ITEM 7.
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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As discussed in the Explanatory Note to this Form
10-K
and Note 2,
Restatement of Previously
Issued Consolidated Financial Statements,
in the Partnerships consolidated financial statements included in Item 8 to this Form
10-K,
we are restating the consolidated financial statements
of the Partnership as of December 31, 2015 and for each of the two years in the period ended December 31, 2015. Accordingly, the discussion and analysis below for the years ended December 31, 2015 and 2014 has been revised to reflect
the effects of the Restatement. The revised discussion and analysis as it pertains to the restated periods presented below provides information to assist in understanding our financial condition and results of operations, and should be read in
conjunction with the Partnerships selected consolidated financial data included in Item 6 and the Partnerships consolidated financial statements included in Item 8.
Certain statements contained in this Form
10-K,
including, but not limited to, information regarding
our operating activities, the plans and objectives of our management, and assumptions regarding our future performance and plans are forward-looking statements. When used in this Form
10-K,
the words
believes, anticipates, expects and similar expressions are intended to identify forward-looking statements. Forward-looking statements are based on managements expectations and estimates. These statements
are neither promises nor guarantees and are made subject to certain risks and uncertainties that could cause actual results to differ materially from the results stated or implied in this Form
10-K.
We believe
the assumptions underlying the consolidated financial statements are reasonable.
Our major risks are related to uncertainties associated
with the cash flow from
pre-need
and
at-need
sales, trusts and financings, which may impact our ability to meet our financial projections, service our debt or
pay distributions at current or any greater amounts, as well as uncertainties associated with our ability to maintain an effective system of internal control over financial reporting and disclosure controls and procedures.
Our additional risks and uncertainties include, but are not limited to, the following: uncertainties associated with future revenue and
revenue growth; uncertainties associated with the integration or anticipated benefits of recent acquisitions or any future acquisitions; our ability to complete and fund additional acquisitions; the effect of economic downturns; the impact of our
significant leverage on our operating plans; the decline in the fair value of certain equity and debt securities held in trusts; our ability to attract, train and retain an adequate number of sales people; uncertainties associated with the volume
and timing of
pre-need
sales of cemetery services and products; increased use of cremation; changes in the death rate; changes in the political or regulatory environments, including potential changes in tax
accounting and trust policies; our ability to successfully implement a strategic plan relating to achieving operating improvements, strong cash flows and further deleveraging; our ability to successfully compete in the cemetery and funeral home
industry; litigation or legal proceedings that could expose us to significant liabilities and damage our reputation; the effects of cyber security attacks due to our significant reliance on information technology; uncertainties relating to the
financial condition of third-party insurance companies that fund our
pre-need
funeral contracts; and various other uncertainties associated with the death care industry and our operations in particular.
Our risks and uncertainties are more particularly described in Item 1A. Risk Factors of this Form
10-K.
Readers are cautioned not to place undue reliance on forward-looking statements included in this Form
10-K,
which speak only as of the date the statements were made.
Except as required by applicable laws, we undertake no obligation to update or revise forward-looking statements, whether as a result of new information, future events or otherwise.
BUSINESS OVERVIEW
We are a
publicly-traded Delaware master-limited partnership (MLP) and provider of funeral and cemetery products and services in the death care industry in the United States. As of December 31, 2016, we
42
operated 316 cemeteries in 27 states and Puerto Rico, of which 285 are owned and 31 are operated under lease, management or operating agreements. We also owned and operated 100 funeral homes in
18 states and Puerto Rico.
Our revenue is derived from the Cemetery Operations, Funeral Home Operations and investment income earned on
cash proceeds received from sales of cemetery and funeral home merchandise and services required to be maintained in trust by state law. Our cemetery revenues are principally derived from sales of interment rights, merchandise and services, and our
funeral home revenues are principally derived from sales of caskets and related items and funeral home services including family consultation, the removal and preparation of remains and the use of funeral home facilities for visitation and prayer
services. These sales occur both at the time of death, which we refer to as
at-need,
and prior to the time of death, which we refer to as
pre-need.
Our funeral home
operations also include revenues related to the sale of term and final expense whole life insurance on agency basis. We earn and recognize commission-related revenue streams from the sales of these policies.
The
pre-need
sales enhance our financial position by providing a backlog of future revenue from both
trust and insurance-funded
pre-need
funeral and cemetery sales at December 31, 2016.
Pre-need
arrangements provide us with a current opportunity to secure future
market share while deterring the customer from going to a competitor in the future. We believe it adds to the stability and predictability of our revenues and cash flows.
Pre-need
sales are typically sold on
an installment plan. While revenue on the majority of
pre-need
funeral sales is deferred until the time of need, sales of
pre-need
cemetery property interment rights
provide opportunities for full current revenue recognition (to the extent we collect 10% from the customer and the plot is fully developed).
We also earn investment income on proceeds received from the sale of interment rights and
pre-need
sales of cemetery and funeral home merchandise and services, which are generally required to be deposited into trusts. For sales of interment rights, a portion of the cash proceeds received are required to be deposited into a perpetual care trust.
While the principal balance of the perpetual care trust must remain in the trust in perpetuity, we recognize investment income on such assets as revenue, excluding realized gains and losses from the sale of trust assets. For sales of cemetery and
funeral home merchandise and services, a portion of the cash proceeds received are required to be deposited into a merchandise trust until the merchandise is delivered or the services are performed, at which time the funds so deposited, along with
the associated investment income, may be withdrawn. Investment income from assets held in the merchandise trust is recognized as revenue when withdrawn.
Our revenue depends upon the demand for funeral and cemetery services and merchandise, which can be influenced by a variety of factors, some
of which are beyond our control including: demographic trends including population growth, average age, death rates and number of deaths. Our operating results and cash flows could also be influenced by our ability to remain relevant to the
customer. We provide a variety of unique product and service offerings to meet the needs of our client families. The mix of services could influence operating results, as it influences the average revenue per contract. Expense management including
controlling salaries, merchandise costs, and other expense categories could also impact operating results and cash flows. Lastly, economic conditions, legislative and regulatory changes, and tax law changes, all of which are beyond our control could
impact our operating results including cash flow.
For further discussion of our key operating metrics, see our Results of Operations and
Liquidity and Capital Resources sections below.
RECENT DEVELOPMENTS
Acquisition Activity
During the
year ended December 31, 2016, we acquired 10 cemeteries and a granite company in Wisconsin and 3 funeral homes in Florida for an aggregate purchase price of $10.6 million.
43
Issuance of Common Units
On December 30, 2016, the Partnership sold to GP Holdings, the parent of the Partnerships general partner, 2,332,878 common units
representing limited partner interests in the Partnership at an aggregate purchase price of $20.0 million (i.e., $8.5731 per common unit, which was equal to the volume-weighted average trading price of a common unit for the twenty trading days
ending on and including December 30, 2016) pursuant to a common unit purchase agreement.
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. Additionally, the underwriters exercised their option to purchase an additional 300,000 common
units. The offering resulted in net proceeds, after deducting underwriting discounts and offering expenses, of $51.5 million. The proceeds from the offering were used to pay down outstanding indebtedness under our credit facility.
ATM Equity Program
On
November 19, 2015, we entered into an equity distribution agreement (ATM Equity Program) with a group of banks (the Agents) whereby we may sell, from time to time, common units representing limited partner interests
having an aggregate offering price of up to $100,000,000. Sales of common units, if any, may be made in negotiated transactions or transactions that are deemed to be at the market offerings as defined in Rule 415 of the Securities Act,
including sales made directly on the New York Stock Exchange, the existing trading market for the common units, or sales made to or through the market maker other than on an exchange or through an electronic communications network. We will pay each
of the Agents a commission, which in each case shall not be more than 2.0% of the gross sales price of common units sold through such Agent. During the year ended December 31, 2016, we issued 903,682 common units under the ATM Equity Program
for net proceeds of $23.0 million.
SUBSEQUENT EVENTS
On January 27, 2017, we announced a quarterly cash distribution of $0.33 per common unit pertaining to the results for the fourth quarter
of 2016. The distribution was paid on February 14, 2017 to common unit holders of record as of the close of business on February 7, 2017. On April 28, 2017, we announced a quarterly cash distribution of $0.33 per common unit
pertaining to the results of the first quarter of 2017. The distribution was paid on May 15, 2017 to common unit holders of record as of the close of business on May 8, 2017. A part of or all of these quarterly cash distributions may be
deemed to be a return of capital for our limited partners if such quarterly cash distribution, when combined with all other cash distributions made during the calendar year, exceeds the partners share of taxable income for the corresponding
period, depending upon the individual limited partners specific tax position. Because the Partnerships general and limited partner interests had cumulative net losses as of the end of each period, the distribution represented a return of
capital to those interests in accordance with the accounting principles generally accepted in the United States of America (GAAP).
On March 15, 2017, the Borrowers, Capital One, as Administrative Agent and acting in accordance with the written consent of the Required
Lenders, entered into the First Amendment to Credit Agreement. Those parties subsequently entered into a Second Amendment and Limited Waiver on July 26, 2017 and a Third Amendment and Limited Waiver effective as of August 15, 2017. The
cumulative effect of these amendments was to amend the Original Credit Agreement as follows:
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extend the deadline by which the Operating Company was required to deliver to the Administrative Agent the Partnerships audited financial statements for the year ended December 31, 2016 (2016 Financial
Statements) to September 15, 2017;
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extend the deadline by which the Operating Company is required to deliver to the Administrative Agent the
Partnerships unaudited financial statements for the quarter ended March 31, 2017 (the Q1
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44
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2017 Financial Statements) to no later than forty-five (45) days after the date on which the Operating Company delivers the 2016 Financial Statements to the Administrative Agent;
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extend the deadline by which the Operating Company is required to deliver to the Administrative Agent the Partnerships unaudited financial statements for the quarter ended June 30, 2017 to no later than
forty-five (45) days after the date on which the Operating Company delivers the Q1 2017 Financial Statements to the Administrative Agent, but not later than December 15, 2017;
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require that, until the 2016 Financial Statements have been delivered to the Administrative Agent, the Operating Company deliver to the Administrative Agent financial statements within 35 days after the end of each
month for the previous month and
year-to-date,
certified by a Financial Officer of the Operating Company;
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increase the maximum Consolidated Leverage Ratio to 4.25:1.00 through September 30, 2017, which ratio will revert to 4.00:1.00 effective October 1, 2017, subject to the right under the Credit Agreement to
increase the Consolidated Leverage Ratio to a maximum of 4.25:1.00 in connection with consummation of a Designated Acquisition;
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amend the definition of Applicable Rate to (a) limit Category 4 to Consolidated Leverage Ratios greater than 3.50:1.00 but less than or equal to 4:00:1.00, (b) add new Category 5
which would apply in the event the Consolidated Leverage Ratio exceeds 4:00:1.00, in which event the Eurodollar Spread for Revolving Loans, the Base Rate Spread for Revolving Loans and the Commitment Fee Rate would increase to 3.75%, 2.75% and
0.50%, respectively, and (c) provide that Category 5 shall be applicable until the Operating Company delivers to the Administrative Agent the 2016 Financial Statements, the Q1 2017 Financial Statements and the corresponding compliance
certificates and shall thereafter again be applicable commencing three Business Days after the Operating Company fails to timely deliver to the Administrative Agent any required financial statements under the Credit Agreement and continuing until
the third Business Day after such financial statements are so delivered;
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until January 1, 2018, prohibit the Partnership from increasing the regularly scheduled quarterly cash distributions permitted to be made to its partners under the Credit Agreement unless, at the time such
distribution is declared and on a pro forma basis after giving effect to the payment of any such distribution the Consolidated Leverage Ratio is no greater than 3.75:1.00;
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allow up to an aggregate of $53.0 million in realized losses in the Loan Parties investment portfolio for all periods to be added back for purposes of calculating Consolidated EBITDA; and
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clarify that the Partnership is entitled to add back extraordinary, unusual or
non-recurring
losses, charges or expenses in calculating Consolidated EBITDA for the first two
quarters of 2017, subject to a limit of $14.3 million for the period ended June 30, 2017. The Partnership intends to seek further clarification from its lenders with respect to these adjustments for periods after the second quarter of
2017.
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GENERAL TRENDS AND OUTLOOK
We expect our business to be affected by key trends in the death care industry, based upon assumptions made by us and information currently
available. Death care industry factors affecting our financial position and results of operations include, but are not limited to, demographic trends in population growth and average age, death rates, and cremation trends. In addition, we are
subject to fluctuations in the fair value of equity and fixed-maturity debt securities held in our trusts. These values can be negatively impacted by contractions in the credit market and overall downturns in economic activity. Our ability to make
payments on our debt and our ability to make cash distributions to our unitholders depends on our success at managing operations with respect to these industry trends. To the extent our underlying assumptions about or interpretations of available
information prove to be incorrect, our actual results may vary materially from our expected results.
45
RESULTS OF OPERATIONS
We have two distinct reportable segments, Cemetery Operations and Funeral Home Operations, which are supported by corporate costs and expenses.
Cemetery Operations
Overview
We are currently the second largest owner and operator of cemeteries in the United States. As of December 31, 2016, we operated 316
cemeteries in 27 states and Puerto Rico. We own 285 of these cemeteries and we manage or operate the remaining 31 under lease, operating or management agreements. Revenues from Cemetery Operations accounted for approximately 81.5% of our total
revenues during the year ended December 31, 2016.
Operating Results
The following table presents operating results for our Cemetery Operations for the respective reporting periods (in thousands):
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Years Ended December 31,
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2016
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2015
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2014
|
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|
|
|
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(As restated, see Note 2)
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Merchandise
|
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$
|
150,439
|
|
|
$
|
143,543
|
|
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$
|
142,568
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Services
|
|
|
57,781
|
|
|
|
59,935
|
|
|
|
54,543
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Interest income
|
|
|
8,949
|
|
|
|
8,671
|
|
|
|
7,628
|
|
Investment and other
|
|
|
48,557
|
|
|
|
50,098
|
|
|
|
46,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total revenues
|
|
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265,726
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|
|
|
262,247
|
|
|
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251,583
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|
|
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Cost of goods sold
|
|
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45,577
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|
|
|
50,870
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|
|
|
45,847
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Cemetery expense
|
|
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72,736
|
|
|
|
71,296
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|
|
|
64,672
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Selling expense
|
|
|
67,267
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|
|
|
59,569
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|
|
|
55,713
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General and administrative expense
|
|
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37,749
|
|
|
|
37,451
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|
|
|
35,156
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Depreciation and amortization
|
|
|
8,597
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|
|
|
7,766
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|
|
|
6,904
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|
|
|
|
|
|
|
|
|
|
|
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Total costs and expenses
|
|
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231,926
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|
|
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226,952
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|
|
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208,292
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|
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Segment income
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|
$
|
33,800
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|
|
$
|
35,295
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|
|
$
|
43,291
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|
|
|
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|
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|
|
|
|
|
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Year Ended December 31, 2016 Compared with the Year Ended December 31, 2015
Cemetery merchandise revenues were $150.4 million for the year ended December 31, 2016, an increase of $6.9 million from
$143.5 million for the year ended December 31, 2015. The increase was primarily due to marker sales. Cemetery services revenues were $57.8 million for the year ended December 31, 2016, a decrease of $2.1 million from
$59.9 million for the year ended December 31, 2015. This decrease was primarily due to a reduction in revenue related to opening and closing services. Interest income was $8.9 million for the year ended December 31, 2016, an
increase of $0.2 million from $8.7 million for the year ended December 31, 2015, which was primarily due to a larger average accounts receivable balance during calendar year 2016. Investment and other income was $48.6 million for
the year ended December 31, 2016, a decrease of $1.5 million from $50.1 million for the year ended December 31, 2015. This decrease was primarily attributable to a reduction in merchandise trust income, which was
$9.0 million for the year ended December 31, 2016, representing a $3.8 million decrease from $12.8 million earned during the year ended December 31, 2015. A portion of deferred trust income is recognized as underlying
merchandise is delivered or underlying services are performed. The pool of deferred trust revenue had decreased for the year ended December 31, 2016, due to a reduction in net income earned by the merchandise trusts as well as the impairment of
trust assets during the current and prior periods.
46
Perpetual care trust income was $16.7 million for the year ended December 31, 2016, representing a $0.8 million increase from $15.9 million earned during the year ended
December 31, 2015. The increase in perpetual care trust income was attributable to a combination of growth in invested capital throughout 2016 and favorable returns provided by income-producing securities. The remaining $1.5 million
increase in investment and other income was primarily attributable to changes in revenue derived from travel care insurance fees, permanent record fees, document-processing fees and land sales.
Cost of goods sold was $45.6 million for the year ended December 31, 2016, a decrease of $5.3 million from $50.9 million
for the year ended December 31, 2015. This decrease was primarily driven by higher than usual costs during 2015, as a result of a land sale with associated costs of $1.8 million and increases in that period related to the mix of burial
rights and merchandise sold, including additional costs related to increased servicing of contracts assumed in recent acquisitions.
Cemetery expenses were $72.7 million for the year ended December 31, 2016, an increase of $1.4 million from $71.3 million
for the year ended December 31, 2015. This increase was principally due to higher repairs and maintenance expenses during 2016.
Selling expenses were $67.3 million for the year ended December 31, 2016, an increase of $7.7 million from $59.6 million
for the year ended December 31, 2015. This increase was due to a $3.5 million increase in personnel costs, a $2.3 million increase in advertising and marketing expenses, and a $1.9 million increase in training costs.
General and administrative expenses were $37.7 million and $37.5 million, respectively for the years ended December 31, 2016
and December 31, 2015.
Depreciation and amortization expenses were $8.6 million for the year ended December 31, 2016, an
increase of $0.8 million from $7.8 million for the year ended December 31, 2015. The increase was primarily due to additional depreciation and amortization from assets acquired in our recent acquisitions and capital leases entered
into during the fiscal year 2016.
Year Ended December 31, 2015 Compared with the Year Ended December 31, 2014 (Revised)
Cemetery merchandise revenues were $143.5 million for the year ended December 31, 2015, an increase of $0.9 million from
$142.6 million for the year ended December 31, 2014, primarily related to an increase in recognized revenues from contracts assumed in acquisitions. Cemetery services revenues were $59.9 million for the year ended
December 31, 2015, an increase of $5.4 million from $54.5 million for the year ended December 31, 2014. This increase was primarily due to an increase in opening and closing service revenues, principally from the Archdiocese
of Philadelphia properties we began to operate in 2014 and other acquisitions completed during calendar year 2014. Interest income was $8.7 million for the year ended December 31, 2015, an increase of $1.1 million from
$7.6 million for the year ended December 31, 2014, which was primarily due to a larger average accounts receivable balance during calendar year 2015. Investment and other income was $50.1 million for the year ended
December 31, 2015, an increase of $3.3 million from $46.8 million for the year ended December 31, 2014. This increase was primarily attributable to perpetual care trust income, which was $15.9 million for the year ended
December 31, 2015, representing a $3.4 million increase from $12.5 million earned during the year ended December 31, 2014. The increase in perpetual care trust income was attributable to a combination of growth in invested
capital throughout 2015 and favorable returns provided by income-producing securities. In addition, merchandise trust income was $12.8 million for the year ended December 31, 2015, which is consistent with the year ended December 31,
2014. This was primarily attributable to contract servicing, as accumulated merchandise trust revenues are recognized in tandem with the delivery of the underlying merchandise or performance of the underlying services. The remaining
$0.1 million decrease in investment and other income was primarily attributable to changes in fee revenue.
47
Cost of goods sold was $50.9 million for the year ended December 31, 2015, an increase
of $5.1 million from $45.8 million for the year ended December 31, 2014. This increase consisted principally of a land sale that occurred during 2015 that had a cost basis of $1.8 million, a $0.9 million increase in
perpetual care trust costs due to an increase in burial right values, and changes in the value and mix of products and property rights sold.
Cemetery expenses were $71.3 million for the year ended December 31, 2015, an increase of $6.6 million from $64.7 million
for the year ended December 31, 2014. This increase was principally due to a $4.2 million increase in personnel costs, a $1.3 million increase in repairs and maintenance expenses and $0.9 million increase in real estate tax
expense. These increases were principally due to costs associated with properties acquired during the period.
Selling expenses were
$59.6 million for the year ended December 31, 2015, an increase of $3.9 million from $55.7 million for the year ended December 31, 2014. This increase was primarily due to a $2.9 million increase in commissions and
personnel costs and a $0.4 million increase in advertising and marketing expenses.
General and administrative expenses were
$37.5 million for the year ended December 31, 2015, an increase of $2.3 million from $35.2 million for the year ended December 31, 2014. This increase was principally due to a $2.4 million increase in insurance
liability-related costs, and a $1.5 million increase in personnel costs, partially offset by a $1.6 million decrease in professional fees and legal costs. The increases were primarily due to costs associated with properties acquired during
the period.
Depreciation and amortization expenses were $7.8 million for the year ended December 31, 2015, an increase of
$0.9 million from $6.9 million for the year ended December 31, 2014. The increase was primarily due to additional depreciation and amortization from assets acquired in our recent acquisitions and capital leases entered into during the
fiscal year 2015.
Funeral Home Operations
Overview
As of December 31, 2016, we
owned and operated 100 funeral homes. These properties are located in 18 states and Puerto Rico. Revenues from funeral home operations accounted for approximately 18.5% of our total revenues during the year ended December 31, 2016.
Operating Results
The following table
presents operating results for our funeral home operations for the respective reporting periods (in thousands):
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|
|
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Years Ended December 31,
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|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
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(As restated, see Note 2)
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|
Merchandise
|
|
$
|
27,625
|
|
|
$
|
27,024
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|
|
$
|
21,218
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|
Services
|
|
|
32,879
|
|
|
|
31,048
|
|
|
|
27,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
60,504
|
|
|
|
58,072
|
|
|
|
48,844
|
|
Merchandise
|
|
|
8,193
|
|
|
|
6,928
|
|
|
|
6,659
|
|
Services
|
|
|
24,772
|
|
|
|
22,969
|
|
|
|
20,487
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|
Depreciation and amortization
|
|
|
3,378
|
|
|
|
3,257
|
|
|
|
3,200
|
|
Other
|
|
|
20,305
|
|
|
|
17,806
|
|
|
|
12,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
56,648
|
|
|
|
50,960
|
|
|
|
42,940
|
|
|
|
|
|
|
|
|
|
|
|
|
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Segment income
|
|
$
|
3,856
|
|
|
$
|
7,112
|
|
|
$
|
5,904
|
|
|
|
|
|
|
|
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48
Year Ended December 31, 2016 Compared with the Year Ended December 31, 2015
Funeral home merchandise revenues were $27.6 million for the year ended December 31, 2016, an increase of $0.6 million from
$27.0 million for the year ended December 31, 2015. Funeral home services revenues were $32.9 million for the year ended December 31, 2016, an increase of $1.9 million from $31.0 million for the year ended
December 31, 2015. Both increases were due principally to operations of properties acquired during the periods.
Funeral home
expenses were $56.6 million for the year ended December 31, 2016, an increase of $5.6 million from $51.0 million for the year ended December 31, 2015. This increase principally consisted of a $4.4 million increase
related to properties acquired during the periods and a $0.8 million increase in costs associated with insurance-related sales with the remaining increase in other funeral home related expenses.
Year Ended December 31, 2015 Compared with the Year Ended December 31, 2014 (Revised)
Funeral home merchandise revenues were $27.0 million for the year ended December 31, 2015, an increase of $5.8 million from
$21.2 million for the year ended December 31, 2014. Funeral home service revenues were $31.0 million for the year ended December 31, 2015, a $3.4 million increase from $27.6 million for the year ended
December 31, 2014. Both increases were due principally to properties acquired during the periods.
Funeral home expenses were
$51.0 million for the year ended December 31, 2015, an increase of $8.1 million from $42.9 million for the year ended December 31, 2014. This increase principally consisted of a $2.5 million increase in personnel
costs, a $2.9 million increase in costs associated with insurance-related sales, a $0.7 million increase in facility costs, and a $0.3 million increase in merchandise costs. These increases were principally due to costs
associated with properties acquired during the periods.
Corporate Overhead
Year Ended December 31, 2016 Compared with the Year Ended December 31, 2015
Corporate overhead expense was $39.6 million for the year ended December 31, 2016, an increase of $1.0 million from
$38.6 million for the year ended December 31, 2015. This increase was due to a $1.5 million increase in professional fees and legal costs, partially offset by a $0.5 million decrease in information technology costs.
Year Ended December 31, 2015 Compared with the Year Ended December 31, 2014
Corporate overhead expense was $38.6 million for the year ended December 31, 2015, an increase of $3.9 million from
$34.7 million for the year ended December 31, 2014. This increase was primarily due to a $1.0 million increase in acquisition-related costs, a $0.6 million increase in corporate advertising, a $0.5 million increase in
personnel costs and a $0.4 million increase in
non-cash
compensation expense.
Corporate Depreciation
and Amortization
Year Ended December 31, 2016 Compared with the Year Ended December 31, 2015
Depreciation and amortization expense was $0.9 million for the year ended December 31, 2016, a decrease of $0.9 million from
$1.8 million for the year ended December 31, 2015. The decrease was due to certain assets related to the previous corporate office located in Levittown, Pennsylvania being fully depreciated during the year ended December 31, 2015.
Year Ended December 31, 2015 Compared with the Year Ended December 31, 2014
Depreciation and amortization expense was $1.8 million for the year ended December 31, 2015, an increase of $0.8 million from
$1.0 million for the year ended December 31, 2014, due to the accelerated depreciation and amortization of assets as explained in the presentation above comparing fiscal year 2016 with fiscal year 2015.
49
Gains and Losses
Year Ended December 31, 2016 Compared with the Year Ended December 31, 2015
For the year ended December 31, 2016, we obtained additional information related to three of the acquisitions that closed during 2015. The
changes resulted in an adjustment to the gain on acquisition recognized during the year ended December 31, 2015, reducing the gain by $0.6 million via a loss recognized in the current period in accordance with GAAP. In addition, there was
a $2.8 million gain from our most recent acquisition. We sold a warehouse and four funeral home businesses during 2016 for a net gain of $0.5 million. Also, we wrote off deferred financing costs related to our prior line of credit in the
amount of $1.2 million and incurred a loss of $2.9 million related to our
cease-use
expense due to the relocation of corporate headquarters to Trevose, Pennsylvania, other realignment charges and an
impairment loss at one of our cemeteries. For the year ended December 31, 2015, we had a $1.5 million gain on acquisition, a $3.1 million loss on legal settlement and a $0.3 million loss on impairment of long-lived assets. The
$3.1 million loss on legal settlement recognized during calendar year 2015 pertained to the legal settlement of a Fair Labor Standards Act claim.
Year Ended December 31, 2015 Compared with the Year Ended December 31, 2014
For the year ended December 31, 2015, we had a $1.5 million gain on acquisition, a $3.1 million loss on legal settlement and a
$0.3 million loss on impairment of long-lived assets. The $3.1 million loss on legal settlement recognized during calendar year 2015 pertained to the legal settlement of a Fair Labor Standards Act claim. For the year ended
December 31, 2014, gains and losses included a $0.4 million gain on acquisition, a $0.9 million gain on settlement agreement, a $0.2 million gain on asset sales, a $0.2 million loss on early extinguishment of debt and a
$0.4 million loss on impairment of long-lived assets. The $0.9 million gain on settlement recognized during calendar year 2014, for which $12.3 million was also recognized during calendar year 2013 for the same matter, was
related to the settlement of claims associated with certain properties acquired in prior years.
Interest Expense
Year Ended December 31, 2016 Compared with the Year Ended December 31, 2015
Interest expense was $24.5 million for the year ended December 31, 2016, an increase of $1.9 million from $22.6 million for
the year ended December 31, 2015. This increase in interest expense was principally due to a higher average balance outstanding under the credit facilities during the current year compared to the prior year.
Year Ended December 31, 2015 Compared with the Year Ended December 31, 2014
Interest expense was $22.6 million for the year ended December 31, 2015, an increase of $1.0 million from $21.6 million for
the year ended December 31, 2014. This increase in interest expense was principally due to a higher average balance outstanding under the credit facilities during 2015 compared to the prior year.
Income Tax Benefit (Expense)
Year Ended
December 31, 2016 Compared with the Year Ended December 31, 2015
Income tax expense was $1.6 million for the year ended
December 31, 2016 compared to $0.9 million for the prior year. Our effective tax rate differs from our statutory tax rate primarily because our legal entity structure includes different tax filing entities, including a significant number
of partnerships that are not subject to paying tax.
Year Ended December 31, 2015 Compared with the Year Ended December 31, 2014 (Revised)
Income tax expense was $0.9 million for the year ended December 31, 2015 compared to $2.6 million for the prior year.
Increases or decreases in tax expense are associated with increases or decreases in operating
50
income. Our effective tax rate differs from our statutory tax rate primarily because our legal entity structure includes different tax filing entities, including a significant number of
partnerships that are not subject to paying tax.
LIQUIDITY AND CAPITAL RESOURCES
General
Our primary sources of
liquidity are cash generated from operations, borrowings under our revolving credit facility and capital raised through the issuance of additional limited partner units. As an MLP, our primary cash requirements, in addition to normal operating
expenses, are for capital expenditures, net contributions to the merchandise and perpetual care trust funds, debt service, and cash distributions. In general, we expect to fund:
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working capital deficits through cash generated from operations and additional borrowings;
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expansion capital expenditures, net contributions to the merchandise and perpetual care trust funds and debt service obligations through additional borrowings, the issuance of additional limited partner units or asset
sales. Amounts contributed to the merchandise trust funds will be withdrawn at the time of the delivery of the product or service sold to which the contribution relates (see Critical Accounting Policies and Estimates regarding revenue
recognition), which will reduce the amount of additional borrowings, issuance of additional limited partner units or asset sales needed; and
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cash distributions in accordance with our partnership agreement and maintenance capital expenditures through available cash and cash flows from operating activities.
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We rely on cash flow from operations, borrowings under our credit facility and the issuance of additional limited partner units to execute our
operational strategy and meet our financial commitments and other short-term financial needs. We cannot be certain that additional capital will be available to us to the extent required and on acceptable terms.
