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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 March 31, 2016, 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 104 funeral homes in 19 states and Puerto Rico.
Basis of Presentation
The accompanying consolidated financial statements, which are unaudited except for the balance sheet at December 31, 2015, which is derived from audited financial statements, are presented in accordance with the requirements of Form 10-Q and accounting principles generally accepted in the United States (“GAAP”) for interim reporting. They do not include all disclosures normally made in financial statements contained in Form 10-K. In management’s opinion, all adjustments necessary for a fair presentation of the Partnership’s financial position, results of operations and cash flows for the periods disclosed have been made. These interim consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto presented in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2015. Certain amounts in the prior year’s financial statements have been reclassified to conform to the current year presentation. The results of operations for the three months ended March 31, 2016 may not necessarily be indicative of the results of operations for the full year ending December 31, 2016.
The Partnership has revised its presentation of Goodwill and Intangible assets, now presenting each separately on the unaudited consolidated balance sheet. The comparative balance sheet was adjusted to conform to this revised presentation.
Principles of Consolidation
The unaudited 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. 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.
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)” 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. During the first quarter of 2016, Update No. 2016-08, “Revenue from Contracts with Customers (Topic 606)” was released, which clarifies the implementation guidance on principal versus agent considerations. During the second quarter of 2016, Update No. 2016-10, “Revenue from Contracts with Customers (Topic 606)” was released, which clarifies the implementation guidance on identifying performance obligations. The Partnership will adopt the requirements of these updates upon the 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 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 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.
In the first quarter of 2016, the FASB issued Update No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). The core principle of ASU 2016-02 is that all leases create an asset and a liability for lessees and recognition of those lease assets and lease liabilities represents an improvement over previous GAAP, which did not require lease assets and lease liabilities to be recognized for most leases. The amendment is effective for annual reporting periods beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted. The Partnership plans to adopt the requirements of ASU 2016-02 upon its effective date of January 1, 2019, and is evaluating the potential impact of the adoption on its financial position, results of operations and related disclosures.
Use of Estimates
The preparation of the Partnership’s unaudited 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 unaudited consolidated financial statements, as well as the reported amounts of revenue and expense during the reporting periods. The Partnership’s unaudited 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.
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):
Three months ended March 31, | ||||||||
2016 | 2015 | |||||||
Net loss |
$ | (7,659 | ) | $ | (8,883 | ) | ||
Less: General partner’s interest |
(93 | ) | (120 | ) | ||||
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Net loss attributable to common limited partners |
$ | (7,566 | ) | $ | (8,763 | ) | ||
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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):
Three months ended March 31, | ||||||||
2016 | 2015 | |||||||
Weighted average number of common limited partner units—basic |
32,539 | 29,230 | ||||||
Add effect of dilutive incentive awards (1) |
— | — | ||||||
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Weighted average number of common limited partner units—diluted |
32,539 | 29,230 | ||||||
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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 292,670 units and 185,194 units for the three months ended March 31, 2016 and March 31, 2015, respectively, as their effects would be anti-dilutive. |
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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 five 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.
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 year ended December 31, 2015 had occurred as of January 1, 2015. 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 year ended December 31, 2015 had occurred as of January 1, 2015 or the results that will be attained in future periods (in thousands, except per unit data):
Three months ended March 31, | ||||||||
2016 | 2015 | |||||||
Revenue |
$ | 74,582 | $ | 69,217 | ||||
Net loss |
(7,659 | ) | (8,774 | ) | ||||
Net loss per limited partner unit (basic and diluted) |
$ | (.23 | ) | $ | (.30 | ) |
The properties acquired in 2015 have contributed $2.3 million of revenue and $0.4 million of operating profit for the three months ended March 31, 2016.
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3. ACCOUNTS RECEIVABLE, NET OF ALLOWANCE
Accounts receivable, net of allowance, consists of the following at the dates indicated (in thousands):
March 31, 2016 | December 31, 2015 | |||||||
Customer receivables |
$ | 209,974 | $ | 207,645 | ||||
Unearned finance income |
(20,144 | ) | (20,078 | ) | ||||
Allowance for contract cancellations |
(25,021 | ) | (23,985 | ) | ||||
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Accounts receivable, net of allowance |
164,809 | 163,582 | ||||||
Less: current portion, net of allowance |
69,718 | 68,415 | ||||||
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Long-term portion, net of allowance |
$ | 95,091 | $ | 95,167 | ||||
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Activity in the allowance for contract cancellations is as follows (in thousands):
Three months ended March 31, | ||||||||
2016 | 2015 | |||||||
Balance, beginning of period |
$ | 23,985 | $ | 22,138 | ||||
Provision for cancellations |
6,073 | 6,072 | ||||||
Charge-offs, net |
(5,037 | ) | (4,995 | ) | ||||
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Balance, end of period |
$ | 25,021 | $ | 23,215 | ||||
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4. CEMETERY PROPERTY
Cemetery property consists of the following at the dates indicated (in thousands):
March 31, 2016 | December 31, 2015 | |||||||
Developed land |
$ | 83,357 | $ | 83,834 | ||||
Undeveloped land |
169,867 | 169,482 | ||||||
Mausoleum crypts and lawn crypts |
77,403 | 77,526 | ||||||
Other land |
11,617 | 11,797 | ||||||
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Cemetery property |
$ | 342,244 | $ | 342,639 | ||||
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5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at the dates indicated (in thousands):
March 31, 2016 | December 31, 2015 | |||||||
Building and improvements |
$ | 120,328 | $ | 117,034 | ||||
Furniture and equipment |
52,973 | 54,346 | ||||||
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Property and equipment, gross |
173,301 | 171,380 | ||||||
Less: accumulated depreciation |
(68,794 | ) | (67,050 | ) | ||||
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Property and equipment, net of accumulated depreciation |
$ | 104,507 | $ | 104,330 | ||||
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Depreciation expense was $2.5 million and $2.4 million for the three months ended March 31, 2016 and 2015, respectively.
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6. MERCHANDISE TRUSTS
At March 31, 2016 and December 31, 2015, 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 acquired in connection with the Partnership’s 2015 acquisitions (see Note 2) are based upon preliminary estimated values assigned to the assets by the Partnership at the date of acquisition, and will be adjusted when additional information is received.
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 and provide the services to which they relate. If the value of these assets falls below the cost of purchasing such merchandise and providing such services, the Partnership may be required to fund this shortfall.
The Partnership included $8.2 million of investments held in trust by the West Virginia Funeral Directors Association at March 31, 2016 and December 31, 2015 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 three months ended March 31, 2016 is presented below (in thousands):
Three months ended March 31, | ||||||||
2016 | 2015 | |||||||
Balance, beginning of period |
$ | 464,676 | $ | 484,820 | ||||
Contributions |
13,305 | 16,540 | ||||||
Distributions |
(7,797 | ) | (11,537 | ) | ||||
Interest and dividends |
5,773 | 3,874 | ||||||
Capital gain distributions |
219 | — | ||||||
Realized gains and losses |
1,270 | 5,702 | ||||||
Taxes |
(37 | ) | (15 | ) | ||||
Fees |
(383 | ) | (737 | ) | ||||
Unrealized change in fair value |
2,982 | (10,640 | ) | |||||
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Balance, end of period |
$ | 480,008 | $ | 488,007 | ||||
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During the three months ended March 31, 2016, purchases and sales of securities available for sale included in trust investments were approximately $6.4 million and $12.6 million, respectively.
