Item 1. Financial Statements
StoneMor Partners L.P.
Condensed Consolidated Balance Sheet
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
14,075
|
|
|
$
|
7,946
|
|
Accounts receivable, net of allowance
|
|
|
54,396
|
|
|
|
51,895
|
|
Prepaid expenses
|
|
|
5,565
|
|
|
|
3,832
|
|
Other current assets
|
|
|
18,679
|
|
|
|
17,418
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
92,715
|
|
|
|
81,091
|
|
|
|
|
Long-term accounts receivable, net of allowance
|
|
|
77,297
|
|
|
|
71,521
|
|
Cemetery property
|
|
|
312,506
|
|
|
|
309,980
|
|
Property and equipment, net of accumulated depreciation
|
|
|
84,793
|
|
|
|
79,740
|
|
Merchandise trusts, restricted, at fair value
|
|
|
414,382
|
|
|
|
375,973
|
|
Perpetual care trusts, restricted, at fair value
|
|
|
302,773
|
|
|
|
282,313
|
|
Deferred financing costs, net of accumulated amortization
|
|
|
8,865
|
|
|
|
9,238
|
|
Deferred selling and obtaining costs
|
|
|
82,501
|
|
|
|
76,317
|
|
Deferred tax assets
|
|
|
381
|
|
|
|
381
|
|
Goodwill
|
|
|
47,570
|
|
|
|
42,392
|
|
Other assets
|
|
|
11,849
|
|
|
|
14,779
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,435,632
|
|
|
$
|
1,343,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and partners capital
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
32,992
|
|
|
$
|
28,973
|
|
Accrued interest
|
|
|
1,625
|
|
|
|
1,833
|
|
Current portion, long-term debt
|
|
|
6,936
|
|
|
|
2,175
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
41,553
|
|
|
|
32,981
|
|
|
|
|
Other long-term liabilities
|
|
|
1,616
|
|
|
|
1,835
|
|
Long-term debt
|
|
|
266,290
|
|
|
|
252,774
|
|
Deferred cemetery revenues, net
|
|
|
544,322
|
|
|
|
497,861
|
|
Deferred tax liabilities
|
|
|
12,554
|
|
|
|
14,910
|
|
Merchandise liability
|
|
|
127,875
|
|
|
|
125,869
|
|
Perpetual care trust corpus
|
|
|
302,773
|
|
|
|
282,313
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,296,983
|
|
|
|
1,208,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Partners capital
|
|
|
|
|
|
|
|
|
General partner
|
|
|
(893
|
)
|
|
|
386
|
|
Common partners
|
|
|
139,542
|
|
|
|
134,796
|
|
|
|
|
|
|
|
|
|
|
Total partners capital
|
|
|
138,649
|
|
|
|
135,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and partners capital
|
|
$
|
1,435,632
|
|
|
$
|
1,343,725
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
1
StoneMor Partners L.P.
Condensed Consolidated Statement of Operations
(in thousands, except per unit data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cemetery
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchandise
|
|
$
|
28,669
|
|
|
$
|
30,337
|
|
|
$
|
55,321
|
|
|
$
|
57,481
|
|
Services
|
|
|
11,072
|
|
|
|
11,265
|
|
|
|
22,371
|
|
|
|
23,347
|
|
Investment and other
|
|
|
12,005
|
|
|
|
12,051
|
|
|
|
22,248
|
|
|
|
23,475
|
|
Funeral home
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchandise
|
|
|
4,517
|
|
|
|
3,569
|
|
|
|
9,470
|
|
|
|
7,587
|
|
Services
|
|
|
6,159
|
|
|
|
4,286
|
|
|
|
12,624
|
|
|
|
9,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
62,422
|
|
|
|
61,508
|
|
|
|
122,034
|
|
|
|
121,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold (exclusive of depreciation shown separately below):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Perpetual care
|
|
|
1,500
|
|
|
|
1,415
|
|
|
|
2,781
|
|
|
|
2,782
|
|
Merchandise
|
|
|
6,212
|
|
|
|
5,821
|
|
|
|
11,221
|
|
|
|
10,874
|
|
Cemetery expense
|
|
|
15,408
|
|
|
|
14,775
|
|
|
|
28,193
|
|
|
|
27,567
|
|
Selling expense
|
|
|
12,218
|
|
|
|
13,123
|
|
|
|
23,442
|
|
|
|
24,910
|
|
General and administrative expense
|
|
|
7,898
|
|
|
|
7,195
|
|
|
|
15,480
|
|
|
|
14,388
|
|
Corporate overhead (including $360 and $210 in unit-based compensation for the three months ended June 30, 2013 and 2012,
and $690 and $409 for the six months ended June 30, 2013 and 2012, respectively)
|
|
|
5,672
|
|
|
|
7,756
|
|
|
|
13,660
|
|
|
|
14,359
|
|
Depreciation and amortization
|
|
|
2,451
|
|
|
|
2,230
|
|
|
|
4,781
|
|
|
|
4,560
|
|
Funeral home expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchandise
|
|
|
1,703
|
|
|
|
1,107
|
|
|
|
3,225
|
|
|
|
2,530
|
|
Services
|
|
|
4,768
|
|
|
|
3,302
|
|
|
|
9,325
|
|
|
|
6,707
|
|
Other
|
|
|
2,893
|
|
|
|
2,206
|
|
|
|
5,550
|
|
|
|
4,134
|
|
Acquisition related costs, net of recoveries
|
|
|
(625
|
)
|
|
|
782
|
|
|
|
658
|
|
|
|
1,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost and expenses
|
|
|
60,098
|
|
|
|
59,712
|
|
|
|
118,316
|
|
|
|
113,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
2,324
|
|
|
|
1,796
|
|
|
|
3,718
|
|
|
|
7,171
|
|
|
|
|
|
|
Gain (loss) on termination of operating agreement
|
|
|
|
|
|
|
(83
|
)
|
|
|
|
|
|
|
1,737
|
|
Gain on settlement agreement, net
|
|
|
11,349
|
|
|
|
|
|
|
|
12,261
|
|
|
|
|
|
Gain on acquisition
|
|
|
|
|
|
|
122
|
|
|
|
|
|
|
|
122
|
|
Loss on early extinguishment of debt
|
|
|
21,595
|
|
|
|
|
|
|
|
21,595
|
|
|
|
|
|
Gain on sale of other assets
|
|
|
155
|
|
|
|
|
|
|
|
155
|
|
|
|
|
|
Interest expense
|
|
|
5,132
|
|
|
|
4,870
|
|
|
|
10,595
|
|
|
|
9,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before income taxes
|
|
|
(12,899
|
)
|
|
|
(3,035
|
)
|
|
|
(16,056
|
)
|
|
|
(806
|
)
|
|
|
|
|
|
