deferred tax liabilities |
55,973 | 56,161 | ||||||
|
|
|
|
|||||
Net deferred tax liabilities |
$ | 17,793 | $ | 17,668 | ||||
|
|
|
|
|||||
Net deferred tax assets and liabilities were classified on the consolidated balance sheets as follows: |
|
|||||||
Deferred tax assets |
$ | 40 | $ | 40 | ||||
|
|
|
|
|||||
Noncurrent assets |
40 | 40 | ||||||
|
|
|
|
|||||
Deferred tax assets |
38,140 | 38,453 | ||||||
Deferred tax liabilities |
55,973 | 56,161 | ||||||
|
|
|
|
|||||
Noncurrent liabilities |
17,833 | 17,708 | ||||||
|
|
|
|
|||||
Net deferred tax liabilities |
$ | 17,793 | $ | 17,668 | ||||
|
|
|
|
At December 31, 2015, the Partnership had available approximately less than $0.1 million of alternative minimum tax credit carryforwards, which are available indefinitely, and $261.8 million of federal net operating loss carryforwards, which will begin to expire in 2017 and $321.8 million in state net operating loss carryforwards, a portion of which expires annually.
In assessing the realizability of deferred tax assets, management considers whether its more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. At December 31, 2015, based on the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Partnership will realize the benefits of these deductible differences. The amount of deferred tax assets considered realizable could be reduced in the future if estimates of future taxable income during the carryforward period are reduced.
In accordance with applicable accounting standards, the Partnership recognizes only the impact of income tax positions that, based upon their merits, are more likely than not to be sustained upon audit by a taxing authority. To evaluate its current tax positions in order to identify any material uncertain tax positions, the Partnership developed a policy of identifying and evaluating uncertain tax positions that considers support for each tax position, industry standards, tax return disclosures and schedules and the significance of each position. It is the Partnership’s policy to recognize interest and penalties, if any, related to unrecognized tax benefits in income tax expense. At December 31, 2015 and 2014, the Partnership had no material uncertain tax positions.
The Partnership is not currently under examination by any federal or state jurisdictions. The federal statute of limitations and certain state statutes of limitations are open from 2012 forward.
|
11. | DEFERRED CEMETERY REVENUES, NET |
The Partnership defers revenues and all direct costs associated with the sale of pre-need cemetery merchandise and services until the merchandise is delivered or the services are performed. The Partnership recognizes deferred cemetery merchandise and service revenues as deferred cemetery revenues, net, within long-term liabilities on its consolidated balance sheet. The Partnership recognizes deferred direct costs associated with pre-need cemetery merchandise and service revenues as deferred selling and obtaining costs within long-term assets on its consolidated balance sheet. The Partnership also defers the costs to obtain new pre-need cemetery and new prearranged funeral business as well as the investment earnings on the prearranged services and merchandise trusts (see Note 1).
At December 31, 2015 and 2014, deferred cemetery revenues, net, consisted of the following (in thousands):
December 31, | ||||||||
2015 | 2014 | |||||||
Deferred cemetery revenue |
$ | 531,905 | $ | 456,632 | ||||
Deferred merchandise trust revenue |
80,294 | 104,717 | ||||||
Deferred merchandise trust unrealized gains (losses) |
(24,685 | ) | 2,284 | |||||
Deferred pre-acquisition margin |
142,672 | 140,378 | ||||||
Deferred cost of goods sold |
(92,650 | ) | (60,603 | ) | ||||
|
|
|
|
|||||
Deferred cemetery revenues, net |
$ | 637,536 | $ | 643,408 | ||||
|
|
|
|
|||||
Deferred selling and obtaining costs |
$ | 111,542 | $ | 97,795 |
|
12. | LONG-TERM INCENTIVE AND RETIREMENT PLANS |
2014 Long-Term Incentive Plan
During the year ended December 31, 2014, the General Partner’s Board of Directors (the “Board”) and the Partnership’s unitholders approved a Long-Term Incentive Plan (“2014 LTIP”). The compensation committee of the Board (the “Compensation Committee”) administers the 2014 LTIP. The 2014 LTIP permits the grant of awards, which may be in the form of phantom units, restricted units, unit appreciation rights (“UAR”), or unit options, including performance factors for each, covering an aggregate of 1,500,000 common units, a number that the Board may increase by up to 100,000 common units per year. At December 31, 2015, the estimated number of common units to be issued upon vesting and exercise of outstanding rights under this plan was 102,661, including management’s estimated amounts for awards with performance factors. A cumulative number of 14,455 common units have been issued, leaving 1,382,884 common units available for future issuance under the plan, assuming no increases by the Board.
Phantom Unit Awards
Phantom units represent rights to receive a common unit or an amount of cash, or a combination of either, based upon the value of a common unit. Phantom units become payable, in cash or common units, at the Partnership’s election, upon the separation of directors and executives from service or upon the occurrence of certain other events specified in the underlying agreements. Phantom units are subject to terms and conditions determined by the Compensation Committee, which may include vesting restrictions. In tandem with phantom unit grants, the compensation committee may grant distribution equivalent rights (“DERs”), which are the right to receive an amount in cash or common units equal to the cash distributions made by the Partnership with respect to common unit during the period that the underlying phantom unit is outstanding. All phantom units outstanding under the 2014 LTIP at December 31, 2015 contain tandem DERs.
The following table sets forth the 2014 LTIP phantom unit award activity for the years ended December 31, 2015, and 2014, respectively:
Years Ended December 31, | ||||||||
2015 | 2014 | |||||||
Outstanding, beginning of period |
2,189 | — | ||||||
Granted (1) |
122,154 | 2,189 | ||||||
Settled in common units or cash (1) |
(14,455 | ) | — | |||||
Performance vesting forfeiture |
(7,227 | ) | — | |||||
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|
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Outstanding, end of period (2) |
102,661 | 2,189 | ||||||
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|
(1) | The weighted-average grant date fair value for the unit awards on the date of grant was $26.94 and $26.27 for the years ended December 31, 2015 and 2014, respectively. The intrinsic values of unit awards vested during the years ended December 31, 2015 and 2014 were $0.6 million and $0.1 million, respectively. |
(2) | Based on the closing price of the common units on December 31, 2015, the estimated intrinsic value of the outstanding unit awards was $2.7 million at December 31, 2015. |
2004 Long-Term Incentive Plan
The Compensation Committee administers the Partnership’s 2004 Long-Term Incentive Plan (“2004 LTIP”). The 2004 LTIP permitted the grant of awards, which may be in the form of phantom units, restricted units, unit appreciation rights (“UAR”), or unit options. At December 31, 2015, the estimated number of common units to be issued upon vesting and exercise of outstanding rights under this plan was 187,328, based upon the closing price of our common units at December 31, 2015. A cumulative number of 626,188 common units have been issued under the plan. There were no phantom units, restricted units, UARs and unit options available for grant under the 2004 LTIP at December 31, 2015 because the plan expired in 2014.
Phantom Unit Awards
Phantom unit awards granted under the 2004 plan included tandem DERs. These DERs continue to accrue until the underlying securities are issued. The following table sets forth the 2004 LTIP phantom unit award activity for the years ended December 31, 2015, 2014 and 2013, respectively:
Years Ended December 31, | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
Outstanding, beginning of period |
169,122 | 162,103 | 143,213 | |||||||||
Granted (1) |
15,335 | 23,003 | 18,890 | |||||||||
Settled in common units or cash |
— | (15,984 | ) | — | ||||||||
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Outstanding, end of period (2) |
184,457 | 169,122 | 162,103 | |||||||||
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(1) | The weighted-average grant date fair value for the phantom unit awards on the date of grant was $28.42, $24.90, and $25.29 for the years ended December 31, 2015, 2014 and 2013, respectively. The intrinsic values of phantom unit awards vested during the years ended December 31, 2015, 2014 and 2013 were $0.9 million, $1.0 million and $0.8 million, respectively. |
(2) | Based on the closing price of the common units on December 31, 2015, the estimated intrinsic value of the outstanding restricted phantom units was $4.9 million. |
Total compensation expense for phantom unit awards under both the 2004 and 2014 plans was approximately $1.0 million, $1.0 million and $0.8 million for the years ended December 31, 2015, 2014 and 2013, respectively.
Unit Appreciation Rights Awards
UAR awards represent rights to receive a right to receive common units in an amount equal to the closing price of the Partnership’s common units on the date preceding the exercise date less the exercise price of the UAR award, to the extent the closing price of the Partnership’s common units on the date preceding the exercise date is in excess of the exercise price. This amount is then divided by the closing pricing of the Partnership’s common units on the date preceding the exercise date to determine the number of common units issued to the participant. UAR awards are subject to terms and conditions determined by the Compensation Committee, which may include vesting restrictions. UAR awards granted through December 31, 2015 have a five-year contractual term beginning on the grant date and vest ratably over a period of 48 months beginning on the grant date. Of the UAR awards outstanding at December 31, 2015, 20,313 awards will vest within the following twelve months. The following table sets forth the UAR award activity for the years ended December 31, 2015, 2014 and 2013:
Years Ended December 31, | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
Outstanding, beginning of period |
123,000 | 673,716 | 774,598 | |||||||||
Granted |
— | 15,000 | 52,500 | |||||||||
Exercised |
(50,477 | ) | (554,466 | ) | (133,110 | ) | ||||||
Forfeited |
(5,730 | ) | (11,250 | ) | (20,272 | ) | ||||||
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Outstanding, end of period (1) |
66,793 | 123,000 | 673,716 | |||||||||
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Exercisable, end of period |
33,092 | 57,090 | 594,248 |
(1) | Based on the closing price of the common units on December 31, 2015 the estimated intrinsic value of the outstanding UARs was $0.1 million. The weighted average remaining contractual life for outstanding UAR awards at December 31, 2015 was 2.6 years. |
At December 31, 2015, the Partnership had approximately $0.1 million of unrecognized compensation expense related to unvested UAR awards that will be recognized through the year ended December 31, 2018. The Partnership recognized total compensation expense for UAR awards of $0.1 million, $0.1 million and $0.5 million for the years ended December 31, 2015, 2014 and 2013, respectively. The Partnership issued 7,716, 152,823 and 34,096 common units due to exercised UAR awards for the years ended December 31, 2015, 2014 and 2013, respectively.
The Partnership’s estimated fair value of UAR awards granted during the years ended December 31, 2014 and 2013 were calculated on the grant date using the Black-Scholes-Merton option pricing model, which is based on Level 3 inputs. There were no UAR awards granted during the year ended December 31, 2015. A summary of the weighted-average assumptions used in the valuation are presented below:
Years Ended December 31, | ||||||||
2014 | 2013 | |||||||
Expected dividend yield |
9.95 | % | 9.14 | % | ||||
Risk-free interest rate |
1.06 | % | 0.63 | % | ||||
Expected volatility |
27.13 | % | 28.57 | % | ||||
Expected life (in years) |
3.52 | 3.52 | ||||||
Fair value per UAR granted |
$ | 1.60 | $ | 2.09 |
The aggregate fair values of UARs granted during the years ended December 31, 2014 and 2013 were approximately $0.1 million.
|
13. | COMMITMENTS AND CONTINGENCIES |
Legal
During the year ended December 31, 2015, the Partnership recognized a charge pertaining to a legal settlement of a Fair Labor Standards Act claim. This $3.1 million amount is recorded under “Legal settlement” on the consolidated statement of operations and consists of the settlement amount and legal fees related to the case.
The Partnership 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 its financial position or results of operations.
Leases
The Partnership has noncancelable operating leases for equipment and office space that expire at various dates with initial terms ranging from one to twenty-five years. Certain operating leases provide the Partnership with the option to renew for additional periods. Where operating leases contain escalation clauses, rent abatements, and/or concessions, the Partnership applies them in the determination of straight-line rent expense over the lease term. Leasehold improvements are amortized over the shorter of the lease term or asset life, which may include renewal periods where the renewal is reasonably assured, and is included in the determination of straight-line rent expense. Total rent expense for the years ended December 31, 2015, 2014 and 2013 was $3.4 million, $2.5 million and $2.7 million, respectively. The aggregate amount of remaining future minimum lease payments as of December 31, 2015 is as follows (in thousands):
2016 |
$ | 3,356 | ||
2017 |
3,520 | |||
2018 |
3,411 | |||
2019 |
3,069 | |||
2020 |
1,784 | |||
Thereafter |
10,471 | |||
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|
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Total |
$ | 25,611 | ||
|
|
Employment Agreements
As of December 31, 2015, the Partnership has an employment agreement with one of its senior executives for a term of three years beginning July 22, 2013.
Other
In connection with the Partnership’s lease and management agreements with the Archdiocese of Philadelphia, it has committed to certain future lease payment commitments (see Note 2).
|
14. | FAIR VALUE OF FINANCIAL INSTRUMENTS |
Management has established a hierarchy to measure the Partnership’s financial instruments at fair value, which requires it to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs represent market data obtained from independent sources; whereas, unobservable inputs reflect the Partnership’s own market assumptions, which are used if observable inputs are not reasonably available without undue cost and effort. The hierarchy defines three levels of inputs that may be used to measure fair value:
Level 1 – Unadjusted quoted market prices in active markets for identical, unrestricted assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset and liability or can be corroborated with observable market data for substantially the same contractual term of the asset or liability.
Level 3 – Unobservable inputs that the entity’s own assumptions about the assumptions market participants would use in the pricing of the asset or liability and are consequently not based on market activity but rather through particular valuation techniques.
The Partnership’s current assets and liabilities on its consolidated balance sheets are considered to be financial instruments, and their estimated fair values approximate their carrying values due to their short-term nature and thus are categorized as Level 1. The Partnership’s merchandise and perpetual care trusts consist of investments in debt and equity marketable securities and cash equivalents, are carried at fair value, and are considered either Level 1 or Level 2 (see Note 6 and 7).
The Partnership’s other financial instruments at December 31, 2015 and 2014 consist of its Senior Notes and outstanding borrowings under its revolving credit facility (see Note 9). The estimated fair values of the Partnership’s Senior Notes at December 31, 2015 and 2014 were $179.9 million and $182.2 million, respectively, based on trades made on those dates, compared with the carrying amounts of $172.2 million and $171.8 million, respectively. At December 31 2015 and 2014, the carrying values of outstanding borrowings under the Partnership’s revolving credit facility (see Note 9), which bears interest at variable interest rates with maturities of 90 days or less, approximated their estimated fair values. The Senior Notes are valued using Level 2 inputs.