The cost and market value associated with the assets held in the merchandise trusts as of March 31, 2016 and December 31, 2015 were as follows (in thousands):
Gross | Gross | |||||||||||||||||
Fair Value | Unrealized | Unrealized | Fair | |||||||||||||||
March 31, 2016 |
Hierarchy Level | Cost | Gains | Losses | Value | |||||||||||||
Short-term investments |
1 | $ | 54,308 | $ | — | $ | — | $ | 54,308 | |||||||||
Fixed maturities: |
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U.S. governmental securities |
2 | 97 | 8 | (1 | ) | 104 | ||||||||||||
Corporate debt securities |
2 | 9,963 | 35 | (758 | ) | 9,240 | ||||||||||||
Other debt securities |
2 | 7,150 | 22 | — | 7,172 | |||||||||||||
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Total fixed maturities |
17,210 | 65 | (759 | ) | 16,516 | |||||||||||||
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Mutual funds—debt securities |
1 | 235,915 | 2,339 | (8,818 | ) | 229,436 | ||||||||||||
Mutual funds—equity securities |
1 | 139,336 | 1,650 | (12,062 | ) | 128,924 | ||||||||||||
Equity securities |
1 | 41,571 | 1,087 | (4,852 | ) | 37,806 | ||||||||||||
Other invested assets |
2 | 2,063 | 2 | (355 | ) | 1,710 | ||||||||||||
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Total managed investments |
$ | 490,403 | $ | 5,143 | $ | (26,846 | ) | $ | 468,700 | |||||||||
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Assets acquired via acquisition |
3,075 | — | — | 3,075 | ||||||||||||||
West Virginia Trust Receivable |
8,233 | — | — | 8,233 | ||||||||||||||
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Total |
$ | 501,711 | $ | 5,143 | $ | (26,846 | ) | $ | 480,008 | |||||||||
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Fair Value | Gross Unrealized |
Gross Unrealized |
Fair | |||||||||||||||
December 31, 2015 |
Hierarchy Level | Cost | Gains | Losses | Value | |||||||||||||
Short-term investments |
1 | $ | 35,150 | $ | — | $ | — | $ | 35,150 | |||||||||
Fixed maturities: |
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U.S. governmental securities |
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 | ||||||||||||
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Total fixed maturities |
19,170 | 25 | (556 | ) | 18,639 | |||||||||||||
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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 | |||||||||||||
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Total managed investments |
$ | 477,001 | $ | 1,307 | $ | (25,992 | ) | $ | 452,316 | |||||||||
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Assets acquired via acquisition |
4,185 | — | — | 4,185 | ||||||||||||||
West Virginia Trust Receivable |
8,175 | — | — | 8,175 | ||||||||||||||
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Total |
$ | 489,361 | $ | 1,307 | $ | (25,992 | ) | $ | 464,676 | |||||||||
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The contractual maturities of debt securities as of March 31, 2016 were as follows below:
Less than 1 year |
1 year through 5 years |
6 years through 10 years |
More than 10 years |
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U.S. governmental securities |
$ | 10 | $ | 12 | $ | 82 | $ | — | ||||||||
Corporate debt securities |
— | 7,008 | 2,232 | — | ||||||||||||
Other debt securities |
3,680 | 3,492 | — | — | ||||||||||||
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Total fixed maturities |
$ | 3,690 | $ | 10,512 | $ | 2,314 | $ | — | ||||||||
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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 as of March 31, 2016 and December 31, 2015 is presented below (in thousands):
Less than 12 months | 12 Months or more | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
March 31, 2016 |
Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
Fixed maturities: |
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U.S. governmental securities |
$ | 7 | $ | — | $ | 26 | $ | 1 | $ | 33 | $ | 1 | ||||||||||||
Corporate debt securities |
6,671 | 587 | 1,525 | 171 | 8,196 | 758 | ||||||||||||||||||
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Total fixed maturities |
6,678 | 587 | 1,551 | 172 | 8,229 | 759 | ||||||||||||||||||
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Mutual funds—debt securities |
116,564 | 5,634 | 39,450 | 3,184 | 156,014 | 8,818 | ||||||||||||||||||
Mutual funds—equity securities |
79,319 | 10,473 | 6,721 | 1,589 | 86,040 | 12,062 | ||||||||||||||||||
Equity securities |
27,142 | 4,328 | 1,722 | 524 | 28,864 | 4,852 | ||||||||||||||||||
Other invested assets |
— | — | 22 | 355 | 22 | 355 | ||||||||||||||||||
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Total |
$ | 229,703 | $ | 21,022 | $ | 49,466 | $ | 5,824 | $ | 279,169 | $ | 26,846 | ||||||||||||
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Less than 12 months | 12 Months or more | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
December 31, 2015 |
Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
Fixed maturities: |
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U.S. governmental securities |
$ | — | $ | — | $ | 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 | ||||||||||||||||||
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Total fixed maturities |
10,130 | 418 | 1,546 | 138 | 11,676 | 556 | ||||||||||||||||||
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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 | ||||||||||||||||||
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Total |
$ | 211,854 | $ | 20,625 | $ | 44,342 | $ | 5,367 | $ | 256,196 | $ | 25,992 | ||||||||||||
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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 three months ended March 31, 2016, the Partnership determined that there were no other than temporary impairments to the investment portfolio in the merchandise trusts. During the three months ended March 31, 2015, the Partnership determined that there were two securities with an aggregate cost basis of approximately $0.6 million and an aggregate fair value of approximately $0.4 million, resulting in an impairment of $0.2 million, wherein such impairment was 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 deferred revenue. This reduction in deferred revenue will be reflected in earnings in future periods as the underlying merchandise is delivered or the underlying service is performed.
|
7. PERPETUAL CARE TRUSTS
At March 31, 2016 and December 31, 2015, 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 acquired in connection with the Partnership’s 2015 acquisitions (see Note 2) are based upon preliminary estimated values assigned to the assets by the Partnership at the date of acquisition, and will be adjusted when additional information is received.
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 March 31, 2016 is presented below (in thousands):
Three months ended March 31, | ||||||||
2016 | 2015 | |||||||
Balance, beginning of period |
$ | 307,804 | $ | 345,105 | ||||
Contributions |
2,474 | 6,478 | ||||||
Distributions |
(3,723 | ) | (2,793 | ) | ||||
Interest and dividends |
4,149 | 3,649 | ||||||
Capital gain distributions |
81 | — | ||||||
Realized gains and losses |
74 | 15,699 | ||||||
Taxes |
(97 | ) | (134 | ) | ||||
Fees |
(287 | ) | (534 | ) | ||||
Unrealized change in fair value |
(268 | ) | (22,287 | ) | ||||
|
|
|
|
|||||
Balance, end of period |
$ | 310,207 | $ | 345,183 | ||||
|
|
|
|
During the three months ended March 31, 2016, purchases and sales of securities available for sale included in trust investments were approximately $5.5 million and $0.3 million, respectively.
The cost and market value associated with the assets held in the perpetual care trusts as of March 31, 2016 and December 31, 2015 were as follows (in thousands):
Gross | Gross | |||||||||||||||||
Fair Value | Unrealized | Unrealized | Fair | |||||||||||||||
March 31, 2016 |
Hierarchy Level | Cost | Gains | Losses | Value | |||||||||||||
Short-term investments |
1 | $ | 34,322 | $ | — | $ | — | $ | 34,322 | |||||||||
Fixed maturities: |
||||||||||||||||||
U.S. governmental securities |
2 | 190 | 16 | (1 | ) | 205 | ||||||||||||
Corporate debt securities |
2 | 22,635 | 134 | (1,311 | ) | 21,458 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total fixed maturities |
22,825 | 150 | (1,312 | ) | 21,663 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Mutual funds—debt securities |
1 | 190,212 | 1,804 | (6,713 | ) | 185,303 | ||||||||||||
Mutual funds—equity securities |
1 | 68,471 | 1,457 | (4,338 | ) | 65,590 | ||||||||||||
Equity securities |
1 | 2,185 | 577 | (8 | ) | 2,754 | ||||||||||||
Other invested assets |
2 | 10 | 4 | — | 14 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total managed investments |
$ | 318,025 | $ | 3,992 | $ | (12,371 | ) | $ | 309,646 | |||||||||
|
|
|
|
|
|
|
|
|||||||||||
Assets acquired via acquisition |
561 | — | — | 561 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 318,586 | $ | 3,992 | $ | (12,371 | ) | $ | 310,207 | |||||||||
|
|
|
|
|
|
|
|
|||||||||||
December 31, 2015 |
Fair Value Hierarchy Level |
Cost | Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value | |||||||||||||
Short-term investments |
1 | $ | 36,618 | $ | — | $ | — | $ | 36,618 | |||||||||
Fixed maturities: |
||||||||||||||||||
U.S. governmental securities |
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 | |||||||||
|
|
|
|
|
|
|
|
The contractual maturities of debt securities as of March 31, 2016 were as follows below:
Less than 1 year |
1 year through 5 years |
6 years through 10 years |
More than 10 years |
|||||||||||||
U.S. governmental securities |
$ | 112 | $ | — | $ | 39 | $ | 54 | ||||||||
Corporate debt securities |
148 | 16,914 | 4,396 | — | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total fixed maturities |
$ | 260 | $ | 16,914 | $ | 4,435 | $ | 54 | ||||||||
|
|
|
|
|
|
|
|
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 debt and equity securities within the perpetual care trusts as of March 31, 2016 and December 31, 2015 is presented below (in thousands):
Less than 12 months | 12 Months or more | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
March 31, 2016 |
Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
Fixed maturities: |
||||||||||||||||||||||||
U.S. governmental securities |
$ | — | $ | — | $ | 26 | $ | 1 | $ | 26 | $ | 1 | ||||||||||||
Corporate debt securities |
13,119 | 956 | 3,288 | 355 | 16,407 | 1,311 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total fixed maturities |
13,119 | 956 | 3,314 | 356 | 16,433 | 1,312 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Mutual funds—debt securities |
77,522 | 4,128 | 52,063 | 2,585 | 129,585 | 6,713 | ||||||||||||||||||
Mutual funds—equity securities |
41,149 | 3,751 | 3,478 | 587 | 44,627 | 4,338 | ||||||||||||||||||
Equity securities |
492 | 8 | — | — | 492 | 8 | ||||||||||||||||||
Other invested assets |
— | — | — | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 132,282 | $ | 8,843 | $ | 58,855 | $ | 3,528 | $ | 191,137 | $ | 12,371 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months | 12 Months or more | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
December 31, 2015 |
Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
Fixed maturities: |
||||||||||||||||||||||||
U.S. governmental securities |
$ | — | $ | — | $ | 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 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
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 three months ended March 31, 2016 and 2015, the Partnership determined that there were no other than temporary impairments to the investment portfolio in the perpetual care trusts.
|
8. GOODWILL AND INTANGIBLE ASSETS
Goodwill
The Partnership has recorded goodwill of approximately $69.9 million as of March 31, 2016 and December 31, 2015. This amount represents the excess of the purchase price over the fair value of identifiable net assets acquired.