Income tax expense (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State
|
|
|
165
|
|
|
|
97
|
|
|
|
221
|
|
|
|
242
|
|
Federal
|
|
|
(1,255
|
)
|
|
|
(963
|
)
|
|
|
(2,268
|
)
|
|
|
(909
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax benefit
|
|
|
(1,090
|
)
|
|
|
(866
|
)
|
|
|
(2,047
|
)
|
|
|
(667
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(11,809
|
)
|
|
$
|
(2,169
|
)
|
|
$
|
(14,009
|
)
|
|
$
|
(139
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General partners interest in net loss for the period
|
|
$
|
(218
|
)
|
|
$
|
(43
|
)
|
|
$
|
(258
|
)
|
|
$
|
(3
|
)
|
|
|
|
|
|
Limited partners interest in net loss for the period
|
|
$
|
(11,591
|
)
|
|
$
|
(2,126
|
)
|
|
$
|
(13,751
|
)
|
|
$
|
(136
|
)
|
|
|
|
|
|
Net loss per limited partner unit (basic and diluted)
|
|
$
|
(.54
|
)
|
|
$
|
(.11
|
)
|
|
$
|
(.67
|
)
|
|
$
|
(.01
|
)
|
|
|
|
|
|
Weighted average number of limited partners units outstanding (basic and diluted)
|
|
|
21,345
|
|
|
|
19,375
|
|
|
|
20,541
|
|
|
|
19,372
|
|
Distributions declared per unit
|
|
$
|
.595
|
|
|
$
|
.585
|
|
|
$
|
1.185
|
|
|
$
|
1.170
|
|
See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
2
StoneMor Partners L.P.
Condensed Consolidated Statement of
Partners Capital
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners Capital
|
|
|
|
Common
|
|
|
General
|
|
|
|
|
|
|
Unit Holders
|
|
|
Partner
|
|
|
Total
|
|
Balance, December 31, 2012
|
|
$
|
134,796
|
|
|
$
|
386
|
|
|
$
|
135,182
|
|
|
|
|
|
Proceeds from public offering
|
|
|
38,377
|
|
|
|
|
|
|
|
38,377
|
|
Issuance of common units
|
|
|
3,718
|
|
|
|
|
|
|
|
3,718
|
|
Compensation related to units awards
|
|
|
648
|
|
|
|
|
|
|
|
648
|
|
Net loss
|
|
|
(13,751
|
)
|
|
|
(258
|
)
|
|
|
(14,009
|
)
|
Cash distribution
|
|
|
(24,246
|
)
|
|
|
(1,021
|
)
|
|
|
(25,267
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2013
|
|
$
|
139,542
|
|
|
$
|
(893
|
)
|
|
$
|
138,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
3
StoneMor Partners L.P.
Condensed Consolidated Statement of Cash Flows
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30,
|
|
|
|
2013
|
|
|
2012
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(14,009
|
)
|
|
$
|
(139
|
)
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Cost of lots sold
|
|
|
4,194
|
|
|
|
3,979
|
|
Depreciation and amortization
|
|
|
4,781
|
|
|
|
4,560
|
|
Unit-based compensation
|
|
|
690
|
|
|
|
409
|
|
Accretion of debt discounts
|
|
|
1,011
|
|
|
|
723
|
|
Gain on termination of operating agreement
|
|
|
|
|
|
|
(1,737
|
)
|
Gain on acquisition
|
|
|
|
|
|
|
(122
|
)
|
Gain on sale of other assets
|
|
|
(155
|
)
|
|
|
|
|
Loss on early extinguishment of debt
|
|
|
21,595
|
|
|
|
|
|
Changes in assets and liabilities that provided (used) cash:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(7,199
|
)
|
|
|
(8,180
|
)
|
Allowance for doubtful accounts
|
|
|
(83
|
)
|
|
|
3,293
|
|
Merchandise trust fund
|
|
|
(22,611
|
)
|
|
|
(1,917
|
)
|
Prepaid expenses
|
|
|
(1,733
|
)
|
|
|
(1,169
|
)
|
Other current assets
|
|
|
(1,261
|
)
|
|
|
(860
|
)
|
Other assets
|
|
|
3,972
|
|
|
|
139
|
|
Accounts payable and accrued and other liabilities
|
|
|
3,677
|
|
|
|
348
|
|
Deferred selling and obtaining costs
|
|
|
(6,184
|
)
|
|
|
(3,380
|
)
|
Deferred cemetery revenue
|
|
|
33,766
|
|
|
|
23,699
|
|
Deferred taxes (net)
|
|
|
(2,356
|
)
|
|
|
(1,000
|
)
|
Merchandise liability
|
|
|
(1,612
|
)
|
|
|
(4,451
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
16,483
|
|
|
|
14,195
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
Cash paid for cemetery property
|
|
|
(2,252
|
)
|
|
|
(3,600
|
)
|
Purchase of subsidiaries
|
|
|
(9,100
|
)
|
|
|
(3,426
|
)
|
Cash paid for property and equipment
|
|
|
(3,920
|
)
|
|
|
(1,835
|
)
|
Proceeds from sales of other assets
|
|
|
155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(15,117
|
)
|
|
|
(8,861
|
)
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
Cash distribution
|
|
|
(25,267
|
)
|
|
|
(23,563
|
)
|
Additional borrowings on long-term debt
|
|
|
217,106
|
|
|
|
29,200
|
|
Repayments of long-term debt
|
|
|
(205,800
|
)
|
|
|
(13,422
|
)
|
Proceeds from public offering
|
|
|
38,377
|
|
|
|
|
|
Fees paid related to early extinguishment of debt
|
|
|
(14,920
|
)
|
|
|
|
|
Cost of financing activities
|
|
|
(4,733
|
)
|
|
|
(1,820
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
4,763
|
|
|
|
(9,605
|
)
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
6,129
|
|
|
|
(4,271
|
)
|
Cash and cash equivalents - Beginning of period
|
|
|
7,946
|
|
|
|
12,058
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents - End of period
|
|
$
|
14,075
|
|
|
$
|
7,787
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid during the period for interest
|
|
$
|
9,754
|
|
|
$
|
9,048
|
|
Cash paid during the period for income taxes
|
|
$
|
3,132
|
|
|
$
|
3,655
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Acquisition of assets by financing
|
|
$
|
92
|
|
|
$
|
53
|
|
Issuance of limited partner units for cemetery acquisition
|
|
$
|
3,718
|
|
|
$
|
603
|
|
Acquisition of asset by assumption of directly related liability
|
|
$
|
3,924
|
|
|
$
|
544
|
|
See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
4
1.