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15. | SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION |
The Partnership’s Senior Notes are guaranteed by StoneMor Operating LLC and its wholly-owned subsidiaries. The guarantees are full, unconditional, joint and several. The Partnership, or the “Parent”, and its wholly-owned subsidiary Cornerstone Family Services of West Virginia Subsidiary Inc., are the co-issuers of the Senior Notes. The co-issuers guarantees are full, unconditional, joint and several. The Partnership’s consolidated financial statements as of and for the years ended December 31, 2015, 2014, and 2013 include the accounts of cemeteries operated under long-term lease, operating or management agreements. Under the terms of the Senior Notes these entities are non-guarantor subsidiaries as they are not wholly-owned by the Partnership. The Partnership’s consolidated financial statements also contain merchandise and perpetual care trusts that are also non-guarantor subsidiaries under the agreement. The following supplemental condensed consolidating financial information reflects the Partnership’s standalone accounts, the combined accounts of the subsidiary co-issuer, the combined accounts of the guarantor subsidiaries, the combined accounts of the non-guarantor subsidiaries, the consolidating adjustments and eliminations and the Partnership’s consolidated accounts as of and for the years ended December 31, 2015, 2014 and 2013. For the purpose of the following financial information, the Partnership’s investments in its subsidiaries and the guarantor subsidiaries’ investments in its subsidiaries are presented in accordance with the equity method of accounting (in thousands):
CONDENSED CONSOLIDATING BALANCE SHEETS
December 31, 2015 | Parent | Subsidiary Issuer |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||||
Assets |
||||||||||||||||||||||||
Current assets: |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | — | $ | — | $ | 11,869 | $ | 3,284 | $ | — | $ | 15,153 | ||||||||||||
Other current assets |
— | 4,797 | 75,337 | 12,511 | — | 92,645 | ||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
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Total current assets |
— | 4,797 | 87,206 | 15,795 | — | 107,798 | ||||||||||||||||||
Long-term accounts receivable |
— | 2,888 | 80,969 | 11,310 | — | 95,167 | ||||||||||||||||||
Cemetery property and equipment |
— | 1,084 | 414,785 | 31,100 | — | 446,969 | ||||||||||||||||||
Merchandise trusts |
— | — | — | 464,676 | — | 464,676 | ||||||||||||||||||
Perpetual care trusts |
— | — | — | 307,804 | — | 307,804 | ||||||||||||||||||
Deferred selling and obtaining costs |
— | 5,967 | 91,275 | 14,300 | — | 111,542 | ||||||||||||||||||
Goodwill and intangible assets |
— | — | 78,223 | 58,837 | — | 137,060 | ||||||||||||||||||
Other assets |
— | — | 12,913 | 2,196 | — | 15,109 | ||||||||||||||||||
Due from affiliates |
68,000 | 121,228 | 430,079 | — | (619,307 | ) | — | |||||||||||||||||
Investment in affiliates |
183,678 | 40,783 | (1,375 | ) | — | (223,086 | ) | — | ||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total assets |
$ | 251,678 | $ | 176,747 | $ | 1,194,075 | $ | 906,018 | $ | (842,393 | ) | $ | 1,686,125 | |||||||||||
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|
|||||||||||||
Liabilities and Equity |
||||||||||||||||||||||||
Current liabilities |
$ | — | $ | 12 | $ | 34,969 | $ | 837 | $ | — | $ | 35,818 | ||||||||||||
Long-term debt, net of deferred financing costs |
68,000 | 104,200 | 144,199 | — | — | 316,399 | ||||||||||||||||||
Deferred cemetery revenues, net |
— | 27,528 | 539,878 | 70,130 | — | 637,536 | ||||||||||||||||||
Merchandise liability |
— | 5,599 | 156,838 | 10,660 | — | 173,097 | ||||||||||||||||||
Perpetual care trust corpus |
— | — | — | 307,804 | — | 307,804 | ||||||||||||||||||
Other long-term liabilities |
— | — | 22,299 | 9,494 | — | 31,793 | ||||||||||||||||||
Due to affiliates |
— | — | 173,575 | 445,732 | (619,307 | ) | — | |||||||||||||||||
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|
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|
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Total liabilities |
68,000 | 137,339 | 1,071,758 | 844,657 | (619,307 | ) | 1,502,447 | |||||||||||||||||
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|
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Partners’ Capital |
183,678 | 39,408 | 122,317 | 61,361 | (223,086 | ) | 183,678 | |||||||||||||||||
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|
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Total liabilities and partners’ capital |
$ | 251,678 | $ | 176,747 | $ | 1,194,075 | $ | 906,018 | $ | (842,393 | ) | $ | 1,686,125 | |||||||||||
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|
December 31, 2014 | Parent | Subsidiary Issuer |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||||
Assets |
||||||||||||||||||||||||
Current assets: |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | — | $ | — | $ | 7,059 | $ | 3,342 | $ | — | $ | 10,401 | ||||||||||||
Other current assets |
— | 4,244 | 76,753 | 10,480 | — | 91,477 | ||||||||||||||||||
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Total current assets |
— | 4,244 | 83,812 | 13,822 | — | 101,878 | ||||||||||||||||||
Long-term accounts receivable |
— | 2,453 | 76,416 | 10,667 | — | 89,536 | ||||||||||||||||||
Cemetery property and equipment |
— | 1,033 | 408,983 | 30,223 | — | 440,239 | ||||||||||||||||||
Merchandise trusts |
— | — | — | 484,820 | — | 484,820 | ||||||||||||||||||
Perpetual care trusts |
— | — | — | 345,105 | — | 345,105 | ||||||||||||||||||
Deferred selling and obtaining costs |
— | 5,744 | 81,195 | 10,856 | — | 97,795 | ||||||||||||||||||
Goodwill and intangible assets |
— | — | 67,993 | 59,833 | — | 127,826 | ||||||||||||||||||
Other assets |
— | — | 930 | 2,246 | — | 3,176 | ||||||||||||||||||
Due from affiliates |
67,700 | 133,569 | 436,421 | — | (637,690 | ) | — | |||||||||||||||||
Investment in affiliates |
208,762 | 64,429 | 8,166 | — | (281,357 | ) | — | |||||||||||||||||
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|
|
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|
|
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Total assets |
$ | 276,462 | $ | 211,472 | $ | 1,163,916 | $ | 957,572 | $ | (919,047 | ) | $ | 1,690,375 | |||||||||||
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|
|||||||||||||
Liabilities and Equity |
||||||||||||||||||||||||
Current liabilities |
$ | — | $ | 263 | $ | 37,774 | $ | 815 | $ | — | $ | 38,852 | ||||||||||||
Long-term debt, net of deferred financing costs |
67,700 | 104,100 | 104,489 | — | — | 276,289 | ||||||||||||||||||
Deferred cemetery revenues, net |
— | 28,599 | 551,283 | 63,526 | — | 643,408 | ||||||||||||||||||
Merchandise liability |
— | 5,915 | 134,101 | 10,176 | — | 150,192 | ||||||||||||||||||
Perpetual care trust corpus |
— | — | — | 345,105 | — | 345,105 | ||||||||||||||||||
Other long-term liabilities |
— | — | 19,000 | 8,767 | — | 27,767 | ||||||||||||||||||
Due to affiliates |
— | — | 171,800 | 465,890 | (637,690 | ) | — | |||||||||||||||||
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|
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Total liabilities |
67,700 | 138,877 | 1,018,447 | 894,279 | (637,690 | ) | 1,481,613 | |||||||||||||||||
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|||||||||||||
Partners’ Capital |
208,762 | 72,595 | 145,469 | 63,293 | (281,357 | ) | 208,762 | |||||||||||||||||
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Total liabilities and partners’ capital |
$ | 276,462 | $ | 211,472 | $ | 1,163,916 | $ | 957,572 | $ | (919,047 | ) | $ | 1,690,375 | |||||||||||
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|
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Subsidiary | Guarantor | Non-Guarantor | ||||||||||||||||||||||
Year Ended December 31, 2015 | Parent | Issuer | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
Total revenues |
$ | — | $ | 5,722 | $ | 262,728 | $ | 47,489 | $ | (10,299 | ) | $ | 305,640 | |||||||||||
Total cost and expenses |
— | (10,623 | ) | (257,099 | ) | (46,877 | ) | 10,299 | (304,300 | ) | ||||||||||||||
Other income (loss) |
— | — | (1,891 | ) | — | — | (1,891 | ) | ||||||||||||||||
Net loss from equity investment in subsidiaries |
(18,810 | ) | (19,966 | ) | — | — | 38,776 | — | ||||||||||||||||
Interest expense |
(5,434 | ) | (8,347 | ) | (8,076 | ) | (728 | ) | — | (22,585 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income (loss) before income taxes |
(24,244 | ) | (33,214 | ) | (4,338 | ) | (116 | ) | 38,776 | (23,136 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income tax benefit (expense) |
— | — | (1,108 | ) | — | — | (1,108 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income (loss) |
$ | (24,244 | ) | $ | (33,214 | ) | $ | (5,446 | ) | $ | (116 | ) | $ | 38,776 | $ | (24,244 | ) | |||||||
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|
Year Ended December 31, 2014 |
Parent | Subsidiary Issuer |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||||
Total revenues |
$ | — | $ | 8,237 | $ | 254,997 | $ | 36,982 | $ | (12,131 | ) | $ | 288,085 | |||||||||||
Total cost and expenses |
— | (11,547 | ) | (235,113 | ) | (39,696 | ) | 12,131 | (274,225 | ) | ||||||||||||||
Other income (loss) |
— | — | 890 | — | — | 890 | ||||||||||||||||||
Net loss from equity investment in subsidiaries |
(5,339 | ) | (9,350 | ) | — | — | 14,689 | — | ||||||||||||||||
Interest expense |
(5,434 | ) | (8,347 | ) | (7,430 | ) | (399 | ) | — | (21,610 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income (loss) before income taxes |
(10,773 | ) | (21,007 | ) | 13,344 | (3,113 | ) | 14,689 | (6,860 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income tax benefit (expense) |
— | — | (3,913 | ) | — | — | (3,913 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income (loss) |
$ | (10,773 | ) | $ | (21,007 | ) | $ | 9,431 | $ | (3,113 | ) | $ | 14,689 | $ | (10,773 | ) | ||||||||
|
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|
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|
|
|
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|
|
Year Ended December 31, 2013 |
Parent | Subsidiary Issuer |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||||
Total revenues |
$ | — | $ | 5,744 | $ | 226,653 | $ | 29,313 | $ | (15,069 | ) | $ | 246,641 | |||||||||||
Total cost and expenses |
— | (8,523 | ) | (212,754 | ) | (34,050 | ) | 15,069 | (240,258 | ) | ||||||||||||||
Other income (loss) |
— | 12,261 | (18,910 | ) | — | — | (6,649 | ) | ||||||||||||||||
Net loss from equity investment in subsidiaries |
(13,598 | ) | (6,794 | ) | — | — | 20,392 | — | ||||||||||||||||
Interest expense |
(5,434 | ) | (8,347 | ) | (7,289 | ) | — | — | (21,070 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income (loss) before income taxes |
(19,032 | ) | (5,659 | ) | (12,300 | ) | (4,737 | ) | 20,392 | (21,336 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income tax benefit (expense) |
— | — | 2,304 | — | — | 2,304 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income (loss) |
$ | (19,032 | ) | $ | (5,659 | ) | $ | (9,996 | ) | $ | (4,737 | ) | $ | 20,392 | $ | (19,032 | ) | |||||||
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CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Year Ended December 31, 2015 |
Parent | Subsidiary Issuer |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||||
Net cash provided by (used in) operating activities |
$ | 2,356 | $ | 284 | $ | 14,626 | $ | 2,933 | $ | (16,137 | ) | $ | 4,062 | |||||||||||
Cash Flows From Investing Activities: |
||||||||||||||||||||||||
Cash paid for acquisitions and capital expenditures |
— | (284 | ) | (30,864 | ) | (2,991 | ) | — | (34,139 | ) | ||||||||||||||
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|
|
|
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|
|
|
|
|||||||||||||
Net cash used in investing activities |
— | (284 | ) | (30,864 | ) | (2,991 | ) | — | (34,139 | ) | ||||||||||||||
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|
|
|
|
|
|
|
|
|
|||||||||||||
Cash Flows From Financing Activities: |
||||||||||||||||||||||||
Cash distributions |
(77,512 | ) | — | — | — | — | (77,512 | ) | ||||||||||||||||
Payments to affiliates |
— | — | (16,137 | ) | — | 16,137 | — | |||||||||||||||||
Net borrowings and repayments of debt |
— | — | 37,261 | — | — | 37,261 | ||||||||||||||||||
Proceeds from issuance of common units |
75,156 | — | — | — | — | 75,156 | ||||||||||||||||||
Other financing activities |
— | — | (76 | ) | — | — | (76 | ) | ||||||||||||||||
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|
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|
|
|
|||||||||||||
Net cash provided by (used in) financing activities |
(2,356 | ) | — | 21,048 | — | 16,137 | 34,829 | |||||||||||||||||
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|
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|
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|
|||||||||||||
Net increase (decrease) in cash and cash equivalents |
— | — | 4,810 | (58 | ) | — | 4,752 | |||||||||||||||||
Cash and cash equivalents—Beginning of period |
— | — | 7,059 | 3,342 | — | 10,401 | ||||||||||||||||||
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|
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|
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|
|||||||||||||
Cash and cash equivalents—End of period |
$ | — | $ | — | $ | 11,869 | $ | 3,284 | $ | — | $ | 15,153 | ||||||||||||
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Year Ended December 31, 2014 |
Parent | Subsidiary Issuer |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||||
Net cash provided by operating activities |
$ | — | $ | 150 | $ | 29,918 | $ | 3,161 | $ | (13,781 | ) | $ | 19,448 | |||||||||||
Cash Flows From Investing Activities: |
||||||||||||||||||||||||
Cash paid for acquisitions and capital expenditures |
— | (150 | ) | (67,777 | ) | (2,731 | ) | — | (70,658 | ) | ||||||||||||||
Consideration for lease and management agreements |
— | — | — | (53,000 | ) | — | (53,000 | ) | ||||||||||||||||
Payments to affiliates |
(110,661 | ) | — | (53,000 | ) | — | 163,661 | — | ||||||||||||||||
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|
|||||||||||||
Net cash used in investing activities |
(110,661 | ) | (150 | ) | (120,777 | ) | (55,731 | ) | 163,661 | (123,658 | ) | |||||||||||||
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Cash Flows From Financing Activities: |
||||||||||||||||||||||||
Cash distributions |
(62,836 | ) | — | — | — | — | (62,836 | ) | ||||||||||||||||
Payments from affiliates |
— | — | 96,880 | 53,000 | (149,880 | ) | — | |||||||||||||||||
Net borrowings and repayments of debt |