The Partnership tests goodwill for impairment at each year end by comparing its reporting units’ estimated fair values to carrying values. There were no goodwill impairments recognized by the Partnership during the periods presented. 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 as of March 31, 2016 and December 31, 2015 (in thousands):
March 31, 2016 | December 31, 2015 | |||||||||||||||||||||||
Gross Carrying | Accumulated | Net Intangible | Gross Carrying | Accumulated | Net Intangible | |||||||||||||||||||
Amount | Amortization | Asset | Amount | Amortization | Asset | |||||||||||||||||||
Lease and management agreements |
$ | 59,758 | $ | (1,826 | ) | $ | 57,932 | $ | 59,758 | $ | (1,577 | ) | $ | 58,181 | ||||||||||
Underlying contract value |
6,239 | (1,053 | ) | 5,186 | 6,239 | (1,014 | ) | 5,225 | ||||||||||||||||
Non-compete agreements |
5,486 | (3,197 | ) | 2,289 | 5,656 | (3,112 | ) | 2,544 | ||||||||||||||||
Other intangible assets |
1,439 | (192 | ) | 1,247 | 1,439 | (180 | ) | 1,259 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total intangible assets |
$ | 72,922 | $ | (6,268 | ) | $ | 66,654 | $ | 73,092 | $ | (5,883 | ) | $ | 67,209 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for intangible assets was $0.6 million for both the three months ended March 31, 2016 and 2015. The following is estimated amortization expense related to intangible assets with finite lives for the periods noted below (in thousands):
2016 (remainder) |
$ | 1,625 | ||
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):
March 31, 2016 | December 31, 2015 | |||||||
Credit Facility: |
||||||||
Working Capital Draws |
$ | 106,500 | $ | 105,000 | ||||
Acquisition Draws |
44,500 | 44,500 | ||||||
7.875% Senior Notes, due June 2021 |
172,292 | 172,186 | ||||||
Notes payable—acquisition debt |
642 | 687 | ||||||
Notes payable—acquisition non-competes |
1,356 | 1,629 | ||||||
Insurance and vehicle financing |
1,386 | 2,336 | ||||||
Less deferred financing costs, net of accumulated amortization |
(7,081 | ) | (7,499 | ) | ||||
|
|
|
|
|||||
Total debt |
319,595 | 318,839 | ||||||
Less current maturities |
(1,459 | ) | (2,440 | ) | ||||
|
|
|
|
|||||
Total long-term debt |
$ | 318,136 | $ | 316,399 | ||||
|
|
|
|
Credit Facility
The Partnership is a party to the Fourth Amended and Restated Credit Agreement, as amended (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 March 31, 2016, the amount available under the Credit Facility for working capital advances under this limit was $140.1 million, of which $106.5 million was outstanding at March 31, 2016.
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 March 31, 2016 and December 31, 2015.
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. On March 31, 2016, the weighted average interest rate on outstanding borrowings under the Credit Facility was 3.9%.
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 March 31, 2016. 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. |
On March 31, 2016, the Partnership’s Consolidated Leverage Ratio and the Consolidated Debt Service Coverage Ratio were 3.30 and 4.53, 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 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 March 31, 2016, 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 unaudited 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.
As of March 31, 2016, 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. As of March 31, 2016, 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 March 31, 2016 and December 31, 2015, 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 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 merchandise and service revenues as deferred 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.
At March 31, 2016 and December 31, 2015, deferred revenues, net, consisted of the following (in thousands):
March 31, 2016 | December 31, 2015 | |||||||
Deferred revenue |
$ | 548,515 | $ | 531,905 | ||||
Deferred merchandise trust revenue |
85,664 | 80,294 | ||||||
Deferred merchandise trust unrealized gains (losses) |
(21,703 | ) | (24,685 | ) | ||||
Deferred pre-acquisition margin |
141,584 | 142,672 | ||||||
Deferred cost of goods sold |
(94,330 | ) | (92,650 | ) | ||||
|
|
|
|
|||||
Deferred revenues, net |
$ | 659,730 | $ | 637,536 | ||||
|
|
|
|
|||||
Deferred selling and obtaining costs |
$ | 114,921 | $ | 111,542 |
|
12. LONG-TERM INCENTIVE 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 2014 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 March 31, 2016, the estimated number of common units to be issued upon vesting and exercise of outstanding rights under this plan was 105,167, including management’s estimated amounts for awards with performance factors. A cumulative number of 14,455 common units have been issued, leaving 1,380,378 common units available for future grants 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 March 31, 2016 contain tandem DERs.
The following table sets forth the 2014 LTIP phantom unit award activity for the three months ended March 31, 2016 and 2015, respectively:
Three months ended March 31, | ||||||||
2016 | 2015 | |||||||
Outstanding, beginning of period |
102,661 | 2,189 | ||||||
Granted (1) |
2,506 | 2,052 | ||||||
|
|
|
|
|||||
Outstanding, end of period (2) |
105,167 | 4,241 | ||||||
|
|
|
|
(1) | The weighted-average grant date fair value for the unit awards on the date of grant was $25.88 and $28.69 for three months ended March 31, 2016 and 2015, respectively. The intrinsic value of unit awards vested during both the three months ended March 31, 2016 and 2015 was $0.1 million. |
(2) | Based on the closing price of the common units on March 31, 2016, the estimated intrinsic value of the outstanding unit awards was $2.6 million at March 31, 2016. |
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, or unit appreciation rights (“UAR”). At March 31, 2016, the estimated number of common units to be issued upon vesting and exercise of outstanding rights under this plan was 189,155, based upon the closing price of our common units at March 31, 2016. A cumulative number of 626,188 common units have been issued under the 2004 LTIP. There were no awards available for grant under the 2004 LTIP at March 31, 2016 because the plan expired in 2014.
Phantom Unit Awards
Phantom units were credited to participants’ mandatory deferred compensation accounts in connection with DERs accruing on phantom units received under the 2004 LTIP. These DERs continue to accrue until the underlying securities are issued. The following table sets forth the 2004 LTIP activity related to DERs credited as phantom units to the participant’s accounts for the three months ended March 31, 2016 and 2015 respectively:
Three months ended March 31, | ||||||||
2016 | 2015 | |||||||
Outstanding, beginning of period |
184,457 | 169,122 | ||||||
Granted (1) |
4,491 | 3,671 | ||||||
|
|
|
|
|||||
Outstanding, end of period (2) |
188,948 | 172,793 | ||||||
|
|
|
|
(1) | The weighted-average fair value for the phantom units credited was $26.25 and $28.02 for the three months ended March 31, 2016 and 2015 respectively. The intrinsic value of phantom unit awards vested during both the three months ended March 31, 2016 and 2015 was $0.1 million. |
(2) | Based on the closing price of the common units on March 31, 2016, the estimated intrinsic value of the outstanding unit awards was $4.6 million at March 31, 2016. |
Total compensation expense for phantom units credited under both the 2004 and 2014 plans was approximately $0.2 million and $0.3 million for the three months ended March 31, 2016 and 2015, respectively.
Unit Appreciation Rights Awards
UAR awards represent a right to receive 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 UARs, 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 to be issued to the participant. UAR awards granted through March 31, 2016 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 March 31, 2016, 18,563 awards will vest within the following twelve months. The following table sets forth the UAR award activity for the three months ended March 31, 2016 and 2015 respectively:
Three months ended March 31, | ||||||||
2016 | 2015 | |||||||
Outstanding, beginning of period |
66,793 | 123,000 | ||||||
Exercised |
— | (10,654 | ) | |||||
|
|
|
|
|||||
Outstanding, end of period (1) |
66,793 | 112,346 | ||||||
|
|
|
|
|||||
Exercisable, end of period |
39,062 | 53,969 |
(1) | Based on the closing price of the common units on March 31, 2016 the estimated intrinsic value of the outstanding UARs was less than $0.1 million. The weighted average remaining contractual life for outstanding UAR awards at March 31, 2016 was 2.3 years. |
At March 31, 2016, 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 less than $0.1 million for both the three months ended March 31, 2016 and 2015. The Partnership issued 1,148 common units due to exercised UAR awards for the three months ended March 31, 2015. There were no UAR exercises during the three months ended March 31, 2016.
|
13. COMMITMENTS AND CONTINGENCIES
Legal
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.
Other
During the first quarter of 2016, the Partnership moved its corporate headquarters to Trevose, Pennsylvania. Due to the relocation, a cease-use expense of $0.5 million was recorded during the period below “Operating income” on the unaudited consolidated statement of operations. This charge represents the net recognition of the discounted liability for future rent payments due under the lease on the previous headquarters, net of estimated sublease collections and deferred rent and lease incentives pertaining to the previous corporate office location.
In connection with the Partnership’s 2014 lease and management agreements with the Archdiocese of Philadelphia, it has committed to pay aggregate fixed rent of $36.0 million in the following amounts:
Lease Years 1-5 |
None | |
Lease Years 6-20 |
$1,000,000 per Lease Year | |
Lease Years 21-25 |
$1,200,000 per Lease Year | |
Lease Years 26-35 |
$1,500,000 per Lease Year | |
Lease Years 36-60 |
None |
The fixed rent for lease years 6 through 11 shall be deferred. If the Archdiocese terminates the agreements pursuant to a lease year 11 termination or the Partnership terminates the agreements as a result of a default by the Archdiocese, prior to the end of lease year 11, the deferred fixed rent shall be retained by the Partnership. If the agreements are not terminated, the deferred fixed rent shall become due and payable 30 days after the end of lease year 11.
|
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 as of March 31, 2016 and December 31, 2015 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 as of March 31, 2016 and December 31, 2015 were $177.2 million and $179.9 million, respectively, based on trades made on those dates, compared with the carrying amounts of $172.3 million and $172.2 million, respectively. As of March 31, 2016 and December 31, 2015, 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.
|
15. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The Partnership’s Senior Notes are guaranteed by StoneMor Operating LLC and its wholly-owned subsidiaries, other than the co-issuer, as described below. 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 Partnership’s unaudited consolidated financial statements as of and for the three months ended March 31, 2016 and 2015 include the accounts of cemeteries operated under long-term lease, operating or management agreements. For the purposes of this note, these entities are deemed non-guarantor subsidiaries as they are not wholly-owned by the Partnership. The Partnership’s unaudited consolidated financial statements also contain merchandise and perpetual care trusts that are also deemed non-guarantor subsidiaries for the purposes of this note.