Although our cash flows from operating activities have been positive, we have incurred net losses during recent periods. The Partnership faced
adverse conditions during the year ended December 31, 2016, including negative financial trends due to a decline in billings associated with a reduction in its sales force. This resulted in
a tightened liquidity position and a reduction in our quarterly distribution. We acknowledge that we continue to face a challenging competitive environment, and while we continue to focus on our overall
profitability, including managing expenses, we reported a loss in 2016. Moreover, our ability to declare or pay future distributions may be impacted.
During 2016 and 2017, the Partnership completed various financing transactions including issuance of common units, utilization of the
at-the-market
(ATM) Equity program, and establishment of new credit facility to provide supplemental liquidity necessary to achieve managements strategic
objectives. We expect that the actions taken in 2016 and early 2017 will enhance our liquidity and financial flexibility.
Our credit
facility requires us to maintain certain leverage and interest coverage ratios. As of December 31, 2016, we were in compliance with all of our debt covenants. As of December 31, 2016, the Consolidated Leverage Ratio was 3.94 compared to a
maximum allowable ratio of 4.00 under the Partnerships credit facility. For a more detailed discussion on debt covenants, refer to the credit facility subsection under the Long Term Debt section below. The Partnership has
also determined it is not probable that a breach to key financial covenants would occur during the next twelve months based upon expected operating performance, forecasted cash flows from operating and investing activities,
as well as planned strategic uses of cash. The Partnership may be unable to meet the financial covenants if the achieved results are substantially different from managements projections.
51
Factors that could impact the significant assumptions used by the Partnership in assessing our
ability to satisfy the financial covenants include:
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operating performance not meeting reasonably expected forecasts;
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failing to attract and retain qualified sales personnel and management;
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investments in our trust funds experiencing significant declines due to factors outside our control;
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being unable to compete successfully with other cemeteries and funeral homes in our markets;
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the number of deaths in our markets declining; and
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the financial condition of third-party insurance companies that fund our
pre-need
funeral contracts deteriorating.
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The Partnership believes that it will have sufficient liquid assets, cash from operations and borrowing capacity to meet its financial
commitments, debt service obligations, contingencies and anticipated capital expenditures for at least the next twelve-month period. However, the Partnership is subject to business, operational and other risks that could adversely affect its
cash flows. The Partnership has supplemented and will likely seek to continue to supplement cash generation with proceeds from financing activities, including borrowings under the credit facility and other borrowings, the issuance of additional
limited partner units, capital contributions from the general partner and the sale of assets and other transactions. The Partnership continually monitors its financial position, liquidity and credit facility financial covenants to determine the
likelihood of shortfalls in future reporting periods.
Cash Flows
Year Ended December 31, 2016 Compared with the Year Ended December 31, 2015
Net cash provided by operating activities was $22.8 million during the year ended December 31, 2016, an increase of
$18.7 million from $4.1 million during the year ended December 31, 2015. The $18.7 million favorable movement in net cash provided by operating activities resulted from a $25.1 million favorable movement in working capital,
partially offset by a $6.4 million unfavorable movement in net income excluding
non-cash
items. The unfavorable movement in net income excluding
non-cash
items was
due principally to the decline in Funeral Home Operations segment profitability and an increase in certain expenses during 2016, including selling expenses and corporate overhead. The $26.3 million favorable movement in working capital was due
principally to increased withdrawals from trusts.
Net cash used in investing activities was $19.1 million during the year ended
December 31, 2016, a decrease of $15.0 million from $34.1 million during the year ended December 31, 2015. Net cash used in investing activities during 2016 consisted of $10.5 million for acquisitions and $11.4 million
for capital expenditures, partially offset by proceeds from asset sales of $2.8 million. Net cash used in investing activities during 2015 consisted of $18.8 million for acquisitions and $15.3 million for capital expenditures.
Net cash used in financing activities was $6.2 million for the year ended December 31, 2016 compared with net cash provided by
financing activities of $34.8 million for the year ended December 31, 2015. Net cash used in financing activities during 2016 consisted of $94.3 million of net proceeds from the issuance of common units, partially offset by net
repayments of long-term debt of $14.3 million, financing costs incurred of $7.0 million and cash distributions to unit holders of $79.2 million. Net cash provided by financing activities during 2015 consisted primarily of
$75.2 million of net proceeds from the issuance of common units and $37.3 million of net borrowings, offset by cash distributions to unit holders of $77.5 million.
Year Ended December 31, 2015 Compared with the Year Ended December 31, 2014 (Revised)
Net cash flows provided by operating activities were $4.1 million during the year ended December 31, 2015, a decrease of
$15.4 million from $19.5 million during the year ended December 31, 2014. The $15.4 million
52
unfavorable movement in net cash provided by operating activities resulted from a $8.3 million unfavorable movement in net income excluding
non-cash
items and a $7.1 million unfavorable movement in working capital. The unfavorable movement in net income excluding
non-cash
items was primarily due to the recognition of a $3.1 million loss on
legal settlement during 2015 and the growth of the Partnership and an increase in certain expenses during 2015, including general and administrative expenses and corporate overhead, although the majority of cemetery
pre-need
sales associated with that growth did not meet the delivery criteria for revenue recognition. The unfavorable movement in working capital was primarily due to increased contributions to trusts
due to increases in
pre-need
sales between periods, partially offset by other movements in assets and liabilities due to timing differences.
Net cash used in investing activities was $34.1 million during the year ended December 31, 2015, a decrease of $89.6 million
from $123.7 million during the year ended December 31, 2014. Net cash used for investing activities during 2015 consisted of $18.8 million for acquisitions and $15.3 million for capital expenditures. Net cash used for
investing activities during 2014 principally consisted of $56.4 million for acquisitions, $53.0 million of
up-front
rent for the transaction with the Archdiocese of Philadelphia and
$14.6 million for capital expenditures.
Net cash flows provided by financing activities were $34.8 million for the year ended
December 31, 2015 compared with $102.4 million for the year ended December 31, 2014. Cash flows provided by financing activities during 2015 consisted primarily of $75.2 million of net proceeds from the issuance of common units
and $37.3 million of net borrowings, partially offset by cash distributions to unit holders of $77.5 million. Cash flows provided by financing activities during 2014 consisted of $173.5 million of net proceeds from the issuance of
common units, partially offset by net repayments of long-term debt of $5.3 million, financing costs incurred of $3.0 million and cash distributions to unit holders of $62.8 million.
Capital Expenditures
Our capital
requirements consist primarily of:
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Expansion capital expenditures we consider expansion capital expenditures to be capital expenditures that expand the capacity of our existing operations; and
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Maintenance capital expenditures we consider maintenance capital expenditures to be any capital expenditures that are not expansion capital expenditures generally, this will include furniture, fixtures,
equipment and major facility improvements that are capitalized in accordance with generally accepted accounting principles.
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We have no expectation that our 2017 annual capital expenditures would deviate significantly from the year ended December 31, 2016. The
following table summarizes maintenance and expansion capital expenditures, excluding amounts paid for acquisitions, for the periods presented (in thousands):
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Years Ended December 31,
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2016
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2015
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2014
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Maintenance capital expenditures
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$
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6,244
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$
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7,937
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$
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8,398
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Expansion capital expenditures
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5,138
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7,402
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6,176
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|
|
|
|
|
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Total capital expenditures
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$
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11,382
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$
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15,339
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$
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14,574
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Contractual Obligations and Contingencies
We have assumed various financial obligations and commitments in the ordinary course of conducting our business. We have contractual
obligations requiring future cash payments related to debt maturities, interest on debt, operating lease agreements, liabilities to purchase merchandise related to our
pre-need
sales contracts and capital
commitments to private credit funds.
53
A summary of our total contractual and contingent obligations as of December 31, 2016 is
presented in the table below (in thousands):
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Total
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Less than
1 year
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1-3
years
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3-5
years
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More than
5 years
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Contractual Obligations:
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Debt (1)
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$
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399,686
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$
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20,700
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$
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39,117
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$
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339,869
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$
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Operating leases
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26,217
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4,360
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8,265
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4,538
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9,054
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Capital leases
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2,834
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|
772
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1,446
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616
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Lease and management agreements (2)
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36,664
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36,664
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Deferred revenues (3)
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866,633
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Total contractual obligations
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1,332,034
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|
25,832
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|
|
|
48,828
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345,023
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|
|
|
45,718
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Contingent Obligations:
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Letters of credit (4)
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6,783
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Other investment funds (5)
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45,149
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Total contingent obligations
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51,932
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Total
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$
|
1,383,966
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|
|
$
|
25,832
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|
|
$
|
48,828
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|
|
$
|
345,023
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|
|
$
|
45,718
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|
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|
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(1)
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Represents the interest payable and par value of debt due and does not include the unamortized debt discounts of $2.4 million at December 31, 2016. This table assumes that current amounts outstanding under our
Credit Facility are not repaid until the maturity date of August 4, 2021.
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(2)
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Represents the aggregate future rent payments, with interest, due pertaining to the agreements with the Archdiocese of Philadelphia, from 2025 through 2049, and does not include the unamortized discount. See
Agreements with the Archdiocese of Philadelphia in this Item 7 of this Form
10-K.
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(3)
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Total cannot be separated into periods because we are unable to anticipate when the merchandise and services will be delivered. This balance represents the revenues to be recognized from the total performance
obligations on customer contracts.
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(4)
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We are occasionally required to post letters of credit, issued by a financial institution, to secure certain insurance programs or other obligations. Letters of credit generally authorize the financial institution to
make a payment to the beneficiary upon the satisfaction of a certain event or the failure to satisfy an obligation. The letters of credit are posted for
one-year
terms and may be renewed upon maturity until
such time as we have satisfied the commitment secured by the letter of credit. We are obligated to reimburse the issuer only if the beneficiary collects on the letter of credit. We believe it is unlikely that we will be required to fund a claim
under our outstanding letters of credit. As of December 31, 2016, $6.8 million of our letters of credit were supported by our Revolving Credit Facility.
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(5)
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As of December 31, 2016, the perpetual care trust had $45.1 million in unfunded commitments to the private credit funds. These capital commitments are callable at any time during the lockup periods which range
from six to ten years with three potential one year extensions at the discretion of the funds general partners and will be funded using existing trust assets. This total cannot be separated into periods.
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Issuance of Common Units
On
December 30, 2016, the Partnership sold to GP Holdings, the parent of the Partnerships general partner, 2,332,878 common units representing limited partner interests in the Partnership at an aggregate purchase price of $20.0 million
(i.e., $8.5731 per common unit, which was equal to the volume-weighted average trading price of a common unit for the twenty trading days ending on and including December 30, 2016) pursuant to a common unit purchase agreement.
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. Additionally, the underwriters exercised their option to purchase an additional 300,000 common units. The offering resulted in net proceeds, after deducting underwriting discounts
54
and offering expenses, of $51.5 million. The proceeds from the offering were used to pay down outstanding indebtedness under the credit facility.
ATM Equity Program
On
November 19, 2015, we entered into an equity distribution agreement (ATM Equity Program) with a group of banks (the Agents) whereby we may sell, from time to time, common units representing limited partner interests
having an aggregate offering price of up to $100,000,000. Sales of common units, if any, may be made in negotiated transactions or transactions that are deemed to be at the market offerings as defined in Rule 415 of the Securities
Act, including sales made directly on the New York Stock Exchange, the existing trading market for the common units, or sales made to or through the market maker other than on an exchange or through an electronic communications network. We will pay
each of the Agents a commission, which in each case shall not be more than 2.0% of the gross sales price of common units sold through such Agent. During the year ended December 31, 2016, we issued 903,682 common units under the ATM Equity
Program for net proceeds of $23.0 million.
Long-Term Debt
Credit Facility
On
August 4, 2016, our 100% owned subsidiary, StoneMor Operating LLC (the Operating Company), entered into a Credit Agreement (the Original Credit Agreement) among each of the subsidiaries of the Operating Company (together
with the Operating Company, Borrowers), the Lenders identified therein, Capital One, National Association (Capital One), as Administrative Agent, Issuing Bank and Swingline Lender, Citizens Bank of Pennsylvania, as
Syndication Agent, and TD Bank, N.A. and Raymond James Bank, N.A., as
Co-Documentation
Agents. In addition, on the same date, the Partnership, the Borrowers and Capital One, as Administrative Agent, entered
into the Guaranty and Collateral Agreement (the Guaranty Agreement, and together with the Original Credit Agreement, New Agreements). The Original Credit Agreement as amended by the amendments thereto described below is
referred to in this Form
10-K
as the Credit Agreement. Capitalized terms which are not defined in the following description of the New Agreements and the amendments thereto shall have the meaning
assigned to such terms in the New Agreements, as amended.
The New Agreements replaced the Partnerships Fourth Amended and Restated
Credit Agreement, as amended with Bank of America, N.A., as Administrative Agent, Swingline Lender and L/C Issuer and other lenders party thereto (the Prior Credit Agreement), Second Amended and Restated Security Agreement, and Second
Amended and Restated Pledge Agreement, each dated as of December 19, 2014. The Prior Credit Agreement provided for a revolving credit facility of $180.0 million, with borrowings classified as either acquisition draws or working capital
draws, maturing on December 19, 2019. In connection with entering into the Original Credit Agreement, the Partnership incurred an extinguishment of debt charge of approximately $1.2 million recorded in loss on early extinguishment of debt.
On March 15, 2017, the Borrowers, Capital One, as Administrative Agent and acting in accordance with the written consent of the
Required Lenders, entered into the First Amendment to Credit Agreement. Those parties subsequently entered into a Second Amendment and Limited Waiver on July 26, 2017 and a Third Amendment and Limited Waiver effective as of August 15,
2017. The cumulative effect of these amendments was to amend the Original Credit Agreement as follows:
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extend the deadline by which the Operating Company was required to deliver to the Administrative Agent the Partnerships audited financial statements for the year ended December 31, 2016 (2016 Financial
Statements) to September 15, 2017;
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extend the deadline by which the Operating Company is required to deliver to the Administrative Agent the
Partnerships unaudited financial statements for the quarter ended March 31, 2017 (the Q1
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55
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2017 Financial Statements) to no later than forty-five (45) days after the date on which the Operating Company delivers the 2016 Financial Statements to the Administrative Agent;
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extend the deadline by which the Operating Company is required to deliver to the Administrative Agent the Partnerships unaudited financial statements for the quarter ended June 30, 2017 to no later than
forty-five (45) days after the date on which the Operating Company delivers the Q1 2017 Financial Statements to the Administrative Agent, but not later than December 15, 2017;
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require that, until the 2016 Financial Statements have been delivered to the Administrative Agent, the Operating Company deliver to the Administrative Agent financial statements within 35 days after the end of each
month for the previous month and
year-to-date,
certified by a Financial Officer of the Operating Company;
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increase the maximum Consolidated Leverage Ratio to 4.25:1.00 through September 30, 2017, which ratio will revert to 4.00:1.00 effective October 1, 2017, subject to the right under the Credit Agreement to
increase the Consolidated Leverage Ratio to a maximum of 4.25:1.00 in connection with consummation of a Designated Acquisition;
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amend the definition of Applicable Rate to (a) limit Category 4 to Consolidated Leverage Ratios greater than 3.50:1.00 but less than or equal to 4:00:1.00, (b) add new Category 5
which would apply in the event the Consolidated Leverage Ratio exceeds 4:00:1.00, in which event the Eurodollar Spread for Revolving Loans, the Base Rate Spread for Revolving Loans and the Commitment Fee Rate would increase to 3.75%, 2.75% and
0.50%, respectively, and (c) provide that Category 5 shall be applicable until the Operating Company delivers to the Administrative Agent the 2016 Financial Statements, the Q1 2017 Financial Statements and the corresponding compliance
certificates and shall thereafter again be applicable commencing three Business Days after the Operating Company fails to timely deliver to the Administrative Agent any required financial statements under the Credit Agreement and continuing until
the third Business Day after such financial statements are so delivered;
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until January 1, 2018, prohibit the Partnership from increasing the regularly scheduled quarterly cash distributions permitted to be made to its partners under the Credit Agreement unless, at the time such
distribution is declared and on a pro forma basis after giving effect to the payment of any such distribution the Consolidated Leverage Ratio is no greater than 3.75:1.00;
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allow up to an aggregate of $53.0 million in realized losses in the Loan Parties investment portfolio for all periods to be added back for purposes of calculating Consolidated EBITDA; and
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clarify that the Partnership is entitled to add back extraordinary, unusual or
non-recurring
losses, charges or expenses in calculating Consolidated EBITDA for the first two
quarters of 2017, subject to a limit of $14.3 million for the period ended June 30, 2017. The Partnership intends to seek further clarification from its lenders with respect to these adjustments for periods after the second quarter of
2017.
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In connection with the First Amendment each Lender was paid a fee equal to 0.25% on the amount of such Lenders
Revolving Commitment under the Credit Agreement.
The Credit Agreement provides for up to $210.0 million initial aggregate amount of
Revolving Commitments, which may be increased, from time to time, in minimum increments of $5.0 million so long as the aggregate amount of such increases does not exceed $100.0 million. The Operating Company may also request the issuance
of Letters of Credit for up to $15.0 million in the aggregate, of which there were $6.8 million outstanding at December 31, 2016 and none outstanding at December 31, 2015. The Maturity Date under the Credit Agreement is the
earlier of (i) August 4, 2021 and (ii) the date that is six months prior to the earliest scheduled maturity date of any outstanding Permitted Unsecured Indebtedness (at present, such date is December 1, 2020, which is six months
prior to June 1, 2021 maturity date of outstanding 7.875% senior notes).
As of December 31, 2016, the outstanding amount of
borrowings under the Credit Agreement was $137.1 million, which was used to pay down outstanding obligations under the Prior Credit Agreement, to pay
56
fees, costs and expenses related to the New Agreements and to fund working capital needs. Generally, proceeds of the Loans under the Credit Agreement can be used to finance the working capital
needs and for other general corporate purposes of the Borrowers and Guarantors, including acquisitions and distributions permitted under the Credit Agreement. As of June 30, 2017, we estimate that we had approximately $3.5 million of total
available borrowing capacity under our revolving credit facility, based on a preliminary calculation of our Consolidated Leverage Ratio.
Each Borrowing under the Credit Agreement is comprised of Base Rate Loans or Eurodollar Loans. The Loans comprising each Base Rate Borrowing
(including each Swingline Loan) bear interest at the Base Rate plus the Applicable Rate, and the Loans comprising each Eurodollar Borrowing bear interest at the Eurodollar Rate plus the Applicable Rate.
The Applicable Rate is determined based on the Consolidated Leverage Ratio of the Partnership and its Subsidiaries and ranges from 1.75% to
3.75% for Eurodollar Rate Loans and 0.75% to 2.75% for Base Rate Loans. Based on our Consolidated Leverage Ratio, the Applicable Rate for Eurodollar Rate Loans is 3.25% and for Base Rate Loans is 2.25%, for the compliance period ended
December 31, 2016. The Credit Agreement also requires the Borrowers to pay a quarterly unused commitment fee, which accrues at the Applicable Rate on the amount by which the commitments under the Credit Agreement exceed the usage of such
commitments, and which is included within interest expense on the Partnerships consolidated statements of operations. On December 31, 2016, the weighted average interest rate on outstanding borrowings under the Credit Agreement was 3.7%.
At August 31, 2017, the Applicable Rate for Eurodollar Rate Loans was 3.75%, the Applicable Rate for Base Rate Loans was 2.75% and the weighted average interest rate on outstanding borrowings under the Credit Agreement was 5.2%.
The Credit Agreement contains financial covenants, pursuant to which the Partnership will not permit:
|
|
|
the ratio of Consolidated Funded Indebtedness to Consolidated EBITDA, or the Consolidated Leverage Ratio, as of the last day of any fiscal quarter, through the quarter ending September 30, 2017, determined for the
period of four consecutive fiscal quarters ending on such date (the Measurement Period), to be greater than 4.25 to 1.00, which ratio will revert to 4.00:1.00 effective October 1, 2017, subject to the right under the Amended Credit
Agreement to increase the Consolidated Leverage Ratio to a maximum of 4.25 to 1.00 (in case of a Designated Acquisition made subsequent to the last day of the immediately preceding fiscal quarter) as of the last day of the fiscal quarter in which
such Designated Acquisition occurs and as of the last day of the immediately succeeding fiscal quarter; and
|
|
|
|
the ratio of Consolidated EBITDA to Consolidated Debt Service, or the Consolidated Debt Service Coverage Ratio, as of the last day of any fiscal quarter, commencing on September 30, 2016 to be less than 2.50 to
1.00 for any Measurement Period.
|
On December 31, 2016, our Consolidated Leverage Ratio and Consolidated Debt Service
Coverage Ratio were 3.94 and 3.68, respectively.
Additional covenants include customary limitations, subject to certain exceptions, on,
among others: (i) the incurrence of Indebtedness; (ii) granting of Liens; (iii) fundamental changes and dispositions; (iv) investments, loans, advances, guarantees and acquisitions; (v) swap agreements;
(vi) transactions with Affiliates; (vii) Restricted Payments; and (viii) Sale and Leaseback Transactions. The Partnership was in compliance with the Original Credit Agreement covenants as of December 31, 2016, and based on
preliminary information, the Partnership believes it was in compliance with the Credit Agreement covenants as of June 30, 2017.
The
Borrowers obligations under the Credit Agreement are guaranteed by the Partnership and the Borrowers. Pursuant to the Guaranty Agreement, the Borrowers obligations under the Credit Agreement are secured by a first priority lien and
security interest (subject to permitted liens and security interests) in substantially all of the Partnerships and Borrowers assets, whether then owned or thereafter acquired, excluding
57
certain excluded assets, which include, among others: (i) Trust Accounts, certain proceeds required by law to be placed into such Trust Accounts and funds held in such Trust Accounts; and
(ii) Excluded Real Property, including owned and leased real property that may not be pledged as a matter of law.
Senior Notes
On May 28, 2013, we issued $175.0 million aggregate principal amount of 7.875% Senior Notes due 2021 (the Senior
Notes). We pay 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. We incurred debt issuance costs and fees of approximately $4.6 million. These costs and fees are deferred and will be amortized over the life of these notes. The Senior Notes
mature on June 1, 2021.
At any time, 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
|
|
2017
|
|
|
103.938
|
%
|
2018
|
|
|
101.969
|
%
|
2019 and thereafter
|
|
|
100.000
|
%
|
Subject to certain exceptions, upon the occurrence of a Change of Control (as defined in the indenture
governing the Senior Notes), each holder of the Senior Notes will have the right to require us to purchase that holders 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 our ability to incur certain 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 our assets, among other items. As of December 31, 2016, we were in compliance with these covenants.
Cash Distribution Policy
Our
partnership agreement requires that we distribute 100% of available cash to our common unitholders and general partner within 45 days following the end of each calendar quarter in accordance with their respective percentage interests. Available cash
consists generally of all of our cash receipts, less cash disbursements. Our general partner is granted discretion under the partnership agreement to establish, maintain and adjust reserves for future operating expenses, debt service, maintenance
capital expenditures and distributions for the next four quarters. These reserves are not restricted by magnitude, but only by type of future cash requirements with which they can be associated.
Available cash is distributed to the common limited partners and the general partner in accordance with their ownership interests, subject to
the general partners incentive distribution rights if quarterly cash distributions per limited partner unit exceed specified targets. Incentive distribution rights are generally defined as all cash distributions paid to our general partner
that are in excess of its general partner ownership interest. The incentive distribution rights will entitle our general partner to receive the following increasing percentage of cash distributed by us as it reaches certain target distribution
levels:
|
|
|
13.0% of all cash distributed in any quarter after each common unit has received $0.5125 for that quarter;
|
58
|
|
|
23.0% of all cash distributed in any quarter after each common unit has received $0.5875 for that quarter; and
|
|
|
|
48.0% of all cash distributed in any quarter after each common unit has received $0.7125 for that quarter.
|
Since our initial public offering, the Partnerships business thesis has been that our unitholders should, subject to capital resource
limitations, receive the economic benefits of our sales of interment rights, merchandise and services, interest income and trust returns as promptly as practicable. Thus, we historically have sought to include in our distributions to unitholders for
a particular financial reporting period the profit we anticipate the Partnership will generate with respect to the sales, including
pre-need
sales, of interment rights, merchandise and services, and trust
returns during the applicable period. We generally recognize revenue from our sales of merchandise and services when the merchandise is delivered or the service is performed. Typically, we recognize revenue from an
at-need
sale shortly after the sale. In contrast,
pre-need
sales typically are sold on an installment plan, and we do not typically recognize revenue from
pre-need
sales of interment rights, merchandise and services until some period of time after the sale, which period in some instances and for certain elements could be many years. In order to allow our distributions
for a particular period to confer upon our unitholders the economic benefits of our sales during the period, we historically have financed the increases in our accounts receivable and merchandise trust funds through borrowings (net of repayments)
and the issuance of common units. Since our initial public offering, our historical consolidated statements of cash flows for the applicable periods have shown these increases in our accounts receivable and merchandise trust funds in our cash flows
from operating activities and the proceeds from borrowings (net of repayments) and proceeds from issuance of common units in our cash flows from financing activities.
Agreements with the Archdiocese of Philadelphia
In accordance with the lease and management agreements with the Archdiocese of Philadelphia, we have agreed to pay to the Archdiocese aggregate
fixed rent of $36.0 million in the following amounts:
|
|
|
Lease Years
1-5
(May 28,
2014-May 31,
2019)
|
|
None
|
Lease Years
6-20
(June 1,
2019-May 31,
2034)
|
|
$1,000,000 per Lease Year
|
Lease Years
21-25
(June 1,
2034-May 31,
2039)
|
|
$1,200,000 per Lease Year
|
Lease Years
26-35
(June 1,
2039-May 31,
2049)
|
|
$1,500,000 per Lease Year
|
Lease Years
36-60
(June 1,
2049-May 31,
2074)
|
|
None
|
The fixed rent for lease years 6 through 11, an aggregate of $6.0 million is deferred. If, prior to
May 31, 2024, the Archdiocese terminates the agreements pursuant to its right to do so in its sole discretion during lease year 11 or we terminate the agreements as a result of a default by the Archdiocese, we are entitled to retain the
deferred fixed rent. If the agreements are not terminated, the deferred fixed rent will become due and payable on or before June 30, 2024.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires making
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of actual revenue and expenses during the
reporting period. Although we base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances, actual results may differ from the estimates on which our financial statements are
prepared at any given point of time. Changes in these estimates could materially affect our financial position, results of operations or cash flows. Significant items that are subject to such estimates and assumptions include revenue and expense
accruals, fair value of merchandise and perpetual care trust assets and the allocation of purchase price to the fair value of assets acquired. A summary of the significant accounting policies we have adopted and followed in the preparation of
59
our consolidated financial statements is included in Note 1 of Part II, Item 8. Financial Statements and Supplementary Data included in this report. The critical accounting policies and estimates
we have identified are discussed below.
Cemetery Operations Revenue Recognition
Our cemetery revenues are principally derived from sales of interment rights, merchandise and services. These sales occur both at the time of
death, which we refer to as
at-need,
and prior to the time of death, which we refer to as
pre-need.
Pre-need
sales are typically
sold on an installment plan.
At-need
cemetery sales and
pre-need
merchandise and services sales are recognized as revenue when the merchandise is delivered or the
service is performed. For
pre-need
sales of interment rights, we recognize the associated revenue when we have collected 10% of the sales price from the customer. We consider our cemetery merchandise delivered
to our customer when it is either installed or ready to be installed and delivered to a third-party storage facility until it is needed, with ownership transferred to the customer at that time.
Pre-need
sales
that have not yet been recognized as revenue are recognized as deferred revenues, a liability on our consolidated balance sheet. Direct costs associated with
pre-need
sales that are recognized as deferred
revenues, such as sales commissions, are recognized as deferred selling and obtaining costs, an asset on our consolidated balance sheet, until the merchandise is delivered or the services are performed.
Funeral Home Operations Revenue Recognition
Our funeral home revenues are principally derived from
at-need
and
pre-need
sales of merchandise and services.
Pre-need
sales are typically sold on an installment plan. Both
at-need
and
pre-need
funeral home sales are recognized as revenue when the merchandise is delivered or the service is performed.
Pre-need
sales that have not yet been recognized as
revenue are recognized as deferred revenues, a liability on our consolidated balance sheet. Direct costs associated with
pre-need
sales that are recognized as deferred revenues, such as sales commissions, are
recognized as deferred selling and obtaining costs, an asset on our consolidated balance sheet, until the merchandise is delivered or the services are performed. Our funeral home operations also include revenues related to the sale of term and final
expense whole life insurance. As an agent for these insurance sales, we earn and recognize commission-related revenue streams from the sales of these policies.
Trust Investment Income Recognition
Sales of cemetery and funeral home merchandise and services are subject to state law. Under these laws, which vary by state, a portion of the
cash proceeds received from the sale of interment rights and
pre-need
sales of cemetery and funeral home merchandise and services are required to be deposited into trusts. For sales of interment rights, a
portion of the cash proceeds received are required to be deposited into a perpetual care trust. While the principal balance of the perpetual care trust must remain in the trust in perpetuity, we recognize investment income on such assets as revenue,
excluding realized gains and losses from the sale of trust assets. For sales of cemetery and funeral home merchandise and services, a portion of the cash proceeds received are required to be deposited into a merchandise trust until the merchandise
is delivered or the services are performed, at which time the funds so deposited, along with the associated investment income, may be withdrawn. Investment income from assets held in the merchandise trust is recognized as revenue when withdrawn.
Amounts deposited into trusts may be invested by third-party investment managers who are selected by the Trust and Compliance Committee of the Board of Directors of our general partner (the Trust Committee). These investment managers are
required to invest our trust funds in accordance with applicable state law and internal investment guidelines adopted by the Trust Committee. Our investment managers are monitored by investment advisors selected by the Trust Committee, who advise
the Trust Committee on the determination of asset allocations, evaluate the investment managers and provide detailed monthly reports on the performance of each merchandise and perpetual care trust.