— | — | (5,275 | ) | — | — | (5,275 | ) | ||||||||||||||||
Proceeds from issuance of common units |
173,497 | — | — | — | — | 173,497 | ||||||||||||||||||
Other financing activities |
— | — | (2,950 | ) | — | — | (2,950 | ) | ||||||||||||||||
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|
|
|||||||||||||
Net cash provided by (used in) financing activities |
110,661 | — | 88,655 | 53,000 | (149,880 | ) | 102,436 | |||||||||||||||||
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|||||||||||||
Net increase (decrease) in cash and cash equivalents |
— | — | (2,204 | ) | 430 | — | (1,774 | ) | ||||||||||||||||
Cash and cash equivalents—Beginning of period |
— | — | 9,263 | 2,912 | — | 12,175 | ||||||||||||||||||
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Cash and cash equivalents—End of period |
$ | — | $ | — | $ | 7,059 | $ | 3,342 | $ | — | $ | 10,401 | ||||||||||||
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Year Ended December 31, 2013 |
Parent | Subsidiary Issuer |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||||
Net cash provided by (used in) operating activities |
$ | 13,676 | $ | 73 | $ | 49,544 | $ | (759 | ) | $ | (27,457 | ) | $ | 35,077 | ||||||||||
Cash Flows From Investing Activities: |
||||||||||||||||||||||||
Cash paid for acquisitions and capital expenditures |
— | (73 | ) | (26,299 | ) | (325 | ) | — | (26,697 | ) | ||||||||||||||
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Net cash used in investing activities |
— | (73 | ) | (26,299 | ) | (325 | ) | — | (26,697 | ) | ||||||||||||||
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Cash Flows From Financing Activities: |
||||||||||||||||||||||||
Cash distributions |
(52,053 | ) | — | — | — | — | (52,053 | ) | ||||||||||||||||
Payments to affiliates |
— | — | (27,457 | ) | — | 27,457 | — | |||||||||||||||||
Net borrowings and repayments of debt |
— | — | 29,570 | — | — | 29,570 | ||||||||||||||||||
Proceeds from issuance of common units |
38,377 | — | — | — | — | 38,377 | ||||||||||||||||||
Other financing activities |
— | — | (20,045 | ) | — | — | (20,045 | ) | ||||||||||||||||
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|
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|
|||||||||||||
Net cash provided by (used in) financing activities |
(13,676 | ) | — | (17,932 | ) | — | 27,457 | (4,151 | ) | |||||||||||||||
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|||||||||||||
Net increase (decrease) in cash and cash equivalents |
— | — | 5,313 | (1,084 | ) | — | 4,229 | |||||||||||||||||
Cash and cash equivalents - Beginning of period |
— | — | 3,950 | 3,996 | — | 7,946 | ||||||||||||||||||
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Cash and cash equivalents - End of period |
$ | — | $ | — | $ | 9,263 | $ | 2,912 | $ | — | $ | 12,175 |
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16. | ISSUANCES OF LIMITED PARTNER UNITS |
On November 19, 2015, the Partnership entered into an equity distribution agreement (“ATM Equity Program”) with a group of banks (the “Agents”) whereby it may sell, from time to time, common units representing limited partner interests having an aggregate offering price of up to $100,000,000. Sales of common units, if any, may be made in negotiated transactions or transactions that are deemed to be “at-the-market” (“ATM”) offerings as defined in Rule 415 of the Securities Act, including sales made directly on the New York Stock Exchange, the existing trading market for the common units, or sales made to or through the market maker other than on an exchange or through an electronic communications network. The Partnership will pay each of the Agents a commission, which in each case shall not be more than 2.0% of the gross sales price of common units sold through such Agent. During the year ended December 31, 2015, the Partnership issued 277,667 common units under the ATM Equity Program for net proceeds of $7.5 million.
On July 10, 2015, the Partnership issued 2,415,000 common units in a public offering at a price of $29.63 per unit. Net proceeds from the offering, after deducting underwriting discounts and offering expenses, were approximately $67.9 million. The proceeds were used to repay outstanding borrowings under the Partnership’s Credit Facility.
In February 2014, the Partnership issued 2,300,000 common units in a public offering 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 repay outstanding borrowings under the Partnership’s Credit Facility.
In May 2014, the Partnership sold to American Cemeteries Infrastructure Investors, LLC, a Delaware limited liability company (“ACII”), 2,255,947 common units (the “ACII Units”) at an aggregate purchase price of $55.0 million pursuant to a Common Unit Purchase Agreement (the “Common Unit Purchase Agreement”), dated May 19, 2014, by and between ACII and the Partnership. Pursuant to the Common Unit Purchase Agreement, commencing with the quarter ending June 30 2014, the ACII Units are entitled to receive cash distributions equal to those paid on the common units generally. Through the quarter ending June 30, 2018, such distributions may be paid in cash, paid-in-kind (“PIK”) common units issued to ACII in lieu of cash distributions, or a combination of cash and PIK units, as determined by the Partnership at its sole discretion. If the Partnership elects to pay cash distributions through the issuance of PIK units, the number of common units to be issued in connection with a quarterly cash distribution will be the quotient of (i) the amount of the quarterly cash distribution paid on the common units by (B) the volume-weighted average price of the common units for the thirty (30) trading days immediately preceding the date the quarterly cash distribution is declared with respect to the common units. Beginning with the quarterly cash distribution payable with respect to the quarter ending September 30, 2018, the ACII Units will receive cash distributions on the same basis as all other common units and the Partnership will no longer have the ability to elect to pay quarterly cash distributions in PIK units. The Partnership issued 204,804 and 111,740 PIK Units to ACII in lieu of cash distributions of $5.8 million and $2.8 million, respectively, during the years ended December 31, 2015 and 2014, respectively.
In June 2014, the Partnership issued 2,990,000 common units in a public offering at a price of $23.67 per unit. Net proceeds of the offering, after deducting underwriting discounts and offering expenses, were approximately $67.1 million. The proceeds from the offering were used to pay the purchase price of certain properties acquired and repay outstanding borrowings under the Partnership’s Credit Facility.
In March 2013, the Partnership issued 1,610,000 common units in a public offering at a price of $25.35 per unit. Net proceeds of the offering, after deducting underwriting discounts and offering expenses, were approximately $38.4 million. The proceeds from the offering were used to repay outstanding borrowings on the Partnership’s Credit Facility.
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17. | SEGMENT INFORMATION |
The Partnership’s operations include two reportable operating segments, Cemetery Operations and Funeral Homes. These operating segments reflect the way the Partnership manages its operations and makes business decisions as of December 31, 2015 and represent a change from prior periods. Prior periods were revised to the current year presentation. Operating segment data for the periods indicated were as follows (in thousands):
Years Ended December 31 | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
Cemetery Operations: |
||||||||||||
Revenues |
$ | 247,870 | $ | 239,399 | $ | 201,686 | ||||||
Operating costs and expenses |
(205,475 | ) | (188,711 | ) | (165,130 | ) | ||||||
Depreciation and amortization |
(7,766 | ) | (6,904 | ) | (5,336 | ) | ||||||
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Segment income |
$ | 34,629 | $ | 43,784 | $ | 31,220 | ||||||
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Funeral Homes: |
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Revenues |
$ | 57,770 | $ | 48,686 | $ | 44,955 | ||||||
Operating costs and expenses |
(47,413 | ) | (39,710 | ) | (35,654 | ) | ||||||
Depreciation and amortization |
(3,257 | ) | (3,200 | ) | (3,036 | ) | ||||||
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|
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Segment income |
$ | 7,100 | $ | 5,776 | $ | 6,265 | ||||||
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Reconciliation of segment income to net loss: |
||||||||||||
Cemeteries |
$ | 34,629 | $ | 43,784 | $ | 31,220 | ||||||
Funeral homes |
7,100 | 5,776 | 6,265 | |||||||||
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|
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Total segment income |
41,729 | 49,560 | 37,485 | |||||||||
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|
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Corporate overhead |
(38,609 | ) | (34,723 | ) | (29,926 | ) | ||||||
Corporate depreciation and amortization |
(1,780 | ) | (977 | ) | (1,176 | ) | ||||||
Other net gains (losses) |
(1,891 | ) | 890 | (6,649 | ) | |||||||
Interest expense |
(22,585 | ) | (21,610 | ) | (21,070 | ) | ||||||
Income tax benefit (expense) |
(1,108 | ) | (3,913 | ) | 2,304 | |||||||
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|
|
|
|
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Net loss |
$ | (24,244 | ) | $ | (10,773 | ) | $ | (19,032 | ) | |||
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|
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Capital expenditures: |
||||||||||||
Cemeteries |
$ | 11,853 | $ | 13,368 | $ | 10,111 | ||||||
Funeral homes |
580 | 545 | 1,250 | |||||||||
Corporate |
2,906 | 661 | 1,391 | |||||||||
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|
|
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Total capital expenditures |
$ | 15,339 | $ | 14,574 | $ | 12,752 | ||||||
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Balance sheet information: |
||||||||||||
Total assets—Cemetery Operations |
$ | 1,473,694 | $ | 1,507,994 | $ | 1,310,290 | ||||||
Total assets—Funeral Homes |
190,443 | 164,925 | 135,232 | |||||||||
Total assets—Corporate |
21,988 | 17,456 | 20,513 | |||||||||
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|
|
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Total assets |
$ | 1,686,125 | $ | 1,690,375 | $ | 1,466,035 | ||||||
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Goodwill—Cemetery Operations |
$ | 25,320 | $ | 24,186 | $ | 18,122 | ||||||
Goodwill—Funeral Homes |
44,531 | 34,650 | 30,615 | |||||||||
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|
|
|
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Total goodwill |
$ | 69,851 | $ | 58,836 | $ | 48,737 | ||||||
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18. | SUBSEQUENT EVENTS |
On January 26, 2016, the Partnership announced a quarterly cash distribution of $0.66 per common unit pertaining to the results for the fourth quarter of 2015. The distribution was paid on February 12, 2016 to common unit holders of record as of the close of business on February 5, 2016.
Subsequent to December 31, 2015, the Partnership issued 474,657 common units under the ATM Equity Program for net proceeds of approximately $12.4 million. No issuances occurred during February 2016.
|
19. | QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) |
The following summarizes certain quarterly results of operations:
Year Ended December 31, 2015 |
First Quarter | Second Quarter | Third Quarter | Fourth Quarter | ||||||||||||
(in thousands, except unit data) | ||||||||||||||||
Revenues |
$ | 67,417 | $ | 80,825 | $ | 78,200 | $ | 79,198 | ||||||||
Net loss |
(8,883 | ) | (4,848 | ) | (3,402 | ) | (7,111 | ) | ||||||||
General partner’s interest in net loss for the period |
(120 | ) | (65 | ) | (42 | ) | (88 | ) | ||||||||
Limited partners’ interest in net loss for the period |
(8,763 | ) | (4,783 | ) | (3,360 | ) | (7,023 | ) | ||||||||
Net loss per limited partner unit (basic and diluted): |
$ | (0.30 | ) | $ | (0.16 | ) | $ | (0.11 | ) | $ | (0.22 | ) | ||||
Year Ended December 31, 2014 |
First Quarter | Second Quarter | Third Quarter | Fourth Quarter | ||||||||||||
(in thousands, except unit data) | ||||||||||||||||
Revenues |
$ | 64,387 | $ | 71,533 | $ | 78,174 | $ | 73,991 | ||||||||
Net income (loss) |
409 | (118 | ) | (3,268 | ) | (7,796 | ) | |||||||||
General partner’s interest in net income (loss) for the period |
4 | (9 | ) | (44 | ) | (106 | ) | |||||||||
Limited partners’ interest in net income (loss) for the period |
405 | (109 | ) | (3,224 | ) | (7,690 | ) | |||||||||
Net income (loss) per limited partner unit (basic and diluted): |
$ | 0.02 | $ | — | $ | (0.11 | ) | $ | (0.26 | ) |
Net income (loss) per limited partner unit is computed independently for each quarter and the full year based upon respective average units outstanding. Therefore, the sum of the quarterly per share amounts may not equal to the annual per share amounts.
|
Nature of Operations
StoneMor Partners L.P. ( the “Partnership”) is a provider of funeral and cemetery products and services in the death care industry in the United States. As of December 31, 2015, the Partnership operated 307 cemeteries in 27 states and Puerto Rico, of which 276 are owned and 31 are operated under lease, management or operating agreements. The Partnership also owned and operated 105 funeral homes in 19 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 Partnership’s presentation of its deferred financing costs within its consolidated balance sheet has changed. These deferred costs were previously presented as under their own caption and are now presented as an offset to long-term debt using the caption, “Long-term debt, net of deferred financing cost.” Retrospective adjustment was made to the December 31, 2014 presentation of these deferred costs. This change in presentation has decreased the “Total assets” amount by $9.1 million and decreased “Total liabilities” by the same amount at December 31, 2014. There was no additional impact on other assets or any other previously reported amounts.
Certain amounts in the prior year’s financial statements have been reclassified to conform to the current year presentation.
The Partnership has revised its segment reporting and reporting units from prior presentations based on how it currently manages operations and makes business decisions. The Partnership now has two distinct reportable segments and reporting units, which are classified as Cemetery Operations and Funeral Homes, and are supported by corporate costs and expenses. Prior period balances and activities were adjusted to conform to this revised presentation.