The following unaudited 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 three months ended March 31, 2016 and 2015. For the purpose of the following financial information, the Partnership’s investments in its subsidiaries and the guarantor subsidiaries’ investments in their respective subsidiaries are presented in accordance with the equity method of accounting (in thousands):
CONDENSED CONSOLIDATING BALANCE SHEETS
|
||||||||||||||||||||||||
Subsidiary | Guarantor | Non-Guarantor | ||||||||||||||||||||||
March 31, 2016 | Parent | Issuer | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
Assets |
||||||||||||||||||||||||
Current assets: |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | — | $ | — | $ | 9,935 | $ | 3,551 | $ | — | $ | 13,486 | ||||||||||||
Other current assets |
— | 4,946 | 76,935 | 14,394 | — | 96,275 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current assets |
— | 4,946 | 86,870 | 17,945 | — | 109,761 | ||||||||||||||||||
Long-term accounts receivable |
— | 2,836 | 80,696 | 11,559 | — | 95,091 | ||||||||||||||||||
Cemetery property and equipment |
— | 1,030 | 414,565 | 31,156 | — | 446,751 | ||||||||||||||||||
Merchandise trusts |
— | — | — | 480,008 | — | 480,008 | ||||||||||||||||||
Perpetual care trusts |
— | — | — | 310,207 | — | 310,207 | ||||||||||||||||||
Deferred selling and obtaining costs |
— | 5,967 | 93,893 | 15,061 | — | 114,921 | ||||||||||||||||||
Goodwill and intangible assets |
— | — | 77,917 | 58,588 | — | 136,505 | ||||||||||||||||||
Other assets |
— | — | 13,062 | 2,182 | — | 15,244 | ||||||||||||||||||
Investments in and amounts due from affiliates eliminated upon consolidation |
241,565 | 149,926 | 441,455 | — | (832,946 | ) | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total assets |
$ | 241,565 | $ | 164,705 | $ | 1,208,458 | $ | 926,706 | $ | (832,946 | ) | $ | 1,708,488 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Liabilities and Equity |
||||||||||||||||||||||||
Current liabilities |
$ | — | $ | 24 | $ | 40,974 | $ | 696 | $ | — | $ | 41,694 | ||||||||||||
Long-term debt, net of deferred financing costs |
67,932 | 104,360 | 145,844 | — | — | 318,136 | ||||||||||||||||||
Deferred revenues, net |
— | 27,897 | 557,831 | 74,002 | — | 659,730 | ||||||||||||||||||
Merchandise liability |
— | 5,420 | 155,195 | 11,352 | — | 171,967 | ||||||||||||||||||
Perpetual care trust corpus |
— | — | — | 310,207 | — | 310,207 | ||||||||||||||||||
Other long-term liabilities |
— | — | 23,436 | 9,685 | — | 33,121 | ||||||||||||||||||
Due to affiliates |
— | — | 174,315 | 457,994 | (632,309 | ) | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities |
67,932 | 137,701 | 1,097,595 | 863,936 | (632,309 | ) | 1,534,855 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Partners’ capital |
173,633 | 27,004 | 110,863 | 62,770 | (200,637 | ) | 173,633 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities and partners’ capital |
$ | 241,565 | $ | 164,705 | $ | 1,208,458 | $ | 926,706 | $ | (832,946 | ) | $ | 1,708,488 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary | Guarantor | Non-Guarantor | ||||||||||||||||||||||
December 31, 2015 | Parent | Issuer | Subsidiaries | 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 | ||||||||||||||||||
Investments in and amounts due from affiliates eliminated upon consolidation |
251,678 | 162,011 | 428,704 | — | (842,393 | ) | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
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 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 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
|
||||||||||||||||||||||||
Subsidiary | Guarantor | Non-Guarantor | ||||||||||||||||||||||
Three months ended March 31, 2016 | Parent | Issuer | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
Total revenues |
$ | — | $ | 1,198 | $ | 62,077 | $ | 13,671 | $ | (2,364 | ) | $ | 74,582 | |||||||||||
Total cost and expenses |
— | (2,551 | ) | (63,504 | ) | (11,618 | ) | 2,364 | (75,309 | ) | ||||||||||||||
Other income (loss) |
— | — | (882 | ) | — | — | (882 | ) | ||||||||||||||||
Net loss from equity investment in subsidiaries |
(6,301 | ) | (6,798 | ) | — | — | 13,099 | — | ||||||||||||||||
Interest expense |
(1,358 | ) | (2,087 | ) | (2,154 | ) | (191 | ) | — | (5,790 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income (loss) before income taxes |
(7,659 | ) | (10,238 | ) | (4,463 | ) | 1,862 | 13,099 | (7,399 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income tax benefit (expense) |
— | — | (260 | ) | — | — | (260 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income (loss) |
$ | (7,659 | ) | $ | (10,238 | ) | $ | (4,723 | ) | $ | 1,862 | $ | 13,099 | $ | (7,659 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary | Guarantor | Non-Guarantor | ||||||||||||||||||||||
Three months ended March 31, 2015 | Parent | Issuer | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
Total revenues |
$ | — | $ | 1,273 | $ | 58,403 | $ | 10,662 | $ | (2,921 | ) | $ | 67,417 | |||||||||||
Total cost and expenses |
— | (2,425 | ) | (60,043 | ) | (11,225 | ) | 2,921 | (70,772 | ) | ||||||||||||||
Net loss from equity investment in subsidiaries |
(7,525 | ) | (6,604 | ) | — | — | 14,129 | — | ||||||||||||||||
Interest expense |
(1,358 | ) | (2,087 | ) | (1,841 | ) | (177 | ) | — | (5,463 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income (loss) before income taxes |
(8,883 | ) | (9,843 | ) | (3,481 | ) | (740 | ) | 14,129 | (8,818 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income tax benefit (expense) |
— | — | (65 | ) | — | — | (65 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income (loss) |
$ | (8,883 | ) | $ | (9,843 | ) | $ | (3,546 | ) | $ | (740 | ) | $ | 14,129 | $ | (8,883 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
|
||||||||||||||||||||||||
Subsidiary | Guarantor | Non-Guarantor | ||||||||||||||||||||||
Three months ended March 31, 2016 | Parent | Issuer | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
Net cash provided by (used in) operating activities |
$ | 2,624 | $ | 5 | $ | 7,764 | $ | 910 | $ | (6,069 | ) | $ | 5,234 | |||||||||||
Cash Flows From Investing Activities: |
||||||||||||||||||||||||
Cash paid for acquisitions and capital expenditures |
— | (5 | ) | (3,774 | ) | (643 | ) | — | (4,422 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used in investing activities |
— | (5 | ) | (3,774 | ) | (643 | ) | — | (4,422 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash Flows From Financing Activities: |
||||||||||||||||||||||||
Cash distributions |
(21,387 | ) | — | — | — | — | (21,387 | ) | ||||||||||||||||
Payments to affiliates |
— | — | (6,069 | ) | — | 6,069 | — | |||||||||||||||||
Net borrowings and repayments of debt |
— | — | 145 | — | — | 145 | ||||||||||||||||||
Proceeds from issuance of common units |
18,763 | — | — | — | — | 18,763 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash provided by (used in) financing activities |
(2,624 | ) | — | (5,924 | ) | — | 6,069 | (2,479 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net increase (decrease) in cash and cash equivalents |
— | — | (1,934 | ) | 267 | — | (1,667 | ) | ||||||||||||||||
Cash and cash equivalents—Beginning of period |
— | — | 11,869 | 3,284 | — | 15,153 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash and cash equivalents—End of period |
$ | — | $ | — | $ | 9,935 | $ | 3,551 | $ | — | $ | 13,486 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary | Guarantor | Non-Guarantor | ||||||||||||||||||||||
Three months ended March 31, 2015 | Parent | Issuer | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
Net cash provided by (used in) operating activities |
$ | 17,948 | $ | 104 | $ | 8,699 | $ | 495 | $ | (21,393 | ) | $ | 5,853 | |||||||||||
Cash Flows From Investing Activities: |
||||||||||||||||||||||||
Cash paid for acquisitions and capital expenditures |
— | (104 | ) | (2,158 | ) | (553 | ) | — | (2,815 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used in investing activities |
— | (104 | ) | (2,158 | ) | (553 | ) | — | (2,815 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash Flows From Financing Activities: |
||||||||||||||||||||||||
Cash distributions |
(17,948 | ) | — | — | — | — | (17,948 | ) | ||||||||||||||||
Payments to affiliates |
— | — | (21,393 | ) | — | 21,393 | — | |||||||||||||||||
Net borrowings and repayments of debt |
— | — | 10,940 | — | — | 10,940 | ||||||||||||||||||
Other financing activities |
— | — | (34 | ) | — | — | (34 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash provided by (used in) financing activities |
(17,948 | ) | — | (10,487 | ) | — | 21,393 | (7,042 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net increase (decrease) in cash and cash equivalents |
— | — | (3,946 | ) | (58 | ) | — | (4,004 | ) | |||||||||||||||
Cash and cash equivalents—Beginning of period |
— | — | 7,059 | 3,342 | — | 10,401 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash and cash equivalents—End of period |
$ | — | $ | — | $ | 3,113 | $ | 3,284 | $ | — | $ | 6,397 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
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. During the three months ended March 31, 2016, the Partnership issued 727,474 common units under the ATM Equity Program for net proceeds of $18.8 million.