|
NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Nature of Operations
StoneMor Partners L.P. (StoneMor, the Company or the Partnership) is a provider of funeral and cemetery products and services in the death care industry in the United
States. Through its subsidiaries, StoneMor offers a complete range of funeral merchandise and services, along with cemetery property, merchandise and services, both at the time of need and on a pre-need basis. As of June 30, 2013, the
Partnership owned 258 and operated 276 cemeteries in 27 states and Puerto Rico and owned and operated 92 funeral homes in 18 states and Puerto Rico.
Basis of Presentation
The unaudited condensed consolidated
financial statements included in this Quarterly Report on Form 10-Q have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). All interim financial data is unaudited. However,
in the opinion of management, the interim financial data as of June 30, 2013 and for the three and six months ended June 30, 2013 and 2012 includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair
statement of the results for the interim periods. The results of operations for interim periods are not necessarily indicative of the results of operations to be expected for a full year. The December 31, 2012 condensed consolidated balance
sheet data was derived from audited financial statements included in the Companys 2012 Annual Report on Form 10-K (2012 Form 10-K), but does not include all disclosures required by GAAP, which are presented in the Companys
2012 Form 10-K.
Principles of Consolidation
The unaudited condensed consolidated financial statements include the accounts of each of the Companys subsidiaries. These statements also include the accounts of the merchandise and perpetual care
trusts in which the Company has a variable interest and is the primary beneficiary. The Company operates 18 cemeteries under long-term operating or management contracts. The operations of 16 of these managed cemeteries have been consolidated in
accordance with the provisions of Accounting Standards Codification (ASC) 810.
The Company operates 2 cemeteries under
long-term operating agreements that do not qualify as acquisitions for accounting purposes. As a result, the Company did not consolidate all of the existing assets and liabilities related to these cemeteries. The Company has consolidated the
existing assets and liabilities of each of these cemeteries merchandise and perpetual care trusts as variable interest entities since the Company controls and receives the benefits and absorbs any losses from operating these trusts. Under
these long-term operating agreements, which are subject to certain termination provisions, the Company is the exclusive operator of these cemeteries. The Company earns revenues related to sales of merchandise, services, and interment rights and
incurs expenses related to such sales and the maintenance and upkeep of these cemeteries. Upon termination of these contracts, the Company will retain all of the benefits and related contractual obligations incurred from sales generated during the
contract period. The Company has also recognized the existing merchandise liabilities that it assumed as part of these agreements.
Use
of Estimates
Preparation of these unaudited condensed consolidated financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the unaudited condensed consolidated financial statements and the reported amounts of revenue
and expense during the reporting periods. As a result, actual results could differ from those estimates. The most significant estimates in the unaudited condensed consolidated financial statements are the valuation of assets in the merchandise trust
and perpetual care trust, allowance for cancellations, unit-based compensation, merchandise liability, deferred sales revenue, deferred margin, deferred merchandise trust investment earnings, deferred obtaining costs and income taxes. Deferred sales
revenue, deferred margin and deferred merchandise trust investment earnings are included in deferred cemetery revenues, net, on the unaudited condensed consolidated balance sheet.
5
2.
|
LONG-TERM ACCOUNTS RECEIVABLE, NET OF ALLOWANCE
|
Long-term accounts receivable, net, consist of the following:
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
(in thousands)
|
|
|
|
|
Customer receivables
|
|
$
|
172,320
|
|
|
$
|
159,726
|
|
Unearned finance income
|
|
|
(19,929
|
)
|
|
|
(18,377
|
)
|
Allowance for contract cancellations
|
|
|
(20,698
|
)
|
|
|
(17,933
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
131,693
|
|
|
|
123,416
|
|
Less: current portion, net of allowance
|
|
|
54,396
|
|
|
|
51,895
|
|
|
|
|
|
|
|
|
|
|
Long-term portion, net of allowance
|
|
$
|
77,297
|
|
|
$
|
71,521
|
|
|
|
|
|
|
|
|
|
|
Activity in the allowance for contract cancellations is as follows:
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
(in thousands)
|
|
|
|
|
Balance - Beginning of period
|
|
$
|
17,933
|
|
|
$
|
17,582
|
|
Provision for cancellations
|
|
|
10,651
|
|
|
|
9,791
|
|
Charge-offs - net
|
|
|
(7,886
|
)
|
|
|
(7,356
|
)
|
|
|
|
|
|
|
|
|
|
Balance - End of period
|
|
$
|
20,698
|
|
|
$
|
20,017
|
|
|
|
|
|
|
|
|
|
|
Cemetery property consists of the following:
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
(in thousands)
|
|
|
|
|
Developed land
|
|
$
|
70,241
|
|
|
$
|
71,318
|
|
Undeveloped land
|
|
|
162,746
|
|
|
|
162,275
|
|
Mausoleum crypts and lawn crypts
|
|
|
69,721
|
|
|
|
69,525
|
|
Other land
|
|
|
9,798
|
|
|
|
6,862
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
312,506
|
|
|
$
|
309,980
|
|
|
|
|
|
|
|
|
|
|
6
4.
|
PROPERTY AND EQUIPMENT
|
Major classes of property and equipment follow:
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
(in thousands)
|
|
|
|
|
Building and improvements
|
|
$
|
88,278
|
|
|
$
|
82,056
|
|
Furniture and equipment
|
|
|
44,336
|
|
|
|
42,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132,614
|
|
|
|
124,409
|
|
Less: accumulated depreciation
|
|
|
(47,821
|
)
|
|
|
(44,669
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment - net
|
|
$
|
84,793
|
|
|
$
|
79,740
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $1.8 million and $3.5 million for the three and six months ended June 30,
2013, respectively, as compared to $1.7 million and $3.5 million during the same periods last year.