Principles of Consolidation
The consolidated financial statements include the accounts of each of the Partnership’s wholly-owned subsidiaries. These statements also include the accounts of the merchandise and perpetual care trusts in which the Partnership has a variable interest and is the primary beneficiary. The Partnership operates 31 cemeteries under long-term lease, operating or management contracts. The operations of 16 of these managed cemeteries have been consolidated.
The Partnership operates 15 cemeteries under long-term leases and other agreements that do not qualify as acquisitions for accounting purposes, including 13 cemeteries related to the transaction with the Archdiocese of Philadelphia that closed in the second quarter of 2014. As a result, the Partnership did not consolidate all of the existing assets and liabilities related to these cemeteries. The Partnership has consolidated the existing assets and liabilities of the merchandise and perpetual care trusts associated with these cemeteries as variable interest entities since the Partnership controls and receives the benefits and absorbs any losses from operating these trusts. Under the long-term leases, and other agreements associated with these properties, which are subject to certain termination provisions, the Partnership is the exclusive operator of these cemeteries and earns revenues related to sales of merchandise, services, and interment rights, and incurs expenses related to such sales, including the maintenance and upkeep of these cemeteries. Upon termination of these contracts, the Partnership will retain all of the benefits and related contractual obligations incurred from sales generated during the contract period. The Partnership has also recognized the existing merchandise liabilities that it assumed as part of these agreements.
Total revenues derived from the cemeteries under these agreements totaled approximately $51.8 million, $42.5 million and $33.2 million for the years ended December 31, 2015, 2014 and 2013, respectively.
Use of Estimates
The preparation of the Partnership’s consolidated financial statements in conformity with GAAP 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, as well as the reported amounts of revenue and expense during the reporting periods. The Partnership’s consolidated financial statements are based on a number of significant estimates, including revenue and expense accruals, depreciation and amortization, merchandise trusts and perpetual care trusts asset valuation, allowance for cancellations, unit-based compensation, merchandise liability, deferred sales revenue, deferred margin, deferred merchandise trust investment earnings, deferred obtaining costs, assets and liabilities obtained via business combinations and income taxes. As a result, actual results could differ from those estimates.
Accounts Receivable, Net of Allowance
The Partnership sells pre-need cemetery contracts whereby the customer enters into arrangements for future merchandise and services prior to the time of need. These sales are usually made using interest-bearing installment contracts not to exceed 60 months. The interest income is recorded when the interest amount is considered realizable and collectible, which typically coincides with cash payment. Interest income is not recognized until payments are collected in accordance with the contract. At the time of a pre-need sale, the Partnership records an account receivable in an amount equal to the total contract value less unearned finance income and any cash deposit paid, net of an estimated allowance for customer cancellations. The Partnership recognizes an allowance for cancellation of these receivables based upon its historical experience, which is recorded as a reduction in accounts receivable and a corresponding offset to deferred cemetery revenues, net.
Management evaluates customer receivables for impairment on an individual contract basis based upon its historical experience, including the age of the receivable and the customer’s payment history. Since the Partnership’s receivables primarily relate to pre-need sales, the Partnership has not performed the service or fulfilled all of its obligations for the merchandise to which the receivable relates and, as such, no risk of loss exists regarding accounts receivable.
Cash and Cash Equivalents
The Partnership 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.
Property and Equipment
Property and equipment is stated at cost or, upon acquisition of a business, at the fair value of the assets acquired 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 |
Inventories
Inventories are classified within other current assets on the Partnership’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 $9.7 million and $5.6 million at December 31, 2015 and 2014, respectively.
Impairment of Long-Lived Assets
The Partnership 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, at a location level. The Partnership’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.
Other-Than-Temporary Impairment of Trust Assets
The Partnership 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 Partnership’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 Partnership evaluates if it is not more likely than not that it will be required to sell the debt security before its anticipated recovery. If the Partnership 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 Partnership further evaluates whether or not all assets in the 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.
Goodwill
The Partnership tests goodwill for impairment at each year end by comparing its reporting units’ estimated fair values to carrying values. Because quoted market prices for the reporting units are not available, the Partnership’s management must apply judgment in determining the estimated fair value of these reporting units. The Partnership’s management uses all available information to make these fair value determinations, including the present values of expected future cash flows using discount rates commensurate with the risks involved in the Partnership’s assets and the available market data of the industry group. A key component of these fair value determinations is a reconciliation of the sum of the fair value calculations to the Partnership’s market capitalization. The observed market prices of individual trades of an entity’s equity securities (and thus its computed market capitalization) may not be representative of the fair value of the entity as a whole. Substantial value may arise from the ability to take advantage of synergies and other benefits that flow from control over another entity. Consequently, measuring the fair value of a collection of assets and liabilities that operate together in a controlled entity is different from measuring the fair value of that entity on a stand-alone basis. In most industries, including the Partnership’s, an acquiring entity typically is willing to pay more for equity securities that give it a controlling interest than an investor would pay for a number of equity securities representing less than a controlling interest. Therefore, once the above fair value calculations have been determined, the Partnership’s management also considers the inclusion of a control premium within the calculations. This control premium is judgmental and is based on, among other items, observed acquisitions in the Partnership’s industry. The resultant fair values calculated for the reporting units are compared to observable metrics on large mergers and acquisitions in the Partnership’s industry to determine whether those valuations appear reasonable in management’s judgment. Management will continue to evaluate goodwill at least annually, or when impairment indicators arise.
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 Partnership. The Partnership 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 Partnership acquired through acquisition. Deferred margin amounts are deferred until the merchandise is delivered or services are performed.
Income Taxes
The Partnership is not subject to U.S. federal and most state income taxes. The partners of the Partnership are liable for income tax in regard to their distributive share of the Partnership’s taxable income. Such taxable income may vary substantially from net income reported in the accompanying consolidated financial statements. Certain corporate subsidiaries are subject to federal and state income tax. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and tax 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 Partnership 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 (Loss) per Common Unit
Basic net income (loss) attributable to common limited partners per unit is computed by dividing net income (loss) attributable to common limited partners, which is determined after the deduction of the general partner’s interest, by the weighted average number of common limited partner units outstanding during the period. Net income (loss) attributable to common limited partners is determined by deducting net income attributable to participating securities, if applicable and net income (loss) attributable to the general partner’s units. The general partner’s interest in net income (loss) is calculated on a quarterly basis based upon its units and incentive distributions to be distributed for the quarter, with a priority allocation of net income to the general partner’s incentive distributions, if any, in accordance with the partnership agreement, and the remaining net income (loss) allocated with respect to the general partner’s and limited partners’ ownership interests.
The Partnership presents net income (loss) per unit under the two-class method for master limited partnerships, which considers whether the incentive distributions of a master limited partnership represent a participating security when considered in the calculation of earnings per unit under the two-class method. The two-class method considers whether the partnership agreement contains any contractual limitations concerning distributions to the incentive distribution rights that would impact the amount of earnings to allocate to the incentive distribution rights for each reporting period. If distributions are contractually limited to the incentive distribution rights’ share of currently designated available cash for distributions as defined under the partnership agreement, undistributed earnings in excess of available cash should not be allocated to the incentive distribution rights. Under the two-class method, management of the Partnership believes the partnership agreement contractually limits cash distributions to available cash; therefore, undistributed earnings are not allocated to the incentive distribution rights.
Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and are included in the computation of earnings per unit pursuant to the two-class method. Phantom unit awards, which consist of common units issuable under the terms of its long-term incentive plan (see Note 12), contain non-forfeitable rights to distribution equivalents of the Partnership. The participation rights would result in a non-contingent transfer of value each time the Partnership declares a distribution or distribution equivalent right during the award’s vesting period. However, unless the contractual terms of the participating securities require the holders to share in the losses of the entity, net loss is not allocated to the participating securities. As such, the net income utilized in the calculation of net income (loss) per unit must be after the allocation of only net income to the phantom units on a pro-rata basis.
The following is a reconciliation of net income (loss) allocated to the common limited partners for purposes of calculating net income (loss) attributable to common limited partners per unit (in thousands, except unit data):
Years Ended December 31, | ||||||||||||
2015 | 2014 | 2014 | ||||||||||
Net loss |
$ | (24,244 | ) | $ | (10,773 | ) | $ | (19,032 | ) | |||
Less: General partner’s interest |
(315 | ) | (155 | ) | (350 | ) | ||||||
|
|
|
|
|
|
|||||||
Net loss attributable to common limited partners |
$ | (23,929 | ) | $ | (10,618 | ) | $ | (18,682 | ) | |||
|
|
|
|
|
|
Diluted net income (loss) attributable to common limited partners per unit is calculated by dividing net income (loss) attributable to common limited partners, less income allocable to participating securities, by the sum of the weighted average number of common limited partner units outstanding and the dilutive effect of unit option awards, as calculated by the treasury stock or if converted methods, as applicable. Unit options consist of common units issuable upon payment of an exercise price by the participant under the terms of the Partnership’s long-term incentive plan (see Note 12).
The following table sets forth the reconciliation of the Partnership’s weighted average number of common limited partner units used to compute basic net income (loss) attributable to common limited partners per unit with those used to compute diluted net income (loss) attributable to common limited partners per unit (in thousands):
Years Ended December 31, | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
Weighted average number of common limited partner units—basic |
30,472 | 26,582 | 20,954 | |||||||||
Add effect of dilutive incentive awards (1) |
— | — | — | |||||||||
|
|
|
|
|
|
|||||||
Weighted average number of common limited partner units—diluted |
30,472 | 26,582 | 20,954 | |||||||||
|
|
|
|
|
|
(1) | The diluted weighted average number of limited partners’ units outstanding presented on the consolidated statement of operations does not include 282,093 units, 164,709 units and 297,078 units for the years ended December 31, 2015, 2014 and 2013, respectively, as their effects would be anti-dilutive. |
New Accounting Pronouncements
In the second quarter of 2014, the Financial Accounting Standards Board (“FASB”) issued Update No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”), which supersedes the revenue recognition requirements in “Topic 605 - Revenue Recognition” and most industry-specific guidance. The core principle of ASU 2014-09 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. During the third quarter of 2015, Update No. 2015-14, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2015-14”) was released, deferring the effective date of the amendments to annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early application is permitted, only as of an annual reporting period beginning after December 15, 2016. The Partnership will adopt the requirements of ASU 2014-09 upon its effective date of January 1, 2018, and is evaluating the potential impact of the adoption on its financial position, results of operations or related disclosures.
In the first quarter of 2015, the FASB issued Update No. 2015-02, “Consolidation (Topic 810)” (“ASU 2015-02”), which amends previous consolidation analysis guidance. ASU 2015-02 requires companies to consider revised consolidation criteria regarding limited partnerships and similar legal entities. The amendments are effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period. Early application is permitted. The Partnership will adopt the requirements of ASU 2015-02 upon its effective date of January 1, 2016, and it does not anticipate it having a material impact on its financial position, results of operations, and related disclosures.
In the second quarter of 2015, the FASB issued Update No. 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”), which changes the presentation of debt issuance costs. During the third quarter of 2015, Update No. 2015-15, “Interest - Imputation of Interest (Subtopic 835-30) (“ASU 2015-15”) was released clarifying the treatment of debt issuance costs associated with line-of-credit arrangements. ASU 2015-03 requires that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by ASU 2015-03. ASU 2015-15 allows the deferral and presentation of debt issuance costs pertaining to line-of-credit arrangements as an asset. The amendments in the update are effective for annual reporting periods beginning after December 15, 2015, including interim periods within those reporting periods. Early application is permitted. The Partnership has elected to early adopt the presentation change regarding its deferred financing cost within its consolidated balance sheets. These deferred financing costs were previously presented as a separate asset caption and are now presented as a direct reduction to long-term debt under the caption, “Long-term debt, net of deferred financing costs.” This change in presentation has decreased “Total assets” and “Total liabilities” by $9.1 million at December 31, 2014.
In the third quarter of 2015, the FASB issued Update No. 2015-16, “Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments” (“ASU 2015-16”). ASU 2015-16 requires that an acquirer recognize adjustments to estimated amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments are effective for fiscal years beginning after December 15, 2015 and early application is permitted. The Partnership has elected to early adopt the requirements of ASU 2015-16 during the fourth quarter of 2015, and it did not have a material impact on its financial position, results of operations and related disclosures.
In the first quarter of 2016, the FASB issued Update No. 2016-01, “Financial Instruments (Subtopic 825-10)” (“ASU 2016-01”). The core principle of ASU 2016-01 is that all equity investments should be measured at fair value with changes in the fair value recognized through net income. The amendment is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early application is not permitted for the key aspects of the amendment. The Partnership will adopt the requirements of ASU 2016-01 upon its effective date of January 1, 2018, and is evaluating the potential impact of the adoption on its financial position, results of operations and related disclosures.
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 Partnership 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 6).
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 Partnership 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 Partnership consolidates the trust into its financial statements because the trust is considered a variable interest entity for which the Partnership is the primary beneficiary. Earnings from the perpetual care trusts are recognized in current cemetery revenues (see Note 7).
Cemetery Property
Cemetery property consists of developed and undeveloped cemetery property, constructed mausoleum crypts and lawn crypts and other cemetery property. Cemetery property is stated at cost or, upon acquisition of a business, at the fair value of the assets acquired.
Cemetery Merchandise and Services Sales
The Partnership 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 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 Partnership 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 three years ended December 31, 2015, in order to segregate the principal and interest component of the total contract value.
At the time of a pre-need sale, the Partnership records an account receivable in an amount equal to the total contract value less unearned finance income and 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.
The allowance for customer cancellations is established based on management’s estimates of expected cancellations and historical experiences. 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 cemetery 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.
The Partnership 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 expensed as revenues are recognized.
The Partnership recognizes a merchandise liability equal to the estimated cost of services and merchandise for all outstanding and unfulfilled pre-need contracts. The merchandise liability is established and recognized at the time of the sale on the consolidated balance sheet, but is not recognized as an expense on the consolidated statement of operations 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. The merchandise liability is reduced when services are performed or when payment for merchandise is made by the Partnership and title is transferred to the customer.