Pursuant to a Common Unit Purchase Agreement, dated May 19, 2014, by and between the Partnership and American Cemeteries Infrastructure Investors, LLC, a Delaware limited liability company (“ACII”), the Partnership issued 55,737 PIK Units to ACII in lieu of cash distributions of $1.5 million, during the three months ended March 31, 2016.
|
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 March 31, 2016 and represent a change from the comparable period presented. Prior period information was revised to the current year presentation. Operating segment data for the periods indicated were as follows (in thousands):
Three months ended March 31, | ||||||||
2016 | 2015 | |||||||
Cemetery Operations: |
||||||||
Revenues |
$ | 58,259 | $ | 52,157 | ||||
Operating costs and expenses |
(48,193 | ) | (46,587 | ) | ||||
Depreciation and amortization |
(1,970 | ) | (1,906 | ) | ||||
|
|
|
|
|||||
Segment income |
$ | 8,096 | $ | 3,664 | ||||
|
|
|
|
|||||
Funeral Homes: |
||||||||
Revenues |
$ | 16,323 | $ | 15,260 | ||||
Operating costs and expenses |
(13,740 | ) | (12,150 | ) | ||||
Depreciation and amortization |
(877 | ) | (799 | ) | ||||
|
|
|
|
|||||
Segment income |
$ | 1,706 | $ | 2,311 | ||||
|
|
|
|
|||||
Reconciliation of segment income to net loss: |
||||||||
Cemeteries |
$ | 8,096 | $ | 3,664 | ||||
Funeral homes |
1,706 | 2,311 | ||||||
|
|
|
|
|||||
Total segment income |
9,802 | 5,975 | ||||||
|
|
|
|
|||||
Corporate overhead |
(10,311 | ) | (9,083 | ) | ||||
Corporate depreciation and amortization |
(218 | ) | (247 | ) | ||||
Other gains (losses), net |
(882 | ) | — | |||||
Interest expense |
(5,790 | ) | (5,463 | ) | ||||
Income tax benefit (expense) |
(260 | ) | (65 | ) | ||||
|
|
|
|
|||||
Net loss |
$ | (7,659 | ) | $ | (8,883 | ) | ||
|
|
|
|
|||||
Capital expenditures: |
||||||||
Cemeteries |
$ | 1,941 | $ | 2,566 | ||||
Funeral homes |
451 | 175 | ||||||
Corporate |
2,168 | 74 | ||||||
|
|
|
|
|||||
Total capital expenditures |
$ | 4,560 | $ | 2,815 | ||||
|
|
|
|
|||||
March 31, 2016 | December 31, 2015 | |||||||
Balance sheet information: |
||||||||
Assets: |
||||||||
Cemetery Operations |
$ | 1,492,486 | $ | 1,473,694 | ||||
Funeral Homes |
194,456 | 190,443 | ||||||
Corporate |
21,546 | 21,988 | ||||||
|
|
|
|
|||||
Total assets |
$ | 1,708,488 | $ | 1,686,125 | ||||
|
|
|
|
|||||
Goodwill: |
||||||||
Cemetery Operations |
$ | 25,320 | $ | 25,320 | ||||
Funeral Homes |
44,531 | 44,531 | ||||||
|
|
|
|
|||||
Total goodwill |
$ | 69,851 | $ | 69,851 | ||||
|
|
|
|
|
18. SUBSEQUENT EVENTS
On April 20, 2016, the Partnership completed a follow-on public offering of 2,000,000 common units at a public offering price of $23.65 per unit. Net proceeds of the offering, after deducting underwriting discounts and offering expenses, were approximately $44.7 million. Additionally, the underwriters exercised their option to purchase an additional 300,000 common units, resulting in net proceeds of $6.8 million, after deducting discounts and offering expenses. The proceeds from the issuances were used to pay down outstanding indebtedness under the Credit Facility.
On April 26, 2016, the Partnership announced a quarterly cash distribution of $0.66 per common unit pertaining to the results for the first quarter of 2016. The distribution is scheduled to be paid May 13, 2016 to common unit holders of record as of the close of business on May 6, 2016.
Subsequent to March 31, 2016, the Partnership issued 176,208 common units under the ATM Equity Program for net proceeds of approximately $4.2 million.
|
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 March 31, 2016, 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 104 funeral homes in 19 states and Puerto Rico.
Basis of Presentation
The accompanying consolidated financial statements, which are unaudited except for the balance sheet at December 31, 2015, which is derived from audited financial statements, are presented in accordance with the requirements of Form 10-Q and accounting principles generally accepted in the United States (“GAAP”) for interim reporting. They do not include all disclosures normally made in financial statements contained in Form 10-K. In management’s opinion, all adjustments necessary for a fair presentation of the Partnership’s financial position, results of operations and cash flows for the periods disclosed have been made. These interim consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto presented in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2015. Certain amounts in the prior year’s financial statements have been reclassified to conform to the current year presentation. The results of operations for the three months ended March 31, 2016 may not necessarily be indicative of the results of operations for the full year ending December 31, 2016.
The Partnership has revised its presentation of Goodwill and Intangible assets, now presenting each separately on the unaudited consolidated balance sheet. The comparative balance sheet was adjusted to conform to this revised presentation.
Principles of Consolidation
The unaudited 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. 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.
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)” 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. During the first quarter of 2016, Update No. 2016-08, “Revenue from Contracts with Customers (Topic 606)” was released, which clarifies the implementation guidance on principal versus agent considerations. During the second quarter of 2016, Update No. 2016-10, “Revenue from Contracts with Customers (Topic 606)” was released, which clarifies the implementation guidance on identifying performance obligations. The Partnership will adopt the requirements of these updates upon the 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 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 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.
In the first quarter of 2016, the FASB issued Update No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). The core principle of ASU 2016-02 is that all leases create an asset and a liability for lessees and recognition of those lease assets and lease liabilities represents an improvement over previous GAAP, which did not require lease assets and lease liabilities to be recognized for most leases. The amendment is effective for annual reporting periods beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted. The Partnership plans to adopt the requirements of ASU 2016-02 upon its effective date of January 1, 2019, and is evaluating the potential impact of the adoption on its financial position, results of operations and related disclosures.
Use of Estimates
The preparation of the Partnership’s unaudited 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 unaudited consolidated financial statements, as well as the reported amounts of revenue and expense during the reporting periods. The Partnership’s unaudited 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.
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):
Three months ended March 31, | ||||||||
2016 | 2015 | |||||||
Net loss |
$ | (7,659 | ) | $ | (8,883 | ) | ||
Less: General partner’s interest |
(93 | ) | (120 | ) | ||||
|
|
|
|
|||||
Net loss attributable to common limited partners |
$ | (7,566 | ) | $ | (8,763 | ) | ||
|
|
|
|
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):
Three months ended March 31, | ||||||||
2016 | 2015 | |||||||
Weighted average number of common limited partner units—basic |
32,539 | 29,230 | ||||||
Add effect of dilutive incentive awards (1) |
— | — | ||||||
|
|
|
|
|||||
Weighted average number of common limited partner units—diluted |
32,539 | 29,230 | ||||||
|
|
|
|
(1) | The diluted weighted average number of limited partners’ units outstanding presented on the consolidated statement of operations does not include 292,670 units and 185,194 units for the three months ended March 31, 2016 and March 31, 2015, respectively, as their effects would be anti-dilutive. |
|
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):
Three months ended March 31, | ||||||||
2016 | 2015 | |||||||
Net loss |
$ | (7,659 | ) | $ | (8,883 | ) | ||
Less: General partner’s interest |
(93 | ) | (120 | ) | ||||
|
|
|
|
|||||
Net loss attributable to common limited partners |
$ | (7,566 | ) | $ | (8,763 | ) | ||
|
|
|
|
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):
Three months ended March 31, | ||||||||
2016 | 2015 | |||||||
Weighted average number of common limited partner units—basic |
32,539 | 29,230 | ||||||
Add effect of dilutive incentive awards (1) |
— | — | ||||||
|
|
|
|
|||||
Weighted average number of common limited partner units—diluted |
32,539 | 29,230 | ||||||
|
|
|
|
(1) | The diluted weighted average number of limited partners’ units outstanding presented on the consolidated statement of operations does not include 292,670 units and 185,194 units for the three months ended March 31, 2016 and March 31, 2015, respectively, as their effects would be anti-dilutive. |
|
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 year ended December 31, 2015 had occurred as of January 1, 2015 or the results that will be attained in future periods (in thousands, except per unit data):
Three months ended March 31, | ||||||||
2016 | 2015 | |||||||
Revenue |
$ | 74,582 | $ | 69,217 | ||||