60
Deferred Revenues
Revenues from the sale of services and merchandise, as well as any investment income from the merchandise trusts, is deferred until such time
that the services are performed or the merchandise is delivered. In addition to amounts deferred on new contracts, investment income and unrealized gains and losses on our merchandise trusts, deferred revenues includes deferred revenues from
pre-need
sales that were entered into by entities prior to the acquisition of those entities by us, including entities that were acquired by Cornerstone Family Services, Inc. upon its formation in 1999. We provide
for a profit margin for these deferred revenues to account for the projected future costs of delivering products and providing services on
pre-need
contracts that we acquired through acquisitions. These
revenues and their associated costs are recognized when the related merchandise is delivered or the services are performed and are presented on a gross basis on the consolidated statements of operations.
Accounts Receivable Allowance for Cancellations
At the time of a
pre-need
sale, we record an account receivable in an amount equal to the total
contract value less any cash deposit paid net of an estimated allowance for cancellations. The allowance for cancellations is established based upon our estimate of expected cancellations and historical experiences, and is currently approximately
10% of total contract values. Future cancellation rates may differ from this current estimate. We will continue to evaluate cancellation rates and will make changes to the estimate should the need arise. Actual cancellations did not vary
significantly from the estimates of expected cancellations at December 31, 2016 or 2015.
Other-Than-Temporary Impairment of Trust Assets
Assets held in our merchandise trusts are carried at fair value. Any change in unrealized gains and losses is reflected in the
carrying value of the assets and is recognized as deferred revenue. Any and all investment income streams, including interest, dividends or gains and losses from the sale of trust assets, are offset against deferred revenue until such time that we
deliver the underlying merchandise. Investment income generated from our merchandise trust is included in Cemetery investment and other revenues.
Pursuant to state law, a portion of the proceeds from the sale of cemetery property is required to be paid into perpetual care trusts. All
principal must remain in this trust in perpetuity while interest and dividends may be released and used to defray cemetery maintenance costs, which are expensed as incurred. Assets in our perpetual care trusts are carried at fair value. Any change
in unrealized gains and losses is reflected in the carrying value of the assets and is offset against perpetual care trust corpus.
We
evaluate whether or not the assets in our merchandise and perpetual care trusts have an other-than-temporary impairment on a
security-by-security
basis. We determine
whether or not the impairment of a fixed maturity debt security is other-than-temporary by evaluating each of the following:
|
|
|
Whether it is our intent to sell the security. If there is intent to sell, the impairment is considered to be other-than-temporary.
|
|
|
|
If there is no intent to sell, we evaluate if it is not more likely than not that we will be required to sell the debt security before its anticipated recovery. If we determine that it is more likely than not that we
will be required to sell an impaired investment before its anticipated recovery, the impairment is considered to be other-than-temporary.
|
We further evaluate whether or not all assets in the trusts have other-than-temporary impairments based upon a number of criteria including
the severity of the impairment, length of time a security has been in a loss position, changes in market conditions and concerns related to the specific issuer.
If an impairment is considered to be other-than-temporary, the cost basis of the security is adjusted downward to its fair value. For assets
held in the perpetual care trusts, any reduction in the cost basis due to an
61
other-than-temporary impairment is offset with an equal and opposite reduction in the perpetual care trust corpus and has no impact on earnings. For assets held in the merchandise trusts, any
reduction in the cost basis due to an other-than-temporary impairment is recorded in deferred revenue.
Valuation of Assets Acquired and Liabilities
Assumed
Tangible and intangible assets acquired and liabilities assumed are recorded at their fair value and goodwill or bargain
gain is recognized for any difference between the price of acquisition and our fair value determination. We have customarily estimated our purchase costs and other related transactions known to us at closing of the acquisition. To the extent that
information not available to us at the closing date subsequently became available during the measurement period, we have adjusted our goodwill or bargain gain, assets, or liabilities associated with the acquisition.
Goodwill
Goodwill represents the
excess of the purchase price over the fair value of identifiable net assets acquired. We test goodwill for impairment using a
two-step
test. In the first step of the test, we compare the fair value of the
reporting unit to its carrying amount, including goodwill. We determine the fair value of each reporting unit using a market multiple method to corroborate the value derived from using the income approach. We do not record an impairment of goodwill
in instances where the fair value of a reporting unit exceeds its carrying amount. If the aggregate fair value of a reporting unit is less than the related carrying amount, we proceed to the second step of the test in which we would determine and
record an impairment loss in an amount equal to the excess of the carrying amount of goodwill over the implied fair value.
The
Partnership conducts its evaluation of goodwill impairment at the reporting unit level on an annual basis, and more frequently if events or circumstances indicate that the carrying value of a reporting unit exceeds its fair value. As of
December 31, 2016, the reporting units with assigned goodwill were the Cemetery Operations and Funeral Home Operations segments. Goodwill impairment testing involves management judgment, requiring an assessment of whether the carrying value of
the reporting unit can be supported by the fair value of the individual reporting unit using widely accepted valuation techniques, such as the market approach (earnings and
price-to-book
value multiples of comparable public companies) and/or the income approach (discounted cash flow (DCF) method).
The Partnership applied the DCF method and utilized a number of factors, including actual operating results, future business plans, economic
projections and market data. The DCF method of the income approach incorporated the reporting units forecasted cash flows, including a terminal value to estimate the fair value of cash flows beyond the final year of the forecasts. The discount
rates utilized to obtain the net present value of the reporting units cash flows were estimated using the capital asset pricing model. Significant inputs to this model include a risk-free rate of return, beta (which is a measure of the level
of
non-diversifiable
risk associated with comparable companies for each specific reporting unit), market equity risk premium and in certain cases an unsystematic (Partnership-specific) risk factor. The
unsystematic risk factor is the input that specifically addresses uncertainty related to the Partnerships projections of earnings and growth, including the uncertainty related to loss expectations. The Partnership utilized discount rates that
it believes adequately reflect the risk and uncertainty in the financial markets generally and specifically in its internally developed forecasts. The Partnership estimated expected rates of equity returns based on historical market returns and
risk/return rates for similar industries of the reporting unit. The Partnership uses its internal forecasts to estimate future cash flows, and actual results may differ from forecasted results. Substantial value may arise from the ability to take
advantage of synergies and other benefits that flow from control over another entity. Consequently, measuring the fair value of a collection of assets and liabilities that operate together in a controlled entity is different from measuring the fair
value of that entity on a stand-alone basis. In most industries, including the Partnerships, an acquiring entity typically is willing to pay more for equity securities that give it a controlling interest than an investor would pay for a number
of equity securities representing less than a controlling interest. Therefore, once the above fair value calculations have been determined, the Partnerships management also considers the
62
inclusion of a control premium within the calculations. This control premium is judgmental and based on, among other items, observed acquisitions in the Partnerships industry. The resultant
fair values calculated for the reporting units are compared to observable metrics on large mergers and acquisitions in the Partnerships industry to determine whether those valuations appear reasonable in managements judgment.
The fair value determinations mentioned above require considerable judgment and are sensitive to changes in underlying assumptions and
factors. As a result, there can be no assurance that the estimates and assumptions made for purposes of the annual goodwill impairment test will prove to be accurate predictions of the future. Examples of events or circumstances that could
reasonably be expected to negatively affect the underlying key assumptions and ultimately impact the estimated fair value of the aforementioned reporting units may include such items as follows:
|
|
|
a prolonged downturn in the business environment in which the reporting units operate;
|
|
|
|
reporting unit performance which significantly differs from our assumptions;
|
|
|
|
volatility in equity and debt markets resulting in higher discount rates; and
|
|
|
|
unexpected regulatory changes.
|
As of December 31, 2016, the Partnership calculated that
fair value exceeded carrying value of goodwill for its Cemetery Operations and Funeral Home Operations reporting units by approximately 29% and 41%, respectively. While historical performance and current expectations have resulted in fair values of
goodwill in excess of carrying values, if our assumptions are not realized, it is possible that in the future an impairment charge may need to be recorded. However, it is not possible at this time to determine if an impairment charge would result or
if any such charge would be material.
Income Taxes
Our corporate subsidiaries are subject to both federal and state income taxes. We record deferred tax assets and liabilities to recognize
temporary differences between the bases of assets and liabilities in our tax and GAAP balance sheets and for federal and state net operating loss carryforwards and alternative minimum tax credits.
We record a valuation allowance against our deferred tax assets if we deem 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.
In evaluating our ability to recover deferred tax assets, we
consider all available positive and negative evidence, including our past operating results, recent cumulative losses and our forecast of future taxable income. In determining future taxable income, we make assumptions for the amount of taxable
income, the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions require us to make judgments about our future taxable income and are consistent with the plans and estimates we
use to manage our business. Any reduction in estimated future taxable income may require us to record an additional valuation allowance against our deferred tax assets. An increase in the valuation allowance would result in additional income tax
expense in the period and could have a significant impact on our future earnings.
As of December 31, 2016, our taxable corporate
subsidiaries had federal net operating loss carryforwards of approximately $295.9 million, which will begin to expire in 2017, and $374.1 million in state net operating loss carryforwards, a portion of which expires annually. Our ability
to use such federal net operating loss carryforwards may be limited by changes in the ownership of our units deemed to result in an ownership change under the applicable provisions of the Internal Revenue Code of 1986, as amended.
63
ITEM 8.
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of StoneMor GP LLC and Unitholders of StoneMor Partners L.P.
We have audited the accompanying consolidated balance sheets of StoneMor Partners L.P. and subsidiaries (the Partnership) as of December 31,
2016 and 2015, and the related consolidated statements of operations, partners capital and cash flows for each of the three years in the period ended December 31, 2016. These financial statements are the responsibility of the
Partnerships management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion,
such consolidated financial statements present fairly, in all material respects, the financial position of StoneMor Partners L.P. and subsidiaries as of December 31, 2016, and 2015, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 2 to the consolidated financial statements, the accompanying consolidated financial statements as of December 31, 2015, and for each
of the two years in the period ended December 31, 2015, have been restated to correct misstatements.
We have also audited, in accordance with the
standards of the Public Company Accounting Oversight Board (United States), the Partnerships internal control over financial reporting as of December 31, 2016, based on the criteria established in
Internal Control Integrated
Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated September 15, 2017 expressed an adverse opinion on the Partnerships internal control over financial reporting
because of material weaknesses.
/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
September 15, 2017
66
STONEMOR PARTNERS L.P.
CONSOLIDATED BALANCE SHEETS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Assets
|
|
|
|
|
(As restated - see
Note 2)
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
12,570
|
|
|
$
|
15,153
|
|
Accounts receivable, net of allowance
|
|
|
77,253
|
|
|
|
68,415
|
|
Prepaid expenses
|
|
|
5,532
|
|
|
|
5,367
|
|
Other current assets
|
|
|
23,466
|
|
|
|
20,799
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
118,821
|
|
|
|
109,734
|
|
|
|
|
Long-term accounts receivable, net of allowance
|
|
|
98,886
|
|
|
|
95,167
|
|
Cemetery property
|
|
|
337,315
|
|
|
|
334,457
|
|
Property and equipment, net of accumulated depreciation
|
|
|
118,281
|
|
|
|
116,127
|
|
Merchandise trusts, restricted, at fair value
|
|
|
507,079
|
|
|
|
472,368
|
|
Perpetual care trusts, restricted, at fair value
|
|
|
333,780
|
|
|
|
307,804
|
|
Deferred selling and obtaining costs
|
|
|
116,890
|
|
|
|
106,124
|
|
Deferred tax assets
|
|
|
64
|
|
|
|
61
|
|
Goodwill
|
|
|
70,436
|
|
|
|
69,851
|
|
Intangible assets
|
|
|
65,438
|
|
|
|
67,209
|
|
Other assets
|
|
|
20,023
|
|
|
|
20,618
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,787,013
|
|
|
$
|
1,699,520
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Partners Capital
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
35,547
|
|
|
$
|
28,547
|
|
Accrued interest
|
|
|
1,571
|
|
|
|
1,503
|
|
Current portion, long-term debt
|
|
|
1,775
|
|
|
|
2,440
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
38,893
|
|
|
|
32,490
|
|
|
|
|
Long-term debt, net of deferred financing costs
|
|
|
300,351
|
|
|
|
316,399
|
|
Deferred revenues
|
|
|
866,633
|
|
|
|
791,450
|
|
Deferred tax liabilities
|
|
|
20,058
|
|
|
|
18,999
|
|
Perpetual care trust corpus
|
|
|
333,780
|
|
|
|
307,804
|
|
Other long-term liabilities
|
|
|
36,944
|
|
|
|
27,667
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,596,659
|
|
|
|
1,494,809
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Partners capital (deficit):
|
|
|
|
|
|
|
|
|
General partner interest
|
|
|
(1,914
|
)
|
|
|
480
|
|
Common limited partners interest
|
|
|
192,268
|
|
|
|
204,231
|
|
|
|
|
|
|
|
|
|
|
Total partners capital
|
|
|
190,354
|
|
|
|
204,711
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and partners capital
|
|
$
|
1,787,013
|
|
|
$
|
1,699,520
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to the
Consolidated Financial Statements.
67
STONEMOR PARTNERS L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per unit data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Revenues:
|
|
|
|
|
(As restated - see Note 2)
|
|
Cemetery:
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchandise
|
|
$
|
150,439
|
|
|
$
|
143,543
|
|
|
$
|
142,568
|
|
Services
|
|
|
57,781
|
|
|
|
59,935
|
|
|
|
54,543
|
|
Investment and other
|
|
|
57,506
|
|
|
|
58,769
|
|
|
|
54,472
|
|
Funeral home:
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchandise
|
|
|
27,625
|
|
|
|
27,024
|
|
|
|
21,218
|
|
Services
|
|
|
32,879
|
|
|
|
31,048
|
|
|
|
27,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
326,230
|
|
|
|
320,319
|
|
|
|
300,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
45,577
|
|
|
|
50,870
|
|
|
|
45,847
|
|
Cemetery expense
|
|
|
72,736
|
|
|
|
71,296
|
|
|
|
64,672
|
|
Selling expense
|
|
|
67,267
|
|
|
|
59,569
|
|
|
|
55,713
|
|
General and administrative expense
|
|
|
37,749
|
|
|
|
37,451
|
|
|
|
35,156
|
|
Corporate overhead
|
|
|
39,618
|
|
|
|
38,609
|
|
|
|
34,723
|
|
Depreciation and amortization
|
|
|
12,899
|
|
|
|
12,803
|
|
|
|
11,081
|
|
Funeral home expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchandise
|
|
|
8,193
|
|
|
|
6,928
|
|
|
|
6,659
|
|
Services
|
|
|
24,772
|
|
|
|
22,969
|
|
|
|
20,487
|
|
Other
|
|
|
20,305
|
|
|
|
17,806
|
|
|
|
12,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
329,116
|
|
|
|
318,301
|
|
|
|
286,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on acquisitions and divestitures
|
|
|
2,614
|
|
|
|
1,540
|
|
|
|
656
|
|
Legal settlement
|
|
|
|
|
|
|
(3,135
|
)
|
|
|
888
|
|
Loss on early extinguishment of debt
|
|
|
(1,234
|
)
|
|
|
|
|
|
|
(214
|
)
|
Other losses, net
|
|
|
(2,900
|
)
|
|
|
(296
|
)
|
|
|
(440
|
)
|
Interest expense
|
|
|
(24,488
|
)
|
|
|
(22,585
|
)
|
|
|
(21,610
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
|
(28,894
|
)
|
|
|
(22,458
|
)
|
|
|
(7,225
|
)
|
Income tax benefit (expense)
|
|
|
(1,589
|
)
|
|
|
(933
|
)
|
|
|
(2,564
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(30,483
|
)
|
|
$
|
(23,391
|
)
|
|
$
|
(9,789
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General partners interest
|
|
$
|
2,016
|
|
|
$
|
3,607
|
|
|
$
|
2,085
|
|
Limited partners interest
|
|
$
|
(32,499
|
)
|
|
$
|
(26,998
|
)
|
|
$
|
(11,874
|
)
|
Net loss per limited partner unit (basic and diluted)
|
|
$
|
(0.94
|
)
|
|
$
|
(0.89
|
)
|
|
$
|
(0.45
|
)
|
Weighted average number of limited partners units outstanding (basic and diluted)
|
|
|
34,602
|
|
|
|
30,472
|
|
|
|
26,582
|
|
See Accompanying Notes to the
Consolidated Financial Statements.
68
STONEMOR PARTNERS L.P.
CONSOLIDATED STATEMENTS OF PARTNERS CAPITAL
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners Capital
|
|
|
|
Outstanding
Common Units
|
|
|
Common
Limited Partners
|
|
|
General
Partner
|
|
|
Total
|
|
December 31, 2013 (As restatedsee Note 2)
|
|
|
21,377,102
|
|
|
$
|
124,784
|
|
|
$
|
2,219
|
|
|
$
|
127,003
|
|
Issuance of common units
|
|
|
7,545,947
|
|
|
|
176,271
|
|
|
|
|
|
|
|
176,271
|
|
Common unit awards under incentive plans
|
|
|
168,806
|
|
|
|
1,068
|
|
|
|
|
|
|
|
1,068
|
|
Net income (loss)
|
|
|
|
|
|
|
(11,874
|
)
|
|
|
2,085
|
|
|
|
(9,789
|
)
|
Cash distributions
|
|
|
|
|
|
|
(60,015
|
)
|
|
|
(2,821
|
)
|
|
|
(62,836
|
)
|
Unit distributions paid in kind
|
|
|
111,740
|
|
|
|
(2,775
|
)
|
|
|
|
|
|
|
(2,775
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014 (As restatedsee Note 2)
|
|
|
29,203,595
|
|
|
|
227,459
|
|
|
|
1,483
|
|
|
|
228,942
|
|
Issuance of common units
|
|
|
2,692,667
|
|
|
|
80,976
|
|
|
|
|
|
|
|
80,976
|
|
Common unit awards under incentive plans
|
|
|
7,716
|
|
|
|
1,516
|
|
|
|
|
|
|
|
1,516
|
|
Net income (loss)
|
|
|
|
|
|
|
(26,998
|
)
|
|
|
3,607
|
|
|
|
(23,391
|
)
|
Cash distributions
|
|
|
|
|
|
|
(72,902
|
)
|
|
|
(4,610
|
)
|
|
|
(77,512
|
)
|
Unit distributions paid in kind
|
|
|
204,804
|
|
|
|
(5,820
|
)
|
|
|
|
|
|
|
(5,820
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015 (As restatedsee Note 2)
|
|
|
32,108,782
|
|
|
|
204,231
|
|
|
|
480
|
|
|
|
204,711
|
|
Issuance of common units
|
|
|
5,536,560
|
|
|
|
99,354
|
|
|
|
|
|
|
|
99,354
|
|
Common unit awards under incentive plans
|
|
|
12,067
|
|
|
|
1,147
|
|
|
|
|
|
|
|
1,147
|
|
Net income (loss)
|
|
|
|
|
|
|
(32,499
|
)
|
|
|
2,016
|
|
|
|
(30,483
|
)
|
Cash distributions
|
|
|
|
|
|
|
(74,754
|
)
|
|
|
(4,410
|
)
|
|
|
(79,164
|
)
|
Unit distributions paid in kind
|
|
|
206,087
|
|
|
|
(5,211
|
)
|
|
|
|
|
|
|
(5,211
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
37,863,496
|
|
|
$
|
192,268
|
|
|
$
|
(1,914
|
)
|
|
$
|
190,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to the
Consolidated Financial Statements.
69
STONEMOR PARTNERS L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Cash Flows From Operating Activities:
|
|
|
|
|
(As restated - see Note 2)
|
|
Net loss
|
|
$
|
(30,483
|
)
|
|
$
|
(23,391
|
)
|
|
$
|
(9,789
|
)
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of lots sold
|
|
|
9,581
|
|
|
|
13,103
|
|
|
|
10,291
|
|
Depreciation and amortization
|
|
|
12,899
|
|
|
|
12,803
|
|
|
|
11,081
|
|
Provision for cancellations
|
|
|
10,681
|
|
|
|
9,430
|
|
|
|
7,830
|
|
Non-cash
compensation expense
|
|
|
1,147
|
|
|
|
1,516
|
|
|
|
1,068
|
|
Non-cash
interest expense
|
|
|
4,430
|
|
|
|
2,949
|
|
|
|
2,939
|
|
Gain on acquisitions and divestitures
|
|
|
(2,614
|
)
|
|
|
(1,540
|
)
|
|
|
(656
|
)
|
Loss on early extinguishment of debt
|
|
|
1,234
|
|
|
|
|
|
|
|
214
|
|
Other losses, net
|
|
|
1,947
|
|
|
|
296
|
|
|
|
440
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net of allowance
|
|
|
(22,816
|
)
|
|
|
(18,303
|
)
|
|
|
(18,186
|
)
|
Merchandise trust fund
|
|
|
(17,101
|
)
|
|
|
(44,640
|
)
|
|
|
(28,828
|
)
|
Other assets
|
|
|
(562
|
)
|
|
|
(4,216
|
)
|
|
|
(3,938
|
)
|
Deferred selling and obtaining costs
|
|
|
(10,775
|
)
|
|
|
(13,052
|
)
|
|
|
(9,344
|
)
|
Deferred revenues
|
|
|
54,135
|
|
|
|
66,673
|
|
|
|
54,626
|
|
Deferred taxes, net
|
|
|
743
|
|
|
|
(18
|
)
|
|
|
1,394
|
|
Payables and other liabilities
|
|
|
10,321
|
|
|
|
2,452
|
|
|
|
306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
22,767
|
|
|
|
4,062
|
|
|
|
19,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for capital expenditures
|
|
|
(11,382
|
)
|
|
|
(15,339
|
)
|
|
|
(14,574
|
)
|
Cash paid for acquisitions
|
|
|
(10,550
|
)
|
|
|
(18,800
|
)
|
|
|
(56,381
|
)
|
Consideration for lease and management agreements
|
|
|
|
|
|
|
|
|
|
|
(53,000
|
)
|
Proceeds from asset sales
|
|
|
2,803
|
|
|
|
|
|
|
|
297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(19,129
|
)
|
|
|
(34,139
|
)
|
|
|
(123,658
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash distributions
|
|
|
(79,164
|
)
|
|
|
(77,512
|
)
|
|
|
(62,836
|
)
|
Proceeds from borrowings
|
|
|
229,595
|
|
|
|
148,295
|
|
|
|
92,865
|
|
Repayments of debt
|
|
|
(243,984
|
)
|
|
|
(111,034
|
)
|
|
|
(98,140
|
)
|
Proceeds from issuance of common units, net of costs
|
|
|
94,314
|
|
|
|
75,156
|
|
|
|
173,497
|
|
Cost of financing activities
|
|
|
(6,982
|
)
|
|
|
(76
|
)
|
|
|
(2,950
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(6,221
|
)
|
|
|
34,829
|
|
|
|
102,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(2,583
|
)
|
|
|
4,752
|
|
|
|
(1,774
|
)
|
Cash and cash equivalentsBeginning of period
|
|
|
15,153
|
|
|
|
10,401
|
|
|
|
12,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalentsEnd of period
|
|
$
|
12,570
|
|
|
$
|
15,153
|
|
|
$
|
10,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for interest
|
|
$
|
20,124
|
|
|
$
|
19,352
|
|
|
$
|
18,796
|
|
Cash paid during the period for income taxes
|
|
$
|
2,875
|
|
|
$
|
4,294
|
|
|
$
|
4,315
|
|
Non-cash
investing and financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of assets by financing
|
|
$
|
3,829
|
|
|
$
|
874
|
|
|
$
|
387
|
|
Acquisition of assets by assumption of directly related liability
|
|
$
|
|
|
|
$
|
876
|
|
|
$
|
8,368
|
|
See Accompanying Notes to the
Consolidated Financial Statements.
70
STONEMOR PARTNERS L.P.
Nature of Operations
StoneMor Partners L.P. (the Partnership) is a provider of funeral and cemetery products and services in the death care industry in
the United States. As of December 31, 2016, the Partnership operated 316 cemeteries in 27 states and Puerto Rico, of which 285 are owned and 31 are operated under lease, management or operating agreements. The Partnership also owned and
operated 100 funeral homes in 18 states and Puerto Rico.
Basis of Presentation
The consolidated financial statements included in this Form
10-K
have been prepared in accordance with
accounting principles generally accepted in the United States of America (GAAP).
Principles of Consolidation
The consolidated financial statements include the accounts of each of the Partnerships 100% 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 customer contract related performance obligations that it assumed as part of these agreements.
Total revenues derived from the cemeteries under these agreements totaled approximately $57.0 million, $53.1 million and
$43.4 million for the years ended December 31, 2016, 2015 and 2014, respectively.
Uses and Sources of Liquidity
Our primary use of liquidity is to fund working capital requirements of our businesses, capital expenditures and for general corporate
purposes, including debt repayment and distributions. As more fully discussed in Note 10, as a result of the Restatement as discussed in Note 2, the Partnership was required to obtain waivers for compliance with its covenants under the credit
facility, which place further restrictions on the Partnerships ability to increase and make distributions and obtain additional debt. Finally, the Partnership has incurred net losses for the reporting periods in this
Form 10-K,
and the Consolidated Leverage Ratio under the credit facility has been nearing the maximum allowed ratio under existing covenants as disclosed in Note 10.
The Partnership has taken a number of actions to continue to support its operations and meet its obligations as described more fully in Notes
10 and 17. The Partnership acknowledges that it continues to face a challenging
71
competitive environment, and while the Partnership continues to focus on its overall profitability, including managing expenses, the Partnership reported a loss in 2016. The Partnership expects
that the actions taken in 2016 and early 2017 will enhance its liquidity and financial flexibility. The Partnership will likely seek to continue to supplement cash generation with proceeds from financing activities, including borrowings under the
credit facility and other borrowings, the issuance of additional limited partner units, capital contributions from the general partner and the sale of assets and other transactions.
If the Partnership continues to experience operating losses and is not able to generate additional liquidity through the mechanisms described
above or through some combination of other actions, while not expected, the Partnership may be in breach of its covenants under the credit facility, and may not be able to access additional funds and the Partnership might need to secure additional
sources of funds, which may or may not be available to the Partnership. Additionally, a failure to generate additional liquidity could negatively impact our access to inventory or services that are important to the operation of our business.
Moreover, our ability to declare or pay future distributions may be impacted.
Summary of Significant Accounting Policies
Use of Estimates
The preparation of the
Partnerships consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of
the date of the consolidated financial statements, as well as the reported amounts of revenue and expense during the reporting periods. The Partnerships 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, deferred revenues, deferred merchandise trust investment
earnings, deferred selling and obtaining costs, assets and liabilities obtained through business combinations and income taxes. As a result, actual results could differ from those estimates.
Accounts Receivable, Net of Allowance
The Partnership sells
pre-need
cemetery contracts whereby the customer enters into arrangements for
future merchandise and services prior to the time of need. These sales are usually made using interest-bearing installment contracts not to exceed 60 months. The interest income is recorded when the interest amount is considered realizable and
collectible, which typically coincides with cash payment. Interest income is not recognized until payments are collected in accordance with the contract. At the time of a
pre-need
sale, the Partnership records
an account receivable in an amount equal to the total contract value less unearned finance income and any cash deposit paid, net of an estimated allowance for customer cancellations. The Partnership recognizes an allowance for cancellation of these
receivables based upon its historical experience, which is recorded as a reduction in accounts receivable and a corresponding offset to deferred revenues. The Partnership recognizes an allowance for cancellation of receivables related to recognized
contracts as an offset to revenue.
Management evaluates customer receivables for impairment based upon its historical experience,
including the age of the receivables and the customers payment histories. Since the Partnerships receivables primarily relate to
pre-need
sales, the Partnership has not performed the related
service or fulfilled all of its obligations for the related merchandise, with respect to which limited risk of loss exists regarding accounts receivable.
Cash and Cash Equivalents
The
Partnership considers all highly liquid investments purchased with an original maturity of three months or less from the time they are acquired to be cash equivalents.
72
Cemetery Property
Cemetery property consists of developed and undeveloped cemetery land, constructed mausoleum crypts and lawn crypts and other cemetery
property. Cemetery property is stated at cost or, upon acquisition of a business, at the fair value of the assets acquired.
Property and Equipment
Property and equipment is stated at cost or, upon acquisition of a business, at the fair value of the assets acquired and depreciated
on a straight-line basis. Maintenance and repairs are charged to expense as incurred, whereas additions and major replacements are capitalized and depreciation is recorded over their estimated useful lives as follows:
|
|
|
Buildings and improvements
|
|
10 to 40 years
|
Furniture and equipment
|
|
3 to 10 years
|
Leasehold improvements
|
|
over the shorter of the term of
the lease or the life of the asset
|
Merchandise Trusts
Pursuant to state law, a portion of the proceeds from
pre-need
sales of merchandise and services is put
into trust (the merchandise trust) until such time that the Partnership meets the requirements for releasing trust principal, which is generally delivery of merchandise or performance of services. All investment earnings generated by the
assets in the merchandise trusts (including realized gains and losses) are deferred until the associated merchandise is delivered or the services are performed (see Note 7).
Perpetual Care Trusts
Pursuant to state
law, a portion of the proceeds from the sale of cemetery property is required to be paid into perpetual care trusts. The perpetual care trust principal does not belong to the Partnership and must remain in this trust in perpetuity while interest and
dividends may be released and used to defray cemetery maintenance costs, which are expensed as incurred. The Partnership consolidates the trust into its financial statements because the trust is considered a variable interest entity for which the
Partnership is the primary beneficiary. Earnings from the perpetual care trusts are recognized in current cemetery revenues (see Note 8).
Fair Value
Measurements
The Partnership measures the
available-for-sale
securities held by its merchandise and perpetual care trusts at fair value on a recurring basis. Fair value is the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Partnership utilizes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation
hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
|
|
|
Level 1inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets;
|
|
|
|
Level 2inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly,
for substantially the full term of the financial instrument; and
|
|
|
|
Level 3inputs to the valuation methodology are unobservable and significant to the fair value measurement.
|
73
An assets or liabilitys categorization within the valuation hierarchy is based upon
the lowest level of input that is significant to the fair value measurement. For additional disclosures for all of our
available-for-sale
securities, see Notes 7 and 8.