Funeral Home Service and Insurance Policy Sales
Revenue from funeral home services is recognized as services are performed and merchandise is delivered. The Partnership’s funeral home operations also include revenues related to the sale of term and final expense whole life insurance. As an agent for these insurance sales, the Partnership earns and recognizes commission-related revenue streams from the sales of these policies.
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.
|
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 |
The following is a reconciliation of net income (loss) allocated to the common limited partners for purposes of calculating net income (loss) attributable to common limited partners per unit (in thousands, except unit data):
Years Ended December 31, | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
Net loss |
$ | (24,244 | ) | $ | (10,773 | ) | $ | (19,032 | ) | |||
Less: General partner’s interest |
(315 | ) | (155 | ) | (350 | ) | ||||||
|
|
|
|
|
|
|||||||
Net loss attributable to common limited partners |
$ | (23,929 | ) | $ | (10,618 | ) | $ | (18,682 | ) | |||
|
|
|
|
|
|
The following table sets forth the reconciliation of the Partnership’s weighted average number of common limited partner units used to compute basic net income (loss) attributable to common limited partners per unit with those used to compute diluted net income (loss) attributable to common limited partners per unit (in thousands):
Years Ended December 31, | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
Weighted average number of common limited partner units—basic |
30,472 | 26,582 | 20,954 | |||||||||
Add effect of dilutive incentive awards (1) |
— | — | — | |||||||||
|
|
|
|
|
|
|||||||
Weighted average number of common limited partner units—diluted |
30,472 | 26,582 | 20,954 | |||||||||
|
|
|
|
|
|
(1) | The diluted weighted average number of limited partners’ units outstanding presented on the consolidated statement of operations does not include 282,093 units, 164,709 units and 297,078 units for the years ended December 31, 2015, 2014 and 2013, respectively, as their effects would be anti-dilutive. |
|
• | the Tenant paid $53.0 million to the Landlord at closing, and agreed to make aggregate future rental payments of $36.0 million in accordance with the following schedule: |
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 following table presents the assets acquired and liabilities assumed in the transaction based on their estimated fair values (in thousands):
Assets: |
||||
Accounts receivable |
$ | 1,610 | ||
Intangible asset |
59,758 | |||
|
|
|||
Total assets |
61,368 | |||
|
|
|||
Liabilities: |
||||
Obligation for lease and management agreements |
36,000 | |||
Discount on obligation for lease and management agreements |
(27,632 | ) | ||
|
|
|||
Obligation for lease and management agreements, net |
8,368 | |||
|
|
|||
Total liabilities |
8,368 | |||
|
|
|||
Total net assets |
$ | 53,000 | ||
|
|
The Partnership prepared these pro forma unaudited financial results for comparative purposes only; they may not be indicative of the results that would have occurred if the acquisitions consummated during the years ended December 31, 2015 and 2014 and the related financings had occurred on January 1, 2014 or the results that will be attained in future periods (in thousands, except per unit data; unaudited):
Years Ended December 31, | ||||||||
2015 | 2014 | |||||||
Revenue |
$ | 310,712 | $ | 309,746 | ||||
Net loss |
(25,340 | ) | (8,188 | ) | ||||
Net loss per limited partner unit (basic and diluted) |
$ | (.82 | ) | $ | (.28 | ) |
The following table presents the Partnership’s values assigned to the assets acquired and liabilities assumed in the acquisitions, based on their estimated fair values at the dates of the acquisition, which may be prospectively adjusted as additional information is received (in thousands):
Assets: |
||||
Accounts receivable |
$ | 2,761 | ||
Cemetery and funeral home property |
7,018 | |||
Property and equipment |
5,941 | |||
Inventory |
53 | |||
Merchandise trusts, restricted |
15,075 | |||
Perpetual care trusts, restricted |
4,134 | |||
Intangible assets |
406 | |||
|
|
|||
Total assets |
35,388 | |||
|
|
|||
Liabilities: |
||||
Deferred margin |
6,618 | |||
Merchandise liabilities |
14,414 | |||
Perpetual care trust corpus |
4,134 | |||
Other liabilities |
21 | |||
|
|
|||
Total liabilities |
25,187 | |||
|
|
|||
Fair value of net assets acquired |
10,201 | |||
|
|
|||
Consideration paid—cash |
18,800 | |||
Deferred cash consideration |
876 | |||
|
|
|||
Total consideration paid |
19,676 | |||
|
|
|||
Gain on bargain purchase |
$ | 1,540 | ||
|
|
|||
Goodwill from purchase |
$ | 11,015 | ||
|
|
The following table presents the Partnership’s final values assigned to the assets acquired and liabilities assumed in the acquisitions, based on their estimated fair values at the dates of the acquisition (in thousands):
Assets: |
||||
Accounts receivable |
$ | 104 | ||
Cemetery property |
470 | |||
Property and equipment |
193 | |||
Merchandise trusts, restricted |
2,685 | |||
Perpetual care trusts, restricted |
691 | |||
Other assets |
22 | |||
Deferred tax assets |
87 | |||
Non-compete agreement |
520 | |||
|
|
|||
Total assets |
4,772 | |||
|
|
|||
Liabilities: |
||||
Deferred margin |
1,046 | |||
Merchandise liabilities |
1,007 | |||
Deferred tax liability |
641 | |||
Perpetual care trust corpus |
691 | |||
Other liabilities |
20 | |||
|
|
|||
Total liabilities |
3,405 | |||
|
|
|||
Fair value of net assets acquired |
1,367 | |||
|
|
|||
Consideration paid—cash |
2,581 | |||
|
|
|||
Total consideration paid |
2,581 | |||
|
|
|||
Gain on bargain purchase |
$ | 412 | ||
|
|
|||
Goodwill from purchase |
$ | 1,626 | ||
|
|
The following table presents the Partnership’s final values assigned to the assets acquired and liabilities assumed in the acquisition, based on their estimated fair values at the date of the acquisition (in thousands):
Assets: |
||||
Accounts receivable |
$ | 6,188 | ||
Cemetery property |
26,029 | |||
Property and equipment |
15,776 | |||
Merchandise trusts, restricted |
31,534 | |||
Perpetual care trusts, restricted |
16,913 | |||
Intangible assets |
1,170 | |||
Other assets |
178 | |||
|
|
|||
Total assets |
97,788 | |||
|
|
|||
Liabilities: |
||||
Deferred margin |
13,570 | |||
Merchandise liabilities |
19,905 | |||
Deferred tax liability |
2,010 | |||
Perpetual care trust corpus |
16,913 | |||
Other liabilities |
63 | |||
|
|
|||
Total liabilities |
52,461 | |||
|
|
|||
Fair value of net assets acquired |
45,327 | |||
|
|
|||
Consideration paid |
53,800 | |||
|
|
|||
Goodwill from purchase |
$ | 8,473 | ||
|
|
The following table presents the Partnership’s final values assigned to the assets acquired and liabilities assumed in the acquisitions, based on their estimated fair values at the dates of the acquisition (in thousands):
Assets: |
||||
Accounts receivable |
$ | 1,531 | ||
Cemetery property |
3,900 | |||
Property and equipment |
9,362 | |||
Merchandise trusts, restricted |
10,314 | |||
Perpetual care trusts, restricted |
5,888 | |||
Non-compete agreements |
1,927 | |||
|
|
|||
Total assets |
32,922 | |||
|
|
|||
Liabilities: |
||||
Deferred margin |
2,183 | |||
Merchandise liabilities |
6,091 | |||
Deferred tax liability |
701 | |||
Perpetual care trust corpus |
5,888 | |||
Other liabilities |
258 | |||
|
|
|||
Total liabilities |
15,121 | |||
|
|
|||
Fair value of net assets acquired |
17,801 | |||
|
|
|||
Consideration paid—cash |
14,100 | |||
Consideration paid—units |
3,592 | |||
Fair value of Notes Payable |
3,000 | |||
Fair value of debt assumed for non-compete agreements |
924 | |||
|
|
|||
Total consideration paid |
21,616 | |||
|
|
|||
Gain on bargain purchase |
$ | 2,530 | ||
|
|
|||
Goodwill from purchase |
$ | 6,345 | ||
|
|
|
Long-term accounts receivable, net, consisted of the following at the dates indicated (in thousands):
December 31, | ||||||||
2015 | 2014 | |||||||
Customer receivables |
$ | 207,645 | $ | 194,537 | ||||
Unearned finance income |
(20,078 | ) | (20,360 | ) | ||||
Allowance for contract cancellations |
(23,985 | ) | (22,138 | ) | ||||
|
|
|
|
|||||
Accounts receivable, net of allowance |
163,582 | 152,039 | ||||||
Less: current portion—net of allowance |
68,415 | 62,503 | ||||||
|
|
|
|
|||||
Long-term portion—net of allowance |
$ | 95,167 | $ | 89,536 | ||||
|
|
|
|
Activity in the allowance for contract cancellations is as follows (in thousands):
Years Ended December 31, | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
Balance—beginning of period |
$ | 22,138 | $ | 20,275 | $ | 17,933 | ||||||
Provision for cancellations |
25,307 | 20,870 | 20,069 | |||||||||
Charge-offs—net |
(23,460 | ) | (19,007 | ) | (17,727 | ) | ||||||
|
|
|
|
|
|
|||||||
Balance—end of period |
$ | 23,985 | $ | 22,138 | $ | 20,275 | ||||||
|
|
|
|
|
|
|
Property and equipment consists of the following at the dates indicated (in thousands):
December 31, | ||||||||
2015 | 2014 | |||||||
Building and improvements |
$ | 117,034 | $ | 108,178 | ||||
Furniture and equipment |
54,346 | 49,290 | ||||||
|
|
|
|
|||||
Property and equipment—gross |
171,380 | 157,468 | ||||||
Less: accumulated depreciation |
(67,050 | ) | (57,077 | ) | ||||
|
|
|
|
|||||
Property and equipment, net of accumulated depreciation |
$ | 104,330 | $ | 100,391 | ||||
|
|
|
|
Cemetery property consists of the following at the dates indicated (in thousands):
December 31, | ||||||||
2015 | 2014 | |||||||
Developed land |
$ | 83,834 | $ | 79,058 | ||||
Undeveloped land |
169,482 | 172,238 | ||||||
Mausoleum crypts and lawn crypts |
77,526 | 78,524 | ||||||
Other land |
11,797 | 10,028 | ||||||
|
|
|
|
|||||
Cemetery property |
$ | 342,639 | $ | 339,848 | ||||
|
|
|
|
|
A reconciliation of the Partnership’s perpetual care trust activities for the years ended December 31, 2015 and 2014 is presented below (in thousands):
Years Ended December 31, | ||||||||
2015 | 2014 | |||||||
Balance - beginning of period |
$ | 345,105 | $ | 311,771 | ||||
Contributions |
15,919 | 34,332 | ||||||
Distributions |
(15,003 | ) | (14,308 | ) | ||||
Interest and dividends |
18,019 | 15,044 | ||||||
Capital gain distributions |
1,952 | 125 | ||||||
Realized gains and losses |
12,323 | (164 | ) | |||||
Other than temporary impairment |
(29,047 | ) | — | |||||
Taxes |
(631 | ) | (654 | ) | ||||
Fees |
(2,163 | ) | (2,054 | ) | ||||
Unrealized change in fair value |
(38,670 | ) | 1,013 | |||||
|
|
|
|
|||||
Balance - end of period |
$ | 307,804 | $ | 345,105 | ||||
|
|
|
|
The cost and market value associated with the assets held in the perpetual care trusts at December 31, 2015 and 2014 were as follows (in thousands):
Gross | Gross | |||||||||||||||||
Fair Value | Unrealized | Unrealized | Fair | |||||||||||||||
December 31, 2015 |
Hierarchy Level | Cost | Gains | Losses | Value | |||||||||||||
Short-term investments |
1 | $ | 36,618 | $ | — | $ | — | $ | 36,618 | |||||||||
Fixed maturities: |
||||||||||||||||||
U.S. State and local government agency |
2 | 126 | 14 | — | 140 | |||||||||||||
Corporate debt securities |
2 | 22,837 | 57 | (845 | ) | 22,049 | ||||||||||||
Other debt securities |
2 | 36 | — | (1 | ) | 35 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total fixed maturities |
22,999 | 71 | (846 | ) | 22,224 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Mutual funds - debt securities |
1 | 184,866 | 35 | (7,180 | ) | 177,721 | ||||||||||||
Mutual funds - equity securities |
1 | 68,079 | 1,054 | (1,713 | ) | 67,420 | ||||||||||||
Equity securities |
1 | 2,319 | 636 | (7 | ) | 2,948 | ||||||||||||
Other invested assets |
2 | 473 | 1 | (162 | ) | 312 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total managed investments |
$ | 315,354 | $ | 1,797 | $ | (9,908 | ) | $ | 307,243 | |||||||||
|
|
|
|
|
|
|
|
|||||||||||
Assets acquired via acquisition |
561 | — | — | 561 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 315,915 | $ | 1,797 | $ | (9,908 | ) | $ | 307,804 | |||||||||
|
|
|
|
|
|
|
|
|||||||||||
Gross | Gross | |||||||||||||||||
Fair Value | Unrealized | Unrealized | Fair | |||||||||||||||
December 31, 2014 |
Hierarchy Level | Cost | Gains | Losses | Value | |||||||||||||
Short-term investments |
1 | $ | 26,644 | $ | — | $ | — | $ | 26,644 | |||||||||
Fixed maturities: |
||||||||||||||||||
U.S. Government and federal agency |
1 | 100 | 16 | — | 116 | |||||||||||||
U.S. State and local government agency |
2 | 78 | 1 | — | 79 | |||||||||||||
Corporate debt securities |
2 | 24,275 | 104 | (913 | ) | 23,466 | ||||||||||||
Other debt securities |
2 | 371 | — | — | 371 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total fixed maturities |
24,824 | 121 | (913 | ) | 24,032 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Mutual funds - debt securities |
1 | 128,735 | 379 | (5,220 | ) | 123,894 | ||||||||||||
Mutual funds - equity securities |
1 | 103,701 | 23,003 | (1,268 | ) | 125,436 | ||||||||||||
Equity securities |