Net loss |
(7,659 | ) | (8,774 | ) | ||||
Net loss per limited partner unit (basic and diluted) |
$ | (.23 | ) | $ | (.30 | ) |
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 | ||
|
|
|
Accounts receivable, net of allowance, consists of the following at the dates indicated (in thousands):
March 31, 2016 | December 31, 2015 | |||||||
Customer receivables |
$ | 209,974 | $ | 207,645 | ||||
Unearned finance income |
(20,144 | ) | (20,078 | ) | ||||
Allowance for contract cancellations |
(25,021 | ) | (23,985 | ) | ||||
|
|
|
|
|||||
Accounts receivable, net of allowance |
164,809 | 163,582 | ||||||
Less: current portion, net of allowance |
69,718 | 68,415 | ||||||
|
|
|
|
|||||
Long-term portion, net of allowance |
$ | 95,091 | $ | 95,167 | ||||
|
|
|
|
Activity in the allowance for contract cancellations is as follows (in thousands):
Three months ended March 31, | ||||||||
2016 | 2015 | |||||||
Balance, beginning of period |
$ | 23,985 | $ | 22,138 | ||||
Provision for cancellations |
6,073 | 6,072 | ||||||
Charge-offs, net |
(5,037 | ) | (4,995 | ) | ||||
|
|
|
|
|||||
Balance, end of period |
$ | 25,021 | $ | 23,215 | ||||
|
|
|
|
|
Property and equipment consists of the following at the dates indicated (in thousands):
March 31, 2016 | December 31, 2015 | |||||||
Building and improvements |
$ | 120,328 | $ | 117,034 | ||||
Furniture and equipment |
52,973 | 54,346 | ||||||
|
|
|
|
|||||
Property and equipment, gross |
173,301 | 171,380 | ||||||
Less: accumulated depreciation |
(68,794 | ) | (67,050 | ) | ||||
|
|
|
|
|||||
Property and equipment, net of accumulated depreciation |
$ | 104,507 | $ | 104,330 | ||||
|
|
|
|
Cemetery property consists of the following at the dates indicated (in thousands):
March 31, 2016 | December 31, 2015 | |||||||
Developed land |
$ | 83,357 | $ | 83,834 | ||||
Undeveloped land |
169,867 | 169,482 | ||||||
Mausoleum crypts and lawn crypts |
77,403 | 77,526 | ||||||
Other land |
11,617 | 11,797 | ||||||
|
|
|
|
|||||
Cemetery property |
$ | 342,244 | $ | 342,639 | ||||
|
|
|
|
|
A reconciliation of the Partnership’s perpetual care trust activities for the years ended March 31, 2016 is presented below (in thousands):
Three months ended March 31, | ||||||||
2016 | 2015 | |||||||
Balance, beginning of period |
$ | 307,804 | $ | 345,105 | ||||
Contributions |
2,474 | 6,478 | ||||||
Distributions |
(3,723 | ) | (2,793 | ) | ||||
Interest and dividends |
4,149 | 3,649 | ||||||
Capital gain distributions |
81 | — | ||||||
Realized gains and losses |
74 | 15,699 | ||||||
Taxes |
(97 | ) | (134 | ) | ||||
Fees |
(287 | ) | (534 | ) | ||||
Unrealized change in fair value |
(268 | ) | (22,287 | ) | ||||
|
|
|
|
|||||
Balance, end of period |
$ | 310,207 | $ | 345,183 | ||||
|
|
|
|
The cost and market value associated with the assets held in the perpetual care trusts as of March 31, 2016 and December 31, 2015 were as follows (in thousands):
Gross | Gross | |||||||||||||||||
Fair Value | Unrealized | Unrealized | Fair | |||||||||||||||
March 31, 2016 |
Hierarchy Level | Cost | Gains | Losses | Value | |||||||||||||
Short-term investments |
1 | $ | 34,322 | $ | — | $ | — | $ | 34,322 | |||||||||
Fixed maturities: |
||||||||||||||||||
U.S. governmental securities |
2 | 190 | 16 | (1 | ) | 205 | ||||||||||||
Corporate debt securities |
2 | 22,635 | 134 | (1,311 | ) | 21,458 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total fixed maturities |
22,825 | 150 | (1,312 | ) | 21,663 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Mutual funds—debt securities |
1 | 190,212 | 1,804 | (6,713 | ) | 185,303 | ||||||||||||
Mutual funds—equity securities |
1 | 68,471 | 1,457 | (4,338 | ) | 65,590 | ||||||||||||
Equity securities |
1 | 2,185 | 577 | (8 | ) | 2,754 | ||||||||||||
Other invested assets |
2 | 10 | 4 | — | 14 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total managed investments |
$ | 318,025 | $ | 3,992 | $ | (12,371 | ) | $ | 309,646 | |||||||||
|
|
|
|
|
|
|
|
|||||||||||
Assets acquired via acquisition |
561 | — | — | 561 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 318,586 | $ | 3,992 | $ | (12,371 | ) | $ | 310,207 | |||||||||
|
|
|
|
|
|
|
|
|||||||||||
December 31, 2015 |
Fair Value Hierarchy Level |
Cost | Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value | |||||||||||||
Short-term investments |
1 | $ | 36,618 | $ | — | $ | — | $ | 36,618 | |||||||||
Fixed maturities: |
||||||||||||||||||
U.S. governmental securities |
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 | |||||||||
|
|
|
|
|
|
|
|
The contractual maturities of debt securities as of March 31, 2016 were as follows below:
Less than 1 year |
1 year through 5 years |
6 years through 10 years |
More than 10 years |
|||||||||||||
U.S. governmental securities |
$ | 112 | $ | — | $ | 39 | $ | 54 | ||||||||
Corporate debt securities |
148 | 16,914 | 4,396 | — | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total fixed maturities |
$ | 260 | $ | 16,914 | $ | 4,435 | $ | 54 | ||||||||
|
|
|
|
|
|
|
|
An aging of unrealized losses on the Partnership’s investments in debt and equity securities within the perpetual care trusts as of March 31, 2016 and December 31, 2015 is presented below (in thousands):
Less than 12 months | 12 Months or more | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
March 31, 2016 |
Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
Fixed maturities: |
||||||||||||||||||||||||
U.S. governmental securities |
$ | — | $ | — | $ | 26 | $ | 1 | $ | 26 | $ | 1 | ||||||||||||
Corporate debt securities |
13,119 | 956 | 3,288 | 355 | 16,407 | 1,311 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total fixed maturities |
13,119 | 956 | 3,314 | 356 | 16,433 | 1,312 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Mutual funds—debt securities |
77,522 | 4,128 | 52,063 | 2,585 | 129,585 | 6,713 | ||||||||||||||||||
Mutual funds—equity securities |
41,149 | 3,751 | 3,478 | 587 | 44,627 | 4,338 | ||||||||||||||||||
Equity securities |
492 | 8 | — | — | 492 | 8 | ||||||||||||||||||
Other invested assets |
— | — | — | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 132,282 | $ | 8,843 | $ | 58,855 | $ | 3,528 | $ | 191,137 | $ | 12,371 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months | 12 Months or more | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
December 31, 2015 |
Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
Fixed maturities: |
||||||||||||||||||||||||
U.S. governmental securities |
$ | — | $ | — | $ | 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 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the Partnership’s merchandise trust activities for the three months ended March 31, 2016 is presented below (in thousands):
Three months ended March 31, | ||||||||
2016 | 2015 | |||||||
Balance, beginning of period |
$ | 464,676 | $ | 484,820 | ||||
Contributions |
13,305 | 16,540 | ||||||
Distributions |
(7,797 | ) | (11,537 | ) | ||||
Interest and dividends |
5,773 | 3,874 | ||||||
Capital gain distributions |
219 | — | ||||||
Realized gains and losses |
1,270 | 5,702 | ||||||
Taxes |
(37 | ) | (15 | ) | ||||
Fees |
(383 | ) | (737 | ) | ||||
Unrealized change in fair value |
2,982 | (10,640 | ) | |||||
|
|
|
|
|||||
Balance, end of period |
$ | 480,008 | $ | 488,007 | ||||
|
|
|
|
The cost and market value associated with the assets held in the merchandise trusts as of March 31, 2016 and December 31, 2015 were as follows (in thousands):
Gross | Gross | |||||||||||||||||
Fair Value | Unrealized | Unrealized | Fair | |||||||||||||||
March 31, 2016 |
Hierarchy Level | Cost | Gains | Losses | Value | |||||||||||||
Short-term investments |
1 | $ | 54,308 | $ | — | $ | — | $ | 54,308 | |||||||||
Fixed maturities: |
||||||||||||||||||
U.S. governmental securities |
2 | 97 | 8 | (1 | ) | 104 | ||||||||||||
Corporate debt securities |
2 | 9,963 | 35 | (758 | ) | 9,240 | ||||||||||||
Other debt securities |
2 | 7,150 | 22 | — | 7,172 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total fixed maturities |
17,210 | 65 | (759 | ) | 16,516 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Mutual funds—debt securities |
1 | 235,915 | 2,339 | (8,818 | ) | 229,436 | ||||||||||||
Mutual funds—equity securities |
1 | 139,336 | 1,650 | (12,062 | ) | 128,924 | ||||||||||||
Equity securities |
1 | 41,571 | 1,087 | (4,852 | ) | 37,806 | ||||||||||||
Other invested assets |
2 | 2,063 | 2 | (355 | ) | 1,710 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total managed investments |
$ | 490,403 | $ | 5,143 | $ | (26,846 | ) | $ | 468,700 | |||||||||
|
|
|
|
|
|
|
|
|||||||||||
Assets acquired via acquisition |
3,075 | — | — | 3,075 | ||||||||||||||
West Virginia Trust Receivable |
8,233 | — | — | 8,233 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 501,711 | $ | 5,143 | $ | (26,846 | ) | $ | 480,008 | |||||||||
|
|
|
|
|
|
|
|
|||||||||||
Fair Value | Gross Unrealized |
Gross Unrealized |
Fair | |||||||||||||||
December 31, 2015 |
Hierarchy Level | Cost | Gains | Losses | Value | |||||||||||||
Short-term investments |
1 | $ | 35,150 | $ | — | $ | — | $ | 35,150 | |||||||||
Fixed maturities: |
||||||||||||||||||
U.S. governmental securities |
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 | |||||||||
|
|
|
|
|
|
|
|
The contractual maturities of debt securities as of March 31, 2016 were as follows below:
Less than 1 year |