Inventories
Inventories are
classified within other current assets on the Partnerships consolidated balance sheet and include cemetery and funeral home merchandise valued at the lower of cost or net realizable value. Cost is determined primarily on a specific
identification basis using a
first-in,
first-out
method. Inventories were approximately $12.4 million and $12.5 million at December 31, 2016 and 2015,
respectively.
Impairment of Long-Lived Assets
The Partnership monitors the recoverability of long-lived assets, including cemetery property, property and equipment and other assets, based
on estimates using factors such as current market value, future asset utilization, business and regulatory climate and future undiscounted cash flows expected to result from the use of the related assets, at a location level. The Partnerships
policy is to evaluate an asset for impairment when events or circumstances indicate that a long-lived assets carrying value may not be recovered. An impairment charge is recorded to write-down the asset to its fair value if the sum of future
undiscounted cash flows is less than the carrying value of the asset.
Other-Than-Temporary Impairment of Trust Assets
The Partnership determines whether or not the impairment of a fixed maturity debt security is other-than-temporary by evaluating each of the
following:
|
|
|
Whether it is the Partnerships intent to sell the security. If there is intent to sell, the impairment is considered to be other-than-temporary.
|
|
|
|
If there is no intent to sell, the Partnership evaluates if it is not more likely than not that it will be required to sell the debt security before its anticipated recovery. If the Partnership determines that it is
more likely than not that it will be required to sell an impaired investment before its anticipated recovery, the impairment is considered to be other-than-temporary.
|
The Partnership further evaluates whether or not all assets in the trusts have other-than-temporary impairments based upon a number of
criteria including the severity of the impairment, length of time a security has been in a loss position, changes in market conditions and concerns related to the specific issuer.
If an impairment is considered to be other-than-temporary, the cost basis of the security is adjusted downward to its fair value.
For assets held in the perpetual care trusts, any reduction in the cost basis due to an other-than-temporary impairment is offset with an
equal and opposite reduction in the perpetual care trust corpus and has no impact on earnings.
For assets held in the merchandise trusts,
any reduction in the cost basis due to an other-than-temporary impairment is recorded in deferred revenue.
Goodwill
The Partnership tests goodwill for impairment at each year end by comparing its reporting units estimated fair values to carrying values.
Because quoted market prices for the reporting units are not available, the Partnerships management must apply judgment in determining the estimated fair value of these reporting units.
74
The Partnerships management uses all available information to make these fair value determinations, including the present values of expected future cash flows using discount rates
commensurate with the risks involved in the Partnerships assets and the available market data of the industry group. A key component of these fair value determinations is a reconciliation of the sum of the fair value calculations to the
Partnerships market capitalization. The observed market prices of individual trades of an entitys equity securities (and thus its computed market capitalization) may not be representative of the fair value of the entity as a whole.
Substantial value may arise from the ability to take advantage of synergies and other benefits that flow from control over another entity. Consequently, measuring the fair value of a collection of assets and liabilities that operate together in a
controlled entity is different from measuring the fair value of that entity on a stand-alone basis. In most industries, including the Partnerships, an acquiring entity typically is willing to pay more for equity securities that give it a
controlling interest than an investor would pay for a number of equity securities representing less than a controlling interest. Therefore, once the above fair value calculations have been determined, the Partnerships management also considers
the inclusion of a control premium within the calculations. This control premium is judgmental and is based on, among other items, observed acquisitions in the Partnerships industry. The resultant fair values calculated for the reporting units
are compared to observable metrics on large mergers and acquisitions in the Partnerships industry to determine whether those valuations appear reasonable in managements judgment. Management will continue to evaluate goodwill at least
annually, or more frequently if events or circumstances indicate that the carrying value of a reporting unit exceeds its fair value.
Intangible Assets
The Partnership has other acquired intangible assets, most of which have been recognized as a result of acquisitions and long-term
lease, management and operating agreements. The Partnership amortizes these intangible assets over their estimated useful lives and periodically tests them for impairment.
Accounts Payable and Accrued Liabilities
The Partnership records liabilities for expenses incurred related to the current period in accounts payable and accrued liabilities on the
Partnerships consolidated balance sheet. At December 31, 2016 and 2015, accounts payable and accrued liabilities was comprised of accounts payable of $17.2 million and $8.7 million, respectively, accrued expenses of
$9.5 million and $10.2 million, respectively, benefits and payroll liabilities of $6.6 million and $7.4 million, respectively, and tax liabilities of $2.2 million and $2.2 million, respectively.
Deferred Revenues
Revenues from the sale
of services and merchandise as well as any investment income from the merchandise trusts is deferred until such time that the services are performed or the merchandise is delivered.
In addition to amounts deferred on new contracts, and investment income and unrealized gains on our merchandise trusts, deferred revenues
includes deferred revenues from
pre-need
sales that were entered into by entities prior to the Partnerships acquisition of those entities or the assets of those entities. The Partnership provides for a
profit margin for these deferred revenues to account for the projected future costs of delivering products and providing services on
pre-need
contracts that the Partnership acquired through acquisition. These
revenues and their associated costs are recognized when the related merchandise is delivered or services are performed and are presented on a gross basis on the consolidated statements of operations.
Cemetery Merchandise and Services Sales
The Partnership sells its merchandise and services on both a
pre-need
and
at-need
basis. Sales of
at-need
cemetery services and merchandise are recognized as revenue when the service is performed or merchandise is delivered.
75
Pre-need
sales are usually made on an installment
contract basis for a period not to exceed 60 months with payments of principal and interest required. For those contracts that do not bear a market rate of interest, the Partnership imputes such interest based upon the prime rate plus 150 basis
points, which resulted in a rate of 4.75% for contracts entered into during the three years ended December 31, 2016, in order to segregate the principal and interest component of the total contract value.
At the time of a
pre-need
sale, the Partnership records an account receivable in an amount equal to
the total contract value less unearned finance income and any cash deposit paid, net of an estimated allowance for customer cancellations. The revenue from both the sales and interest component is deferred. Interest revenue is recognized utilizing
the effective interest method.
The allowance for customer cancellations is established based on managements estimates of expected
cancellations and historical experiences. Revenue from the sale of burial lots and constructed mausoleum crypts is deferred until such time that 10% of the sales price has been collected, at which time it is fully earned; revenues from the sale of
unconstructed mausoleums are recognized using the
percentage-of-completion
method of accounting while revenues from cemetery merchandise and services are recognized once
such merchandise is delivered (title has transferred to the customer and the merchandise is either installed or stored, at the direction of the customer, at the vendors warehouse or a third-party warehouse at no additional cost to us) or
services are performed. Cash retained related to cancellations is recognized as revenue at the time of the cancellation.
The cost of
goods sold related to merchandise and services reflects the actual cost of purchasing products and performing services, and the value of cemetery property depleted through the recognized sales of interment rights. The costs related to the sales of
lots and crypts are determined systematically using a specific identification method under which the total value of the underlying cemetery property and the spaces available to be sold at the location are used to determine the cost per space.
The Partnership defers certain
pre-need
cemetery and prearranged funeral direct obtaining costs that
vary with and are primarily related to the acquisition of new
pre-need
cemetery and prearranged funeral business. Such costs are expensed as revenues are recognized.
Funeral Home Services and Insurance Policy Sales
Revenue from funeral home services is recognized as services are performed and merchandise is delivered. The Partnerships funeral home
operations also include revenues related to the sale of term and final expense whole life insurance. As an agent for these insurance sales, the Partnership earns and recognizes commission-related revenue streams from the sales of these policies. As
the Partnership performs these services at the time of need, the Partnership recognizes funeral home revenues and receives the proceeds of the life insurance policies. The Partnership generally has a guarantee to perform services and deliver
merchandise upon assignment of the policy proceeds at the time of need. The unfulfilled insurance-funded
pre-need
contract amounts are not reflected on the Partnerships consolidated balance sheet as the
insurance policy, including any premium payments thereon, is between the third-party insurance company and the customer, and the costs of performing and delivering on these policies are not expected to exceed the related proceeds.
Pursuant to state law, a portion of proceeds received from
pre-need
funeral service contracts is put
into trust while amounts used to defray the initial administrative costs are not. All investment earnings generated by the assets in the trust (including realized gains and losses) are deferred until the associated merchandise is delivered or the
services are performed. The balance of the amounts in these trusts is included within the merchandise trusts above.
Income Taxes
The Partnership is not subject to U.S. federal and most state income taxes. The partners of the Partnership are liable for income tax in regard
to their distributive share of the Partnerships taxable income. Such taxable
76
income may vary substantially from net income reported in the accompanying consolidated financial statements. Certain corporate subsidiaries are subject to federal and state income tax. Deferred
tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and tax carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the enactment date. The Partnership records a valuation allowance against its deferred tax assets if it deems that it is more likely than not that some portion or all of the recorded
deferred tax assets will not be realizable in future periods.
Net Income (Loss) per Common Unit
Basic net income (loss) attributable to common limited partners per unit is computed by dividing net income (loss) attributable to common
limited partners, which is determined after the deduction of the general partners 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 (loss) attributable to participating securities, if applicable, and net income (loss) attributable to the general partners units. The general partners 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 partners incentive distributions, if any, in accordance with the partnership agreement,
and the remaining net income (loss) allocated with respect to the general partners 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 in excess of available cash are not allocated to the incentive distribution rights.
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
(As restated - see Note 2)
|
|
Net loss
|
|
$
|
(30,483
|
)
|
|
$
|
(23,391
|
)
|
|
$
|
(9,789
|
)
|
Less: Incentive distribution right (IDR) payments to general partner
|
|
|
2,387
|
|
|
|
3,961
|
|
|
|
2,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss to allocate to general and limited partners
|
|
|
(32,870
|
)
|
|
|
(27,352
|
)
|
|
|
(12,039
|
)
|
General partners interest excluding IDRs
|
|
|
(371
|
)
|
|
|
(354
|
)
|
|
|
(165
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common limited partners
|
|
$
|
(32,499
|
)
|
|
$
|
(26,998
|
)
|
|
$
|
(11,874
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. These awards consist of common units issuable upon payment of an exercise price by the participant under the terms of the Partnerships long-term incentive plan (see Note
13).
77
The following table sets forth the reconciliation of the Partnerships weighted average
number of common limited partner units used to compute basic net income (loss) attributable to common limited partners per unit with those used to compute diluted net income (loss) attributable to common limited partners per unit (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Weighted average number of common limited partner unitsbasic
|
|
|
34,602
|
|
|
|
30,472
|
|
|
|
26,582
|
|
Add effect of dilutive incentive awards (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common limited partner unitsdiluted
|
|
|
34,602
|
|
|
|
30,472
|
|
|
|
26,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The diluted weighted average number of limited partners units outstanding presented on the consolidated statement of operations does not include 304,494 units, 282,093 units and 164,709 units for the years ended
December 31, 2016, 2015 and 2014, respectively, as their effects would be anti-dilutive.
|
New Accounting Pronouncements
In May 2014, the FASB issued ASU
2014-09,
Revenue from Contracts with Customers (Topic
606).
This ASU supersedes the revenue recognition requirements in FASB ASC 605,
Revenue Recognition
, and in most industry-specific topics. The new guidance identifies how and when entities should recognize revenue. The new rules
establish a core principle requiring the recognition of revenue to depict the transfer of promised goods or services to customers in an amount reflecting the consideration to which the entity expects to be entitled in exchange for such goods or
services. In connection with this new standard, the FASB has issued several amendments to ASU
2014-09,
as follows:
|
|
|
In March 2016, the FASB issued ASU
2016-08,
Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus
Net)
. This standard improves the implementation guidance on principal versus agent considerations and whether an entity reports revenue on a gross or net basis.
|
|
|
|
In April 2016, the FASB issued ASU
2016-10,
Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing
. This standard
clarifies identifying performance obligations and the licensing implementation guidance.
|
|
|
|
In May 2016, the FASB issued ASU
2016-12,
Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients
. This standard provides
additional guidance on (a) the objective of the collectability criterion, (b) the presentation of sales tax collected from customers, (c) the measurement date of
non-cash
consideration received,
(d) practical expedients in respect of contract modifications and completed contracts at transition and (e) disclosure of the effects of the accounting change in the period of adoption.
|
|
|
|
In December 2016, the FASB issued ASU No.
2016-20,
Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers
, which amends certain
narrow aspects of the guidance, including the disclosure of remaining performance obligations and prior-period performance obligations, as well as other amendments to the guidance on loan guarantee fees, contract costs, refund liabilities,
advertising costs and the clarification of certain examples.
|
The new guidance in ASU
2014-09,
as well as all amendments discussed above, is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Management is currently evaluating the impact
that adoption of this guidance will have on the financial statements of the Partnership. Management is in the process of assessing the impact of the guidance on our contracts in all our revenue streams by reviewing our current accounting policies
and practices to identify potential differences that would result from applying the new requirements to our revenue contracts. Management continues to make progress on its contract reviews and is also in the process of evaluating the impact, if any,
on changes to its business processes, systems and controls
78
to support recognition and disclosure under the new guidance. The Partnership continues to evaluate and has not yet fully determined the impact of the new standard on our consolidated results of
operations, financial position, cash flows and financial statement disclosures. The Partnership will adopt the requirements of the new standard upon its effective date of January 1, 2018.
In the second quarter of 2015, the FASB issued Update
No. 2015-07,
Fair Value Measurement
(Topic 820)
. The amendments in this update removed the requirement to categorize within the fair value hierarchy investments for which fair value is measured using the net asset value per share practical expedient. The Partnership adopted
this guidance in the current period pertaining to its new investment funds (see Notes 6, 7 and 15).
In the first quarter of 2016, the
FASB issued Update
No. 2016-01,
Financial Instruments (Subtopic
825-10)
(ASU
2016-01).
The core principle
of ASU
2016-01
is that all equity investments should be measured at fair value with changes in the fair value recognized through net income. The amendment is effective for annual reporting periods beginning
after December 15, 2017, including interim periods within that reporting period. Early application is not permitted for the key aspects of the amendment. The Partnership will adopt the requirements of ASU
2016-01
upon its effective date of January 1, 2018, and is evaluating the potential impact of the adoption on its financial position, results of operations and related disclosures.
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.
In the second
quarter of 2016, the FASB issued Update
No. 2016-13,
Credit Losses (Topic 326)
(ASU
2016-13).
The core principle of ASU
2016-13
is that all assets measured at amortized cost basis should be presented at the net amount expected to be collected using historical experience, current conditions and reasonable and supportable forecasts as
a basis for credit loss estimates, instead of the probable initial recognition threshold used under current GAAP. The amendment is effective for annual reporting periods beginning after December 15, 2019, including interim periods within those
fiscal years. Early application is permitted. The Partnership plans to adopt the requirements of ASU
2016-13
upon its effective date of January 1, 2020, and is evaluating the potential impact of the
adoption on its financial position, results of operations and related disclosures.
In the third quarter of 2016, the FASB issued Update
No. 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
(ASU
2016-15).
The core principle of ASU
2016-15
is to provide cash flow statement classification guidance. The amendment is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those fiscal years.
Early application is permitted. The Partnership plans to adopt the requirements of ASU
2016-15
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 fourth quarter of 2016, the FASB issued Update
No. 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash
(ASU
2016-18).
The core principle of ASU
2016-18
is to provide guidance on the presentation of restricted cash or restricted cash equivalents in the statement of cash flows. The amendment is effective for annual reporting periods beginning after
December 15, 2017, including interim periods within those fiscal years. Early application is permitted. The Partnership plans to adopt the requirements of ASU
2016-18
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.
79
In the first quarter of 2017, the FASB issued Update
No. 2017-01,
Business Combinations (Topic 805): Clarifying the Definition of a Business
, which clarifies the definition of a business. The amendments affect all companies and other reporting
organizations that must determine whether they have acquired or sold a business. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The amendments are intended to help
companies and other organizations evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments are effective for annual periods beginning after December 15, 2017, including interim
periods within those periods. The Partnership is evaluating the potential impact of the adoption on its financial position, results of operations and related disclosures.
In the first quarter of 2017, the FASB also issued Update
No. 2017-04,
Intangibles-Goodwill
and Other (Topic 350)
(ASU
2017-04)
to simplify the subsequent measurement of goodwill. ASU
2017-04
eliminates Step 2 from the goodwill impairment test.
Instead, impairment is defined as the amount by which the carrying value of the reporting unit exceeds its fair value, up to the total amount of goodwill. The Partnership plans to adopt the requirements of ASU
2017-04
upon its effective date of January 1, 2020, and is evaluating the impact, if any, on its financial position, results of operations and related disclosures.
2.
|
RESTATEMENT OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENTS
|
As previously
disclosed on Form
8-K
filed on February 27, 2017, the Board of Directors of StoneMor GP LLC, the general partner of the Company, upon the recommendation of management, concluded certain of the
Partnerships previously issued consolidated financial statements should not be relied upon. Accordingly, this Form
10-K
amends the Partnerships audited consolidated financial statements as of
December 31, 2015, and for each of the two years in the period ended December 31, 2015 and the related notes thereto, included on Form
10-K/A
filed on November 9, 2016 (Original
Filing). A summary of these accounting errors and their effect on the Partnerships consolidated financial statements is as follows:
|
A.
|
The Partnership understated recognized revenues from the satisfaction of cemetery and funeral home performance obligations in the consolidated statement of operations. The understatement was primarily due to lags in or
omissions of the data entry of a contract servicing event. The understatement was partially offset by an overstatement of recognized revenues in conjunction with the Partnerships adjustment in the Original Filingspecifically related to
revenue recognition based on inaccurate system inputs regarding deferred
pre-acquisition
and post-acquisition contracts. Accordingly, the accompanying consolidated financial statements as of December 31,
2015 and for each of the two years in the period ended December 31, 2015 have been restated to reflect the appropriate accuracy, timing and completeness of revenue recognition. The adjustments to correct these accounting errors resulted in a
decrease in Deferred revenues of $37.5 million related to lags in or omissions of the data entry of a contract servicing event, an increase in Deferred revenues of $11.2 million related to inaccurate system inputs
regarding deferred
pre-acquisition
contracts, a decrease in Deferred revenues of $5.0 million related to inaccurate system inputs regarding deferred post-acquisition contracts, and a
corresponding net increase in Partners capital of $31.3 million as of December 31, 2015. In addition, the correction of these accounting errors resulted in a net increase of $1.2 million and a net decrease of
$3.2 million in revenues for the years ended December 31, 2015 and 2014, respectively. These revenue adjustments resulted in decreases in related costs of $1.1 million and $1.5 million, for the years ended December 31, 2015
and 2014, respectively.
|
|
B.
|
In conjunction with the foregoing revenue recognition errors, on its consolidated balance sheets, the Partnership
had historically (i) deferred incorrect and imprecise amounts of investment revenues and expenses related to its merchandise trusts, (ii) reserved incorrect amounts for future cancellations related to its cemetery and funeral home
performance obligations, and (iii) deferred incorrect amounts of selling costs. Accordingly, to uphold the matching principle in accordance with US GAAP, the accompanying consolidated financial statements as of December 31, 2015 and
for each of the two years in the period ended December 31, 2015 have been restated to reflect (i) revised periodic recognition of investment revenues and expenses, (ii) cancellation reserve adjustments, and (iii) recognition of
selling
|
80
|
expenses in proper periods. The adjustments to correct these accounting errors resulted in a decrease in Deferred selling and obtaining costs of $5.4 million, a decrease in
Other assets of $0.2 million, a decrease in deferred trust revenues of $0.5 million classified within Deferred revenues, and a decrease in Partners capital of $5.1 million as of
December 31, 2015. In addition, the correction of these accounting errors resulted in a net decrease in Cemetery investment and other revenues of $0.5 million and $0.3 million for the years ended December 31, 2015 and
2014, respectively, due to changes in the inputs used to calculate trust income recognition. This also resulted in an increase in Cemetery merchandise revenues of $0.1 million for the year ended December 31, 2014 due to a
decrease in cancellation reserve expense, and an increase in Selling expense of $0.7 million and $0.4 million for the years ended December 31, 2015 and 2014, respectively.
|
|
C.
|
Certain components of Other current assets, Merchandise trusts, restricted, at fair value, Accounts payable and accrued liabilities and Deferred revenues on its
consolidated balance sheets were determined to be inappropriate in the Partnerships review of accounting policies during its ongoing remediation. The Partnership had historically presented intercompany deposits due to its merchandise and
perpetual care trust funds within Other current assets, presented intercompany payables to its merchandise and perpetual care trusts in Accounts payable and accrued liabilities, and improperly excluded trust investments in
insurance policies and related funeral home performance obligations from the consolidated balance sheet. Subsequent to the issuance of the Partnerships Original Filing, however, the Partnership determined the intercompany payables and
liabilities to its consolidated trust funds should be eliminated and the previously excluded trust investments and related obligations should be presented on its consolidated balance sheet. Accordingly, the accompanying consolidated balance sheet as
of December 31, 2015 has been restated to reflect the appropriate presentation. The adjustments to correct these accounting errors resulted in a decrease in Other current assets of $4.1 million, an increase in Merchandise
trusts, restricted, at fair value of $7.7 million, a decrease in Accounts payable and accrued liabilities of $4.1 million, and an increase in Deferred revenues of $7.7 million as of December 31,
2015.
|
|
D.
|
The Partnership recognized incorrect amounts of workers compensation and general liability insurance reserves. These reserves were understated as they excluded estimated amounts for incurred but not reported
claims. Accordingly, the accompanying consolidated financial statements as of and for each of the two years in the period ended December 31, 2015 have been restated to recognize additional insurance reserves for incurred but not reported
claims. In accordance with GAAP, the Partnership presents its obligations for workers compensation and other general claims as liabilities on its consolidated balance sheets without a reduction for the potential insurance recoveries, and
separately presents the receivable for the related insurance recoveries that the Partnership expects to receive as an asset. The adjustments to correct these accounting errors resulted in an increase in Other current assets of
$2.7 million, an increase in Other assets of $4.6 million, an increase in Accounts payable and accrued liabilities of $2.7 million, an increase in Other long-term liabilities of $6.2 million
and a decrease in Partners capital of $1.6 million as of December 31, 2015. In addition, the correction of these accounting errors resulted in an increase in General and administrative expense of
$1.1 million and $0.1 million and an increase in Other funeral home expenses of $0.3 million and $0.1 million for the years ended December 31, 2015 and 2014, respectively.
|
|
E.
|
The Partnership calculated the effect on income taxes derived from the foregoing accounting errors. As such, the adjustments to record the tax effects of these errors resulted in a decrease of $1.5 million in
income tax expense for the year ended December 31, 2014. In addition, the adjustments to record the tax effect of these errors resulted in a decrease in Deferred tax assets of $0.1 million, an increase in Deferred tax
liabilities of $1.3 million and a $1.4 million decrease in Partners capital as of December 31, 2015.
|
|
F.
|
Specific to the Partnerships disclosure in Note 16,
Supplemental Condensed Consolidating Financial
Information
, (Note 16) the Partnership recorded incorrect amounts for its individual cemetery and funeral home location-level equity and intercompany balances at its formation and in subsequent
|
81
|
acquisitions. Additionally, the Partnership presented certain managed locations as guarantor subsidiaries instead of
non-guarantor
subsidiaries in Note 16.
Accordingly, the Partnership has restated its disclosure in Note 16 to reflect these changes. Note that this adjustment had no impact to amounts presented on the face of the consolidated financial statements.
|
|
G.
|
The Partnership incorrectly presented the changes in Accounts receivable, net of allowance net of the income statement Provision for cancellations and omitted certain disclosures regarding the
components of the changes in Accounts receivable, net of allowance and Deferred revenues in its consolidated statements of cash flows. Additionally, specific to the Partnerships related disclosure in Note 4,
Accounts
Receivable, Net of Allowance
, (Note 4) the Partnership presented activity in the allowance for cancellations that related to deferred revenues on a gross basis instead of on a net basis. Accordingly, the Partnership has restated its
consolidated statements of cash flows for the years ended December 31, 2015 and 2014 to present Provision for cancellations on a gross basis separate from the changes in Accounts receivable, net of allowance within its
cash flows from operating activities and presented the components of the changes in Accounts receivable, net of allowance and Deferred revenues in Note 21,
Supplemental Cash Flow Information
.
Additionally, the
Partnership has restated its disclosure in Note 4 to present the provision and cancellations of amounts recognized.
|
The
effect of these adjustments on the Partnerships consolidated balance sheets, statements of operations and cash flows as of and for the years ended December 31, 2015 and 2014 is summarized below for each affected caption (in thousands,
except per unit data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
CONSOLIDATED BALANCE SHEET
|
|
|
|
2015
|
|
|
|
Reference
|
|
As Filed
|
|
|
Restatement
Adjustments
|
|
|
As Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current assets
|
|
C, D
|
|
$
|
22,241
|
|
|
$
|
(1,442
|
)
|
|
$
|
20,799
|
|
Total current assets
|
|
|
|
|
111,176
|
|
|
|
(1,442
|
)
|
|
|
109,734
|
|
Merchandise trusts, restricted, at fair value
|
|
C
|
|
|
464,676
|
|
|
|
7,692
|
|
|
|
472,368
|
|
Deferred selling and obtaining costs
|
|
B
|
|
|
111,542
|
|
|
|
(5,418
|
)
|
|
|
106,124
|
|
Deferred tax assets
|
|
E
|
|
|
181
|
|
|
|
(120
|
)
|
|
|
61
|
|
Other assets
|
|
B, D
|
|
|
16,167
|
|
|
|
4,451
|
|
|
|
20,618
|
|
Total assets
|
|
|
|
|
1,694,357
|
|
|
|
5,163
|
|
|
|
1,699,520
|
|
Accounts payable and accrued liabilities
|
|
C
|
|
|
29,989
|
|
|
|
(1,442
|
)
|
|
|
28,547
|
|
Total current liabilities
|
|
|
|
|
33,932
|
|
|
|
(1,442
|
)
|
|
|
32,490
|
|
Deferred revenues
|
|
A, B, C
|
|
|
815,421
|
|
|
|
(23,971
|
)
|
|
|
791,450
|
|
Deferred tax liabilities
|
|
E
|
|
|
17,747
|
|
|
|
1,252
|
|
|
|
18,999
|
|
Other long-term liabilities
|
|
D
|
|
|
21,508
|
|
|
|
6,159
|
|
|
|
27,667
|
|
Total liabilities
|
|
|
|
|
1,512,811
|
|
|
|
(18,002
|
)
|
|
|
1,494,809
|
|
General partner interest
|
|
A, B, D, E
|
|
|
15
|
|
|
|
465
|
|
|
|
480
|
|
Common limited partners interest
|
|
A, B, D, E
|
|
|
181,531
|
|
|
|
22,700
|
|
|
|
204,231
|
|
Total partners capital
|
|
|
|
|
181,546
|
|
|
|
23,165
|
|
|
|
204,711
|
|
Total liabilities and partners capital
|
|
|
|
$
|
1,694,357
|
|
|
$
|
5,163
|
|
|
$
|
1,699,520
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
CONSOLIDATED STATEMENTS OF
OPERATIONS
|
|
|
2015
|
|
|
2014
|
|
|
|
Reference
|
|
|
As Filed
|
|
|
Restatement
Adjustments
|
|
|
As
Restated
|
|
|
As Filed
|
|
|
Restatement
Adjustments
|
|
|
As
Restated
|
|
Cemetery revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchandise
|
|
|
A, B
|
|
|
$
|
143,044
|
|
|
$
|
499
|
|
|
$
|
143,543
|
|
|
$
|
145,922
|
|
|
$
|
(3,354
|
)
|
|
$
|
142,568
|
|
Services
|
|
|
A
|
|
|
|
59,176
|
|
|
|
759
|
|
|
|
59,935
|
|
|
|
54,557
|
|
|
|
(14
|
)
|
|
|
54,543
|
|
Investment and other
|
|
|
B
|
|
|
|
59,595
|
|
|
|
(826
|
)
|
|
|
58,769
|
|
|
|
54,624
|
|
|
|
(152
|
)
|
|
|
54,472
|
|
Funeral home revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchandise
|
|
|
A
|
|
|
|
26,722
|
|
|
|
302
|
|
|
|
27,024
|
|
|
|
21,060
|
|
|
|
158
|
|
|
|
21,218
|
|
Total revenues
|
|
|
|
|
|
|
319,585
|
|
|
|
734
|
|
|
|
320,319
|
|
|
|
303,789
|
|
|
|
(3,362
|
)
|
|
|
300,427
|
|
Cost of goods sold
|
|
|
A
|
|
|
|
52,019
|
|
|
|
(1,149
|
)
|
|
|
50,870
|
|
|
|
47,311
|
|
|
|
(1,464
|
)
|
|
|
45,847
|
|
Selling expense
|
|
|
B
|
|
|
|
58,884
|
|
|
|
685
|
|
|
|
59,569
|
|
|
|
55,277
|
|
|
|
436
|
|
|
|
55,713
|
|
General and administrative expense
|
|
|
D
|
|
|
|
36,371
|
|
|
|
1,080
|
|
|
|
37,451
|
|
|
|
35,110
|
|
|
|
46
|
|
|
|
35,156
|
|
Funeral home expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
|
|
|
B
|
|
|
|
22,959
|
|
|
|
10
|
|
|
|
22,969
|
|
|
|
20,470
|
|
|
|
17
|
|
|
|
20,487
|
|
Other
|
|
|
D
|
|
|
|
17,526
|
|
|
|
280
|
|
|
|
17,806
|
|
|
|
12,581
|
|
|
|
13
|
|
|
|
12,594
|
|
Total costs and expenses
|
|
|
|
|
|
|
317,395
|
|
|
|
906
|
|
|
|
318,301
|
|
|
|
287,884
|
|
|
|
(952
|
)
|
|
|
286,932
|
|
Income tax benefit (expense)
|
|
|
E
|
|
|
|
(938
|
)
|
|
|
5
|
|
|
|
(933
|
)
|
|
|
(4,057
|
)
|
|
|
1,493
|
|
|
|
(2,564
|
)
|
Net loss
|
|
|
|
|
|
|
(23,224
|
)
|
|
|
(167
|
)
|
|
|
(23,391
|
)
|
|
|
(8,872
|
)
|
|
|
(917
|
)
|
|
|
(9,789
|
)
|
General partners interest for the period
|
|
|
|
|
|
|
3,608
|
|
|
|
(1
|
)
|
|
|
3,607
|
|
|
|
2,099
|
|
|
|
(14
|
)
|
|
|
2,085
|
|
Limited partners interest for the period
|
|
|
|
|
|
|
(26,832
|
)
|
|
|
(166
|
)
|
|
|
(26,998
|
)
|
|
|
(10,971
|
)
|
|
|
(903
|
)
|
|
|
(11,874
|
)
|
Net loss per limited partner unit (basic and diluted)
|
|
|
|
|
|
$
|
(0.88
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.89
|
)
|
|
$
|
(0.41
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.45
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
CONSOLIDATED STATEMENTS OF
CASH FLOWS
|
|
|
2015
|
|
|
2014
|
|
|
|
Reference
|
|
|
As Filed
|
|
|
Restatement
Adjustments
|
|
|
As
Restated
|
|
|
As Filed
|
|
|
Restatement
Adjustments
|
|
|
As
Restated
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
$
|
(23,224
|
)
|
|
$
|
(167
|
)
|
|
$
|
(23,391
|
)
|
|
$
|
(8,872
|
)
|
|
$
|
(917
|
)
|
|
$
|
(9,789
|
)
|
Provision for cancellations
|
|
|
G
|
|
|
|
|
|
|
|
9,430
|
|
|
|
9,430
|
|
|
|
|
|
|
|
7,830
|
|
|
|
7,830
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net of allowance
|
|
|
G
|
|
|
|
(8,873
|
)
|
|
|
(9,430
|
)
|
|
|
(18,303
|
)
|
|
|
(10,356
|
)
|
|
|
(7,830
|
)
|
|
|
(18,186
|
)
|
Merchandise trust fund
|
|
|
C
|
|
|
|
(52,332
|
)
|
|
|
7,692
|
|
|
|
(44,640
|
)
|
|
|
(28,828
|
)
|
|
|
|
|
|
|
(28,828
|
)
|
Other assets
|
|
|
B, C, D
|
|
|
|
(2,383
|
)
|
|
|
(1,833
|
)
|
|
|
(4,216
|
)
|
|
|
(2,798
|
)
|
|
|
(1,140
|
)
|
|
|
(3,938
|
)
|
Deferred selling and obtaining costs
|
|
|
B
|
|
|
|
(13,747
|
)
|
|
|
695
|
|
|
|
(13,052
|
)
|
|
|
(9,797
|
)
|
|
|
453
|
|
|
|
(9,344
|
)
|
Deferred revenues
|
|
|
A, B, C
|
|
|
|
76,235
|
|
|
|
(9,562
|
)
|
|
|
66,673
|
|
|
|
52,710
|
|
|
|
1,916
|
|
|
|
54,626
|
|
Deferred taxes (net)
|
|
|
E
|
|
|
|
(13
|
)
|
|
|
(5
|
)
|
|
|
(18
|
)
|
|
|
2,887
|
|
|
|
(1,493
|
)
|
|
|
1,394
|
|
Payables and other liabilities
|
|
|
C, D
|
|
|
|
(728
|
)
|
|
|
3,180
|
|
|
|
2,452
|
|
|
|
(875
|
)
|
|
|
1,181
|
|
|
|
306
|
|
Net cash provided by operating activities
|
|
|
|
|
|
$
|
4,062
|
|
|
$
|
|
|
|
$
|
4,062
|
|
|
$
|
19,448
|
|
|
$
|
|
|
|
$
|
19,448
|
|
The Restatement adjustments affecting the consolidated statements of cash flows for the years ended
December 31, 2015 and 2014 are included in the Partnerships net loss from operations and offset by changes in operating assets and liabilities. There were no adjustments related to cash provided by (used in) investing and financing
activities.