1 | 30,617 | 14,704 | (247 | ) | 45,074 | ||||||||||||
Other invested assets |
2 | 25 | — | — | 25 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 314,546 | $ | 38,207 | $ | (7,648 | ) | $ | 345,105 | |||||||||
|
|
|
|
|
|
|
|
The contractual maturities of debt securities held in the perpetual care trusts as of December 31, 2015 were as follows (in thousands):
Less than | 1 year through | 6 years through | More than | |||||||||||||
December 31, 2015 |
1 year | 5 years | 10 years | 10 years | ||||||||||||
U.S. State and local government agency |
— | 112 | 28 | — | ||||||||||||
Corporate debt securities |
202 | 16,138 | 5,650 | 59 | ||||||||||||
Other debt securities |
35 | — | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total fixed maturities |
$ | 237 | $ | 16,250 | $ | 5,678 | $ | 59 | ||||||||
|
|
|
|
|
|
|
|
An aging of unrealized losses on the Partnership’s investments in fixed maturities and equity securities at December 31, 2015 and 2014 is presented below:
Less than 12 months | 12 Months or more | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
December 31, 2015 |
Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Fixed maturities: |
||||||||||||||||||||||||
U.S. State and local government agency |
$ | — | $ | — | $ | 112 | $ | — | $ | 112 | $ | — | ||||||||||||
Corporate debt securities |
12,482 | 535 | 4,505 | 310 | 16,987 | 845 | ||||||||||||||||||
Other debt securities |
35 | 1 | — | — | 35 | 1 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total fixed maturities |
12,517 | 536 | 4,617 | 310 | 17,134 | 846 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Mutual funds - debt securities |
81,215 | 4,263 | 50,774 | 2,917 | 131,989 | 7,180 | ||||||||||||||||||
Mutual funds - equity securities |
16,514 | 1,363 | 4,308 | 350 | 20,822 | 1,713 | ||||||||||||||||||
Equity securities |
488 | 6 | 1,137 | 1 | 1,625 | 7 | ||||||||||||||||||
Other invested assets |
— | — | 315 | 162 | 315 | 162 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 110,734 | $ | 6,168 | $ | 61,151 | $ | 3,740 | $ | 171,885 | $ | 9,908 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months | 12 Months or more | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
December 31, 2014 |
Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Fixed maturities: |
||||||||||||||||||||||||
Corporate debt securities |
$ | 14,434 | $ | 798 | $ | 2,519 | $ | 115 | $ | 16,953 | $ | 913 | ||||||||||||
Other debt securities |
— | — | — | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total fixed maturities |
14,434 | 798 | 2,519 | 115 | 16,953 | 913 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Mutual funds - debt securities |
30,345 | 768 | 86,814 | 4,452 | 117,159 | 5,220 | ||||||||||||||||||
Mutual funds - equity securities |
13,035 | 1,268 | — | — | 13,035 | 1,268 | ||||||||||||||||||
Equity securities |
3,866 | 245 | 620 | 2 | 4,486 | 247 | ||||||||||||||||||
Other invested assets |
— | — | — | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 61,680 | $ | 3,079 | $ | 89,953 | $ | 4,569 | $ | 151,633 | $ | 7,648 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the Partnership’s merchandise trust activities for the years ended December 31, 2015 and 2014 is presented below (in thousands):
Years Ended December 31, | ||||||||
2015 | 2014 | |||||||
Balance—beginning of period |
$ | 484,820 | $ | 431,556 | ||||
Contributions |
80,693 | 87,271 | ||||||
Distributions |
(50,987 | ) | (57,788 | ) | ||||
Interest and dividends |
21,859 | 21,827 | ||||||
Capital gain distributions |
2,413 | 1,242 | ||||||
Realized gains and losses |
13,941 | 14,857 | ||||||
Other than temporary impairment |
(54,527 | ) | — | |||||
Taxes |
(3,271 | ) | (2,543 | ) | ||||
Fees |
(3,296 | ) | (2,890 | ) | ||||
Unrealized change in fair value |
(26,969 | ) | (8,712 | ) | ||||
|
|
|
|
|||||
Balance—end of period |
$ | 464,676 | $ | 484,820 | ||||
|
|
|
|
The cost and market value associated with the assets held in the merchandise trusts at December 31, 2015 and 2014 were as follows (in thousands):
Gross | Gross | |||||||||||||||||
Fair Value | Unrealized | Unrealized | Fair | |||||||||||||||
December 31, 2015 |
Hierarchy Level | Cost | Gains | Losses | Value | |||||||||||||
Short-term investments |
1 | $ | 35,150 | $ | — | $ | — | $ | 35,150 | |||||||||
Fixed maturities: |
||||||||||||||||||
U.S. State and local government agency |
2 | 98 | 6 | (3 | ) | 101 | ||||||||||||
Corporate debt securities |
2 | 11,922 | 8 | (546 | ) | 11,384 | ||||||||||||
Other debt securities |
2 | 7,150 | 11 | (7 | ) | 7,154 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total fixed maturities |
19,170 | 25 | (556 | ) | 18,639 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Mutual funds—debt securities |
1 | 232,096 | 86 | (10,713 | ) | 221,469 | ||||||||||||
Mutual funds—equity securities |
1 | 139,341 | 69 | (12,249 | ) | 127,161 | ||||||||||||
Equity securities |
1 | 49,563 | 1,127 | (2,474 | ) | 48,216 | ||||||||||||
Other invested assets |
2 | 1,681 | — | — | 1,681 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total managed investments |
$ | 477,001 | $ | 1,307 | $ | (25,992 | ) | $ | 452,316 | |||||||||
|
|
|
|
|
|
|
|
|||||||||||
Assets acquired via acquisition |
4,185 | — | — | 4,185 | ||||||||||||||
West Virginia Trust Receivable |
8,175 | — | — | 8,175 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 489,361 | $ | 1,307 | $ | (25,992 | ) | $ | 464,676 | |||||||||
|
|
|
|
|
|
|
|
|||||||||||
Gross | Gross | |||||||||||||||||
Fair Value | Unrealized | Unrealized | Fair | |||||||||||||||
December 31, 2014 |
Hierarchy Level | Cost | Gains | Losses | Value | |||||||||||||
Short-term investments |
1 | $ | 52,521 | $ | — | $ | — | $ | 52,521 | |||||||||
Fixed maturities: |
||||||||||||||||||
U.S. State and local government agency |
2 | 270 | — | (1 | ) | 269 | ||||||||||||
Corporate debt securities |
2 | 9,400 | 23 | (447 | ) | 8,976 | ||||||||||||
Other debt securities |
2 | 7,157 | — | (18 | ) | 7,139 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total fixed maturities |
16,827 | 23 | (466 | ) | 16,384 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Mutual funds—debt securities |
1 | 150,477 | 869 | (8,666 | ) | 142,680 | ||||||||||||
Mutual funds—equity securities |
1 | 167,353 | 12,568 | (463 | ) | 179,458 | ||||||||||||
Equity securities |
1 | 81,639 | 4,167 | (5,507 | ) | 80,299 | ||||||||||||
Other invested assets |
2 | 5,400 | — | (241 | ) | 5,159 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total managed investments |
$ | 474,217 | $ | 17,627 | $ | (15,343 | ) | $ | 476,501 | |||||||||
|
|
|
|
|
|
|
|
|||||||||||
West Virginia Trust Receivable |
8,319 | — | — | 8,319 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 482,536 | $ | 17,627 | $ | (15,343 | ) | $ | 484,820 | |||||||||
|
|
|
|
|
|
|
|
The contractual maturities of debt securities held within the merchandise trusts as of December 31, 2015 were as follows (in thousands):
December 31, 2015 |
Less than 1 year |
1 year through 5 years |
6 years through 10 years |
More than 10 years |
||||||||||||
U.S. State and local government agency |
$ | — | $ | 23 | $ | 78 | $ | — | ||||||||
Corporate debt securities |
— | 8,152 | 3,232 | — | ||||||||||||
Other debt securities |
3,520 | 3,634 | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total fixed maturities |
$ | 3,520 | $ | 11,809 | $ | 3,310 | $ | — | ||||||||
|
|
|
|
|
|
|
|
An aging of unrealized losses on the Partnership’s investments in debt and equity securities within the merchandise trusts at December 31, 2015 and December 31, 2014 is presented below:
Less than 12 months | 12 Months or more | Total | ||||||||||||||||||||||
December 31, 2015 |
Fair Value |
Unrealized Losses |
Fair Value |
Unrealized Losses |
Fair Value |
Unrealized Losses |
||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Fixed maturities: |
||||||||||||||||||||||||
U.S. State and local government agency |
$ | — | $ | — | $ | 33 | $ | 3 | $ | 33 | $ | 3 | ||||||||||||
Corporate debt securities |
7,247 | 411 | 1,513 | 135 | 8,760 | 546 | ||||||||||||||||||
Other debt securities |
2,883 | 7 | — | — | 2,883 | 7 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total fixed maturities |
10,130 | 418 | 1,546 | 138 | 11,676 | 556 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Mutual funds—debt securities |
121,777 | 6,938 | 36,682 | 3,775 | 158,459 | 10,713 | ||||||||||||||||||
Mutual funds—equity securities |
58,467 | 10,994 | 5,465 | 1,255 | 63,932 | 12,249 | ||||||||||||||||||
Equity securities |
21,480 | 2,275 | 649 | 199 | 22,129 | 2,474 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 211,854 | $ | 20,625 | $ | 44,342 | $ | 5,367 | $ | 256,196 | $ | 25,992 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months | 12 Months or more | Total | ||||||||||||||||||||||
December 31, 2014 |
Fair Value |
Unrealized Losses |
Fair Value |
Unrealized Losses |
Fair Value |
Unrealized Losses |
||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Fixed maturities: |
||||||||||||||||||||||||
U.S. State and local government agency |
$ | 143 | $ | 1 | $ | — | $ | — | $ | 143 | $ | 1 | ||||||||||||
Corporate debt securities |
5,905 | 342 | 1,506 | 105 | 7,411 | 447 | ||||||||||||||||||
Other debt securities |
2,370 | 8 | 4,769 | 10 | 7,139 | 18 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total fixed maturities |
8,418 | 351 | 6,275 | 115 | 14,693 | 466 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Mutual funds—debt securities |
32,072 | 1,039 | 95,629 | 7,627 | 127,701 | 8,666 | ||||||||||||||||||
Mutual funds—equity securities |
4,147 | 463 | — | — | 4,147 | 463 | ||||||||||||||||||
Equity securities |
44,563 | 4,641 | 3,909 | 866 | 48,472 | 5,507 | ||||||||||||||||||
Other invested assets |
— | — | 4,881 | 241 | 4,881 | 241 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 89,200 | $ | 6,494 | $ | 110,694 | $ | 8,849 | $ | 199,894 | $ | 15,343 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
A rollforward of goodwill by reportable segment is as follows (in thousands):
Cemeteries | Funeral Homes | Total | ||||||||||
Balance at December 31, 2013 |
$ | 18,122 | $ | 30,615 | $ | 48,737 | ||||||
Goodwill from acquisitions during 2014 |
6,064 | 4,035 | 10,099 | |||||||||
|
|
|
|
|
|
|||||||
Balance at December 31, 2014 |
24,186 | 34,650 | 58,836 | |||||||||
Goodwill from acquisitions during 2015 |
1,134 | 9,881 | 11,015 | |||||||||
|
|
|
|
|
|
|||||||
Balance at December 31, 2015 |
$ | 25,320 | $ | 44,531 | $ | 69,851 | ||||||
|
|
|
|
|
|
The following table reflects the components of intangible assets at December 31, 2015 and 2014 (in thousands):
December 31, 2015 | December 31, 2014 | |||||||||||||||||||||||
Gross Carrying | Accumulated | Net Intangible | Gross Carrying | Accumulated | Net Intangible | |||||||||||||||||||
Amount | Amortization | Asset | Amount | Amortization | Asset | |||||||||||||||||||
Lease and management agreements |
$ | 59,758 | $ | (1,577 | ) | $ | 58,181 | $ | 59,758 | $ | (581 | ) | $ | 59,177 | ||||||||||
Underlying contract value |
6,239 | (1,014 | ) | 5,225 | 6,239 | (858 | ) | 5,381 | ||||||||||||||||
Non-compete agreements |
5,656 | (3,112 | ) | 2,544 | 5,250 | (2,126 | ) | 3,124 | ||||||||||||||||
Other intangible assets |
1,439 | (180 | ) | 1,259 | 1,439 | (131 | ) | 1,308 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total intangible assets |
$ | 73,092 | $ | (5,883 | ) | $ | 67,209 | $ | 72,686 | $ | (3,696 | ) | $ | 68,990 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The following is estimated amortization expense related to intangible assets with finite lives for the five years subsequent to December 31, 2015 (in thousands):
2016 |
$ | 2,181 | ||
2017 |
$ | 1,956 | ||
2018 |
$ | 1,708 | ||
2019 |
$ | 1,440 | ||
2020 |
$ | 1,266 |
|
Total debt consists of the following at the dates indicated (in thousands):
December 31, | ||||||||
2015 | 2014 | |||||||
Credit Facility: |
||||||||
Working Capital Draws |
$ | 105,000 | $ | 85,902 | ||||
Acquisition Draws |
44,500 | 25,000 | ||||||
7.875% Senior Notes, due June 2021 |
172,186 | 171,783 | ||||||
Notes payable - acquisition debt |
687 | 861 | ||||||
Notes payable - acquisition non-competes |
1,629 | 2,451 | ||||||
Insurance and vehicle financing |
2,336 | 1,632 | ||||||
Less deferred financing costs, net of accumulated amortization |
(7,499 | ) | (9,089 | ) | ||||
|
|
|
|
|||||
Total debt |
318,839 | 278,540 | ||||||
Less current maturities |
(2,440 | ) | (2,251 | ) | ||||
|
|
|
|
|||||
Total long-term debt |
$ | 316,399 | $ | 276,289 | ||||
|
|
|
|
At any time on or after June 1, 2016, we may redeem the Senior Notes, in whole or in part, at the redemption prices (expressed as percentages of the principal amount) set forth below, together with accrued and unpaid interest, if any, to the redemption date, if redeemed during the 12-month period beginning June 1 of the years indicated:
Year |
Percentage | |||
2016 |
105.906 | % | ||
2017 |
103.938 | % | ||
2018 |
101.969 | % | ||
2019 and thereafter |