At June 30, 2013, the Companys merchandise trusts consisted of the following types of assets:
|
|
Money Market Funds that invest in low risk short term securities;
|
|
|
Publicly traded mutual funds that invest in underlying debt securities;
|
|
|
Publicly traded mutual funds that invest in underlying equity securities;
|
|
|
Equity investments that are currently paying dividends or distributions. These investments include Real Estate Investment Trusts
(REITs), Master Limited Partnerships and global equity securities;
|
|
|
Fixed maturity debt securities issued by various corporate entities;
|
|
|
Fixed maturity debt securities issued by the U.S. Government and U.S. Government agencies; and
|
|
|
Fixed maturity debt securities issued by U.S. states and local government agencies.
|
All of these investments are classified as Available for Sale as defined by the Investments in Debt and Equity topic of the ASC.
Accordingly, all of the assets are carried at fair value. All of these investments are considered to be either Level 1 or Level 2 assets as defined by the Fair Value Measurements and Disclosures topic of the ASC. See Note 15 for further details.
There were no Level 3 assets.
The merchandise trusts are variable interest entities (VIE) for which the Company is the
primary beneficiary. The assets held in the merchandise trusts are required to be used to purchase the merchandise to which they relate. If the value of these assets falls below the cost of purchasing such merchandise, the Company may be required to
fund this shortfall.
The Company has included $7.7 million and $7.6 million of investments held in trust by the West Virginia
Funeral Directors Association at June 30, 2013 and December 31, 2012, respectively, in its merchandise trust assets. As required by law, the Company deposits a portion of certain funeral merchandise sales in West Virginia into a trust that
is held by the West Virginia Funeral Directors Association. These trusts are recorded at their account value, which approximates their fair value.
7
The cost and market value associated with the assets held in merchandise trusts at
June 30, 2013 and December 31, 2012 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2013
|
|
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
Short-term investments
|
|
$
|
50,280
|
|
|
$
|
6
|
|
|
$
|
|
|
|
$
|
50,286
|
|
Fixed maturities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and federal agency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. State and local government agency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
9,067
|
|
|
|
78
|
|
|
|
(184
|
)
|
|
|
8,961
|
|
Other debt securities
|
|
|
7,810
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
7,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities
|
|
|
16,877
|
|
|
|
78
|
|
|
|
(191
|
)
|
|
|
16,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds - debt securities
|
|
|
110,875
|
|
|
|
20
|
|
|
|
(7,606
|
)
|
|
|
103,289
|
|
Mutual funds - equity securities
|
|
|
139,974
|
|
|
|
12,583
|
|
|
|
(809
|
)
|
|
|
151,748
|
|
|
|
|
|
|
Equity securities
|
|
|
73,537
|
|
|
|
6,990
|
|
|
|
(1,309
|
)
|
|
|
79,218
|
|
Other invested assets
|
|
|
4,849
|
|
|
|
492
|
|
|
|
|
|
|
|
5,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total managed investments
|
|
$
|
396,392
|
|
|
$
|
20,169
|
|
|
$
|
(9,915
|
)
|
|
$
|
406,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West Virginia Trust Receivable
|
|
|
7,736
|
|
|
|
|
|
|
|
|
|
|
|
7,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
404,128
|
|
|
$
|
20,169
|
|
|
$
|
(9,915
|
)
|
|
$
|
414,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2012
|
|
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
Short-term investments
|
|
$
|
27,890
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
27,890
|
|
Fixed maturities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and federal agency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. State and local government agency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
8,590
|
|
|
|
165
|
|
|
|
(41
|
)
|
|
|
8,714
|
|
Other debt securities
|
|
|
4,320
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
4,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities
|
|
|
12,910
|
|
|
|
165
|
|
|
|
(44
|
)
|
|
|
13,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds - debt securities
|
|
|
105,388
|
|
|
|
3,425
|
|
|
|
(892
|
)
|
|
|
107,921
|
|
Mutual funds - equity securities
|
|
|
145,538
|
|
|
|
6,229
|
|
|
|
(6,697
|
)
|
|
|
145,070
|
|
|
|
|
|
|
Equity securities
|
|
|
68,714
|
|
|
|
3,448
|
|
|
|
(4,755
|
)
|
|
|
67,407
|
|
Other invested assets
|
|
|
7,376
|
|
|
|
165
|
|
|
|
(444
|
)
|
|
|
7,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total managed investments
|
|
$
|
367,816
|
|
|
$
|
13,432
|
|
|
$
|
(12,832
|
)
|
|
$
|
368,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West Virginia Trust Receivable
|
|
|
7,557
|
|
|
|
|
|
|
|
|
|
|
|
7,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
375,373
|
|
|
$
|
13,432
|
|
|
$
|
(12,832
|
)
|
|
$
|
375,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The contractual maturities of debt securities as of June 30, 2013 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2013
|
|
Less than
1 year
|
|
|
1 year through
5 years
|
|
|
6 years through
10 years
|
|
|
More than
10 years
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
U.S. Government and federal agency
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
U.S. State and local government agency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
|
|
|
|
4,131
|
|
|
|
4,830
|
|
|
|
|
|
Other debt securities
|
|
|
6,518
|
|
|
|
1,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities
|
|
$
|
6,518
|
|
|
$
|
5,416
|
|
|
$
|
4,830
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
An aging of unrealized losses on the Companys investments in fixed maturities and
equity securities at June 30, 2013 and December 31, 2012 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