83
The table below summarizes the effects of the Restatement adjustments on the consolidated
statements of partners capital for the years ended December 31, 2015 and 2014, including the effects of the cumulative Restatement adjustments recorded to all periods prior to January 1, 2014 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Limited
Partners
|
|
|
General
Partner
|
|
|
Total
|
|
|
Common
Limited
Partners
|
|
|
General
Partner
|
|
|
Total
|
|
|
Common
Limited
Partners
|
|
|
General
Partner
|
|
|
Total
|
|
|
|
As Filed
|
|
|
Restatement Adjustments
|
|
|
As Restated
|
|
Capital Balance at December 31, 2013
|
|
$
|
101,015
|
|
|
$
|
1,739
|
|
|
$
|
102,754
|
|
|
$
|
23,769
|
|
|
$
|
480
|
|
|
$
|
24,249
|
|
|
$
|
124,784
|
|
|
$
|
2,219
|
|
|
$
|
127,003
|
|
Net income (loss)
|
|
|
(10,971
|
)
|
|
|
2,099
|
|
|
|
(8,872
|
)
|
|
|
(903
|
)
|
|
|
(14
|
)
|
|
|
(917
|
)
|
|
|
(11,874
|
)
|
|
|
2,085
|
|
|
|
(9,789
|
)
|
Capital Balance at December 31, 2014
|
|
|
204,593
|
|
|
|
1,017
|
|
|
|
205,610
|
|
|
|
22,866
|
|
|
|
466
|
|
|
|
23,332
|
|
|
|
227,459
|
|
|
|
1,483
|
|
|
|
228,942
|
|
Net income (loss)
|
|
|
(26,832
|
)
|
|
|
3,608
|
|
|
|
(23,224
|
)
|
|
|
(166
|
)
|
|
|
(1
|
)
|
|
|
(167
|
)
|
|
|
(26,998
|
)
|
|
|
3,607
|
|
|
|
(23,391
|
)
|
Capital Balance at December 31, 2015
|
|
$
|
181,531
|
|
|
$
|
15
|
|
|
$
|
181,546
|
|
|
$
|
22,700
|
|
|
$
|
465
|
|
|
$
|
23,165
|
|
|
$
|
204,231
|
|
|
$
|
480
|
|
|
$
|
204,711
|
|
2016 Acquisitions
During the year ended December 31, 2016, the Partnership acquired the following properties and related assets, net of certain assumed
liabilities:
|
|
|
Three funeral homes for cash consideration of $1.5 million on April 6, 2016; and
|
|
|
|
Ten cemeteries and one granite company for cash consideration of $9.1 million on August 12, 2016.
|
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
Partnerships values assigned to the assets acquired and liabilities assumed in the acquisitions (in thousands):
|
|
|
|
|
Assets:
|
|
|
|
|
Accounts receivable
|
|
$
|
791
|
|
Cemetery property
|
|
|
4,612
|
|
Property and equipment
|
|
|
4,527
|
|
Inventory
|
|
|
1,900
|
|
Merchandise trusts, restricted
|
|
|
4,426
|
|
Perpetual care trusts, restricted
|
|
|
5,631
|
|
Intangible assets
|
|
|
508
|
|
Other assets
|
|
|
13
|
|
|
|
|
|
|
Total assets
|
|
|
22,408
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
Deferred revenues
|
|
|
4,231
|
|
Perpetual care trust corpus
|
|
|
5,631
|
|
Deferred taxes
|
|
|
313
|
|
|
|
|
|
|
Total liabilities
|
|
|
10,175
|
|
|
|
|
|
|
Fair value of net assets acquired
|
|
|
12,233
|
|
|
|
|
|
|
Consideration paidcash
|
|
|
10,550
|
|
|
|
|
|
|
Total consideration paid
|
|
|
10,550
|
|
|
|
|
|
|
Gain on bargain purchase
|
|
$
|
2,766
|
|
|
|
|
|
|
Goodwill from purchase
|
|
$
|
1,083
|
|
|
|
|
|
|
84
The Partnership recorded goodwill of $1.1 million in the Funeral Home Operations reporting
segment for the properties acquired in 2016. The third quarter acquisition resulted in the recognition of a gain of $2.8 million. This gain was recorded within the consolidated statement of operations.
2015 Acquisitions
During the year
ended December 31, 2015, the Partnership acquired the following properties and related assets, net of certain assumed liabilities:
|
|
|
One funeral home for cash consideration of $0.9 million on July 21, 2015;
|
|
|
|
Three funeral homes and one cemetery for cash consideration of $5.7 million on August 6, 2015;
|
|
|
|
Two cemeteries for cash consideration of $1.5 million on August 20, 2015;
|
|
|
|
One funeral home for cash consideration of $5.0 million on August 31, 2015, and an additional $1.0 million paid in 5 annual installments beginning on the
1
st
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
Partnerships values assigned to the assets acquired and liabilities assumed in the acquisitions (in thousands):
|
|
|
|
|
Assets:
|
|
|
|
|
Accounts receivable
|
|
$
|
2,634
|
|
Cemetery property
|
|
|
5,249
|
|
Property and equipment
|
|
|
7,710
|
|
Inventory
|
|
|
53
|
|
Merchandise trusts, restricted
|
|
|
15,075
|
|
Perpetual care trusts, restricted
|
|
|
4,134
|
|
Intangible assets
|
|
|
406
|
|
|
|
|
|
|
Total assets
|
|
|
35,261
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
Deferred revenues
|
|
|
21,026
|
|
Perpetual care trust corpus
|
|
|
4,134
|
|
Other liabilities
|
|
|
21
|
|
|
|
|
|
|
Total liabilities
|
|
|
25,181
|
|
|
|
|
|
|
Fair value of net assets acquired
|
|
|
10,080
|
|
|
|
|
|
|
Consideration paidcash
|
|
|
18,800
|
|
Deferred cash consideration
|
|
|
876
|
|
|
|
|
|
|
Total consideration paid
|
|
|
19,676
|
|
|
|
|
|
|
Gain on bargain purchase
|
|
$
|
921
|
|
|
|
|
|
|
Goodwill from purchase
|
|
$
|
10,517
|
|
|
|
|
|
|
Certain provisional amounts pertaining to the 2015 acquisitions were adjusted in the second, third and fourth
quarters of 2016 as the Partnership obtained additional information related to three of the acquisitions. The changes resulted in an adjustment to the gains on acquisition originally recognized during the year ended December 31, 2015, reducing
the gain by $0.5 million via a loss recognized in the current period in accordance
85
with GAAP. The Partnership recorded goodwill of $0.7 million and $9.8 million in the Cemetery Operations and Funeral Home Operations reporting segments, respectively, with regard to the
properties acquired during the year ended December 31, 2015. The original gains and related adjustments pertaining to the 2015 acquisitions were recorded within the consolidated statement of operations.
2014 Acquisitions
During the year
ended December 31, 2014, the Partnership acquired the following properties and related assets, net of certain assumed liabilities:
|
|
|
One cemetery for cash consideration of $0.2 million on January 16, 2014; and
|
|
|
|
Two funeral homes for cash consideration of $2.4 million on December 4, 2014.
|
The
Partnership accounted for these transactions under the acquisition method of accounting. Accordingly, the Partnership evaluated the identifiable assets acquired and liabilities assumed at their respective acquisition date fair values. All other
costs incurred associated with the acquisition of the assets noted were expensed as incurred. The following table presents the Partnerships final values assigned to the assets acquired and liabilities assumed in the acquisitions (in
thousands):
|
|
|
|
|
Assets:
|
|
|
|
|
Accounts receivable
|
|
$
|
104
|
|
Cemetery property
|
|
|
470
|
|
Property and equipment
|
|
|
193
|
|
Merchandise trusts, restricted
|
|
|
2,685
|
|
Perpetual care trusts, restricted
|
|
|
691
|
|
Other assets
|
|
|
22
|
|
Deferred tax assets
|
|
|
87
|
|
Non-compete
agreement
|
|
|
520
|
|
|
|
|
|
|
Total assets
|
|
|
4,772
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
Deferred revenues
|
|
|
2,053
|
|
Deferred tax liability
|
|
|
641
|
|
Perpetual care trust corpus
|
|
|
691
|
|
Other liabilities
|
|
|
20
|
|
|
|
|
|
|
Total liabilities
|
|
|
3,405
|
|
|
|
|
|
|
Fair value of net assets acquired
|
|
|
1,367
|
|
|
|
|
|
|
Consideration paidcash
|
|
|
2,581
|
|
|
|
|
|
|
Total consideration paid
|
|
|
2,581
|
|
|
|
|
|
|
Gain on bargain purchase
|
|
$
|
412
|
|
|
|
|
|
|
Goodwill from purchase
|
|
$
|
1,626
|
|
|
|
|
|
|
The Partnership recorded goodwill of $1.6 million in the Funeral Home Operations reporting segment with
regard to the properties acquired and included in the table above during the year ended December 31, 2014.
In addition to the
properties noted above, on June 10, 2014, the Partnership acquired twelve cemeteries and nine funeral homes and their related assets, net of certain assumed liabilities, in a single transaction for cash consideration of $53.8 million.
The Partnership accounted for this transaction under the acquisition method of accounting. Accordingly, the Partnership evaluated the
identifiable assets acquired and liabilities assumed at their respective acquisition date
86
fair values. All other costs incurred associated with the acquisition of the assets noted were expensed as incurred. The following table presents the Partnerships final values assigned to
the assets acquired and liabilities assumed in the acquisition, based on their estimated fair values at the date of the acquisition (in thousands):
|
|
|
|
|
Assets:
|
|
|
|
|
Accounts receivable
|
|
$
|
6,188
|
|
Cemetery property
|
|
|
25,799
|
|
Property and equipment
|
|
|
16,006
|
|
Merchandise trusts, restricted
|
|
|
31,534
|
|
Perpetual care trusts, restricted
|
|
|
16,913
|
|
Intangible assets
|
|
|
1,170
|
|
Other assets
|
|
|
178
|
|
|
|
|
|
|
Total assets
|
|
|
97,788
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
Deferred revenues
|
|
|
33,475
|
|
Deferred tax liability
|
|
|
2,010
|
|
Perpetual care trust corpus
|
|
|
16,913
|
|
Other liabilities
|
|
|
63
|
|
|
|
|
|
|
Total liabilities
|
|
|
52,461
|
|
|
|
|
|
|
Fair value of net assets acquired
|
|
|
45,327
|
|
|
|
|
|
|
Consideration paid
|
|
|
53,800
|
|
|
|
|
|
|
Goodwill from purchase
|
|
$
|
8,473
|
|
|
|
|
|
|
The Partnership recorded goodwill of $6.1 million and $2.4 million in the Cemetery Operations and
Funeral Home Operations reporting segments, respectively, with regard to the properties acquired and included in the table above during the year ended December 31, 2014.
Agreements with the Archdiocese of Philadelphia
On May 28, 2014, certain subsidiaries of the Partnership (Tenant) and the Archdiocese of Philadelphia (Landlord)
entered into a lease agreement (the Lease) and a management agreement (the Management Agreement), pursuant to which the Tenant will operate 13 cemeteries in Pennsylvania for a term of 60 years and allow the tenant to, among
other things and subject to certain limitations, sell burial rights and all related merchandise and services. The Partnership joined the Lease and the Management Agreement as a guarantor of all of the Tenants obligations under this operating
arrangement.
Under the terms of the Lease and Management Agreements:
|
|
|
the Tenant paid $53.0 million to the Landlord at closing, and agreed to make aggregate future rental payments of $36.0 million in accordance with the following schedule:
|
|
|
|
Lease Years
1-5
(May 28,
2014-May
31, 2019)
|
|
None
|
Lease Years
6-20
(June 1,
2019-May
31, 2034)
|
|
$1,000,000 per Lease Year
|
Lease Years
21-25
(June 1,
2034-May
31, 2039)
|
|
$1,200,000 per Lease Year
|
Lease Years
26-35
(June 1,
2039-May
31, 2049)
|
|
$1,500,000 per Lease Year
|
Lease Years
36-60
(June 1,
2049-May
31, 2074)
|
|
None
|
|
|
|
the Lease and Management Agreements may be terminated by the Landlord during the 11
th
year of the lease in its sole discretion, or by either party due to default or
bankruptcy by the end of the 11
th
year of the lease, subject to certain limitations;
|
87
|
|
|
lease payments for years 6 through 11 shall be deferred until the 11
th
year of the lease. If the Lease is terminated for either reason noted above, the lease payments
for years 6 through 11 shall be forfeited by the Landlord. If neither party terminates the lease, the deferred lease payments for years 6 through 11 shall be due and payable on or before June 30, 2024. If the Landlord terminates the Lease
during the 11
th
year of the Lease, it must repay the $53.0 million paid at closing by the Tenant. If the Lease is terminated for cause at any time, the $53.0 million paid by the Tenant
at closing is subject to repayment, subject to certain amortization and other limitations; and
|
|
|
|
the Tenant also agreed to make additional rental payments equal to 51% of gross revenues generated from
non-ordinary
course revenues and property dispositions associated with the
properties, less reasonable costs and expenses.
|
The Partnership accounted for this transaction as a contract-based
intangible asset at the present value of the consideration, less the fair value of net assets received at the acquisition date, consisting of acquired accounts receivable. The Partnership also recognized an $8.4 million liability for the
present value of the $36.0 million of lease payments to be made in future periods at a discount rate of 8.3%. The following table presents the assets acquired and liabilities assumed in the transaction based on their estimated fair values (in
thousands):
|
|
|
|
|
Assets:
|
|
|
|
|
Accounts receivable
|
|
$
|
1,610
|
|
Intangible asset
|
|
|
59,758
|
|
|
|
|
|
|
Total assets
|
|
|
61,368
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
Obligation for lease and management agreements
|
|
|
36,000
|
|
Discount on obligation for lease and management agreements
|
|
|
(27,632
|
)
|
|
|
|
|
|
Obligation for lease and management agreements, net
|
|
|
8,368
|
|
|
|
|
|
|
Total liabilities
|
|
|
8,368
|
|
|
|
|
|
|
Total net assets
|
|
$
|
53,000
|
|
|
|
|
|
|
The following data presents pro forma revenues, net income (loss) and basic and diluted net income (loss) per
unit for the Partnership as if the acquisitions consummated during the years ended December 31, 2016 and 2015, including the related financings, had occurred the first day of the year preceding the acquisition dates. The Partnership prepared
these pro forma unaudited financial results for comparative purposes only. The results may not be indicative of the results that would have occurred if the acquisitions consummated during the years ended December 31, 2016 and 2015 and the
related financings had occurred the first day of the year preceding the acquisition dates or the results that will be attained in future periods (in thousands, except per unit data):
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
(As restated)
|
|
Revenue
|
|
$
|
328,538
|
|
|
$
|
324,253
|
|
Net loss
|
|
|
(34,346
|
)
|
|
|
(24,199
|
)
|
Net loss per limited partner unit (basic and diluted)
|
|
$
|
(1.04
|
)
|
|
$
|
(.91
|
)
|
Since their respective dates of acquisition, the properties acquired in 2016 have contributed
$1.2 million of revenue and $1.4 million of net loss for the year ended December 31, 2016. The properties acquired in 2015 have contributed $8.7 million of revenue and $0.2 million of net income for the year ended
December 31, 2016 and $2.1 million of revenue and $0.2 million of net income for the year ended December 31, 2015. The properties acquired in 2014 have contributed $47.5 million of revenue and $4.6 million of net income
for the year ended December 31, 2016, $43.9 million of revenue and $5.4 million of net income for the year ended December 31, 2015 and $19.3 million of revenue and $1.6 million of net income for the year ended
December 31, 2014.
88
4.
|
ACCOUNTS RECEIVABLE, NET OF ALLOWANCE
|
Long-term accounts receivable, net, consisted of
the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Customer receivables
|
|
$
|
223,326
|
|
|
$
|
207,645
|
|
Unearned finance income
|
|
|
(21,034
|
)
|
|
|
(20,078
|
)
|
Allowance for contract cancellations
|
|
|
(26,153
|
)
|
|
|
(23,985
|
)
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net of allowance
|
|
|
176,139
|
|
|
|
163,582
|
|
Less: current portionnet of allowance
|
|
|
77,253
|
|
|
|
68,415
|
|
|
|
|
|
|
|
|
|
|
Long-term portionnet of allowance
|
|
$
|
98,886
|
|
|
$
|
95,167
|
|
|
|
|
|
|
|
|
|
|
Activity in the allowance for contract cancellations is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
(As restated)
|
|
Balancebeginning of period
|
|
$
|
23,985
|
|
|
$
|
22,138
|
|
|
$
|
20,275
|
|
Provision for cancellations
|
|
|
10,681
|
|
|
|
9,430
|
|
|
|
7,830
|
|
Cancellations
|
|
|
(8,513
|
)
|
|
|
(7,583
|
)
|
|
|
(5,967
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balanceend of period
|
|
$
|
26,153
|
|
|
$
|
23,985
|
|
|
$
|
22,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As noted in Note 2, the Partnership has changed its presentation herein to focus only on the provision and
cancellations of amounts recognized. The allowance for contract cancellations includes $17.4 million, $15.6 million and $13.8 million related to deferred revenues as of December 31, 2016, 2015, and 2014, respectively.
Cemetery property consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Cemetery land
|
|
$
|
257,914
|
|
|
$
|
253,955
|
|
Mausoleum crypts and lawn crypts
|
|
|
79,401
|
|
|
|
80,502
|
|
|
|
|
|
|
|
|
|
|
Cemetery property
|
|
$
|
337,315
|
|
|
$
|
334,457
|
|
|
|
|
|
|
|
|
|
|
6.
|
PROPERTY AND EQUIPMENT
|
Property and equipment consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Building and improvements
|
|
$
|
125,442
|
|
|
$
|
117,034
|
|
Furniture and equipment
|
|
|
56,408
|
|
|
|
54,346
|
|
Funeral home land
|
|
|
11,527
|
|
|
|
11,797
|
|
|
|
|
|
|
|
|
|
|
Property and equipmentgross
|
|
|
193,377
|
|
|
|
183,177
|
|
Less: accumulated depreciation
|
|
|
(75,096
|
)
|
|
|
(67,050
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net of accumulated depreciation
|
|
$
|
118,281
|
|
|
$
|
116,127
|
|
|
|
|
|
|
|
|
|
|
89
Depreciation expense was $10.6 million, $10.6 million and $8.9 million for the
years ended December 31, 2016, 2015 and 2014, respectively.
At December 31, 2016 and 2015, the Partnerships
merchandise trusts consisted of investments in debt and equity marketable securities and cash equivalents, both directly as well as through mutual and investment funds.
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 subject to the fair value hierarchy (see Note 1) are considered either Level 1 or Level 2 assets pursuant to the three-level hierarchy described in Note 15. 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 $8.6 million and $8.2 million of investments held in trust by the
West Virginia Funeral Directors Association at December 31, 2016 and December 31, 2015, respectively in its merchandise trust assets. As required by law, the Partnership deposits a portion of certain funeral merchandise sales in West
Virginia into a trust that is held by the West Virginia Funeral Directors Association. These trusts are recognized at their account value, which approximates fair value.
A reconciliation of the Partnerships merchandise trust activities for the years ended December 31, 2016 and 2015 is presented below
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
(As restated)
|
|
Balancebeginning of period
|
|
$
|
472,368
|
|
|
$
|
484,820
|
|
Contributions
|
|
|
67,526
|
|
|
|
80,693
|
|
Distributions
|
|
|
(70,277
|
)
|
|
|
(43,295
|
)
|
Interest and dividends
|
|
|
23,977
|
|
|
|
21,859
|
|
Capital gain distributions
|
|
|
2,069
|
|
|
|
2,413
|
|
Realized gains and losses
|
|
|
9,428
|
|
|
|
13,941
|
|
Other than temporary impairment
|
|
|
(25,900
|
)
|
|
|
(54,527
|
)
|
Taxes
|
|
|
(1,747
|
)
|
|
|
(3,271
|
)
|
Fees
|
|
|
(3,051
|
)
|
|
|
(3,296
|
)
|
Unrealized change in fair value
|
|
|
32,686
|
|
|
|
(26,969
|
)
|
|
|
|
|
|
|
|
|
|
Balanceend of period
|
|
$
|
507,079
|
|
|
$
|
472,368
|
|
|
|
|
|
|
|
|
|
|
During the years ended December 31, 2016 and 2015, purchases of available for sale securities were
approximately $125.6 million and $554.7 million, respectively. During the years ended December 31, 2016 and 2015, sales, maturities and paydowns of available for sale securities were approximately $94.2 million and
$522.2 million, respectively. Cash flows from
pre-need
contracts are presented as operating cash flows in our consolidated statement of cash flows.
90
The cost and market value associated with the assets held in the merchandise trusts as of
December 31, 2016 and 2015 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Fair Value
Hierarchy Level
|
|
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
Short-term investments
|
|
1
|
|
$
|
17,317
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
17,317
|
|
Fixed maturities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. governmental securities
|
|
2
|
|
|
172
|
|
|
|
2
|
|
|
|
(44
|
)
|
|
|
130
|
|
Corporate debt securities
|
|
2
|
|
|
6,311
|
|
|
|
269
|
|
|
|
(202
|
)
|
|
|
6,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities
|
|
|
|
|
6,483
|
|
|
|
271
|
|
|
|
(246
|
)
|
|
|
6,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual fundsdebt securities
|
|
1
|
|
|
236,159
|
|
|
|
1,580
|
|
|
|
(96
|
)
|
|
|
237,643
|
|
Mutual fundsequity securities
|
|
1
|
|
|
126,215
|
|
|
|
3,361
|
|
|
|
(533
|
)
|
|
|
129,043
|
|
Other investment funds (1)
|
|
|
|
|
60,017
|
|
|
|
603
|
|
|
|
(387
|
)
|
|
|
60,233
|
|
Equity securities
|
|
1
|
|
|
35,079
|
|
|
|
3,640
|
|
|
|
(192
|
)
|
|
|
38,527
|
|
Other invested assets
|
|
2
|
|
|
9,239
|
|
|
|
|
|
|
|
|
|
|
|
9,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
|
|
$
|
490,509
|
|
|
$
|
9,455
|
|
|
$
|
(1,454
|
)
|
|
$
|
498,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West Virginia Trust Receivable
|
|
|
|
|
8,569
|
|
|
|
|
|
|
|
|
|
|
|
8,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
499,078
|
|
|
$
|
9,455
|
|
|
$
|
(1,454
|
)
|
|
$
|
507,079
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Other investment funds are measured at fair value using the net asset value per share practical expedient and have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are
intended to permit reconciliation of the fair value hierarchy to the amounts presented in the balance sheet. This asset class is composed of fixed income funds and equity funds which have redemption periods ranging from 30 to 90 days.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015 (As restated)
|
|
Fair Value
Hierarchy Level
|
|
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
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 fundsdebt securities
|
|
1
|
|
|
232,096
|
|
|
|
86
|
|
|
|
(10,713
|
)
|
|
|
221,469
|
|
Mutual fundsequity securities
|
|
1
|
|
|
139,341
|
|
|
|
69
|
|
|
|
(12,249
|
)
|
|
|
127,161
|
|
Equity securities
|
|
1
|
|
|
49,563
|
|
|
|
1,127
|
|
|
|
(2,474
|
)
|
|
|
48,216
|
|
Other invested assets
|
|
2
|
|
|
9,373
|
|
|
|
|
|
|
|
|
|
|
|
9,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
|
|
$
|
484,693
|
|
|
$
|
1,307
|
|
|
$
|
(25,992
|
)
|
|
$
|
460,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets acquired via acquisition
|
|
|
|
|
4,185
|
|
|
|
|
|
|
|
|
|
|
|
4,185
|
|
West Virginia Trust Receivable
|
|
|
|
|
8,175
|
|
|
|
|
|
|
|
|
|
|
|
8,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
497,053
|
|
|
$
|
1,307
|
|
|
$
|
(25,992
|
)
|
|
$
|
472,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91
The contractual maturities of debt securities as of December 31, 2016 and 2015 were as
follows below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Less than
1 year
|
|
|
1 year through
5 years
|
|
|
6 years through
10 years
|
|
|
More than
10 years
|
|
U.S. governmental securities
|
|
$
|
5
|
|
|
$
|
48
|
|
|
$
|
77
|
|
|
$
|
|
|
Corporate debt securities
|
|
|
114
|
|
|
|
5,404
|
|
|
|
845
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities
|
|
$
|
119
|
|
|
$
|
5,452
|
|
|
$
|
922
|
|
|
$
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Less than
1 year
|
|
|
1 year through
5 years
|
|
|
6 years through
10 years
|
|
|
More than
10 years
|
|
U.S. governmental securities
|
|
$
|
|
|
|
$
|
23
|
|
|
$
|
78
|
|
|
$
|
|
|
Corporate debt securities
|
|
|
|
|
|
|
8,152
|
|
|
|
3,232
|
|
|
|
|
|
Other debt securities
|
|
|
3,520
|
|
|
|
3,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities
|
|
$
|
3,520
|
|
|
$
|
11,809
|
|
|
$
|
3,310
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Temporary Declines in Fair Value
The Partnership evaluates declines in fair value below cost for each asset held in the merchandise trusts on a quarterly basis.
An aging of unrealized losses on the Partnerships investments in debt and equity securities within the merchandise trusts as of
December 31, 2016 and 2015 is presented below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
|
12 months or more
|
|
|
Total
|
|
December 31, 2016
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
Fixed maturities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. governmental securities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
87
|
|
|
$
|
44
|
|
|
$
|
87
|
|
|
$
|
44
|
|
Corporate debt securities
|
|
|
556
|
|
|
|
6
|
|
|
|
871
|
|
|
|
196
|
|
|
|
1,427
|
|
|
|
202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities
|
|
|
556
|
|
|
|
6
|
|
|
|
958
|
|
|
|
240
|
|
|
|
1,514
|
|
|
|
246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual fundsdebt securities
|
|
|
6,040
|
|
|
|
61
|
|
|
|
754
|
|
|
|
35
|
|
|
|
6,794
|
|
|
|
96
|
|
Mutual fundsequity securities
|
|
|
7,475
|
|
|
|
357
|
|
|
|
2,578
|
|
|
|
176
|
|
|
|
10,053
|
|
|
|
533
|
|
Other investment funds
|
|
|
37,357
|
|
|
|
387
|
|
|
|
|
|
|
|
|
|
|
|
37,357
|
|
|
|
387
|
|
Equity securities
|
|
|
1,292
|
|
|
|
89
|
|
|
|
413
|
|
|
|
103
|
|
|
|
1,705
|
|
|
|
192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
52,720
|
|
|
$
|
900
|
|
|
$
|
4,703
|
|
|
$
|
554
|
|
|
$
|
57,423
|
|
|
$
|
1,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
|
12 months or more
|
|
|
Total
|
|
December 31, 2015
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
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 fundsdebt securities
|
|
|
121,777
|
|
|
|
6,938
|
|
|
|
36,682
|
|
|
|
3,775
|
|
|
|
158,459
|
|
|
|
10,713
|
|
Mutual fundsequity 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92
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 assets cost was temporary in nature. In addition, the Partnership is not aware of any circumstances that would prevent
the future market value recovery for these securities.