100.000 | % |
|
Income tax expense (benefit) for the years ended December 31, 2015, 2014 and 2013 consisted of the following (in thousands):
Years Ended December 31, | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
Current provision: |
||||||||||||
State |
$ | 723 | $ | 869 | $ | 685 | ||||||
Federal |
— | — | — | |||||||||
Foreign |
229 | 302 | (125 | ) | ||||||||
|
|
|
|
|
|
|||||||
Total |
952 | 1,171 | 560 | |||||||||
|
|
|
|
|
|
|||||||
Deferred provision: |
||||||||||||
State |
(355 | ) | 313 | 292 | ||||||||
Federal |
387 | 2,429 | (3,156 | ) | ||||||||
Foreign |
124 | — | — | |||||||||
|
|
|
|
|
|
|||||||
Total |
156 | 2,742 | (2,864 | ) | ||||||||
|
|
|
|
|
|
|||||||
Total income tax expense (benefit) |
$ | 1,108 | $ | 3,913 | $ | (2,304 | ) | |||||
|
|
|
|
|
|
A reconciliation of the federal statutory tax rate to the Partnership’s effective tax rate is as follows (in thousands):
Years Ended December 31, | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
Computed tax provision (benefit) at the applicable statutory tax rate |
35.0 | % | 35.0 | % | 35.0 | % | ||||||
State and local taxes net of federal income tax benefit |
-2.6 | % | -15.6 | % | -2.2 | % | ||||||
Tax exempt (income) loss |
-4.4 | % | -15.0 | % | -7.2 | % | ||||||
Change in valuation allowance |
-65.1 | % | -158.2 | % | -43.1 | % | ||||||
Partnership earnings not subject to tax |
32.0 | % | 96.6 | % | 12.0 | % | ||||||
Permanent differences |
0.2 | % | 0.9 | % | 15.6 | % | ||||||
Other |
0.1 | % | -0.7 | % | 0.7 | % | ||||||
|
|
|
|
|
|
|||||||
Income tax expense (benefit) |
-4.8 | % | -57.0 | % | 10.8 | % | ||||||
|
|
|
|
|
|
Significant components of the deferred tax assets and liabilities were as follows (in thousands):
December 31, | ||||||||
2015 | 2014 | |||||||
Deferred tax assets: |
||||||||
Prepaid expenses |
$ | 7,626 | $ | 5,373 | ||||
State net operating loss |
14,260 | 13,015 | ||||||
Federal net operating loss |
91,571 | 78,084 | ||||||
Other |
67 | (831 | ) | |||||
Valuation allowance |
(75,344 | ) | (57,148 | ) | ||||
|
|
|
|
|||||
Total deferred tax assets |
38,180 | 38,493 | ||||||
|
|
|
|
|||||
Deferred tax liabilities: |
||||||||
Property, plant and equipment |
9,290 | 8,058 | ||||||
Deferred revenue related to future revenues and accounts receivable |
37,475 | 39,164 | ||||||
Deferred revenue related to cemetery property |
9,208 | 8,939 | ||||||
|
|
|
|
|||||
Total deferred tax liabilities |
55,973 | 56,161 | ||||||
|
|
|
|
|||||
Net deferred tax liabilities |
$ | 17,793 | $ | 17,668 | ||||
|
|
|
|
|||||
Net deferred tax assets and liabilities were classified on the consolidated balance sheets as follows: |
|
|||||||
Deferred tax assets |
$ | 40 | $ | 40 | ||||
|
|
|
|
|||||
Noncurrent assets |
40 | 40 | ||||||
|
|
|
|
|||||
Deferred tax assets |
38,140 | 38,453 | ||||||
Deferred tax liabilities |
55,973 | 56,161 | ||||||
|
|
|
|
|||||
Noncurrent liabilities |
17,833 | 17,708 | ||||||
|
|
|
|
|||||
Net deferred tax liabilities |
$ | 17,793 | $ | 17,668 | ||||
|
|
|
|
|
At December 31, 2015 and 2014, deferred cemetery revenues, net, consisted of the following (in thousands):
December 31, | ||||||||
2015 | 2014 | |||||||
Deferred cemetery revenue |
$ | 531,905 | $ | 456,632 | ||||
Deferred merchandise trust revenue |
80,294 | 104,717 | ||||||
Deferred merchandise trust unrealized gains (losses) |
(24,685 | ) | 2,284 | |||||
Deferred pre-acquisition margin |
142,672 | 140,378 | ||||||
Deferred cost of goods sold |
(92,650 | ) | (60,603 | ) | ||||
|
|
|
|
|||||
Deferred cemetery revenues, net |
$ | 637,536 | $ | 643,408 | ||||
|
|
|
|
|||||
Deferred selling and obtaining costs |
$ | 111,542 | $ | 97,795 |
|
The following table sets forth the UAR award activity for the years ended December 31, 2015, 2014 and 2013:
Years Ended December 31, | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
Outstanding, beginning of period |
123,000 | 673,716 | 774,598 | |||||||||
Granted |
— | 15,000 | 52,500 | |||||||||
Exercised |
(50,477 | ) | (554,466 | ) | (133,110 | ) | ||||||
Forfeited |
(5,730 | ) | (11,250 | ) | (20,272 | ) | ||||||
|
|
|
|
|
|
|||||||
Outstanding, end of period (1) |
66,793 | 123,000 | 673,716 | |||||||||
|
|
|
|
|
|
|||||||
Exercisable, end of period |
33,092 | 57,090 | 594,248 |
(1) | Based on the closing price of the common units on December 31, 2015 the estimated intrinsic value of the outstanding UARs was $0.1 million. The weighted average remaining contractual life for outstanding UAR awards at December 31, 2015 was 2.6 years. |
A summary of the weighted-average assumptions used in the valuation are presented below:
Years Ended December 31, | ||||||||
2014 | 2013 | |||||||
Expected dividend yield |
9.95 | % | 9.14 | % | ||||
Risk-free interest rate |
1.06 | % | 0.63 | % | ||||
Expected volatility |
27.13 | % | 28.57 | % | ||||
Expected life (in years) |
3.52 | 3.52 | ||||||
Fair value per UAR granted |
$ | 1.60 | $ | 2.09 |
The following table sets forth the 2014 LTIP phantom unit award activity for the years ended December 31, 2015, and 2014, respectively:
Years Ended December 31, | ||||||||
2015 | 2014 | |||||||
Outstanding, beginning of period |
2,189 | — | ||||||
Granted (1) |
122,154 | 2,189 | ||||||
Settled in common units or cash (1) |
(14,455 | ) | — | |||||
Performance vesting forfeiture |
(7,227 | ) | — | |||||
|
|
|
|
|||||
Outstanding, end of period (2) |
102,661 | 2,189 | ||||||
|
|
|
|
(1) | The weighted-average grant date fair value for the unit awards on the date of grant was $26.94 and $26.27 for the years ended December 31, 2015 and 2014, respectively. The intrinsic values of unit awards vested during the years ended December 31, 2015 and 2014 were $0.6 million and $0.1 million, respectively. |
(2) | Based on the closing price of the common units on December 31, 2015, the estimated intrinsic value of the outstanding unit awards was $2.7 million at December 31, 2015. |
The following table sets forth the 2004 LTIP phantom unit award activity for the years ended December 31, 2015, 2014 and 2013, respectively:
Years Ended December 31, | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
Outstanding, beginning of period |
169,122 | 162,103 | 143,213 | |||||||||
Granted (1) |
15,335 | 23,003 | 18,890 | |||||||||
Settled in common units or cash |
— | (15,984 | ) | — | ||||||||
|
|
|
|
|
|
|||||||
Outstanding, end of period (2) |
184,457 | 169,122 | 162,103 | |||||||||
|
|
|
|
|
|
(1) | The weighted-average grant date fair value for the phantom unit awards on the date of grant was $28.42, $24.90, and $25.29 for the years ended December 31, 2015, 2014 and 2013, respectively. The intrinsic values of phantom unit awards vested during the years ended December 31, 2015, 2014 and 2013 were $0.9 million, $1.0 million and $0.8 million, respectively. |
(2) | Based on the closing price of the common units on December 31, 2015, the estimated intrinsic value of the outstanding restricted phantom units was $4.9 million. |
|
The aggregate amount of remaining future minimum lease payments as of December 31, 2015 is as follows (in thousands):
2016 |
$ | 3,356 | ||
2017 |
3,520 | |||
2018 |
3,411 | |||
2019 |
3,069 | |||
2020 |
1,784 | |||
Thereafter |
10,471 | |||
|
|
|||
Total |
$ | 25,611 | ||
|
|
|
CONDENSED CONSOLIDATING BALANCE SHEETS
December 31, 2015 | Parent | Subsidiary Issuer |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||||
Assets |
||||||||||||||||||||||||
Current assets: |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | — | $ | — | $ | 11,869 | $ | 3,284 | $ | — | $ | 15,153 | ||||||||||||
Other current assets |
— | 4,797 | 75,337 | 12,511 | — | 92,645 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current assets |
— | 4,797 | 87,206 | 15,795 | — | 107,798 | ||||||||||||||||||
Long-term accounts receivable |
— | 2,888 | 80,969 | 11,310 | — | 95,167 | ||||||||||||||||||
Cemetery property and equipment |
— | 1,084 | 414,785 | 31,100 | — | 446,969 | ||||||||||||||||||
Merchandise trusts |
— | — | — | 464,676 | — | 464,676 | ||||||||||||||||||
Perpetual care trusts |
— | — | — | 307,804 | — | 307,804 | ||||||||||||||||||
Deferred selling and obtaining costs |
— | 5,967 | 91,275 | 14,300 | — | 111,542 | ||||||||||||||||||
Goodwill and intangible assets |
— | — | 78,223 | 58,837 | — | 137,060 | ||||||||||||||||||
Other assets |
— | — | 12,913 | 2,196 | — | 15,109 | ||||||||||||||||||
Due from affiliates |
68,000 | 121,228 | 430,079 | — | (619,307 | ) | — | |||||||||||||||||
Investment in affiliates |
183,678 | 40,783 | (1,375 | ) | — | (223,086 | ) | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total assets |
$ | 251,678 | $ | 176,747 | $ | 1,194,075 | $ | 906,018 | $ | (842,393 | ) | $ | 1,686,125 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Liabilities and Equity |
||||||||||||||||||||||||
Current liabilities |
$ | — | $ | 12 | $ | 34,969 | $ | 837 | $ | — | $ | 35,818 | ||||||||||||
Long-term debt, net of deferred financing costs |
68,000 | 104,200 | 144,199 | — | — | 316,399 | ||||||||||||||||||
Deferred cemetery revenues, net |
— | 27,528 | 539,878 | 70,130 | — | 637,536 | ||||||||||||||||||
Merchandise liability |
— | 5,599 | 156,838 | 10,660 | — | 173,097 | ||||||||||||||||||
Perpetual care trust corpus |
— | — | — | 307,804 | — | 307,804 | ||||||||||||||||||
Other long-term liabilities |
— | — | 22,299 | 9,494 | — | 31,793 | ||||||||||||||||||
Due to affiliates |
— | — | 173,575 | 445,732 | (619,307 | ) | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities |
68,000 | 137,339 | 1,071,758 | 844,657 | (619,307 | ) | 1,502,447 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Partners’ Capital |
183,678 | 39,408 | 122,317 | 61,361 | (223,086 | ) | 183,678 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities and partners’ capital |
$ | 251,678 | $ | 176,747 | $ | 1,194,075 | $ | 906,018 | $ | (842,393 | ) | $ | 1,686,125 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014 | Parent | Subsidiary Issuer |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||||
Assets |
||||||||||||||||||||||||
Current assets: |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | — | $ | — | $ | 7,059 | $ | 3,342 | $ | — | $ | 10,401 | ||||||||||||
Other current assets |
— | 4,244 | 76,753 | 10,480 | — | 91,477 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current assets |
— | 4,244 | 83,812 | 13,822 | — | 101,878 | ||||||||||||||||||
Long-term accounts receivable |
— | 2,453 | 76,416 | 10,667 | — | 89,536 | ||||||||||||||||||
Cemetery property and equipment |
— | 1,033 | 408,983 | 30,223 | — | 440,239 | ||||||||||||||||||
Merchandise trusts |
— | — | — | 484,820 | — | 484,820 | ||||||||||||||||||
Perpetual care trusts |
— | — | — | 345,105 | — | 345,105 | ||||||||||||||||||
Deferred selling and obtaining costs |
— | 5,744 | 81,195 | 10,856 | — | 97,795 | ||||||||||||||||||
Goodwill and intangible assets |
— | — | 67,993 | 59,833 | — | 127,826 | ||||||||||||||||||
Other assets |
— | — | 930 | 2,246 | — | 3,176 | ||||||||||||||||||
Due from affiliates |
67,700 | 133,569 | 436,421 | — | (637,690 | ) | — | |||||||||||||||||
Investment in affiliates |
208,762 | 64,429 | 8,166 | — | (281,357 | ) | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total assets |
$ | 276,462 | $ | 211,472 | $ | 1,163,916 | $ | 957,572 | $ | (919,047 | ) | $ | 1,690,375 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Liabilities and Equity |
||||||||||||||||||||||||
Current liabilities |
$ | — | $ | 263 | $ | 37,774 | $ | 815 | $ | — | $ | 38,852 | ||||||||||||
Long-term debt, net of deferred financing costs |
67,700 | 104,100 | 104,489 | — | — | 276,289 | ||||||||||||||||||
Deferred cemetery revenues, net |
— | 28,599 | 551,283 | 63,526 | — | 643,408 | ||||||||||||||||||
Merchandise liability |
— | 5,915 | 134,101 | 10,176 | — | 150,192 | ||||||||||||||||||
Perpetual care trust corpus |
— | — | — | 345,105 | — | 345,105 | ||||||||||||||||||
Other long-term liabilities |
— | — | 19,000 | 8,767 | — | 27,767 | ||||||||||||||||||
Due to affiliates |
— | — | 171,800 | 465,890 | (637,690 | ) | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities |
67,700 | 138,877 | 1,018,447 | 894,279 | (637,690 | ) | 1,481,613 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Partners’ Capital |
208,762 | 72,595 | 145,469 | 63,293 | (281,357 | ) | 208,762 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities and partners’ capital |
$ | 276,462 | $ | 211,472 | $ | 1,163,916 | $ | 957,572 | $ | (919,047 | ) | $ | 1,690,375 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Subsidiary | Guarantor | Non-Guarantor | ||||||||||||||||||||||
Year Ended December 31, 2015 | Parent | Issuer | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
Total revenues |
$ | — | $ | 5,722 | $ | 262,728 | $ | 47,489 | $ | (10,299 | ) | $ | 305,640 | |||||||||||
Total cost and expenses |
— | (10,623 | ) | (257,099 | ) | (46,877 | ) | 10,299 | (304,300 | ) | ||||||||||||||
Other income (loss) |
— | — | (1,891 | ) | — | — | (1,891 | ) | ||||||||||||||||
Net loss from equity investment in subsidiaries |