|
12 Months or more
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
As of June 30, 2013
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Fixed maturities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and federal agency
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
U.S. State and local government agency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
5,599
|
|
|
|
176
|
|
|
|
309
|
|
|
|
8
|
|
|
|
5,908
|
|
|
|
184
|
|
Other debt securities
|
|
|
3,984
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
3,984
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities
|
|
|
9,583
|
|
|
|
183
|
|
|
|
309
|
|
|
|
8
|
|
|
|
9,892
|
|
|
|
191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds - debt securites
|
|
|
93,810
|
|
|
|
6,637
|
|
|
|
7,575
|
|
|
|
969
|
|
|
|
101,385
|
|
|
|
7,606
|
|
Mutual funds - equity securites
|
|
|
57,015
|
|
|
|
457
|
|
|
|
4,228
|
|
|
|
352
|
|
|
|
61,243
|
|
|
|
809
|
|
Equity securities
|
|
|
8,838
|
|
|
|
524
|
|
|
|
5,956
|
|
|
|
785
|
|
|
|
14,794
|
|
|
|
1,309
|
|
Other invested assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
169,246
|
|
|
$
|
7,801
|
|
|
$
|
18,068
|
|
|
$
|
2,114
|
|
|
$
|
187,314
|
|
|
$
|
9,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
|
12 Months or more
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
As of December 31, 2012
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Fixed maturities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and federal agency
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
U.S. State and local government agency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
2,140
|
|
|
|
20
|
|
|
|
297
|
|
|
|
21
|
|
|
|
2,437
|
|
|
|
41
|
|
Other debt securities
|
|
|
4,317
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
4,317
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities
|
|
|
6,457
|
|
|
|
23
|
|
|
|
297
|
|
|
|
21
|
|
|
|
6,754
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds - debt securites
|
|
|
6,388
|
|
|
|
463
|
|
|
|
4,198
|
|
|
|
429
|
|
|
|
10,586
|
|
|
|
892
|
|
Mutual funds - equity securites
|
|
|
48,255
|
|
|
|
5,500
|
|
|
|
19,655
|
|
|
|
1,197
|
|
|
|
67,910
|
|
|
|
6,697
|
|
Equity securities
|
|
|
17,932
|
|
|
|
1,527
|
|
|
|
15,538
|
|
|
|
3,228
|
|
|
|
33,470
|
|
|
|
4,755
|
|
Other invested assets
|
|
|
2,558
|
|
|
|
444
|
|
|
|
|
|
|
|
|
|
|
|
2,558
|
|
|
|
444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
81,590
|
|
|
$
|
7,957
|
|
|
$
|
39,688
|
|
|
$
|
4,875
|
|
|
$
|
121,278
|
|
|
$
|
12,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the Companys merchandise trust activities for the six months ended
June 30, 2013 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value @
12/31/2012
|
|
|
Contributions
|
|
|
Distributions
|
|
|
Interest/
Dividends
|
|
|
Capital
Gain
Distributions
|
|
|
Realized
Gain/
Loss
|
|
|
Taxes
|
|
|
Fees
|
|
|
Unrealized
Change in
Fair Value
|
|
|
Fair
Value
@
6/30/2013
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
375,973
|
|
|
|
37,602
|
|
|
|
(20,454
|
)
|
|
|
8,361
|
|
|
|
|
|
|
|
7,324
|
|
|
|
(2,722
|
)
|
|
|
(1,356
|
)
|
|
|
9,654
|
|
|
$
|
414,382
|
|
The Company made net contributions into the trusts of approximately $17.1 million during the six months
ended June 30, 2013. During the six months ended June 30, 2013, purchases and sales of securities available for sale included in trust investments were approximately $313.4 million and $324.2 million, respectively. Contributions include
$4.9 million of assets that were acquired through acquisitions during the six months ended June 30, 2013.
9
Other-Than-Temporary Impairments of Trust Assets
During the six months ended June 30, 2013, the Company determined that there were 4 securities with an aggregate cost basis of
approximately $1.4 million and an aggregate fair value of approximately $0.7 million, resulting in an impairment of $0.7 million, wherein such impairment was considered to be other-than-temporary. During the three and six months ended June 30,
2012, the Company determined that there were six securities with an aggregate cost basis of approximately $1.6 million and an aggregate fair value of approximately $0.8 million, resulting in an impairment of $0.8 million, wherein such impairment was
considered to be other-than-temporary. Accordingly, the Company adjusted the cost basis of these assets to their current value and offset this change against deferred revenue. This reduction in deferred revenue will be reflected in earnings in
future periods as the underlying merchandise is delivered or the underlying service is performed.
During the three months
ended June 30, 2013, the Company determined that there were no other than temporary impairments to the investment portfolio in the merchandise trusts.
At June 30, 2013, the Companys perpetual care trusts consisted of the following types of assets:
|
|
Money Market Funds that invest in low risk short term securities;
|
|
|
Publicly traded mutual funds that invest in underlying debt securities;
|
|
|
Publicly traded mutual funds that invest in underlying equity securities;
|
|
|
Equity investments that are currently paying dividends or distributions. These investments include REITs, Master Limited Partnerships and global
equity securities;
|
|
|
Fixed maturity debt securities issued by various corporate entities;
|
|
|
Fixed maturity debt securities issued by the U.S. Government and U.S. Government agencies; and
|
|
|
Fixed maturity debt securities issued by U.S. states and local government agencies.
|
All of these investments are classified as Available for Sale as defined by the Investments in Debt and Equity topic of the ASC.
Accordingly, all of the assets are carried at fair value. All of these investments are considered to be either Level 1 or Level 2 assets as defined by the Fair Value Measurements and Disclosures topic of the ASC. See Note 15 for further details.
There were no Level 3 assets.