Other-Than-Temporary Impairment of Trust Assets
The Partnership assesses its merchandise trust assets for other-than-temporary declines in fair value on a quarterly basis. During the year
ended December 31, 2016, the Partnership determined that there were one hundred and twenty-one securities with an aggregate cost basis of approximately $265.9 million and an aggregate fair value of approximately $240.0 million,
resulting in an impairment of $25.9 million, with such impairment considered to be other-than-temporary. During the year ended December 31, 2015, the Partnership determined that there were securities with an aggregate cost basis of
approximately $196.8 million and an aggregate fair value of approximately $142.3 million, resulting in an impairment of $54.5 million, with such impairment considered to be other-than-temporary. Accordingly, the Partnership adjusted
the cost basis of these assets to their fair value, with a corresponding adjustment to deferred revenue, on the consolidated balance sheet. This adjustment to deferred revenue will be reflected within the Partnerships consolidated statement of
operations in future periods as the underlying merchandise is delivered or the underlying service is performed.
At December 31, 2016 and 2015, the Partnerships
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.
All of these investments are classified as Available for Sale and accordingly, all of the assets are carried at fair value. All of the
investments subject to the fair value hierarchy (see Note 1) are considered either Level 1 or Level 2 assets pursuant to the three-level hierarchy described in Note 15. There were no Level 3 assets. The perpetual care trusts are VIEs
for which the Partnership is the primary beneficiary.
A reconciliation of the Partnerships perpetual care trust activities for the
years ended December 31, 2016 and 2015 is presented below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Balancebeginning of period
|
|
$
|
307,804
|
|
|
$
|
345,105
|
|
Contributions
|
|
|
15,701
|
|
|
|
15,919
|
|
Distributions
|
|
|
(17,007
|
)
|
|
|
(15,003
|
)
|
Interest and dividends
|
|
|
18,418
|
|
|
|
18,019
|
|
Capital gain distributions
|
|
|
1,400
|
|
|
|
1,952
|
|
Realized gains and losses
|
|
|
(859
|
)
|
|
|
12,323
|
|
Other than temporary impairment
|
|
|
(4,000
|
)
|
|
|
(29,047
|
)
|
Taxes
|
|
|
(82
|
)
|
|
|
(631
|
)
|
Fees
|
|
|
(2,125
|
)
|
|
|
(2,163
|
)
|
Unrealized change in fair value
|
|
|
14,530
|
|
|
|
(38,670
|
)
|
|
|
|
|
|
|
|
|
|
Balanceend of period
|
|
$
|
333,780
|
|
|
$
|
307,804
|
|
|
|
|
|
|
|
|
|
|
During the years ended December 31, 2016 and 2015, purchases of available for sale securities were
approximately $266.2 million and $359.3 million, respectively. During the years ended December 31, 2016 and 2015, sales, maturities and paydowns of available for sale securities were approximately $231.5 million and
$349.0 million, respectively. Cash flows from perpetual care trust related contracts are presented as operating cash flows in our consolidated statement of cash flows.
93
The cost and market value associated with the assets held in the perpetual care trusts as of
December 31, 2016 and 2015 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Fair Value
Hierarchy Level
|
|
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
Short-term investments
|
|
1
|
|
$
|
16,113
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
16,113
|
|
Fixed maturities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. governmental securities
|
|
2
|
|
|
483
|
|
|
|
14
|
|
|
|
(23
|
)
|
|
|
474
|
|
Corporate debt securities
|
|
2
|
|
|
12,598
|
|
|
|
380
|
|
|
|
(152
|
)
|
|
|
12,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities
|
|
|
|
|
13,081
|
|
|
|
394
|
|
|
|
(175
|
)
|
|
|
13,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual fundsdebt securities
|
|
1
|
|
|
127,033
|
|
|
|
1,187
|
|
|
|
(669
|
)
|
|
|
127,551
|
|
Mutual fundsequity securities
|
|
1
|
|
|
30,708
|
|
|
|
1,940
|
|
|
|
(26
|
)
|
|
|
32,622
|
|
Other investment funds (1)
|
|
|
|
|
119,196
|
|
|
|
2,672
|
|
|
|
(622
|
)
|
|
|
121,246
|
|
Equity securities
|
|
1
|
|
|
20,978
|
|
|
|
2,150
|
|
|
|
(432
|
)
|
|
|
22,696
|
|
Other invested assets
|
|
2
|
|
|
252
|
|
|
|
|
|
|
|
|
|
|
|
252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
|
|
$
|
327,361
|
|
|
$
|
8,343
|
|
|
$
|
(1,924
|
)
|
|
$
|
333,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Other investment funds are measured at fair value using the net asset value per share practical expedient and have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are
intended to permit reconciliation of the fair value hierarchy to the amounts presented in the balance sheet. This asset class is composed of fixed income funds and equity funds, which have a redemption period ranging from 30 to 90 days, and private
credit funds, which have lockup periods ranging from six to ten years with three potential one year extensions at the discretion of the funds general partners. As of December 31, 2016 there are $45.1 million in unfunded commitments
to the private credit funds, which are callable at any time.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 fundsdebt securities
|
|
1
|
|
|
184,866
|
|
|
|
35
|
|
|
|
(7,180
|
)
|
|
|
177,721
|
|
Mutual fundsequity 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 investments
|
|
|
|
$
|
315,354
|
|
|
$
|
1,797
|
|
|
$
|
(9,908
|
)
|
|
$
|
307,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets acquired via acquisition
|
|
|
|
|
561
|
|
|
|
|
|
|
|
|
|
|
|
561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
315,915
|
|
|
$
|
1,797
|
|
|
$
|
(9,908
|
)
|
|
$
|
307,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94
The contractual maturities of debt securities as of December 31, 2016 and 2015 were as
follows below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Less than
1 year
|
|
|
1 year through
5 years
|
|
|
6 years through
10 years
|
|
|
More than
10 years
|
|
U.S. governmental securities
|
|
$
|
110
|
|
|
$
|
99
|
|
|
$
|
219
|
|
|
$
|
46
|
|
Corporate debt securities
|
|
|
340
|
|
|
|
10,865
|
|
|
|
1,545
|
|
|
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities
|
|
$
|
450
|
|
|
$
|
10,964
|
|
|
$
|
1,764
|
|
|
$
|
122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Less than
1 year
|
|
|
1 year through
5 years
|
|
|
6 years through
10 years
|
|
|
More than
10 years
|
|
U.S. governmental securities
|
|
$
|
|
|
|
$
|
112
|
|
|
$
|
28
|
|
|
$
|
|
|
Corporate debt securities
|
|
|
202
|
|
|
|
16,138
|
|
|
|
5,650
|
|
|
|
59
|
|
Other debt securities
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities
|
|
$
|
237
|
|
|
$
|
16,250
|
|
|
$
|
5,678
|
|
|
$
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Temporary Declines in Fair Value
The Partnership evaluates declines in fair value below cost of each individual asset held in the perpetual care trusts on a quarterly basis.
An aging of unrealized losses on the Partnerships investments in debt and equity securities within the perpetual care trusts as of
December 31, 2016 and 2015 is presented below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
|
12 months or more
|
|
|
Total
|
|
December 31, 2016
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
Fixed maturities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. governmental securities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
283
|
|
|
$
|
23
|
|
|
$
|
283
|
|
|
$
|
23
|
|
Corporate debt securities
|
|
|
747
|
|
|
|
10
|
|
|
|
2,980
|
|
|
|
142
|
|
|
|
3,727
|
|
|
|
152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities
|
|
|
747
|
|
|
|
10
|
|
|
|
3,263
|
|
|
|
165
|
|
|
|
4,010
|
|
|
|
175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual fundsdebt securities
|
|
|
24,026
|
|
|
|
620
|
|
|
|
1,908
|
|
|
|
49
|
|
|
|
25,934
|
|
|
|
669
|
|
Mutual fundsequity securities
|
|
|
3,836
|
|
|
|
16
|
|
|
|
452
|
|
|
|
10
|
|
|
|
4,288
|
|
|
|
26
|
|
Other investment funds
|
|
|
37,577
|
|
|
|
622
|
|
|
|
|
|
|
|
|
|
|
|
37,577
|
|
|
|
622
|
|
Equity securities
|
|
|
4,532
|
|
|
|
409
|
|
|
|
145
|
|
|
|
23
|
|
|
|
4,677
|
|
|
|
432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
70,718
|
|
|
$
|
1,677
|
|
|
$
|
5,768
|
|
|
$
|
247
|
|
|
$
|
76,486
|
|
|
$
|
1,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
|
12 months or more
|
|
|
Total
|
|
December 31, 2015
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
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 fundsdebt securities
|
|
|
81,215
|
|
|
|
4,263
|
|
|
|
50,774
|
|
|
|
2,917
|
|
|
|
131,989
|
|
|
|
7,180
|
|
Mutual fundsequity 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95
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 assets cost was temporary in nature. In addition, the Partnership is not aware of any circumstances that would prevent
the future market value recovery for these securities.
Other-Than-Temporary Impairment of Trust Assets
The Partnership assesses its perpetual care trust assets for other-than-temporary declines in fair value on a quarterly basis. During the year
ended December 31, 2016, the Partnership determined that there were eighty-two securities with an aggregate cost basis of approximately $66.2 million and an aggregate fair value of approximately $62.2 million, resulting in an
impairment of $4.0 million, with such impairment considered to be other-than-temporary. During the year ended December 31, 2015, the Partnership determined that there were securities with an aggregate cost basis of approximately
$107.7 million and an aggregate fair value of approximately $78.7 million, resulting in an impairment of $29.0 million, with such impairment considered to be other-than-temporary. Accordingly, the Partnership adjusted the cost basis
of these assets to their current value and offset this change against the liability for perpetual care trust corpus.
9.
|
GOODWILL AND INTANGIBLE ASSETS
|
Goodwill
The Partnership has recorded goodwill of approximately $70.4 million and $69.9 million as of December 31, 2016 and 2015,
respectively. This amount represents the excess of the purchase price over the fair value of identifiable net assets acquired.
The
changes in the carrying amounts of goodwill by reportable segment are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cemetery
Operations
|
|
|
Funeral Home
Operations
|
|
|
Total
|
|
Balance at December 31, 2014
|
|
$
|
24,186
|
|
|
$
|
34,650
|
|
|
$
|
58,836
|
|
Goodwill from acquisitions during 2015
|
|
|
1,134
|
|
|
|
9,881
|
|
|
|
11,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
25,320
|
|
|
|
44,531
|
|
|
|
69,851
|
|
Goodwill from acquisitions during 2015
|
|
|
(458
|
)
|
|
|
(40
|
)
|
|
|
(498
|
)
|
Goodwill from acquisitions during 2016
|
|
|
|
|
|
|
1,083
|
|
|
|
1,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
$
|
24,862
|
|
|
$
|
45,574
|
|
|
$
|
70,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Partnership adjusted preliminary amounts relating to 2015 acquisitions during the second and fourth
quarters of 2016 as the Partnership obtained additional information. These updates resulted in a decrease in goodwill acquired from 2015 acquisitions.
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.
96
The following table reflects the components of intangible assets at December 31, 2016 and
2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
Gross Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net Intangible
Assets
|
|
|
Gross Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net Intangible
Assets
|
|
Lease and management agreements
|
|
$
|
59,758
|
|
|
$
|
(2,573
|
)
|
|
$
|
57,185
|
|
|
$
|
59,758
|
|
|
$
|
(1,577
|
)
|
|
$
|
58,181
|
|
Underlying contract value
|
|
|
6,239
|
|
|
|
(1,170
|
)
|
|
|
5,069
|
|
|
|
6,239
|
|
|
|
(1,014
|
)
|
|
|
5,225
|
|
Non-compete
agreements
|
|
|
5,656
|
|
|
|
(3,956
|
)
|
|
|
1,700
|
|
|
|
5,656
|
|
|
|
(3,112
|
)
|
|
|
2,544
|
|
Other intangible assets
|
|
|
1,777
|
|
|
|
(293
|
)
|
|
|
1,484
|
|
|
|
1,439
|
|
|
|
(180
|
)
|
|
|
1,259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
73,430
|
|
|
$
|
(7,992
|
)
|
|
$
|
65,438
|
|
|
$
|
73,092
|
|
|
$
|
(5,883
|
)
|
|
$
|
67,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for intangible assets was $2.3 million, $2.2 million and $2.1 million for
the years ended December 31, 2016, 2015 and 2014, respectively. The following is estimated amortization expense related to intangible assets with finite lives for the periods noted below (in thousands):
|
|
|
|
|
2017
|
|
$
|
2,194
|
|
2018
|
|
$
|
1,769
|
|
2019
|
|
$
|
1,451
|
|
2020
|
|
$
|
1,278
|
|
2021
|
|
$
|
1,213
|
|
Total debt consists of the following at the dates indicated (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Credit facility
|
|
$
|
137,125
|
|
|
$
|
149,500
|
|
7.875% Senior Notes, due June 2021
|
|
|
172,623
|
|
|
|
172,186
|
|
Notes payableacquisition debt
|
|
|
502
|
|
|
|
687
|
|
Notes payableacquisition
non-competes
|
|
|
928
|
|
|
|
1,629
|
|
Insurance and vehicle financing
|
|
|
1,807
|
|
|
|
2,336
|
|
Less deferred financing costs, net of accumulated amortization
|
|
|
(10,859
|
)
|
|
|
(7,499
|
)
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
302,126
|
|
|
|
318,839
|
|
Less current maturities
|
|
|
(1,775
|
)
|
|
|
(2,440
|
)
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
300,351
|
|
|
$
|
316,399
|
|
|
|
|
|
|
|
|
|
|
Credit Facility
On August 4, 2016, StoneMor Operating LLC (the Operating Company), a 100% owned subsidiary of the Partnership, entered into
the Credit Agreement (the Credit Agreement) among each of the Subsidiaries of the Operating Company (together with the Operating Company, Borrowers), the Lenders identified therein, Capital One, National Association
(Capital One), as Administrative Agent, Issuing Bank and Swingline Lender, Citizens Bank of Pennsylvania, as Syndication Agent, and TD Bank, N.A. and Raymond James Bank, N.A., as
97
Co-Documentation
Agents. In addition, on the same date, the Partnership, the Borrowers and Capital One, as Administrative Agent, entered into the Guaranty
and Collateral Agreement (the Guaranty Agreement, and together with the Credit Agreement, New Agreements). The Original Agreement as amended by the amendments thereto described below is referred to in this Form
10-K
as the Credit Agreement. Capitalized terms which are not defined in the following description of the New Agreements and the amendments thereto shall have the meaning assigned to such terms in the
New Agreements, as amended.
The New Agreements replaced the Partnerships Fourth Amended and Restated Credit Agreement, as amended
with Bank of America, N.A., as Administrative Agent, Swingline Lender and L/C Issuer and other lenders party thereto (the Prior Credit Agreement), Second Amended and Restated Security Agreement, and Second Amended and Restated Pledge
Agreement, each dated as of December 19, 2014. The Prior Credit Agreement provided for a revolving credit facility of $180.0 million, with borrowings classified as either acquisition draws or working capital draws, maturing on
December 19, 2019. In connection with entering into the Credit Agreement, the Partnership incurred an extinguishment of debt charge of approximately $1.2 million recorded in loss on early extinguishment of debt.
On March 15, 2017, the Borrowers, Capital One, as Administrative Agent and acting in accordance with the written consent of the Required
Lenders, entered into the First Amendment to Credit Agreement. Those parties subsequently entered into a Second Amendment and Limited Waiver on July 26, 2017 and a Third Amendment and Limited Waiver effective as of August 15, 2017. The
cumulative effect of these amendments was to amend the Original Credit Agreement as follows:
|
|
|
extend the deadline by which the Operating Company was required to deliver to the Administrative Agent the Partnerships audited financial statements for the year ended December 31, 2016 (2016 Financial
Statements) to September 15, 2017;
|
|
|
|
extend the deadline by which the Operating Company is required to deliver to the Administrative Agent the Partnerships unaudited financial statements for the quarter ended March 31, 2017 (the Q1 2017
Financial Statements) to no later than forty-five (45) days after the date on which the Operating Company delivers the 2016 Financial Statements to the Administrative Agent;
|
|
|
|
extend the deadline by which the Operating Company is required to deliver to the Administrative Agent the Partnerships unaudited financial statements for the quarter ended June 30, 2017 to no later than
forty-five (45) days after the date on which the Operating Company delivers the Q1 2017 Financial Statements to the Administrative Agent, but not later than December 15, 2017;
|
|
|
|
require that, until the 2016 Financial Statements have been delivered to the Administrative Agent, the Operating Company deliver to the Administrative Agent financial statements within 35 days after the end of each
month for the previous month and
year-to-date,
certified by a Financial Officer of the Operating Company;
|
|
|
|
increase the maximum Consolidated Leverage Ratio to 4.25:1.00 through September 30, 2017, which ratio will revert to 4.00:1.00 effective October 1, 2017, subject to the right under the Credit Agreement to
increase the Consolidated Leverage Ratio to a maximum of 4.25:1.00 in connection with consummation of a Designated Acquisition;
|
|
|
|
amend the definition of Applicable Rate to (a) limit Category 4 to Consolidated Leverage Ratios greater than 3.50:1.00 but less than or equal to 4:00:1.00, (b) add new Category 5
which would apply in the event the Consolidated Leverage Ratio exceeds 4:00:1.00, in which event the Eurodollar Spread for Revolving Loans, the Base Rate Spread for Revolving Loans and the Commitment Fee Rate would increase to 3.75%, 2.75% and
0.50%, respectively, and (c) provide that Category 5 shall be applicable until the Operating Company delivers to the Administrative Agent the 2016 Financial Statements, the Q1 2017 Financial Statements and the corresponding compliance
certificates and shall thereafter again be applicable commencing three Business Days after the Operating Company fails to timely deliver to the Administrative Agent any required financial statements under the Credit Agreement and continuing until
the third Business Day after such financial statements are so delivered;
|
98
|
|
|
until January 1, 2018, prohibit the Partnership from increasing the regularly scheduled quarterly cash distributions permitted to be made to its partners under the Credit Agreement unless, at the time such
distribution is declared and on a pro forma basis after giving effect to the payment of any such distribution the Consolidated Leverage Ratio is no greater than 3.75:1.00;
|
|
|
|
allow up to an aggregate of $53.0 million in realized losses in the Loan Parties investment portfolio for all periods to be added back for purposes of calculating Consolidated EBITDA; and
|
|
|
|
clarify that the Partnership is entitled to add back extraordinary, unusual or
non-recurring
losses, charges or expenses in calculating Consolidated EBITDA for the first two
quarters of 2017, subject to a limit of $14.3 million for the period ended June 30, 2017. The Partnership intends to seek further clarification from its lenders with respect to these adjustments for periods after the second quarter of
2017.
|
In connection with the First Amendment each Lender was paid a fee equal to 0.25% on the amount of such Lenders
Revolving Commitment under the Credit Agreement.
The Credit Agreement provides for up to $210.0 million initial aggregate amount of
Revolving Commitments, which may be increased, from time to time, in minimum increments of $5.0 million so long as the aggregate amount of such increases does not exceed $100.0 million. The Operating Company may also request the issuance
of Letters of Credit for up to $15.0 million in the aggregate, of which there were $6.8 million outstanding at December 31, 2016 and none outstanding at December 31, 2015. The Maturity Date under the Credit Agreement is the
earlier of (i) August 4, 2021 and (ii) the date that is six months prior to the earliest scheduled maturity date of any outstanding Permitted Unsecured Indebtedness (at present, such date is December 1, 2020, which is six months
prior to June 1, 2021 maturity date of outstanding 7.875% senior notes).
As of December 31, 2016, the outstanding amount of
borrowings under the Credit Agreement was $137.1 million, which was used to pay down outstanding obligations under the Prior Credit Agreement, to pay fees, costs and expenses related to the New Agreements and to fund working capital needs.
Generally, proceeds of the Loans under the Credit Agreement can be used to finance the working capital needs and for other general corporate purposes of the Borrowers and Guarantors, including acquisitions and distributions permitted under the
Credit Agreement. As of June 30, 2017, the Partnership estimates that it had approximately $3.5 million of total available borrowing capacity under its revolving credit facility, based on a preliminary calculation of its Consolidated
Leverage Ratio.
Each Borrowing under the Credit Agreement is comprised of Base Rate Loans or Eurodollar Loans. The Loans comprising each
Base Rate Borrowing (including each Swingline Loan) bear interest at the Base Rate plus the Applicable Rate, and the Loans comprising each Eurodollar Borrowing bear interest at the Eurodollar Rate plus the Applicable Rate.
The Applicable Rate is determined based on the Consolidated Leverage Ratio of the Partnership and its Subsidiaries and ranges from 1.75% to
3.25% for Eurodollar Rate Loans and 0.75% to 2.25% for Base Rate Loans. Based on our Consolidated Leverage Ratio for the compliance period ended December 31, 2016, the Applicable Rate for Eurodollar Rate Loans is 3.25% and for Base Rate Loans
is 2.25%. The Credit Agreement also requires the Borrowers to pay a quarterly unused commitment fee, which accrues at the Applicable Rate on the amount by which the commitments under the Credit Agreement exceed the usage of such commitments, and
which is included within interest expense on the Partnerships consolidated statements of operations. On December 31, 2016, the weighted average interest rate on outstanding borrowings under the Credit Agreement was 3.7%.
The Credit Agreement contains financial covenants, pursuant to which the Partnership will not permit:
|
|
|
the ratio of Consolidated Funded Indebtedness to Consolidated EBITDA, or the Consolidated Leverage Ratio, as of
the last day of any fiscal quarter, commencing on September 30, 2016, determined for the
|
99
|
period of four consecutive fiscal quarters ending on such date (the Measurement Period), to be greater than 4.00 to 1.00, which may be increased to 4.25 to 1.00 (in case of a
Designated Acquisition made subsequent to the last day of the immediately preceding fiscal quarter) as of the last day of the fiscal quarter in which such Designated Acquisition occurs and as of the last day of the immediately succeeding fiscal
quarter; and
|
|
|
|
the ratio of Consolidated EBITDA to Consolidated Debt Service, or the Consolidated Debt Service Coverage Ratio, as of the last day of any fiscal quarter, commencing on September 30, 2016 to be less than 2.50 to
1.00 for any Measurement Period.
|
On December 31, 2016, the Partnerships Consolidated Leverage Ratio and
Consolidated Debt Service Coverage Ratio were 3.94 and 3.68, respectively.
Additional covenants under the Credit Agreement include
customary limitations, subject to certain exceptions, on, among others: (i) the incurrence of Indebtedness; (ii) granting of Liens; (iii) fundamental changes and dispositions; (iv) investments, loans, advances, guarantees and
acquisitions; (v) swap agreements; (vi) transactions with Affiliates; (vii) Restricted Payments; and (viii) Sale and Leaseback Transactions. The Partnership was in compliance with the Credit Agreement covenants as of
December 31, 2016.
The Borrowers obligations under the Credit Agreement are guaranteed by the Partnership and the Borrowers.
Pursuant to the Guaranty Agreement, the Borrowers obligations under the Credit Agreement are secured by a first priority lien and security interest (subject to permitted liens and security interests) in substantially all of the
Partnerships and Borrowers assets, whether then owned or thereafter acquired, excluding certain assets, which include, among others: (i) Trust Accounts, certain proceeds required by law to be placed into such Trust Accounts and
funds held in such Trust Accounts; and (ii) Excluded Real Property, including owned and leased real property that may not be pledged as a matter of law.
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 of the Senior Notes 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 on or after June 1, 2016, the Partnership 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
|
|
2017
|
|
|
103.938
|
%
|
2018
|
|
|
101.969
|
%
|
2019 and thereafter
|
|
|
100.000
|
%
|
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 holders Senior Notes for a cash price equal to 101% of the principal amounts to be purchased, plus accrued and unpaid interest.
100
The Senior Notes are jointly and severally guaranteed by certain of the Partnerships
subsidiaries. The Indenture governing the Senior Notes contains covenants, including limitations of the Partnerships 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 Partnerships assets, among other items. As of
December 31, 2016, the Partnership was in compliance with these covenants.
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 Partnerships taxable income. Such taxable income may vary substantially from net income reported in the accompanying consolidated
financial statements. Certain corporate subsidiaries are subject to federal and state income tax. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax basis and tax carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Partnership records a valuation allowance
against its deferred tax assets if it deems that it is more likely than not that some portion or all of the recorded deferred tax assets will not be realizable in future periods.
Income tax expense (benefit) for the years ended December 31, 2016, 2015 and 2014 consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
(As restated)
|
|
|
(As restated)
|
|
Current provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
State
|
|
$
|
735
|
|
|
$
|
723
|
|
|
$
|
869
|
|
Federal
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
112
|
|
|
|
229
|
|
|
|
302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
847
|
|
|
|
952
|
|
|
|
1,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
State
|
|
|
(111
|
)
|
|
|
(378
|
)
|
|
|
347
|
|
Federal
|
|
|
852
|
|
|
|
235
|
|
|
|
1,046
|
|
Foreign
|
|
|
1
|
|
|
|
124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
742
|
|
|
|
(19
|
)
|
|
|
1,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense (benefit)
|
|
$
|
1,589
|
|
|
$
|
933
|
|
|
$
|
2,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101
A reconciliation of the federal statutory tax rate to the Partnerships effective tax rate
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
(As restated)
|
|
Computed tax provision (benefit) at the applicable statutory tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State and local taxes net of federal income tax benefit
|
|
|
-1.8
|
%
|
|
|
-2.6
|
%
|
|
|
-15.3
|
%
|
Tax exempt (income) loss
|
|
|
-3.4
|
%
|
|
|
-4.1
|
%
|
|
|
-14.5
|
%
|
Change in valuation allowance
|
|
|
-54.5
|
%
|
|
|
-65.5
|
%
|
|
|
-130.8
|
%
|
Partnership earnings not subject to tax
|
|
|
19.7
|
%
|
|
|
33.0
|
%
|
|
|
92.6
|
%
|
Permanent differences
|
|
|
-0.5
|
%
|
|
|
0.2
|
%
|
|
|
0.9
|
%
|
Other
|
|
|
0.0
|
%
|
|
|
-0.2
|
%
|
|
|
-3.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
-5.5
|
%
|
|
|
-4.2
|
%
|
|
|
-35.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant components of the deferred tax assets and liabilities were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
(As restated)
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
$
|
9,570
|
|
|
$
|
8,458
|
|
State net operating loss
|
|
|
14,557
|
|
|
|
11,953
|
|
Federal net operating loss
|
|
|
104,578
|
|
|
|
92,689
|
|
Foreign net operating loss
|
|
|
2,306
|
|
|
|
2,306
|
|
Other
|
|
|
67
|
|
|
|
67
|
|
Valuation allowance
|
|
|
(88,156
|
)
|
|
|
(70,224
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
42,922
|
|
|
|
45,249
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
11,883
|
|
|
|
9,622
|
|
Deferred revenue related to future revenues and accounts receivable
|
|
|
42,128
|
|
|
|
45,658
|
|
Deferred revenue related to cemetery property
|
|
|
8,905
|
|
|
|
8,907
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
62,916
|
|
|
|
64,187
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities
|
|
$
|
19,994
|
|
|
$
|
18,938
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets and liabilities were classified on the consolidated balance sheets as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
(As restated)
|
|
|
|
|
Deferred tax assets
|
|
$
|
64
|
|
|
$
|
61
|
|
|
|
|
|
|
|
|
|
|
Noncurrent assets
|
|
|
64
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
42,858
|
|
|
|
45,188
|
|
Deferred tax liabilities
|
|
|
62,916
|
|
|
|
64,187
|
|
|
|
|
|
|
|
|
|
|
Noncurrent liabilities
|
|
|
20,058
|
|
|
|
18,999
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities
|
|
$
|
19,994
|
|
|
$
|
18,938
|
|
|
|
|
|
|
|
|
|
|
102
At December 31, 2016, the Partnership had available approximately less than
$0.1 million of alternative minimum tax credit carryforwards, which are available indefinitely, $295.9 million of federal net operating loss carryforwards, which will begin to expire in 2017, and $374.1 million of state net operating
loss carryforwards, a portion of which expires annually.
Management periodically evaluates all evidence both positive and negative in
determining whether a valuation allowance to reduce the carrying value of deferred tax assets is required. The vast majority of the Partnerships taxable subsidiaries continue to accumulate deferred tax assets that on a more likely than not
basis will not be realized. A full valuation allowance continues to be maintained on these taxable subsidiaries. The valuation allowance increased from 2015 to 2016 based on two primary factors. First there was an increase in net deferred tax assets
that are not more likely than not to be realized. Second there was an increase in deferred tax liabilities that will reverse outside the carryforward period for our deferred tax assets.
At December 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 Partnerships policy to recognize interest and penalties, if any, related to unrecognized tax benefits in income tax expense. At December 31, 2016 and 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.
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 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 December 31, 2016 and 2015, deferred revenues and related
costs consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
(As restated)
|
|
Deferred contract revenues
|
|
$
|
782,120
|
|
|
$
|
736,298
|
|
Deferred merchandise trust revenue
|
|
|
76,512
|
|
|
|
79,837
|
|
Deferred merchandise trust unrealized gains (losses)
|
|
|
8,001
|
|
|
|
(24,685
|
)
|
|
|
|
|
|
|
|
|
|
Deferred revenues
|
|
$
|
866,633
|
|
|
$
|
791,450
|
|
|
|
|
|
|
|
|
|
|
Deferred selling and obtaining costs
|
|
$
|
116,890
|
|
|
$
|
106,124
|
|
Deferred Revenues presented in the table above are net of the allowance for contract cancellations disclosed
in Note 4.