1 year through 5 years |
6 years through 10 years |
More than 10 years |
|||||||||||||
U.S. governmental securities |
$ | 10 | $ | 12 | $ | 82 | $ | — | ||||||||
Corporate debt securities |
— | 7,008 | 2,232 | — | ||||||||||||
Other debt securities |
3,680 | 3,492 | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total fixed maturities |
$ | 3,690 | $ | 10,512 | $ | 2,314 | $ | — | ||||||||
|
|
|
|
|
|
|
|
An aging of unrealized losses on the Partnership’s investments in debt and equity securities within the merchandise trusts as of March 31, 2016 and December 31, 2015 is presented below (in thousands):
Less than 12 months | 12 Months or more | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
March 31, 2016 |
Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
Fixed maturities: |
||||||||||||||||||||||||
U.S. governmental securities |
$ | 7 | $ | — | $ | 26 | $ | 1 | $ | 33 | $ | 1 | ||||||||||||
Corporate debt securities |
6,671 | 587 | 1,525 | 171 | 8,196 | 758 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total fixed maturities |
6,678 | 587 | 1,551 | 172 | 8,229 | 759 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Mutual funds—debt securities |
116,564 | 5,634 | 39,450 | 3,184 | 156,014 | 8,818 | ||||||||||||||||||
Mutual funds—equity securities |
79,319 | 10,473 | 6,721 | 1,589 | 86,040 | 12,062 | ||||||||||||||||||
Equity securities |
27,142 | 4,328 | 1,722 | 524 | 28,864 | 4,852 | ||||||||||||||||||
Other invested assets |
— | — | 22 | 355 | 22 | 355 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 229,703 | $ | 21,022 | $ | 49,466 | $ | 5,824 | $ | 279,169 | $ | 26,846 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months | 12 Months or more | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
December 31, 2015 |
Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
Fixed maturities: |
||||||||||||||||||||||||
U.S. governmental securities |
$ | — | $ | — | $ | 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 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table reflects the components of intangible assets as of March 31, 2016 and December 31, 2015 (in thousands):
March 31, 2016 | December 31, 2015 | |||||||||||||||||||||||
Gross Carrying | Accumulated | Net Intangible | Gross Carrying | Accumulated | Net Intangible | |||||||||||||||||||
Amount | Amortization | Asset | Amount | Amortization | Asset | |||||||||||||||||||
Lease and management agreements |
$ | 59,758 | $ | (1,826 | ) | $ | 57,932 | $ | 59,758 | $ | (1,577 | ) | $ | 58,181 | ||||||||||
Underlying contract value |
6,239 | (1,053 | ) | 5,186 | 6,239 | (1,014 | ) | 5,225 | ||||||||||||||||
Non-compete agreements |
5,486 | (3,197 | ) | 2,289 | 5,656 | (3,112 | ) | 2,544 | ||||||||||||||||
Other intangible assets |
1,439 | (192 | ) | 1,247 | 1,439 | (180 | ) | 1,259 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total intangible assets |
$ | 72,922 | $ | (6,268 | ) | $ | 66,654 | $ | 73,092 | $ | (5,883 | ) | $ | 67,209 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The following is estimated amortization expense related to intangible assets with finite lives for the periods noted below (in thousands):
2016 (remainder) |
$ | 1,625 | ||
2017 |
$ | 1,956 | ||
2018 |
$ | 1,708 | ||
2019 |
$ | 1,440 | ||
2020 |
$ | 1,266 |
|
Total debt consists of the following at the dates indicated (in thousands):
March 31, 2016 | December 31, 2015 | |||||||
Credit Facility: |
||||||||
Working Capital Draws |
$ | 106,500 | $ | 105,000 | ||||
Acquisition Draws |
44,500 | 44,500 | ||||||
7.875% Senior Notes, due June 2021 |
172,292 | 172,186 | ||||||
Notes payable—acquisition debt |
642 | 687 | ||||||
Notes payable—acquisition non-competes |
1,356 | 1,629 | ||||||
Insurance and vehicle financing |
1,386 | 2,336 | ||||||
Less deferred financing costs, net of accumulated amortization |
(7,081 | ) | (7,499 | ) | ||||
|
|
|
|
|||||
Total debt |
319,595 | 318,839 | ||||||
Less current maturities |
(1,459 | ) | (2,440 | ) | ||||
|
|
|
|
|||||
Total long-term debt |
$ | 318,136 | $ | 316,399 | ||||
|
|
|
|
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 | % |
|
At March 31, 2016 and December 31, 2015, deferred revenues, net, consisted of the following (in thousands):
March 31, 2016 | December 31, 2015 | |||||||
Deferred revenue |
$ | 548,515 | $ | 531,905 | ||||
Deferred merchandise trust revenue |
85,664 | 80,294 | ||||||
Deferred merchandise trust unrealized gains (losses) |
(21,703 | ) | (24,685 | ) | ||||
Deferred pre-acquisition margin |
141,584 | 142,672 | ||||||
Deferred cost of goods sold |
(94,330 | ) | (92,650 | ) | ||||
|
|
|
|
|||||
Deferred revenues, net |
$ | 659,730 | $ | 637,536 | ||||
|
|
|
|
|||||
Deferred selling and obtaining costs |
$ | 114,921 | $ | 111,542 |
|
The following table sets forth the UAR award activity for the three months ended March 31, 2016 and 2015 respectively:
Three months ended March 31, | ||||||||
2016 | 2015 | |||||||
Outstanding, beginning of period |
66,793 | 123,000 | ||||||
Exercised |
— | (10,654 | ) | |||||
|
|
|
|
|||||
Outstanding, end of period (1) |
66,793 | 112,346 | ||||||
|
|
|
|
|||||
Exercisable, end of period |
39,062 | 53,969 |
(1) | Based on the closing price of the common units on March 31, 2016 the estimated intrinsic value of the outstanding UARs was less than $0.1 million. The weighted average remaining contractual life for outstanding UAR awards at March 31, 2016 was 2.3 years. |
The following table sets forth the 2014 LTIP phantom unit award activity for the three months ended March 31, 2016 and 2015, respectively:
Three months ended March 31, | ||||||||
2016 | 2015 | |||||||
Outstanding, beginning of period |
102,661 | 2,189 | ||||||
Granted (1) |
2,506 | 2,052 | ||||||
|
|
|
|
|||||
Outstanding, end of period (2) |
105,167 | 4,241 | ||||||
|
|
|
|
(1) | The weighted-average grant date fair value for the unit awards on the date of grant was $25.88 and $28.69 for three months ended March 31, 2016 and 2015, respectively. The intrinsic value of unit awards vested during both the three months ended March 31, 2016 and 2015 was $0.1 million. |
(2) | Based on the closing price of the common units on March 31, 2016, the estimated intrinsic value of the outstanding unit awards was $2.6 million at March 31, 2016. |
The following table sets forth the 2004 LTIP activity related to DERs credited as phantom units to the participant’s accounts for the three months ended March 31, 2016 and 2015 respectively:
Three months ended March 31, | ||||||||
2016 | 2015 | |||||||
Outstanding, beginning of period |
184,457 | 169,122 | ||||||
Granted (1) |
4,491 | 3,671 | ||||||
|
|
|
|
|||||
Outstanding, end of period (2) |
188,948 | 172,793 | ||||||
|
|
|
|
(1) | The weighted-average fair value for the phantom units credited was $26.25 and $28.02 for the three months ended March 31, 2016 and 2015 respectively. The intrinsic value of phantom unit awards vested during both the three months ended March 31, 2016 and 2015 was $0.1 million. |
(2) | Based on the closing price of the common units on March 31, 2016, the estimated intrinsic value of the outstanding unit awards was $4.6 million at March 31, 2016. |
|
In connection with the Partnership’s 2014 lease and management agreements with the Archdiocese of Philadelphia, it has committed to pay aggregate fixed rent of $36.0 million in the following amounts:
Lease Years 1-5 |
None | |
Lease Years 6-20 |
$1,000,000 per Lease Year | |
Lease Years 21-25 |
$1,200,000 per Lease Year | |
Lease Years 26-35 |
$1,500,000 per Lease Year | |
Lease Years 36-60 |
None |
|
CONDENSED CONSOLIDATING BALANCE SHEETS
|
||||||||||||||||||||||||
Subsidiary | Guarantor | Non-Guarantor | ||||||||||||||||||||||
March 31, 2016 | Parent | Issuer | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
Assets |
||||||||||||||||||||||||
Current assets: |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | — | $ | — | $ | 9,935 | $ | 3,551 | $ | — | $ | 13,486 | ||||||||||||
Other current assets |
— | 4,946 | 76,935 | 14,394 | — | 96,275 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total current assets |
— | 4,946 | 86,870 | 17,945 | — | 109,761 | ||||||||||||||||||
Long-term accounts receivable |
— | 2,836 | 80,696 | 11,559 | — | 95,091 | ||||||||||||||||||
Cemetery property and equipment |
— | 1,030 | 414,565 | 31,156 | — | 446,751 | ||||||||||||||||||
Merchandise trusts |
— | — | — | 480,008 | — | 480,008 | ||||||||||||||||||
Perpetual care trusts |
— | — | — | 310,207 | — | 310,207 | ||||||||||||||||||
Deferred selling and obtaining costs |
— | 5,967 | 93,893 | 15,061 | — | 114,921 | ||||||||||||||||||
Goodwill and intangible assets |
— | — | 77,917 | 58,588 | — | 136,505 | ||||||||||||||||||
Other assets |
— | — | 13,062 | 2,182 | — | 15,244 | ||||||||||||||||||
Investments in and amounts due from affiliates eliminated upon consolidation |
241,565 | 149,926 | 441,455 | — | (832,946 | ) | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total assets |
$ | 241,565 | $ | 164,705 | $ | 1,208,458 | $ | 926,706 | $ | (832,946 | ) | $ | 1,708,488 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Liabilities and Equity |
||||||||||||||||||||||||
Current liabilities |
$ | — | $ | 24 | $ | 40,974 | $ | 696 | $ | — | $ | 41,694 | ||||||||||||
Long-term debt, net of deferred financing costs |
67,932 | 104,360 | 145,844 | — | — | 318,136 | ||||||||||||||||||
Deferred revenues, net |