10
The cost and market value associated with the assets held in perpetual care trusts at June
30, 2013 and December 31, 2012 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2013
|
|
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
Short-term investments
|
|
$
|
12,662
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
12,662
|
|
Fixed maturities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and federal agency
|
|
|
408
|
|
|
|
95
|
|
|
|
|
|
|
|
503
|
|
U.S. State and local government agency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
24,188
|
|
|
|
212
|
|
|
|
(464
|
)
|
|
|
23,936
|
|
Other debt securities
|
|
|
371
|
|
|
|
|
|
|
|
|
|
|
|
371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities
|
|
|
24,967
|
|
|
|
307
|
|
|
|
(464
|
)
|
|
|
24,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds - debt securities
|
|
|
117,429
|
|
|
|
211
|
|
|
|
(3,407
|
)
|
|
|
114,233
|
|
Mutual funds - equity securities
|
|
|
94,098
|
|
|
|
20,907
|
|
|
|
|
|
|
|
115,005
|
|
|
|
|
|
|
Equity securities
|
|
|
25,637
|
|
|
|
10,465
|
|
|
|
(39
|
)
|
|
|
36,063
|
|
Other invested assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
274,793
|
|
|
$
|
31,890
|
|
|
$
|
(3,910
|
)
|
|
$
|
302,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2012
|
|
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
Short-term investments
|
|
$
|
21,419
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
21,419
|
|
Fixed maturities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and federal agency
|
|
|
408
|
|
|
|
104
|
|
|
|
|
|
|
|
512
|
|
U.S. State and local government agency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
22,690
|
|
|
|
702
|
|
|
|
(101
|
)
|
|
|
23,291
|
|
Other debt securities
|
|
|
371
|
|
|
|
|
|
|
|
|
|
|
|
371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities
|
|
|
23,469
|
|
|
|
806
|
|
|
|
(101
|
)
|
|
|
24,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds - debt securities
|
|
|
103,909
|
|
|
|
3,429
|
|
|
|
(150
|
)
|
|
|
107,188
|
|
Mutual funds - equity securities
|
|
|
94,239
|
|
|
|
5,222
|
|
|
|
(249
|
)
|
|
|
99,212
|
|
|
|
|
|
|
Equity securities
|
|
|
23,797
|
|
|
|
6,563
|
|
|
|
(455
|
)
|
|
|
29,905
|
|
Other invested assets
|
|
|
113
|
|
|
|
302
|
|
|
|
|
|
|
|
415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
266,946
|
|
|
$
|
16,322
|
|
|
$
|
(955
|
)
|
|
$
|
282,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The contractual maturities of debt securities as of June 30, 2013 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2013
|
|
Less than
1 year
|
|
|
1 year through
5 years
|
|
|
6 years through
10 years
|
|
|
More than
10 years
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
U.S. Government and federal agency
|
|
$
|
382
|
|
|
$
|
121
|
|
|
$
|
|
|
|
$
|
|
|
U.S. State and local government agency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
154
|
|
|
|
10,792
|
|
|
|
12,990
|
|
|
|
|
|
Other debt securities
|
|
|
371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities
|
|
$
|
907
|
|
|
$
|
10,913
|
|
|
$
|
12,990
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
An aging of unrealized losses on the Companys investments in fixed maturities and
equity securities at June 30, 2013 and December 31, 2012 held in perpetual care trusts is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
|
12 Months or more
|
|
|
Total
|
|
As of June 30, 2013
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Fixed maturities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and federal agency
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
U.S. State and local government agency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
13,959
|
|
|
|
441
|
|
|
|
897
|
|
|
|
23
|
|
|
|
14,856
|
|
|
|
464
|
|
Other debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities
|
|
|
13,959
|
|
|
|
441
|
|
|
|
897
|
|
|
|
23
|
|
|
|
14,856
|
|
|
|
464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds - debt securities
|
|
|
94,480
|
|
|
|
3,003
|
|
|
|
16,002
|
|
|
|
404
|
|
|
|
110,482
|
|
|
|
3,407
|
|
Mutual funds - equity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
1,098
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
1,098
|
|
|
|
39
|
|
Other invested assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
109,537
|
|
|
$
|
3,483
|
|
|
$
|
16,899
|
|
|
$
|
427
|
|
|
$
|
126,436
|
|
|
$
|
3,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
|
12 Months or more
|
|
|
Total
|
|
As of December 31, 2012
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Unrealized
Losses
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Fixed maturities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and federal agency
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
U.S. State and local government agency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
4,630
|
|
|
|
48
|
|
|
|
711
|
|
|
|
53
|
|
|
|
5,341
|
|
|
|
101
|
|
Other debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities
|
|
|
4,630
|
|
|
|
48
|
|
|
|
711
|
|
|
|
53
|
|
|
|
5,341
|
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds - debt securities
|
|
|
859
|
|
|
|
35
|
|
|
|
870
|
|
|
|
115
|
|
|
|
1,729
|
|
|
|
150
|
|
Mutual funds - equity securities
|
|
|
34,805
|
|
|
|
249
|
|
|
|
|
|
|
|
|
|
|
|
34,805
|
|
|
|
249
|
|
Equity securities
|
|
|
4,269
|
|
|
|
238
|
|
|
|
545
|
|
|
|
217
|
|
|
|
4,814
|
|
|
|
455
|
|
Other invested assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
44,563
|
|
|
$
|
570
|
|
|
$
|
2,126
|
|
|
$
|
385
|
|
|
$
|
46,689
|
|
|
$
|
955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the Companys perpetual care trust activities for the six months ended
June 30, 2013 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value
@
12/31/2012
|
|
|
Contributions
|
|
|
Distributions
|
|
|
Interest/
Dividends
|
|
|
Capital
Gain
Distributions
|
|
|
Realized
Gain/
Loss
|
|
|
Taxes
|
|
|
Fees
|
|
|
Unrealized
Change in
Fair Value
|
|
|
Fair
Value
@
6/30/2013
|
|
(in thousands)
|
|
$
|
282,313
|
|
|
|
5,166
|
|
|
|
(6,118
|
)
|
|
|
7,345
|
|
|
|
|
|
|
|
3,191
|
|
|
|
(637
|
)
|
|
|
(1,100
|
)
|
|
|
12,613
|
|
|
$
|
302,773
|
|
The Company made net distributions from the trusts of approximately $1.0 million during the six months
ended June 30, 2013. During the six months ended June 30, 2013, purchases and sales of securities available for sale included in trust investments were approximately $83.0 million and $84.2 million, respectively.
Other-Than-Temporary Impairments of Trust Assets
During the three and six months ended June 30, 2013 and 2012, the Company determined that there were no other than temporary impairments to the investment portfolio in the perpetual care trusts.
12
7.
|
GOODWILL AND INTANGIBLE ASSETS
|
Goodwill
Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in acquisitions.