103
13.
|
LONG-TERM INCENTIVE AND RETIREMENT PLANS
|
2014 Long-Term Incentive Plan
During the year ended December 31, 2014, the General Partners Board of Directors (the Board) and the Partnerships
unitholders approved a 2014 Long-Term Incentive Plan (2014 LTIP). The Compensation and Nominating and Governance Committee of the Board (the Compensation Committee) administers the 2014 LTIP. The 2014 LTIP permits the grant
of awards, which may be in the form of phantom units, restricted units, unit appreciation rights (UAR) or unit options, including performance factors for each, covering an aggregate of 1,500,000 common units, a number that the Board may
increase by up to 100,000 common units per year. At December 31, 2016, the estimated number of common units to be issued upon vesting and exercise of outstanding rights under this plan, assuming the satisfaction of the maximum conditions for
performance factors, was 117,630. A cumulative number of 17,229 common units have been issued, leaving 1,365,141 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 both, based upon the value of a common unit. Phantom units become payable, in cash or common units, at the Partnerships 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. In tandem with phantom unit
grants, the Compensation Committee may grant distribution equivalent rights (DERs), which are the right to receive an amount in cash or common units equal to the cash distributions made by the Partnership with respect to common unit
during the period that the underlying phantom unit is outstanding. All phantom units outstanding under the 2014 LTIP at December 31, 2016 contain tandem DERs.
The following table sets forth the 2014 LTIP phantom unit award activity for the years ended December 31, 2016 and 2015, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Outstanding, beginning of period
|
|
|
102,661
|
|
|
|
2,189
|
|
|
|
|
|
Granted (1)
|
|
|
131,852
|
|
|
|
122,154
|
|
|
|
2,189
|
|
Settled in common units or cash (1)
|
|
|
(2,774
|
)
|
|
|
(14,455
|
)
|
|
|
|
|
Performance vesting forfeiture
|
|
|
(114,109
|
)
|
|
|
(7,227
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of period (2)
|
|
|
117,630
|
|
|
|
102,661
|
|
|
|
2,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The weighted-average grant date fair value for the unit awards on the date of grant was $24.06, $26.94 and $26.27 for the years ended December 31, 2016, 2015 and 2014, respectively. The intrinsic values of unit
awards vested during the years ended December 31, 2016, 2015 and 2014 were $0.4 million, $0.6 million and $0.1 million, respectively.
|
|
(2)
|
Based on the closing price of the common units on December 31, 2016, the estimated intrinsic value of the outstanding unit awards was $1.0 million at December 31, 2016.
|
2004 Long-Term Incentive Plan
The
Compensation Committee administers the Partnerships 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 December 31, 2016, the estimated number of common units to be issued upon vesting and exercise of outstanding rights under this plan was 205,511, based upon the closing price of our common units at December 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 December 31, 2016 because the plan expired in 2014.
104
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 participants accounts for the years
ended December 31, 2016, 2015 and 2014, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Outstanding, beginning of period
|
|
|
184,457
|
|
|
|
169,122
|
|
|
|
162,103
|
|
Granted (1)
|
|
|
21,053
|
|
|
|
15,335
|
|
|
|
23,003
|
|
Settled in common units or cash
|
|
|
|
|
|
|
|
|
|
|
(15,984
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of period (2)
|
|
|
205,510
|
|
|
|
184,457
|
|
|
|
169,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The weighted-average grant date fair value for the phantom unit awards on the date of grant was $20.27, $28.42 and $24.90 for the years ended December 31, 2016, 2015 and 2014, respectively. The intrinsic values of
phantom unit awards vested during the years ended December 31, 2016, 2015 and 2014 were $0.4 million, $0.9 million and $1.0 million, respectively.
|
|
(2)
|
Based on the closing price of the common units on December 31, 2016, the estimated intrinsic value of the outstanding restricted phantom units was $1.8 million.
|
Total compensation expense for phantom unit awards under both the 2004 and 2014 plans was approximately $0.7 million, $1.0 million
and $1.0 million for the years ended December 31, 2016, 2015 and 2014, respectively.
Unit Appreciation Rights Awards
UAR awards represent a right to receive an amount equal to the closing price of the Partnerships common units on the date preceding the
exercise date less the exercise price of the UARs, to the extent the closing price of the Partnerships common units on the date preceding the exercise date is in excess of the exercise price. This amount is then divided by the closing price of
the Partnerships common units on the date preceding the exercise date to determine the number of common units to be issued to the participant. UAR awards are subject to terms and conditions determined by the Compensation Committee, which may
include vesting restrictions. UAR awards granted through December 31, 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 UARs outstanding at
December 31, 2016, 11,823 UARs will vest within the following twelve months. The following table sets forth the UAR award activity for the years ended December 31, 2016, 2015 and 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Outstanding, beginning of period
|
|
|
66,793
|
|
|
|
123,000
|
|
|
|
673,716
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
Exercised
|
|
|
|
|
|
|
(50,477
|
)
|
|
|
(554,466
|
)
|
Forfeited
|
|
|
(438
|
)
|
|
|
(5,730
|
)
|
|
|
(11,250
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of period (1)
|
|
|
66,355
|
|
|
|
66,793
|
|
|
|
123,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, end of period
|
|
|
52,967
|
|
|
|
33,092
|
|
|
|
57,090
|
|
|
(1)
|
Based on the closing price of the common units on December 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 December 31, 2016 was 1.6 years.
|
105
At December 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 $0.1 million for each of the years ended
December 31, 2016, 2015 and 2014. The Partnership issued 7,716 and 152,823 common units due to exercised UAR awards for the years ended December 31, 2015 and 2014, respectively.
The Partnerships estimated fair value of UAR awards granted during the year ended December 31, 2014 were calculated on the grant
date using the Black-Scholes-Merton option pricing model, which is based on Level 3 inputs. There were no UAR awards granted during the years ended December 31, 2016 and 2015. A summary of the weighted-average assumptions used in the
valuation are presented below:
|
|
|
|
|
|
|
Year Ended
December 31,
2014
|
|
Expected dividend yield
|
|
|
9.95
|
%
|
Risk-free interest rate
|
|
|
1.06
|
%
|
Expected volatility
|
|
|
27.13
|
%
|
Expected life (in years)
|
|
|
3.52
|
|
Fair value per UAR granted
|
|
$
|
1.60
|
|
The aggregate fair value of UARs granted during the year ended December 31, 2014 was approximately
$0.1 million.
14.
|
COMMITMENTS AND CONTINGENCIES
|
Legal
The Partnership is currently subject to class or collective actions under the Securities Exchange Act of 1934 and for related state law claims
that certain of our officers and directors breached their fiduciary duty to the Partnership and its unitholders. The Partnership could also become subject to additional claims and legal proceedings relating to the factual allegations made in these
actions. While management cannot reasonably estimate the potential exposure in these matters at this time, if the Partnership does not prevail in any such proceedings, the Partnership could be required to pay substantial damages or settlement costs,
subject to certain insurance coverages. Management has determined that, based on the status of the claims and legal proceedings against us, the amount of the potential losses cannot be reasonably estimated at this time. These actions are summarized
below.
|
|
|
Anderson v. StoneMor Partners, LP, et al., No. 2:16-cv-06111 pending in the United States District Court for the Eastern District of Pennsylvania, and filed on November 21, 2016. The plaintiffs in this case (as well as
Klein v. StoneMor Partners, LP, et al., No. 2:16-cv-06275, filed in the United States District Court for the Eastern District of Pennsylvania on December 2, 2016, which has been consolidated with this case) brought an action on behalf of a putative
class of the holders of Partnership units and allege that the Partnership made misrepresentations to investors in violation of Section 10(b) of the Securities Exchange Act of 1934 by, among other things and in general, failing to clearly disclose
the use of proceeds from debt and equity offerings by making allegedly false or misleading statements concerning (a) the Partnerships strength or health in connection with a particular quarters distribution announcement, (b) the
connection between operations and distributions and (c) the Partnerships use of cash from equity offerings and its credit facility. Lead plaintiffs have been appointed in this case, and filed a Consolidated Amended Class Action Complaint on
April 24, 2017. Defendants filed a motion to dismiss that Consolidated Amended Complaint on June 8, 2017; the motion is pending. Plaintiffs seek damages from the Partnership and certain of its officers and directors on behalf of the class of
Partnership unitholders, as well as costs and attorneys fees.
|
106
|
|
|
Bunim v. Miller, et al., No. 2:17-cv-00519-ER, pending in the United States District Court for the Eastern District of Pennsylvania, and filed on February 6, 2017. The plaintiff in this case brought, derivatively on
behalf of the Partnership, claims that StoneMor GPs officers and directors aided and abetted in breaches of StoneMor GPs purported fiduciary duties by, among other things and in general, allegedly making misrepresentations through the
use of non-GAAP accounting standards in its public filings, by allegedly failing to clearly disclose the use of proceeds from debt and equity offerings, and by allegedly approving unsustainable distributions. The plaintiff also claims that these
actions and misrepresentations give rise to causes of action for gross mismanagement, unjust enrichment, and (in connection with a purportedly misleading proxy statement filed in 2014) violations of Section 14(a) of the Securities Exchange Act of
1934. The derivative plaintiff seeks an award of damages, attorneys fees and costs in favor of the Partnership as nominal plaintiff, as well as general compliance and governance changes. This case has been stayed, by the agreement of the
parties, pending the resolution of the motion to dismiss filed in the Anderson case.
|
|
|
|
Muth v. StoneMor G.P. LLC, et al., December Term, 2016, No. 01196 and Binder v. StoneMor G.P. LLC, et al., January Term, 2017, No. 04872, both pending in the Court of Common Pleas for Philadelphia County, Pennsylvania,
and filed on December 20, 2016 and February 3, 2017, respectively. In these cases, the plaintiffs brought, derivatively on behalf of the Partnership, claims that StoneMor GPs officers and directors aided and abetted in breaches of StoneMor
GPs purported fiduciary duties by, among other things and in general, allegedly making misrepresentations through the use of non-GAAP accounting standards in its public filings and by failing to clearly disclose the use of proceeds from debt
and equity offerings, as well as approving unsustainable distributions. The plaintiffs also claim that these actions and misrepresentations give rise to a cause of action for unjust enrichment. The derivative plaintiffs seek an award of damages,
attorneys fees and costs in favor of the Partnership as nominal plaintiff, as well as alterations to the procedures for electing members to the board of StoneMor GP, and other compliance and governance changes. These cases have been
consolidated and stayed, by the agreement of the parties, pending the resolution of the motion to dismiss filed in the Anderson case.
|
The Partnership has received two subpoenas from the Philadelphia Regional Office of the Securities and Exchange Commission, Enforcement
Division, in connection with a fact-finding as to whether violations of federal securities laws have occurred. The subpoenas themselves state that the fact-finding should not be construed as an indication that any violations of securities laws
occurred. The first subpoena, received on April 25, 2017, sought information from us relating to, among other things, our prior restatements, financial statements, internal control over financial reporting, public disclosures, use of non-GAAP
financial measures and matters pertaining to unitholder distributions and the sources of funds therefor. The second subpoena, received on July 13, 2017, sought information relating to protection of our confidential information and our policies
regarding insider trading. We are cooperating with the SEC staff, have begun to deliver information requested in the first subpoena and have delivered all information requested in the second, more limited, subpoena.
The Partnership is party to other 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 adverse effect on its financial position, results of operations or cash flows. The Partnership carries insurance with coverage and coverage limits that it believes to be customary in the
cemetery and funeral home industry. Although there can be no assurance that such insurance will be sufficient to protect the Partnership against all contingencies, management believes that the insurance protection is reasonable in view of the nature
and scope of the operations.
Leases
In 2016, the Partnership entered into capital leases that had aggregate gross and net asset values of $3.3 million and $2.9 million,
respectively, at December 31, 2016.
107
The Partnership has noncancelable leases for equipment and office space that expire at various
dates with initial terms ranging from one to twenty-five years. Certain leases provide the Partnership with the option to renew for additional periods. Where leases contain escalation clauses, rent abatements, and/or concessions, the Partnership
applies them in the determination of straight-line rent expense over the lease term. Leasehold improvements are amortized over the shorter of the lease term or asset life, which may include renewal periods where the renewal is reasonably assured,
and is included in the determination of straight-line rent expense. Rent expense for operating leases for the years ended December 31, 2016, 2015 and 2014 was $4.0 million, $3.4 million and $2.5 million, respectively. The
aggregate amount of remaining future minimum lease payments as of December 31, 2016 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
Capital
|
|
2017
|
|
$
|
4,360
|
|
|
$
|
772
|
|
2018
|
|
|
4,358
|
|
|
|
772
|
|
2019
|
|
|
3,907
|
|
|
|
674
|
|
2020
|
|
|
2,554
|
|
|
|
448
|
|
2021
|
|
|
1,984
|
|
|
|
168
|
|
Thereafter
|
|
|
9,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
26,217
|
|
|
$
|
2,834
|
|
|
|
|
|
|
|
|
|
|
Less: Interest on capital leases
|
|
|
|
|
|
|
(444
|
)
|
|
|
|
|
|
|
|
|
|
Total principal payable on capital leases
|
|
|
|
|
|
$
|
2,390
|
|
|
|
|
|
|
|
|
|
|
Other
During 2016, the Partnership moved its corporate headquarters to Trevose, Pennsylvania. Due to the relocation, a
cease-use
expense of $2.4 million was recorded in Other gains and losses, net on the 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 Partnerships 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
(May 28,
2014-May
31, 2019)
|
|
None
|
Lease Years
6-20
(June 1,
2019-May
31, 2034)
|
|
$1,000,000 per Lease Year
|
Lease Years
21-25
(June 1,
2034-May
31, 2039)
|
|
$1,200,000 per Lease Year
|
Lease Years
26-35
(June 1,
2039-May
31, 2049)
|
|
$1,500,000 per Lease Year
|
Lease Years
36-60
(June 1,
2049-May
31, 2074)
|
|
None
|
The fixed rent for lease years 6 through 11, an aggregate of $6.0 million, is deferred. If, prior to
May 31, 2024, 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, the Partnership is entitled to retain the deferred fixed
rent. If the agreements are not terminated, the deferred fixed rent will become due and payable on or before June 30, 2024.
15.
|
FAIR VALUE OF FINANCIAL INSTRUMENTS
|
Management has established a hierarchy to measure
the Partnerships 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 Partnerships own market assumptions, which are used if observable inputs are
108
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 entitys 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 Partnerships current assets and liabilities and customer receivables on its consolidated balance sheets are similar to cash basis
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 Partnerships 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 7 and 8). Where quoted prices are available in an active market, securities are classified as
Level 1 investments pursuant to the fair value measurements hierarchy.
Where quoted market prices are not available for the specific
security, fair values are estimated by using either quoted prices of securities with similar characteristics or an income approach fair value model with observable inputs that include a combination of interest rates, yield curves, credit risks,
prepayment speeds, rating, and
tax-exempt
status. These securities are classified as Level 2 investments pursuant to the fair value measurements hierarchy. Certain investments in the merchandise and
perpetual care trusts are excluded from the fair value leveling hierarchy in accordance with GAAP. These funds are measured at fair value using the net asset value per share practical expedient and have not been categorized in the fair value
hierarchy.
The Partnerships other financial instruments at December 31, 2016 and 2015 consist of its Senior Notes and
outstanding borrowings under its revolving credit facility (see Note 10). The estimated fair values of the Partnerships Senior Notes at December 31, 2016 and 2015 were $168.0 million and $179.9 million, respectively, based
on trades made on those dates, compared with the carrying amounts of $172.6 million and $172.2 million, respectively. At December 31, 2016 and 2015, the carrying values of outstanding borrowings under the Partnerships revolving
credit facility (see Note 10), which bears interest at variable interest rates with maturities of 90 days or less, approximated their estimated fair values. The Senior Notes and the credit facility are valued using Level 2 inputs.
16.
|
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
|
The Partnerships
Senior Notes are guaranteed by StoneMor Operating LLC and its 100% 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 100% owned subsidiary, Cornerstone Family Services of West Virginia Subsidiary Inc., are the
co-issuers
of the Senior Notes. The Partnerships audited consolidated
financial statements as of and for the years ended December 31, 2016, 2015 and 2014 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 100% owned by the Partnership. The Partnerships unaudited consolidated financial statements also contain merchandise and perpetual care trusts that are also
non-guarantor
subsidiaries for the purposes of this note.
As discussed in Note 2, specific to the
Partnerships disclosure in this note, the Partnership previously recorded incorrect amounts for its individual cemetery and funeral home location-level equity and intercompany balances at its formation and in subsequent acquisitions.
Additionally, the Partnership presented certain managed
109
locations as guarantor subsidiaries instead of
non-guarantor
subsidiaries within this note. Accordingly, the Partnership has restated its disclosure herein
to reflect these changes and specifically described them within the tables below. Note that this adjustment had no impact to amounts presented on the face of the consolidated financial statements.
The financial information presented below reflects the Partnerships 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
Partnerships consolidated accounts as of and for the years ended December 31, 2016, 2015 and 2014. The effects of the Restatement, including those adjustments not specific to this note, on the Partnerships condensed consolidating
balance sheet as of December 31, 2015 are presented below. For the purpose of the following financial information, the Partnerships 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Parent
|
|
|
Subsidiary
Issuer
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-Guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
|
|
|
$
|
9,145
|
|
|
$
|
3,425
|
|
|
$
|
|
|
|
$
|
12,570
|
|
Other current assets
|
|
|
|
|
|
|
4,567
|
|
|
|
83,765
|
|
|
|
17,919
|
|
|
|
|
|
|
|
106,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
|
|
|
4,567
|
|
|
|
92,910
|
|
|
|
21,344
|
|
|
|
|
|
|
|
118,821
|
|
|
|
|
|
|
|
|
Long-term accounts receivable
|
|
|
|
|
|
|
1,725
|
|
|
|
83,993
|
|
|
|
13,168
|
|
|
|
|
|
|
|
98,886
|
|
Cemetery property and equipment
|
|
|
|
|
|
|
930
|
|
|
|
420,077
|
|
|
|
34,589
|
|
|
|
|
|
|
|
455,596
|
|
Merchandise trusts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
507,079
|
|
|
|
|
|
|
|
507,079
|
|
Perpetual care trusts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
333,780
|
|
|
|
|
|
|
|
333,780
|
|
Deferred selling and obtaining costs
|
|
|
|
|
|
|
5,668
|
|
|
|
91,252
|
|
|
|
19,970
|
|
|
|
|
|
|
|
116,890
|
|
Goodwill and intangible assets
|
|
|
|
|
|
|
|
|
|
|
72,963
|
|
|
|
62,911
|
|
|
|
|
|
|
|
135,874
|
|
Other assets
|
|
|
|
|
|
|
|
|
|
|
17,244
|
|
|
|
2,843
|
|
|
|
|
|
|
|
20,087
|
|
Investments in and amounts due from affiliates eliminated upon consolidation
|
|
|
258,417
|
|
|
|
182,060
|
|
|
|
557,455
|
|
|
|
|
|
|
|
(997,932
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
258,417
|
|
|
$
|
194,950
|
|
|
$
|
1,335,894
|
|
|
$
|
995,684
|
|
|
$
|
(997,932
|
)
|
|
$
|
1,787,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Partners Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
|
|
|
$
|
320
|
|
|
$
|
38,336
|
|
|
$
|
237
|
|
|
$
|
|
|
|
$
|
38,893
|
|
Long-term debt, net of deferred financing costs
|
|
|
68,063
|
|
|
|
104,560
|
|
|
|
127,728
|
|
|
|
|
|
|
|
|
|
|
|
300,351
|
|
Deferred revenues
|
|
|
|
|
|
|
30,321
|
|
|
|
738,184
|
|
|
|
98,128
|
|
|
|
|
|
|
|
866,633
|
|
Perpetual care trust corpus
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
333,780
|
|
|
|
|
|
|
|
333,780
|
|
Other long-term liabilities
|
|
|
|
|
|
|
|
|
|
|
45,802
|
|
|
|
11,200
|
|
|
|
|
|
|
|
57,002
|
|
Due to affiliates
|
|
|
|
|
|
|
|
|
|
|
172,623
|
|
|
|
581,427
|
|
|
|
(754,050
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
68,063
|
|
|
|
135,201
|
|
|
|
1,122,673
|
|
|
|
1,024,772
|
|
|
|
(754,050
|
)
|
|
|
1,596,659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners capital
|
|
|
190,354
|
|
|
|
59,749
|
|
|
|
213,221
|
|
|
|
(29,088
|
)
|
|
|
(243,882
|
)
|
|
|
190,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and partners capital
|
|
$
|
258,417
|
|
|
$
|
194,950
|
|
|
$
|
1,335,894
|
|
|
$
|
995,684
|
|
|
$
|
(997,932
|
)
|
|
$
|
1,787,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015 (As filed)
|
|
Parent
|
|
|
Subsidiary
Issuer
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-Guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
|
|
|
$
|
11,869
|
|
|
$
|
3,284
|
|
|
$
|
|
|
|
$
|
15,153
|
|
Other current assets
|
|
|
|
|
|
|
4,858
|
|
|
|
78,464
|
|
|
|
12,701
|
|
|
|
|
|
|
|
96,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
|
|
|
4,858
|
|
|
|
90,333
|
|
|
|
15,985
|
|
|
|
|
|
|
|
111,176
|
|
|
|
|
|
|
|
|
Long-term accounts receivable
|
|
|
|
|
|
|
2,888
|
|
|
|
80,969
|
|
|
|
11,310
|
|
|
|
|
|
|
|
95,167
|
|
Cemetery property and equipment
|
|
|
|
|
|
|
1,084
|
|
|
|
418,400
|
|
|
|
31,100
|
|
|
|
|
|
|
|
450,584
|
|
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
|
|
|
|
|
|
|
|
|
|
|
14,153
|
|
|
|
2,195
|
|
|
|
|
|
|
|
16,348
|
|
Investments in and amounts due from affiliates eliminated upon consolidation
|
|
|
249,436
|
|
|
|
165,639
|
|
|
|
436,811
|
|
|
|
|
|
|
|
(851,886
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
249,436
|
|
|
$
|
180,436
|
|
|
$
|
1,210,164
|
|
|
$
|
906,207
|
|
|
$
|
(851,886
|
)
|
|
$
|
1,694,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Partners Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
|
|
|
$
|
12
|
|
|
$
|
33,083
|
|
|
$
|
837
|
|
|
$
|
|
|
|
$
|
33,932
|
|
Long-term debt, net of deferred financing costs
|
|
|
67,890
|
|
|
|
104,295
|
|
|
|
144,214
|
|
|
|
|
|
|
|
|
|
|
|
316,399
|
|
Deferred revenues
|
|
|
|
|
|
|
40,467
|
|
|
|
697,516
|
|
|
|
77,438
|
|
|
|
|
|
|
|
815,421
|
|
Perpetual care trust corpus
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
307,804
|
|
|
|
|
|
|
|
307,804
|
|
Other long-term liabilities
|
|
|
|
|
|
|
|
|
|
|
29,761
|
|
|
|
9,494
|
|
|
|
|
|
|
|
39,255
|
|
Due to affiliates
|
|
|
|
|
|
|
|
|
|
|
172,185
|
|
|
|
454,605
|
|
|
|
(626,790
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
67,890
|
|
|
|
144,774
|
|
|
|
1,076,759
|
|
|
|
850,178
|
|
|
|
(626,790
|
)
|
|
|
1,512,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners capital
|
|
|
181,546
|
|
|
|
35,662
|
|
|
|
133,405
|
|
|
|
56,029
|
|
|
|
(225,096
|
)
|
|
|
181,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and partners capital
|
|
$
|
249,436
|
|
|
$
|
180,436
|
|
|
$
|
1,210,164
|
|
|
$
|
906,207
|
|
|
$
|
(851,886
|
)
|
|
$
|
1,694,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015 (Restatement
adjustmentssee Note 2)
|
|
Parent
|
|
|
Subsidiary
Issuer
|
|
|
|
|
|
Guarantor
Subsidiaries
|
|
|
|
|
|
Non-Guarantor
Subsidiaries
|
|
|
|
|
|
Eliminations
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
A
|
|
|
|
|
|
A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
(60
|
)
|
|
|
|
|
|
$
|
60
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
Other current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,206
|
)
|
|
|
|
|
|
|
764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,442
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,266
|
)
|
|
|
|
|
|
|
824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,442
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Long-term accounts receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,262
|
)
|
|
|
|
|
|
|
1,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cemetery property and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,586
|
)
|
|
|
|
|
|
|
1,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchandise trusts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,692
|
|
Perpetual care trusts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred selling and obtaining costs
|
|
|
|
|
|
|
(574
|
)
|
|
|
|
|
|
|
(5,963
|
)
|
|
|
|
|
|
|
1,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,418
|
)
|
Goodwill and intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,425
|
)
|
|
|
|
|
|
|
3,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,331
|
|
Investments in and amounts due from affiliates eliminated upon consolidation
|
|
|
23,165
|
|
|
|
44,863
|
|
|
|
C
|
|
|
|
74,998
|
|
|
|
B, C
|
|
|
|
|
|
|
|
|
|
|
|
(143,026
|
)
|
|
|
B, C
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
23,165
|
|
|
$
|
44,289
|
|
|
|
|
|
|
$
|
64,827
|
|
|
|
|
|
|
$
|
15,908
|
|
|
|
|
|
|
$
|
(143,026
|
)
|
|
|
|
|
|
$
|
5,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Partners Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
|
|
|
$
|
98
|
|
|
|
|
|
|
$
|
(965
|
)
|
|
|
|
|
|
$
|
(575
|
)
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
(1,442
|
)
|
Long-term debt, net of deferred financing costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenues
|
|
|
|
|
|
|
(5,667
|
)
|
|
|
|
|
|
|
(26,519
|
)
|
|
|
|
|
|
|
8,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,971
|
)
|
Perpetual care trust corpus
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,411
|
|
Due to affiliates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93,890
|
|
|
|
B
|
|
|
|
(93,890
|
)
|
|
|
B, C
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
|
|
|
(5,569
|
)
|
|
|
|
|
|
|
(20,073
|
)
|
|
|
|
|
|
|
101,530
|
|
|
|
|
|
|
|
(93,890
|
)
|
|
|
|
|
|
|
(18,002
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners capital
|
|
|
23,165
|
|
|
|
49,858
|
|
|
|
C
|
|
|
|
84,900
|
|
|
|
B, C
|
|
|
|
(85,622
|
)
|
|
|
B
|
|
|
|
(49,136
|
)
|
|
|
B, C
|
|
|
|
23,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and partners capital
|
|
$
|
23,165
|
|
|
$
|
44,289
|
|
|
|
|
|
|
$
|
64,827
|
|
|
|
|
|
|
$
|
15,908
|
|
|
|
|
|
|
$
|
(143,026
|
)
|
|
|
|
|
|
$
|
5,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A.
|
The Partnership incorrectly presented certain cemeteries as guarantor subsidiaries instead of
non-guarantor
subsidiaries. The adjustments to correctly present these
non-guarantor
subsidiaries resulted in a $6.0 million decrease in Total assets of guarantor subsidiaries and a corresponding $6.0 million increase in Total assets of
non-guarantor
subsidiaries.
|
B.
|
The Partnership incorrectly presented certain balances for certain cemeteries under management as Partners capital instead of Due to affiliates of
non-guarantor
subsidiaries. The equity accounting adjustments to correctly present these balances resulted in an $87.1 million decrease in Partners capital and a corresponding
$87.1 million increase in Due to affiliates of
non-guarantor
subsidiaries, and an $87.1 million increase in Investments in and amounts due from affiliates eliminated upon
consolidation and a corresponding $87.1 million increase in Partners capital of guarantor subsidiaries.
|
112
C.