— | 27,897 | 557,831 | 74,002 | — | 659,730 | ||||||||||||||||||
Merchandise liability |
— | 5,420 | 155,195 | 11,352 | — | 171,967 | ||||||||||||||||||
Perpetual care trust corpus |
— | — | — | 310,207 | — | 310,207 | ||||||||||||||||||
Other long-term liabilities |
— | — | 23,436 | 9,685 | — | 33,121 | ||||||||||||||||||
Due to affiliates |
— | — | 174,315 | 457,994 | (632,309 | ) | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities |
67,932 | 137,701 | 1,097,595 | 863,936 | (632,309 | ) | 1,534,855 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Partners’ capital |
173,633 | 27,004 | 110,863 | 62,770 | (200,637 | ) | 173,633 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total liabilities and partners’ capital |
$ | 241,565 | $ | 164,705 | $ | 1,208,458 | $ | 926,706 | $ | (832,946 | ) | $ | 1,708,488 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiary | Guarantor | Non-Guarantor | ||||||||||||||||||||||
December 31, 2015 | Parent | Issuer | Subsidiaries | 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 | ||||||||||||||||||
Investments in and amounts due from affiliates eliminated upon consolidation |
251,678 | 162,011 | 428,704 | — | (842,393 | ) | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
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 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 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
|
||||||||||||||||||||||||
Subsidiary | Guarantor | Non-Guarantor | ||||||||||||||||||||||
Three months ended March 31, 2016 | Parent | Issuer | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
Total revenues |
$ | — | $ | 1,198 | $ | 62,077 | $ | 13,671 | $ | (2,364 | ) | $ | 74,582 | |||||||||||
Total cost and expenses |
— | (2,551 | ) | (63,504 | ) | (11,618 | ) | 2,364 | (75,309 | ) | ||||||||||||||
Other income (loss) |
— | — | (882 | ) | — | — | (882 | ) | ||||||||||||||||
Net loss from equity investment in subsidiaries |
(6,301 | ) | (6,798 | ) | — | — | 13,099 | — | ||||||||||||||||
Interest expense |
(1,358 | ) | (2,087 | ) | (2,154 | ) | (191 | ) | — | (5,790 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income (loss) before income taxes |
(7,659 | ) | (10,238 | ) | (4,463 | ) | 1,862 | 13,099 | (7,399 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income tax benefit (expense) |
— | — | (260 | ) | — | — | (260 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income (loss) |
$ | (7,659 | ) | $ | (10,238 | ) | $ | (4,723 | ) | $ | 1,862 | $ | 13,099 | $ | (7,659 | ) | ||||||||
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|
|
|
|
|
|
|
|
|
|
|
Subsidiary | Guarantor | Non-Guarantor | ||||||||||||||||||||||
Three months ended March 31, 2015 | Parent | Issuer | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
Total revenues |
$ | — | $ | 1,273 | $ | 58,403 | $ | 10,662 | $ | (2,921 | ) | $ | 67,417 | |||||||||||
Total cost and expenses |
— | (2,425 | ) | (60,043 | ) | (11,225 | ) | 2,921 | (70,772 | ) | ||||||||||||||
Net loss from equity investment in subsidiaries |
(7,525 | ) | (6,604 | ) | — | — | 14,129 | — | ||||||||||||||||
Interest expense |
(1,358 | ) | (2,087 | ) | (1,841 | ) | (177 | ) | — | (5,463 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income (loss) before income taxes |
(8,883 | ) | (9,843 | ) | (3,481 | ) | (740 | ) | 14,129 | (8,818 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income tax benefit (expense) |
— | — | (65 | ) | — | — | (65 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income (loss) |
$ | (8,883 | ) | $ | (9,843 | ) | $ | (3,546 | ) | $ | (740 | ) | $ | 14,129 | $ | (8,883 | ) | |||||||
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|
|
|
|
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|
|
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
|
||||||||||||||||||||||||
Subsidiary | Guarantor | Non-Guarantor | ||||||||||||||||||||||
Three months ended March 31, 2016 | Parent | Issuer | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
Net cash provided by (used in) operating activities |
$ | 2,624 | $ | 5 | $ | 7,764 | $ | 910 | $ | (6,069 | ) | $ | 5,234 | |||||||||||
Cash Flows From Investing Activities: |
||||||||||||||||||||||||
Cash paid for acquisitions and capital expenditures |
— | (5 | ) | (3,774 | ) | (643 | ) | — | (4,422 | ) | ||||||||||||||
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|
|
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|
|
|
|
|
|||||||||||||
Net cash used in investing activities |
— | (5 | ) | (3,774 | ) | (643 | ) | — | (4,422 | ) | ||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash Flows From Financing Activities: |
||||||||||||||||||||||||
Cash distributions |
(21,387 | ) | — | — | — | — | (21,387 | ) | ||||||||||||||||
Payments to affiliates |
— | — | (6,069 | ) | — | 6,069 | — | |||||||||||||||||
Net borrowings and repayments of debt |
— | — | 145 | — | — | 145 | ||||||||||||||||||
Proceeds from issuance of common units |
18,763 | — | — | — | — | 18,763 | ||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash provided by (used in) financing activities |
(2,624 | ) | — | (5,924 | ) | — | 6,069 | (2,479 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net increase (decrease) in cash and cash equivalents |
— | — | (1,934 | ) | 267 | — | (1,667 | ) | ||||||||||||||||
Cash and cash equivalents—Beginning of period |
— | — | 11,869 | 3,284 | — | 15,153 | ||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash and cash equivalents—End of period |
$ | — | $ | — | $ | 9,935 | $ | 3,551 | $ | — | $ | 13,486 | ||||||||||||
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|
|
|
|
|
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|
|
|
Subsidiary | Guarantor | Non-Guarantor | ||||||||||||||||||||||
Three months ended March 31, 2015 | Parent | Issuer | Subsidiaries | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||||
Net cash provided by (used in) operating activities |
$ | 17,948 | $ | 104 | $ | 8,699 | $ | 495 | $ | (21,393 | ) | $ | 5,853 | |||||||||||
Cash Flows From Investing Activities: |
||||||||||||||||||||||||
Cash paid for acquisitions and capital expenditures |
— | (104 | ) | (2,158 | ) | (553 | ) | — | (2,815 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash used in investing activities |
— | (104 | ) | (2,158 | ) | (553 | ) | — | (2,815 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash Flows From Financing Activities: |
||||||||||||||||||||||||
Cash distributions |
(17,948 | ) | — | — | — | — | (17,948 | ) | ||||||||||||||||
Payments to affiliates |
— | — | (21,393 | ) | — | 21,393 | — | |||||||||||||||||
Net borrowings and repayments of debt |
— | — | 10,940 | — | — | 10,940 | ||||||||||||||||||
Other financing activities |
— | — | (34 | ) | — | — | (34 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net cash provided by (used in) financing activities |
(17,948 | ) | — | (10,487 | ) | — | 21,393 | (7,042 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net increase (decrease) in cash and cash equivalents |
— | — | (3,946 | ) | (58 | ) | — | (4,004 | ) | |||||||||||||||
Cash and cash equivalents—Beginning of period |
— | — | 7,059 | 3,342 | — | 10,401 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash and cash equivalents—End of period |
$ | — | $ | — | $ | 3,113 | $ | 3,284 | $ | — | $ | 6,397 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating segment data for the periods indicated were as follows (in thousands):
Three months ended March 31, | ||||||||
2016 | 2015 | |||||||
Cemetery Operations: |
||||||||
Revenues |
$ | 58,259 | $ | 52,157 | ||||
Operating costs and expenses |
(48,193 | ) | (46,587 | ) | ||||
Depreciation and amortization |
(1,970 | ) | (1,906 | ) | ||||
|
|
|
|
|||||
Segment income |
$ | 8,096 | $ | 3,664 | ||||
|
|
|
|
|||||
Funeral Homes: |
||||||||
Revenues |
$ | 16,323 | $ | 15,260 | ||||
Operating costs and expenses |
(13,740 | ) | (12,150 | ) | ||||
Depreciation and amortization |
(877 | ) | (799 | ) | ||||
|
|
|
|
|||||
Segment income |
$ | 1,706 | $ | 2,311 | ||||
|
|
|
|
|||||
Reconciliation of segment income to net loss: |
||||||||
Cemeteries |
$ | 8,096 | $ | 3,664 | ||||
Funeral homes |
1,706 | 2,311 | ||||||
|
|
|
|
|||||
Total segment income |
9,802 | 5,975 | ||||||
|
|
|
|
|||||
Corporate overhead |
(10,311 | ) | (9,083 | ) | ||||
Corporate depreciation and amortization |
(218 | ) | (247 | ) | ||||
Other gains (losses), net |
(882 | ) | — | |||||
Interest expense |
(5,790 | ) | (5,463 | ) | ||||
Income tax benefit (expense) |
(260 | ) | (65 | ) | ||||
|
|
|
|
|||||
Net loss |
$ | (7,659 | ) | $ | (8,883 | ) | ||
|
|
|
|
|||||
Capital expenditures: |
||||||||
Cemeteries |
$ | 1,941 | $ | 2,566 | ||||
Funeral homes |
451 | 175 | ||||||
Corporate |
2,168 | 74 | ||||||
|
|
|
|
|||||
Total capital expenditures |
$ | 4,560 | $ | 2,815 | ||||
|
|
|
|
|||||
March 31, 2016 | December 31, 2015 | |||||||
Balance sheet information: |
||||||||
Assets: |
||||||||
Cemetery Operations |
$ | 1,492,486 | $ | 1,473,694 | ||||
Funeral Homes |
194,456 | 190,443 | ||||||
Corporate |
21,546 | 21,988 | ||||||
|
|
|
|
|||||
Total assets |
$ | 1,708,488 | $ | 1,686,125 | ||||
|
|
|
|
|||||
Goodwill: |
||||||||
Cemetery Operations |
$ | 25,320 | $ | 25,320 | ||||
Funeral Homes |
44,531 | 44,531 | ||||||
|
|
|
|
|||||
Total goodwill |
$ | 69,851 | $ | 69,851 | ||||
|
|
|
|
|
|
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