A rollforward of goodwill by reportable segment is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cemeteries
|
|
|
Funeral
|
|
|
|
|
|
|
Southeast
|
|
|
Northeast
|
|
|
West
|
|
|
Homes
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Balance as of December 31, 2012
|
|
$
|
6,174
|
|
|
$
|
|
|
|
$
|
11,948
|
|
|
$
|
24,270
|
|
|
$
|
42,392
|
|
Goodwill acquired from acquisitions during the six months ended June 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,178
|
|
|
|
5,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2013
|
|
$
|
6,174
|
|
|
$
|
|
|
|
$
|
11,948
|
|
|
$
|
29,448
|
|
|
$
|
47,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Acquired Intangible Assets
The Company has other acquired intangible assets, most of which have been recognized as a result of acquisitions and long-term operating agreements. These amounts are included within other assets on the
unaudited condensed consolidated balance sheet. All of the intangible assets are subject to amortization. The major classes of intangible assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
June 30, 2013
|
|
|
Net
|
|
|
As of
December 31, 2012
|
|
|
Net
|
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
Intangible
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
Intangible
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Asset
|
|
|
Amount
|
|
|
Amortization
|
|
|
Asset
|
|
|
|
(in thousands)
|
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underlying contract value
|
|
$
|
6,239
|
|
|
$
|
(624
|
)
|
|
$
|
5,615
|
|
|
$
|
6,239
|
|
|
$
|
(555
|
)
|
|
$
|
5,684
|
|
Non-compete agreements
|
|
|
7,950
|
|
|
|
(3,332
|
)
|
|
|
4,618
|
|
|
|
6,023
|
|
|
|
(2,553
|
)
|
|
|
3,470
|
|
Other intangible assets
|
|
|
269
|
|
|
|
(89
|
)
|
|
|
180
|
|
|
|
269
|
|
|
|
(81
|
)
|
|
|
188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
14,458
|
|
|
$
|
(4,045
|
)
|
|
$
|
10,413
|
|
|
$
|
12,531
|
|
|
$
|
(3,189
|
)
|
|
$
|
9,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in non-compete agreements was the result of an acquisition consummated in the first quarter
of 2013. The fair value was determined by comparing the discounted cash flows of the acquired business with and without competition as of the date of acquisition. See Note 13 for further details.
The Company had the following outstanding debt:
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
June 30,
2013
|
|
|
December 31,
2012
|
|
|
|
(in thousands)
|
|
|
|
|
7.875% Senior Notes, due 2021
|
|
$
|
175,000
|
|
|
$
|
|
|
10.25% Senior Notes, due 2017
|
|
|
|
|
|
|
150,000
|
|
Revolving Credit Facility, due January 2017
|
|
|
91,002
|
|
|
|
101,700
|
|
Notes payable - acquisition debt
|
|
|
4,244
|
|
|
|
1,465
|
|
Notes payable - acquisition non-competes
|
|
|
4,695
|
|
|
|
3,830
|
|
Insurance and vehicle financing
|
|
|
2,889
|
|
|
|
1,298
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
277,830
|
|
|
|
258,293
|
|
Less current portion
|
|
|
6,936
|
|
|
|
2,175
|
|
Less unamortized bond and note payable discounts
|
|
|
4,604
|
|
|
|
3,344
|
|
|
|
|
|
|
|
|
|
|
Long-term portion
|
|
$
|
266,290
|
|
|
$
|
252,774
|
|
|
|
|
|
|
|
|
|
|
13
This note includes a summary of material terms of the Companys senior notes and credit
facility. For a more detailed description of the Companys long-term debt agreements, see the Companys 2012 Form 10-K. The increase in notes payable acquisition debt and acquisition non-competes was the result of an acquisition
consummated in the first quarter of 2013. See Note 13 for further details.
7.875% Senior Notes due 2021
On May 28, 2013, the Company issued $175.0 million aggregate principal amount of 7.875% Senior Notes due 2021 (the Senior
Notes). The Company pays 7.875% interest per annum on the principal amount of the Senior Notes, payable in cash semi-annually in arrears on June 1 and December 1 of each year, commencing on December 1, 2013. The net proceeds
from the offering were used to retire 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 Company incurred debt issuance costs and fees of approximately $4.2 million. These costs and fees are deferred and will be amortized over the life of these notes. Based on trades made at the end of
the quarter, the Company has estimated the fair value of its Senior Notes to be below par and trading at a discount of 0.9%, which would imply a fair value of $173.4 million at June 30, 2013. As of June 30, 2013, the Company was in
compliance with all applicable covenants of the Senior Notes.
10.25% Senior Notes due 2017
Prior to their retirement in the second quarter of 2013, the Company had outstanding a $150.0 million aggregate principal amount of 10.25%
Senior Notes due 2017 (the Prior Senior Notes), with an original issue discount of approximately $4.0 million. The Company paid 10.25% interest per annum on the principal amount of the Prior Senior Notes, payable in cash semi-annually in
arrears on June 1 and December 1 of each year. The Prior Senior Notes were due to mature on December 1, 2017. In the second quarter of 2013, the Company retired the notes using the proceeds from the Senior Notes offering described
above. The Company made a tender offer to repurchase the Prior Senior Notes and paid $14.9 million to retire the Prior Senior Notes inclusive of the tender premium and accrued interest from the date of repurchase through December 1, 2013, the
first redemption date for the Prior Senior Notes. In addition the Company incurred expenses of $6.7 million related to the refinancing event inclusive of $2.6 million of unamortized original issue discount and $4.1 million of unamortized capitalized
debt issue costs related to the Prior Senior Notes.
Credit Facility
On January 19, 2012, the Company entered into the Third Amended and Restated Credit Agreement (the Credit Agreement). The
terms of the Credit Agreement are substantially the same as the terms of the Second Amended and Restated Credit Agreement, as amended. Capitalized terms which are not defined in the following description shall have the meaning assigned to such terms
in the Credit Agreement.
On February 19, 2013, the Company entered into the First Amendment to the Credit Agreement,
which increased the total availability under the Revolving Credit Facility (the Credit Facility) by $10.0 million to $140.0 million (the Credit Facility) of which $91.0 million was outstanding at June 30, 2013. The
Credit Facility may be used to finance working capital requirements, Permitted Acquisitions and Capital Expenditures. The maturity date of the Credit Facility is January 19, 2017.
On May 8, 2013, the Company entered into the Second Amendment to the Credit Agreement, which allowed the Company to incur additional
indebtedness to be evidenced by the 2021 Senior Notes, to enter into the related indenture and to use the proceeds of the Senior Notes offering, in part, to fund the retirement of the Prior Senior Notes.