|
The Partnership recorded incorrect amounts for its cemetery and funeral home location-level equity and intercompany balances at its formation and in subsequent acquisitions. The equity accounting adjustments to correct
these errors resulted in a $34.1 million decrease in the Investments in and amounts due from affiliates eliminated upon consolidation and a corresponding $34.1 million decrease in Partners capital of the
subsidiary issuer, and a $19.8 million increase in Investments in and amounts due from affiliates eliminated upon consolidation and a corresponding $19.8 million increase in Partners capital of guarantor
subsidiaries.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015 (As restatedsee Note 2)
|
|
Parent
|
|
|
Subsidiary
Issuer
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-Guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
|
$
|
|
|
|
$
|
11,809
|
|
|
$
|
3,344
|
|
|
$
|
|
|
|
$
|
15,153
|
|
Other current assets
|
|
|
|
|
|
|
4,858
|
|
|
|
76,258
|
|
|
|
13,465
|
|
|
|
|
|
|
|
94,581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
|
|
|
4,858
|
|
|
|
88,067
|
|
|
|
16,809
|
|
|
|
|
|
|
|
109,734
|
|
|
|
|
|
|
|
|
Long-term accounts receivable
|
|
|
|
|
|
|
2,888
|
|
|
|
79,707
|
|
|
|
12,572
|
|
|
|
|
|
|
|
95,167
|
|
Cemetery property and equipment
|
|
|
|
|
|
|
1,084
|
|
|
|
416,814
|
|
|
|
32,686
|
|
|
|
|
|
|
|
450,584
|
|
Merchandise trusts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
472,368
|
|
|
|
|
|
|
|
472,368
|
|
Perpetual care trusts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
307,804
|
|
|
|
|
|
|
|
307,804
|
|
Deferred selling and obtaining costs
|
|
|
|
|
|
|
5,393
|
|
|
|
85,312
|
|
|
|
15,419
|
|
|
|
|
|
|
|
106,124
|
|
Goodwill and intangible assets
|
|
|
|
|
|
|
|
|
|
|
74,798
|
|
|
|
62,262
|
|
|
|
|
|
|
|
137,060
|
|
Other assets
|
|
|
|
|
|
|
|
|
|
|
18,484
|
|
|
|
2,195
|
|
|
|
|
|
|
|
20,679
|
|
Investments in and amounts due from affiliates eliminated upon consolidation
|
|
|
272,601
|
|
|
|
210,502
|
|
|
|
511,809
|
|
|
|
|
|
|
|
(994,912
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
272,601
|
|
|
$
|
224,725
|
|
|
$
|
1,274,991
|
|
|
$
|
922,115
|
|
|
$
|
(994,912
|
)
|
|
$
|
1,699,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Partners Capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
|
|
|
$
|
110
|
|
|
$
|
32,118
|
|
|
$
|
262
|
|
|
$
|
|
|
|
$
|
32,490
|
|
Long-term debt, net of deferred financing costs
|
|
|
67,890
|
|
|
|
104,295
|
|
|
|
144,214
|
|
|
|
|
|
|
|
|
|
|
|
316,399
|
|
Deferred revenues
|
|
|
|
|
|
|
34,800
|
|
|
|
670,997
|
|
|
|
85,653
|
|
|
|
|
|
|
|
791,450
|
|
Perpetual care trust corpus
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
307,804
|
|
|
|
|
|
|
|
307,804
|
|
Other long-term liabilities
|
|
|
|
|
|
|
|
|
|
|
37,172
|
|
|
|
9,494
|
|
|
|
|
|
|
|
46,666
|
|
Due to affiliates
|
|
|
|
|
|
|
|
|
|
|
172,185
|
|
|
|
548,495
|
|
|
|
(720,680
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
67,890
|
|
|
|
139,205
|
|
|
|
1,056,686
|
|
|
|
951,708
|
|
|
|
(720,680
|
)
|
|
|
1,494,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners capital
|
|
|
204,711
|
|
|
|
85,520
|
|
|
|
218,305
|
|
|
|
(29,593
|
)
|
|
|
(274,232
|
)
|
|
|
204,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and partners capital
|
|
$
|
272,601
|
|
|
$
|
224,725
|
|
|
$
|
1,274,991
|
|
|
$
|
922,115
|
|
|
$
|
(994,912
|
)
|
|
$
|
1,699,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2016
|
|
Parent
|
|
|
Subsidiary
Issuer
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-Guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Total revenues
|
|
$
|
|
|
|
$
|
7,854
|
|
|
$
|
270,407
|
|
|
$
|
57,201
|
|
|
$
|
(9,232
|
)
|
|
$
|
326,230
|
|
Total costs and expenses
|
|
|
|
|
|
|
(12,131
|
)
|
|
|
(272,191
|
)
|
|
|
(54,026
|
)
|
|
|
9,232
|
|
|
|
(329,116
|
)
|
Other income (loss)
|
|
|
|
|
|
|
|
|
|
|
(1,520
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,520
|
)
|
Net loss from equity investment in subsidiaries
|
|
|
(25,049
|
)
|
|
|
(33,493
|
)
|
|
|
|
|
|
|
|
|
|
|
58,542
|
|
|
|
|
|
Interest expense
|
|
|
(5,434
|
)
|
|
|
(8,348
|
)
|
|
|
(9,859
|
)
|
|
|
(847
|
)
|
|
|
|
|
|
|
(24,488
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
(30,483
|
)
|
|
|
(46,118
|
)
|
|
|
(13,163
|
)
|
|
|
2,328
|
|
|
|
58,542
|
|
|
|
(28,894
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit (expense)
|
|
|
|
|
|
|
|
|
|
|
(1,589
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,589
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(30,483
|
)
|
|
$
|
(46,118
|
)
|
|
$
|
(14,752
|
)
|
|
$
|
2,328
|
|
|
$
|
58,542
|
|
|
$
|
(30,483
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2015 (As restated
see Note 2)
|
|
Parent
|
|
|
Subsidiary
Issuer
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-Guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Total revenues
|
|
$
|
|
|
|
$
|
5,813
|
|
|
$
|
272,193
|
|
|
$
|
52,612
|
|
|
$
|
(10,299
|
)
|
|
$
|
320,319
|
|
Total costs and expenses
|
|
|
|
|
|
|
(10,715
|
)
|
|
|
(265,881
|
)
|
|
|
(52,004
|
)
|
|
|
10,299
|
|
|
|
(318,301
|
)
|
Other income (loss)
|
|
|
|
|
|
|
|
|
|
|
(1,891
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,891
|
)
|
Net loss from equity investment in subsidiaries
|
|
|
(17,957
|
)
|
|
|
(21,819
|
)
|
|
|
|
|
|
|
|
|
|
|
39,776
|
|
|
|
|
|
Interest expense
|
|
|
(5,434
|
)
|
|
|
(8,348
|
)
|
|
|
(8,075
|
)
|
|
|
(728
|
)
|
|
|
|
|
|
|
(22,585
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
(23,391
|
)
|
|
|
(35,069
|
)
|
|
|
(3,654
|
)
|
|
|
(120
|
)
|
|
|
39,776
|
|
|
|
(22,458
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit (expense)
|
|
|
|
|
|
|
|
|
|
|
(933
|
)
|
|
|
|
|
|
|
|
|
|
|
(933
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(23,391
|
)
|
|
$
|
(35,069
|
)
|
|
$
|
(4,587
|
)
|
|
$
|
(120
|
)
|
|
$
|
39,776
|
|
|
$
|
(23,391
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2014 (As restatedsee
Note 2)
|
|
Parent
|
|
|
Subsidiary
Issuer
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-Guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Total revenues
|
|
$
|
|
|
|
$
|
7,986
|
|
|
$
|
286,211
|
|
|
$
|
18,361
|
|
|
$
|
(12,131
|
)
|
|
$
|
300,427
|
|
Total costs and expenses
|
|
|
|
|
|
|
(11,519
|
)
|
|
|
(252,370
|
)
|
|
|
(35,174
|
)
|
|
|
12,131
|
|
|
|
(286,932
|
)
|
Other income (loss)
|
|
|
|
|
|
|
|
|
|
|
890
|
|
|
|
|
|
|
|
|
|
|
|
890
|
|
Net loss from equity investment in subsidiaries
|
|
|
(4,355
|
)
|
|
|
(15,662
|
)
|
|
|
|
|
|
|
|
|
|
|
20,017
|
|
|
|
|
|
Interest expense
|
|
|
(5,434
|
)
|
|
|
(8,347
|
)
|
|
|
(7,430
|
)
|
|
|
(399
|
)
|
|
|
|
|
|
|
(21,610
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
(9,789
|
)
|
|
|
(27,542
|
)
|
|
|
27,301
|
|
|
|
(17,212
|
)
|
|
|
20,017
|
|
|
|
(7,225
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit (expense)
|
|
|
|
|
|
|
|
|
|
|
(2,564
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,564
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(9,789
|
)
|
|
$
|
(27,542
|
)
|
|
$
|
24,737
|
|
|
$
|
(17,212
|
)
|
|
$
|
20,017
|
|
|
$
|
(9,789
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2016
|
|
Parent
|
|
|
Subsidiary
Issuer
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-Guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Net cash provided by (used in) operating activities
|
|
$
|
25,985
|
|
|
$
|
154
|
|
|
$
|
33,635
|
|
|
$
|
2,760
|
|
|
$
|
(39,767
|
)
|
|
$
|
22,767
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for acquisitions and capital expenditures
|
|
|
|
|
|
|
(154
|
)
|
|
|
(16,296
|
)
|
|
|
(2,679
|
)
|
|
|
|
|
|
|
(19,129
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in affiliate
|
|
|
(41,135
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(41,135
|
)
|
|
|
(154
|
)
|
|
|
(16,296
|
)
|
|
|
(2,679
|
)
|
|
|
41,135
|
|
|
|
(19,129
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash distributions
|
|
|
(79,164
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(79,164
|
)
|
Payments to affiliates
|
|
|
|
|
|
|
|
|
|
|
1,368
|
|
|
|
|
|
|
|
(1,368
|
)
|
|
|
|
|
Net borrowings and repayments of debt
|
|
|
|
|
|
|
|
|
|
|
(14,389
|
)
|
|
|
|
|
|
|
|
|
|
|
(14,389
|
)
|
Proceeds from issuance of common units
|
|
|
94,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94,314
|
|
Other financing activities
|
|
|
|
|
|
|
|
|
|
|
(6,982
|
)
|
|
|
|
|
|
|
|
|
|
|
(6,982
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
15,150
|
|
|
|
|
|
|
|
(20,003
|
)
|
|
|
|
|
|
|
(1,368
|
)
|
|
|
(6,221
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
(2,664
|
)
|
|
|
81
|
|
|
|
|
|
|
|
(2,583
|
)
|
Cash and cash equivalentsBeginning of period
|
|
|
|
|
|
|
|
|
|
|
11,809
|
|
|
|
3,344
|
|
|
|
|
|
|
|
15,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalentsEnd of period
|
|
$
|
|
|
|
$
|
|
|
|
$
|
9,145
|
|
|
$
|
3,425
|
|
|
$
|
|
|
|
$
|
12,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2015
(As restatedsee Note 2)
|
|
Parent
|
|
|
Subsidiary
Issuer
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-Guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Net cash provided by (used in) operating activities
|
|
$
|
2,356
|
|
|
$
|
284
|
|
|
$
|
14,569
|
|
|
$
|
2,991
|
|
|
$
|
(16,138
|
)
|
|
$
|
4,062
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for acquisitions and capital expenditures
|
|
|
|
|
|
|
(284
|
)
|
|
|
(30,864
|
)
|
|
|
(2,991
|
)
|
|
|
|
|
|
|
(34,139
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
|
|
|
|
(284
|
)
|
|
|
(30,864
|
)
|
|
|
(2,991
|
)
|
|
|
|
|
|
|
(34,139
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash distributions
|
|
|
(77,512
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(77,512
|
)
|
Payments to affiliates
|
|
|
|
|
|
|
|
|
|
|
(16,138
|
)
|
|
|
|
|
|
|
16,138
|
|
|
|
|
|
Net borrowings and repayments of debt
|
|
|
|
|
|
|
|
|
|
|
37,261
|
|
|
|
|
|
|
|
|
|
|
|
37,261
|
|
Proceeds from issuance of common units
|
|
|
75,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,156
|
|
Other financing activities
|
|
|
|
|
|
|
|
|
|
|
(76
|
)
|
|
|
|
|
|
|
|
|
|
|
(76
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(2,356
|
)
|
|
|
|
|
|
|
21,047
|
|
|
|
|
|
|
|
16,138
|
|
|
|
34,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
4,752
|
|
|
|
|
|
|
|
|
|
|
|
4,752
|
|
Cash and cash equivalentsBeginning of period
|
|
|
|
|
|
|
|
|
|
|
7,057
|
|
|
|
3,344
|
|
|
|
|
|
|
|
10,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalentsEnd of period
|
|
$
|
|
|
|
$
|
|
|
|
$
|
11,809
|
|
|
$
|
3,344
|
|
|
$
|
|
|
|
$
|
15,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2014
(As restatedsee Note 2)
|
|
Parent
|
|
|
Subsidiary
Issuer
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-Guarantor
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Net cash provided by (used in) operating activities
|
|
$
|
|
|
|
$
|
150
|
|
|
$
|
30,401
|
|
|
$
|
2,678
|
|
|
$
|
(13,781
|
)
|
|
$
|
19,448
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for acquisitions and capital expenditures
|
|
|
|
|
|
|
(150
|
)
|
|
|
(67,777
|
)
|
|
|
(2,731
|
)
|
|
|
|
|
|
|
(70,658
|
)
|
Consideration for lease and management agreements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(53,000
|
)
|
|
|
|
|
|
|
(53,000
|
)
|
Payments to affiliates
|
|
|
(110,661
|
)
|
|
|
|
|
|
|
(53,000
|
)
|
|
|
|
|
|
|
163,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(110,661
|
)
|
|
|
(150
|
)
|
|
|
(120,777
|
)
|
|
|
(55,731
|
)
|
|
|
163,661
|
|
|
|
(123,658
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash distributions
|
|
|
(62,836
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(62,836
|
)
|
Payments from affiliates
|
|
|
|
|
|
|
|
|
|
|
96,880
|
|
|
|
53,000
|
|
|
|
(149,880
|
)
|
|
|
|
|
Net borrowings and repayments of debt
|
|
|
|
|
|
|
|
|
|
|
(5,275
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,275
|
)
|
Proceeds from issuance of common units
|
|
|
173,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
173,497
|
|
Other financing activities
|
|
|
|
|
|
|
|
|
|
|
(2,950
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,950
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
110,661
|
|
|
|
|
|
|
|
88,655
|
|
|
|
53,000
|
|
|
|
(149,880
|
)
|
|
|
102,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
(1,721
|
)
|
|
|
(53
|
)
|
|
|
|
|
|
|
(1,774
|
)
|
Cash and cash equivalentsBeginning of period
|
|
|
|
|
|
|
|
|
|
|
8,778
|
|
|
|
3,397
|
|
|
|
|
|
|
|
12,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalentsEnd of period
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7,057
|
|
|
$
|
3,344
|
|
|
$
|
|
|
|
$
|
10,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115
17.
|
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 year ended December 31, 2016, the Partnership issued 903,682 common units under the ATM Equity Program for net proceeds of $23.0 million. During the year ended December 31, 2015, the Partnership issued
277,667 common units under the ATM Equity Program for net proceeds of $7.5 million.
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 206,087
paid-in-kind
units to ACII in lieu of cash distributions of $5.2 million during the year ended December 31, 2016.
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. Additionally, the underwriters exercised their option to purchase an additional 300,000 common units. The offering resulted in net proceeds, after deducting underwriting discounts and offering
expenses, of $51.5 million. The proceeds from the offering were used to pay down outstanding indebtedness under the credit facility.
On December 30, 2016, the Partnership sold to GP Holdings, the parent of the Partnerships general partner, 2,332,878 common units
representing limited partner interests in the Partnership at an aggregate purchase price of $20.0 million (i.e., $8.5731 per common unit, which was equal to the volume-weighted average trading price of a common unit for the twenty trading days
ending on and including December 30, 2016) pursuant to a common unit purchase agreement.
On July 10, 2015, the Partnership
issued 2,415,000 common units in a public offering at a price of $29.63 per unit. Net proceeds from the offering, after deducting underwriting discounts and offering expenses, were approximately $67.9 million. The proceeds were used to repay
outstanding borrowings under the Partnerships credit facility.
116
The Partnerships operations include two reportable operating
segments, Cemetery Operations and Funeral Home Operations. These operating segments reflect the way the Partnership manages its operations and makes business decisions as of December 31, 2016. Prior periods were revised to the current year
presentation. Operating segment data for the periods indicated were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
(As restated)
|
|
Cemetery Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
265,726
|
|
|
$
|
262,247
|
|
|
$
|
251,583
|
|
Operating costs and expenses
|
|
|
(223,329
|
)
|
|
|
(219,186
|
)
|
|
|
(201,388
|
)
|
Depreciation and amortization
|
|
|
(8,597
|
)
|
|
|
(7,766
|
)
|
|
|
(6,904
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income
|
|
$
|
33,800
|
|
|
$
|
35,295
|
|
|
$
|
43,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funeral Home Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
60,504
|
|
|
$
|
58,072
|
|
|
$
|
48,844
|
|
Operating costs and expenses
|
|
|
(53,270
|
)
|
|
|
(47,703
|
)
|
|
|
(39,740
|
)
|
Depreciation and amortization
|
|
|
(3,378
|
)
|
|
|
(3,257
|
)
|
|
|
(3,200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment income
|
|
$
|
3,856
|
|
|
$
|
7,112
|
|
|
$
|
5,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of segment income to net loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cemetery Operations
|
|
$
|
33,800
|
|
|
$
|
35,295
|
|
|
$
|
43,291
|
|
Funeral Home Operations
|
|
|
3,856
|
|
|
|
7,112
|
|
|
|
5,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment income
|
|
|
37,656
|
|
|
|
42,407
|
|
|
|
49,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate overhead
|
|
|
(39,618
|
)
|
|
|
(38,609
|
)
|
|
|
(34,723
|
)
|
Corporate depreciation and amortization
|
|
|
(924
|
)
|
|
|
(1,780
|
)
|
|
|
(977
|
)
|
Other gains (losses), net
|
|
|
(1,520
|
)
|
|
|
(1,891
|
)
|
|
|
890
|
|
Interest expense
|
|
|
(24,488
|
)
|
|
|
(22,585
|
)
|
|
|
(21,610
|
)
|
Income tax benefit (expense)
|
|
|
(1,589
|
)
|
|
|
(933
|
)
|
|
|
(2,564
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(30,483
|
)
|
|
$
|
(23,391
|
)
|
|
$
|
(9,789
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cemetery Operations
|
|
$
|
7,756
|
|
|
$
|
11,853
|
|
|
$
|
13,368
|
|
Funeral Home Operations
|
|
|
919
|
|
|
|
580
|
|
|
|
545
|
|
Corporate
|
|
|
2,707
|
|
|
|
2,906
|
|
|
|
661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures
|
|
$
|
11,382
|
|
|
$
|
15,339
|
|
|
$
|
14,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cemetery Operations
|
|
$
|
1,573,494
|
|
|
$
|
1,479,187
|
|
|
$
|
1,513,602
|
|
Funeral Home Operations
|
|
|
198,200
|
|
|
|
196,788
|
|
|
|
164,725
|
|
Corporate
|
|
|
15,319
|
|
|
|
23,545
|
|
|
|
17,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,787,013
|
|
|
$
|
1,699,520
|
|
|
$
|
1,695,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cemetery Operations
|
|
$
|
24,862
|
|
|
$
|
25,320
|
|
|
$
|
24,186
|
|
Funeral Home Operations
|
|
|
45,574
|
|
|
|
44,531
|
|
|
|
34,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total goodwill
|
|
$
|
70,436
|
|
|
$
|
69,851
|
|
|
$
|
58,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
117
On January 27, 2017, the Partnership announced a quarterly cash
distribution of $0.33 per common unit pertaining to the results for the fourth quarter of 2016. The distribution was paid on February 14, 2017 to common unit holders of record as of the close of business on February 7, 2017. On
April 28, 2017, the Partnership announced a quarterly cash distribution of $0.33 per common unit pertaining to the results of the first quarter of 2017. The distribution was paid on May 15, 2017 to common unit holders of record as of the
close of business on May 8, 2017. A part of or all of these quarterly cash distributions may be deemed to be a return of capital for our limited partners if such quarterly cash distribution, when combined with all other cash distributions made
during the calendar year, exceeds the partners share of taxable income for the corresponding period, depending upon the individual limited partners specific tax position. Because the Partnerships general and limited partner
interests have cumulative net losses as of the end of the period, the distribution represented a return of capital to those interests in accordance with US GAAP.
On March 15, 2017, the Borrowers, Capital One, as Administrative Agent and acting in accordance with the written consent of the Required
Lenders, entered into the First Amendment to Credit Agreement. Those parties subsequently entered into a Second Amendment and Limited Waiver on July 26, 2017 and a Third Amendment and Limited Waiver effective as of August 15, 2017. The
cumulative effect of these amendments was to amend the Original Credit Agreement as follows:
|
|
|
extend the deadline by which the Operating Company was required to deliver to the Administrative Agent the Partnerships audited financial statements for the year ended December 31, 2016 (2016 Financial
Statements) to September 15, 2017;
|
|
|
|
extend the deadline by which the Operating Company is required to deliver to the Administrative Agent the Partnerships unaudited financial statements for the quarter ended March 31, 2017 (the Q1 2017
Financial Statements) to no later than forty-five (45) days after the date on which the Operating Company delivers the 2016 Financial Statements to the Administrative Agent;
|
|
|
|
extend the deadline by which the Operating Company is required to deliver to the Administrative Agent the Partnerships unaudited financial statements for the quarter ended June 30, 2017 to no later than
forty-five (45) days after the date on which the Operating Company delivers the Q1 2017 Financial Statements to the Administrative Agent, but not later than December 15, 2017;
|
|
|
|
require that, until the 2016 Financial Statements have been delivered to the Administrative Agent, the Operating Company deliver to the Administrative Agent financial statements within 35 days after the end of each
month for the previous month and
year-to-date,
certified by a Financial Officer of the Operating Company;
|
|
|
|
increase the maximum Consolidated Leverage Ratio to 4.25:1.00 through September 30, 2017, which ratio will revert to 4.00:1.00 effective October 1, 2017, subject to the right under the Credit Agreement to
increase the Consolidated Leverage Ratio to a maximum of 4.25:1.00 in connection with consummation of a Designated Acquisition;
|
|
|
|
amend the definition of Applicable Rate to (a) limit Category 4 to Consolidated Leverage Ratios greater than 3.50:1.00 but less than or equal to 4:00:1.00, (b) add new Category 5
which would apply in the event the Consolidated Leverage Ratio exceeds 4:00:1.00, in which event the Eurodollar Spread for Revolving Loans, the Base Rate Spread for Revolving Loans and the Commitment Fee Rate would increase to 3.75%, 2.75% and
0.50%, respectively, and (c) provide that Category 5 shall be applicable until the Operating Company delivers to the Administrative Agent the 2016 Financial Statements, the Q1 2017 Financial Statements and the corresponding compliance
certificates and shall thereafter again be applicable commencing three Business Days after the Operating Company fails to timely deliver to the Administrative Agent any required financial statements under the Credit Agreement and continuing until
the third Business Day after such financial statements are so delivered;
|
|
|
|
until January 1, 2018, prohibit the Partnership from increasing the regularly scheduled quarterly cash
distributions permitted to be made to its partners under the Credit Agreement unless, at the time such
|
118
|
distribution is declared and on a pro forma basis after giving effect to the payment of any such distribution the Consolidated Leverage Ratio is no greater than 3.75:1.00;
|
|
|
|
allow up to an aggregate of $53.0 million in realized losses in the Loan Parties investment portfolio for all periods to be added back for purposes of calculating Consolidated EBITDA; and
|
|
|
|
clarify that the Partnership is entitled to add back extraordinary, unusual or
non-recurring
losses, charges or expenses in calculating Consolidated EBITDA for the first two
quarters of 2017, subject to a limit of $14.3 million for the period ended June 30, 2017. The Partnership intends to seek further clarification from its lenders with respect to these adjustments for periods after the second quarter of
2017.
|
20.
|
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
|
The Partnership has restated the
consolidated statements of operations for the year ended December 31, 2015 for certain errors as discussed in Note 2. Accordingly, the tables below present quarterly results of operations for the years ended December 31, 2016 and 2015, as
revised to give effect to the Restatement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
Filed
|
|
|
Restatement
Adjustments
|
|
|
As
Restated
|
|
|
|
(in thousands, except per unit data)
|
|
Quarter Ended March 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
76,929
|
|
|
$
|
1,243
|
|
|
$
|
78,172
|
|
Net income (loss)
|
|
|
(7,475
|
)
|
|
|
1,082
|
|
|
|
(6,393
|
)
|
General partners interest in net income (loss) for the period
|
|
|
1,088
|
|
|
|
13
|
|
|
|
1,101
|
|
Limited partners interest in net income (loss) for the period
|
|
|
(8,563
|
)
|
|
|
1,069
|
|
|
|
(7,494
|
)
|
Net income (loss) per limited partner unit (basic and diluted):
|
|
|
(0.26
|
)
|
|
|
0.03
|
|
|
|
(0.23
|
)
|
|
|
|
|
Quarter Ended March 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
70,493
|
|
|
|
18
|
|
|
|
70,511
|
|
Net income (loss)
|
|
|
(8,510
|
)
|
|
|
180
|
|
|
|
(8,330
|
)
|
General partners interest in net income (loss) for the period
|
|
|
685
|
|
|
|
2
|
|
|
|
687
|
|
Limited partners interest in net income (loss) for the period
|
|
|
(9,195
|
)
|
|
|
178
|
|
|
|
(9,017
|
)
|
Net income (loss) per limited partner unit (basic and diluted):
|
|
|
(0.31
|
)
|
|
|
|
|
|
|
(0.31
|
)
|
|
|
|
|
Quarter Ended June 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
78,282
|
|
|
|
696
|
|
|
|
78,978
|
|
Net income (loss)
|
|
|
(8,651
|
)
|
|
|
507
|
|
|
|
(8,144
|
)
|
General partners interest in net income (loss) for the period
|
|
|
1,085
|
|
|
|
6
|
|
|
|
1,091
|
|
Limited partners interest in net income (loss) for the period
|
|
|
(9,736
|
)
|
|
|
501
|
|
|
|
(9,235
|
)
|
Net income (loss) per limited partner unit (basic and diluted):
|
|
|
(0.28
|
)
|
|
|
0.01
|
|
|
|
(0.27
|
)
|
|
|
|
|
Quarter Ended June 30, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
84,513
|
|
|
|
555
|
|
|
|
85,068
|
|
Net income (loss)
|
|
|
(4,644
|
)
|
|
|
669
|
|
|
|
(3,975
|
)
|
General partners interest in net income (loss) for the period
|
|
|
899
|
|
|
|
9
|
|
|
|
908
|
|
Limited partners interest in net income (loss) for the period
|
|
|
(5,543
|
)
|
|
|
660
|
|
|
|
(4,883
|
)
|
Net income (loss) per limited partner unit (basic and diluted):
|
|
|
(0.19
|
)
|
|
|
0.02
|
|
|
|
(0.17
|
)
|
|
|
|
|
Quarter Ended September 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
78,536
|
|
|
|
2,237
|
|
|
|
80,773
|
|
Net income (loss)
|
|
|
(11,644
|
)
|
|
|
1,695
|
|
|
|
(9,949
|
)
|
General partners interest in net income (loss) for the period
|
|
|
(130
|
)
|
|
|
19
|
|
|
|
(111
|
)
|
Limited partners interest in net income (loss) for the period
|
|
|
(11,514
|
)
|
|
|
1,676
|
|
|
|
(9,838
|
)
|
Net income (loss) per limited partner unit (basic and diluted):
|
|
|
(0.32
|
)
|
|
|
0.04
|
|
|
|
(0.28
|
)
|
119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
Filed
|
|
|
Restatement
Adjustments
|
|
|
As
Restated
|
|
|
|
(in thousands, except per unit data)
|
|
Quarter Ended September 30, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
81,768
|
|
|
|
99
|
|
|
|
81,867
|
|
Net income (loss)
|
|
|
(3,260
|
)
|
|
|
195
|
|
|
|
(3,065
|
)
|
General partners interest in net income (loss) for the period
|
|
|
1,020
|
|
|
|
2
|
|
|
|
1,022
|
|
Limited partners interest in net income (loss) for the period
|
|
|
(4,280
|
)
|
|
|
193
|
|
|
|
(4,087
|
)
|
Net income (loss) per limited partner unit (basic and diluted):
|
|
|
(0.14
|
)
|
|
|
0.01
|
|
|
|
(0.13
|
)
|
|
|
|
|
Quarter Ended December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
88,307
|
|
|
|
|
|
|
|
88,307
|
|
Net income (loss)
|
|
|
(5,997
|
)
|
|
|
|
|
|
|
(5,997
|
)
|
General partners interest in net income (loss) for the period
|
|
|
(65
|
)
|
|
|
|
|
|
|
(65
|
)
|
Limited partners interest in net income (loss) for the period
|
|
|
(5,932
|
)
|
|
|
|
|
|
|
(5,932
|
)
|
Net income (loss) per limited partner unit (basic and diluted):
|
|
|
(0.14
|
)
|
|
|
|
|
|
|
(0.14
|
)
|
|
|
|
|
Quarter Ended December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
82,811
|
|
|
|
62
|
|
|
|
82,873
|
|
Net income (loss)
|
|
|
(6,810
|
)
|
|
|
(1,211
|
)
|
|
|
(8,021
|
)
|
General partners interest in net income (loss) for the period
|
|
|
1,004
|
|
|
|
(14
|
)
|
|
|
990
|
|
Limited partners interest in net income (loss) for the period
|
|
|
(7,814
|
)
|
|
|
(1,197
|
)
|
|
|
(9,011
|
)
|
Net income (loss) per limited partner unit (basic and diluted):
|
|
|
(0.25
|
)
|
|
|
(0.03
|
)
|
|
|
(0.28
|
)
|
Net income (loss) per limited partner unit is computed independently for each quarter and the full year based
upon respective average units outstanding. Therefore, the sum of the quarterly per unit amounts may not equal the annual per share amounts.
21.
|
SUPPLEMENTAL CONSOLIDATED CASH FLOW INFORMATION
|
The tables presented below provide
supplemental information to the consolidated statements of cash flows regarding contract origination and maturity activity included in the pertinent captions on the Partnerships consolidated statements of cash flows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Pre-need/at-need contract originations (sales on credit)
|
|
$
|
(114,304
|
)
|
|
$
|
(124,313
|
)
|
|
$
|
(130,321
|
)
|
Cash receipts from sales on credit (post-origination)
|
|
|
91,488
|
|
|
|
106,010
|
|
|
|
112,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Accounts receivable, net of allowance
|
|
$
|
(22,816
|
)
|
|
$
|
(18,303
|
)
|
|
$
|
(18,186
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Deferrals:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash receipts from customer deposits at origination, net of refunds
|
|
$
|
151,461
|
|
|
$
|
144,682
|
|
|
$
|
126,411
|
|
Withdrawals of realized income from merchandise trusts during the period
|
|
|
14,397
|
|
|
|
14,682
|
|
|
|
19,810
|
|
Pre-need/at-need contract originations (sales on credit)
|
|
|
114,304
|
|
|
|
124,313
|
|
|
|
130,321
|
|
Undistributed merchandise trust investment earnings, net
|
|
|
11,056
|
|
|
|
16,048
|
|
|
|
11,108
|
|
Recognition:
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchandise trust investment income, net withdrawn as of end of period
|
|
|
(11,051
|
)
|
|
|
(14,313
|
)
|
|
|
(14,260
|
)
|
Recognized maturities of customer contracts collected as of end of period
|
|
|
(196,123
|
)
|
|
|
(190,744
|
)
|
|
|
(187,202
|
)
|
Recognized maturities of customer contracts uncollected as of end of period
|
|
|
(29,909
|
)
|
|
|
(27,995
|
)
|
|
|
(31,562
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Deferred revenues
|
|
$
|
54,135
|
|
|
$
|
66,673
|
|
|
$
|
54,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120