(18,810 | ) | (19,966 | ) | — | — | 38,776 | — | ||||||||||||||||
Interest expense |
(5,434 | ) | (8,347 | ) | (8,076 | ) | (728 | ) | — | (22,585 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income (loss) before income taxes |
(24,244 | ) | (33,214 | ) | (4,338 | ) | (116 | ) | 38,776 | (23,136 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income tax benefit (expense) |
— | — | (1,108 | ) | — | — | (1,108 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income (loss) |
$ | (24,244 | ) | $ | (33,214 | ) | $ | (5,446 | ) | $ | (116 | ) | $ | 38,776 | $ | (24,244 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2014 |
Parent | Subsidiary Issuer |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||||
Total revenues |
$ | — | $ | 8,237 | $ | 254,997 | $ | 36,982 | $ | (12,131 | ) | $ | 288,085 | |||||||||||
Total cost and expenses |
— | (11,547 | ) | (235,113 | ) | (39,696 | ) | 12,131 | (274,225 | ) | ||||||||||||||
Other income (loss) |
— | — | 890 | — | — | 890 | ||||||||||||||||||
Net loss from equity investment in subsidiaries |
(5,339 | ) | (9,350 | ) | — | — | 14,689 | — | ||||||||||||||||
Interest expense |
(5,434 | ) | (8,347 | ) | (7,430 | ) | (399 | ) | — | (21,610 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income (loss) before income taxes |
(10,773 | ) | (21,007 | ) | 13,344 | (3,113 | ) | 14,689 | (6,860 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income tax benefit (expense) |
— | — | (3,913 | ) | — | — | (3,913 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income (loss) |
$ | (10,773 | ) | $ | (21,007 | ) | $ | 9,431 | $ | (3,113 | ) | $ | 14,689 | $ | (10,773 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2013 |
Parent | Subsidiary Issuer |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||||
Total revenues |
$ | — | $ | 5,744 | $ | 226,653 | $ | 29,313 | $ | (15,069 | ) | $ | 246,641 | |||||||||||
Total cost and expenses |
— | (8,523 | ) | (212,754 | ) | (34,050 | ) | 15,069 | (240,258 | ) | ||||||||||||||
Other income (loss) |
— | 12,261 | (18,910 | ) | — | — | (6,649 | ) | ||||||||||||||||
Net loss from equity investment in subsidiaries |
(13,598 | ) | (6,794 | ) | — | — | 20,392 | — | ||||||||||||||||
Interest expense |
(5,434 | ) | (8,347 | ) | (7,289 | ) | — | — | (21,070 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income (loss) before income taxes |
(19,032 | ) | (5,659 | ) | (12,300 | ) | (4,737 | ) | 20,392 | (21,336 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income tax benefit (expense) |
— | — | 2,304 | — | — | 2,304 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income (loss) |
$ | (19,032 | ) | $ | (5,659 | ) | $ | (9,996 | ) | $ | (4,737 | ) | $ | 20,392 | $ | (19,032 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Year Ended December 31, 2015 |
Parent | Subsidiary Issuer |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||||
Net cash provided by (used in) operating activities |
$ | 2,356 | $ | 284 | $ | 14,626 | $ | 2,933 | $ | (16,137 | ) | $ | 4,062 | |||||||||||
Cash Flows From Investing Activities: |
||||||||||||||||||||||||
Cash paid for acquisitions and capital expenditures |
— | (284 | ) | (30,864 | ) | (2,991 | ) | — | (34,139 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used in investing activities |
— | (284 | ) | (30,864 | ) | (2,991 | ) | — | (34,139 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash Flows From Financing Activities: |
||||||||||||||||||||||||
Cash distributions |
(77,512 | ) | — | — | — | — | (77,512 | ) | ||||||||||||||||
Payments to affiliates |
— | — | (16,137 | ) | — | 16,137 | — | |||||||||||||||||
Net borrowings and repayments of debt |
— | — | 37,261 | — | — | 37,261 | ||||||||||||||||||
Proceeds from issuance of common units |
75,156 | — | — | — | — | 75,156 | ||||||||||||||||||
Other financing activities |
— | — | (76 | ) | — | — | (76 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash provided by (used in) financing activities |
(2,356 | ) | — | 21,048 | — | 16,137 | 34,829 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net increase (decrease) in cash and cash equivalents |
— | — | 4,810 | (58 | ) | — | 4,752 | |||||||||||||||||
Cash and cash equivalents—Beginning of period |
— | — | 7,059 | 3,342 | — | 10,401 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash and cash equivalents—End of period |
$ | — | $ | — | $ | 11,869 | $ | 3,284 | $ | — | $ | 15,153 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2014 |
Parent | Subsidiary Issuer |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||||
Net cash provided by operating activities |
$ | — | $ | 150 | $ | 29,918 | $ | 3,161 | $ | (13,781 | ) | $ | 19,448 | |||||||||||
Cash Flows From Investing Activities: |
||||||||||||||||||||||||
Cash paid for acquisitions and capital expenditures |
— | (150 | ) | (67,777 | ) | (2,731 | ) | — | (70,658 | ) | ||||||||||||||
Consideration for lease and management agreements |
— | — | — | (53,000 | ) | — | (53,000 | ) | ||||||||||||||||
Payments to affiliates |
(110,661 | ) | — | (53,000 | ) | — | 163,661 | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used in investing activities |
(110,661 | ) | (150 | ) | (120,777 | ) | (55,731 | ) | 163,661 | (123,658 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash Flows From Financing Activities: |
||||||||||||||||||||||||
Cash distributions |
(62,836 | ) | — | — | — | — | (62,836 | ) | ||||||||||||||||
Payments from affiliates |
— | — | 96,880 | 53,000 | (149,880 | ) | — | |||||||||||||||||
Net borrowings and repayments of debt |
— | — | (5,275 | ) | — | — | (5,275 | ) | ||||||||||||||||
Proceeds from issuance of common units |
173,497 | — | — | — | — | 173,497 | ||||||||||||||||||
Other financing activities |
— | — | (2,950 | ) | — | — | (2,950 | ) | ||||||||||||||||
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Net cash provided by (used in) financing activities |
110,661 | — | 88,655 | 53,000 | (149,880 | ) | 102,436 | |||||||||||||||||
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Net increase (decrease) in cash and cash equivalents |
— | — | (2,204 | ) | 430 | — | (1,774 | ) | ||||||||||||||||
Cash and cash equivalents—Beginning of period |
— | — | 9,263 | 2,912 | — | 12,175 | ||||||||||||||||||
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Cash and cash equivalents—End of period |
$ | — | $ | — | $ | 7,059 | $ | 3,342 | $ | — | $ | 10,401 | ||||||||||||
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Year Ended December 31, 2013 |
Parent | Subsidiary Issuer |
Guarantor Subsidiaries |
Non-Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||||
Net cash provided by (used in) operating activities |
$ | 13,676 | $ | 73 | $ | 49,544 | $ | (759 | ) | $ | (27,457 | ) | $ | 35,077 | ||||||||||
Cash Flows From Investing Activities: |
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Cash paid for acquisitions and capital expenditures |
— | (73 | ) | (26,299 | ) | (325 | ) | — | (26,697 | ) | ||||||||||||||
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Net cash used in investing activities |
— | (73 | ) | (26,299 | ) | (325 | ) | — | (26,697 | ) | ||||||||||||||
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Cash Flows From Financing Activities: |
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Cash distributions |
(52,053 | ) | — | — | — | — | (52,053 | ) | ||||||||||||||||
Payments to affiliates |
— | — | (27,457 | ) | — | 27,457 | — | |||||||||||||||||
Net borrowings and repayments of debt |
— | — | 29,570 | — | — | 29,570 | ||||||||||||||||||
Proceeds from issuance of common units |
38,377 | — | — | — | — | 38,377 | ||||||||||||||||||
Other financing activities |
— | — | (20,045 | ) | — | — | (20,045 | ) | ||||||||||||||||
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Net cash provided by (used in) financing activities |
(13,676 | ) | — | (17,932 | ) | — | 27,457 | (4,151 | ) | |||||||||||||||
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Net increase (decrease) in cash and cash equivalents |
— | — | 5,313 | (1,084 | ) | — | 4,229 | |||||||||||||||||
Cash and cash equivalents - Beginning of period |
— | — | 3,950 | 3,996 | — | 7,946 | ||||||||||||||||||
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Cash and cash equivalents - End of period |
$ | — | $ | — | $ | 9,263 | $ | 2,912 | $ | — | $ | 12,175 | ||||||||||||
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Operating segment data for the periods indicated were as follows (in thousands):
Years Ended December 31 | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
Cemetery Operations: |
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Revenues |
$ | 247,870 | $ | 239,399 | $ | 201,686 | ||||||
Operating costs and expenses |
(205,475 | ) | (188,711 | ) | (165,130 | ) | ||||||
Depreciation and amortization |
(7,766 | ) | (6,904 | ) | (5,336 | ) | ||||||
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Segment income |
$ | 34,629 | $ | 43,784 | $ | 31,220 | ||||||
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Funeral Homes: |
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Revenues |
$ | 57,770 | $ | 48,686 | $ | 44,955 | ||||||
Operating costs and expenses |
(47,413 | ) | (39,710 | ) | (35,654 | ) | ||||||
Depreciation and amortization |
(3,257 | ) | (3,200 | ) | (3,036 | ) | ||||||
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Segment income |
$ | 7,100 | $ | 5,776 | $ | 6,265 | ||||||
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Reconciliation of segment income to net loss: |
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Cemeteries |
$ | 34,629 | $ | 43,784 | $ | 31,220 | ||||||
Funeral homes |
7,100 | 5,776 | 6,265 | |||||||||
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Total segment income |
41,729 | 49,560 | 37,485 | |||||||||
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Corporate overhead |
(38,609 | ) | (34,723 | ) | (29,926 | ) | ||||||
Corporate depreciation and amortization |
(1,780 | ) | (977 | ) | (1,176 | ) | ||||||
Other net gains (losses) |
(1,891 | ) | 890 | (6,649 | ) | |||||||
Interest expense |
(22,585 | ) | (21,610 | ) | (21,070 | ) | ||||||
Income tax benefit (expense) |
(1,108 | ) | (3,913 | ) | 2,304 | |||||||
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Net loss |
$ | (24,244 | ) | $ | (10,773 | ) | $ | (19,032 | ) | |||
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Capital expenditures: |
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Cemeteries |
$ | 11,853 | $ | 13,368 | $ | 10,111 | ||||||
Funeral homes |
580 | 545 | 1,250 | |||||||||
Corporate |
2,906 | 661 | 1,391 | |||||||||
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Total capital expenditures |
$ | 15,339 | $ | 14,574 | $ | 12,752 | ||||||
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Balance sheet information: |
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Total assets—Cemetery Operations |
$ | 1,473,694 | $ | 1,507,994 | $ | 1,310,290 | ||||||
Total assets—Funeral Homes |
190,443 | 164,925 | 135,232 | |||||||||
Total assets—Corporate |
21,988 | 17,456 | 20,513 | |||||||||
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Total assets |
$ | 1,686,125 | $ | 1,690,375 | $ | 1,466,035 | ||||||
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Goodwill—Cemetery Operations |
$ | 25,320 | $ | 24,186 | $ | 18,122 | ||||||
Goodwill—Funeral Homes |
44,531 | 34,650 | 30,615 | |||||||||
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Total goodwill |
$ | 69,851 | $ | 58,836 | $ | 48,737 | ||||||
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The following summarizes certain quarterly results of operations:
Year Ended December 31, 2015 |
First Quarter | Second Quarter | Third Quarter | Fourth Quarter | ||||||||||||
(in thousands, except unit data) | ||||||||||||||||
Revenues |
$ | 67,417 | $ | 80,825 | $ | 78,200 | $ | 79,198 | ||||||||
Net loss |
(8,883 | ) | (4,848 | ) | (3,402 | ) | (7,111 | ) | ||||||||
General partner’s interest in net loss for the period |
(120 | ) | (65 | ) | (42 | ) | (88 | ) | ||||||||
Limited partners’ interest in net loss for the period |
(8,763 | ) | (4,783 | ) | (3,360 | ) | (7,023 | ) | ||||||||
Net loss per limited partner unit (basic and diluted): |
$ | (0.30 | ) | $ | (0.16 | ) | $ | (0.11 | ) | $ | (0.22 | ) | ||||
Year Ended December 31, 2014 |
First Quarter | Second Quarter | Third Quarter | Fourth Quarter | ||||||||||||
(in thousands, except unit data) | ||||||||||||||||
Revenues |
$ | 64,387 | $ | 71,533 | $ | 78,174 | $ | 73,991 | ||||||||
Net income (loss) |
409 | (118 | ) | (3,268 | ) | (7,796 | ) | |||||||||
General partner’s interest in net income (loss) for the period |
4 | (9 | ) | (44 | ) | (106 | ) | |||||||||
Limited partners’ interest in net income (loss) for the period |
405 | (109 | ) | (3,224 | ) | (7,690 | ) | |||||||||
Net income (loss) per limited partner unit (basic and diluted): |
$ | 0.02 | $ | — | $ | (0.11 | ) | $ | (0.26 | ) |
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