On June 18, 2013, the Company entered into the Third Amendment to the Credit Agreement. The Third Amendment amended certain
financial covenants under the Credit Agreement as follows:
|
(i)
|
for any most recently completed four fiscal quarters, consolidated EBITDA shall not be less than the sum of $57,822,000 plus 80% of the aggregate of all consolidated
EBITDA for each Permitted Acquisition completed after March 31, 2013; and
|
14
|
(ii)
|
for the periods set forth below, Maximum Consolidated Leverage Ratio shall not be greater than as set forth below, subject to the Borrowers option to temporarily
increase the Consolidated Leverage Ratio in connection with a Significant Permitted Acquisition Transaction as described below:
|
|
|
|
Measurement Period Ending
|
|
Maximum Consolidated Leverage Ratio
|
June 30, 2013 through December 31, 2013
|
|
4.000 to 1.0
|
March 31, 2014
|
|
3.875 to 1.0
|
June 30, 2014 and thereafter
|
|
3.750 to 1.0
|
The Third Amendment also increased the ranges of the Applicable Rates to 3.00%, 4.00%, and .800% for Base
Rate loans, Eurodollar Rate Loans and Letter of Credit Fees, and Commitment Fees, respectively, when the Consolidated Leverage Ratio is greater than or equal to 3.75 to 1.0.
The Third Amendment also increased the amount of aggregate consideration that the Company may pay for a Permitted Acquisition after March 31, 2014, without Required Lender approval, to $10.0 million
on an individual basis and $50.0 million when aggregated with the total Aggregate Consideration paid by or on behalf of the Company for all other Permitted Acquisitions which closed within the immediately preceding 365 days.
The Third Amendment added a defined term for Significant Permitted Acquisition Transaction to describe a Permitted Acquisition in which
the Aggregate Consideration exceeds $35.0 million when aggregated with the total Aggregate Consideration for all other Permitted Acquisitions which closed within the immediately preceding 180 days. In the case of a Significant Permitted Acquisition
Transaction, the Third Amendment permits the Borrowers, subject to certain limitations, to temporarily increase the Consolidated Leverage Ratio to 4.00 to 1.0 for one or more the four immediately succeeding covenant measurement periods.
In addition, the Third Amendment includes certain conforming changes to reflect the issuance of the Senior Notes.
At June 30, 2013, amounts outstanding under the Credit Facility bore interest at rates between 3.5% and 4.0%. Amounts borrowed may
be either Base Rate Loans or Eurodollar Rate Loans and amounts repaid or prepaid during the term may be reborrowed. Depending on the type of loan, borrowings bear interest at the Base Rate or Eurodollar Rate, plus applicable margins ranging from
1.25% to 3.00% and 2.25% to 4.00%, respectively, depending on the Companys Consolidated Leverage Ratio. The Base Rate is the highest of the Prime Rate, the Federal Funds Rate plus 0.50%, or the Eurodollar Rate plus 1.0%. The Eurodollar rate is
the British Bankers Association LIBOR Rate. Amounts outstanding under the Credit Facility approximate their fair value.
The
Credit Agreement requires the Company to pay an unused Commitment Fee, which is calculated based on the amount by which the commitments under the Credit Agreement exceed the usage of such commitments. The Commitment Fee Rate ranges from 0.375% to
0.800% depending on the Companys Consolidated Leverage Ratio.
The Credit Agreement contains restrictive covenants that,
among other things, prohibit distributions upon defined events of default, restrict investments and sales of assets and require the Company to maintain certain financial covenants, including specified financial ratios. A material decrease in
revenues could cause the Company to breach certain of its financial covenants. Any such breach could allow the Lenders to accelerate the Companys debt which would have a material adverse effect on the Companys business, financial
condition or results of operations. The Companys covenants include a Consolidated Leverage Ratio and a Consolidated Debt Service Coverage Ratio. As of June 30, 2013, the Company was in compliance with all applicable financial covenants.
As of June 30, 2013, the Companys taxable corporate subsidiaries had federal net operating loss
carryforwards of approximately $163.6 million, which will begin to expire in 2019 and $201.8 million in state net operating losses, a portion of which expires annually.
The Partnership is not a taxable entity for federal and state income tax purposes; rather, the Partnerships tax attributes (except those of its corporate subsidiaries) are to be included in the
individual tax returns of its partners. Neither the Partnerships financial reporting income, nor the cash distributions to unit-holders, can be used as a substitute for the detailed tax calculations that the Partnership must perform annually
for its partners. Net income from the Partnership is not treated as passive income for federal income tax purposes. As a result, partners subject to the passive activity loss rules are not permitted to offset income from the Partnership
with passive losses from other sources.
The Partnerships corporate subsidiaries account for their income taxes under
the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective
tax basis and operating loss and tax credit carryforwards.
15
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment
date.
The provision for income taxes for the three and six months ended June 30, 2013 and 2012 is based upon the
estimated annual effective tax rates expected to be applicable to the Company for 2013 and 2012, respectively. The Companys effective tax rate differs from its statutory tax rate primarily because the Companys legal entity structure
includes different tax filing entities, including a significant number of partnerships that are not subject to paying tax.
The Internal Revenue Service (IRS) audited the Companys federal income tax return for the year ended December 31,
2010. The scope of this audit included an audit of the Companys qualifying income. In order to be treated as a partnership for federal income tax purposes, at least 90% of the Companys gross income must be qualifying income.
The IRS concluded its audit and notified the Company on April 11, 2013 that it was not proposing any adjustments to the return as filed.
The Company is not currently under examination by any federal or state jurisdictions. The federal statute of limitations and certain state statutes of limitations are open from 2009 forward. Management
believes that the accrual for tax liabilities is adequate for all open years. This assessment relies on estimates and assumptions and may involve a series of complex judgments about future events. On the basis of present information, it is the
opinion of the Companys management that there are no pending assessments that will result in a material effect on the Companys consolidated financial statements over the next twelve months.
10.
|
DEFERRED CEMETERY REVENUES, NET
|
At June 30, 2013 and December 31, 2012, deferred cemetery revenues, net, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
June 30,
2013
|
|
|
December 31,
2012
|
|
|
|
(in thousands)
|
|
|
|
|
Deferred cemetery revenue
|
|
$
|
376,027
|
|
|
$
|
346,621
|
|
Deferred merchandise trust revenue
|
|
|
76,100
|
|
|
|
65,728
|
|
Deferred merchandise trust unrealized gains (losses)
|
|
|
10,254
|
|
|
|
600
|
|
Deferred pre-acquisition margin
|
|
|
132,987
|
|
|
|
132,221
|
|
Deferred cost of goods sold
|
|
|
(51,046
|
)
|
|
|
(47,309
|
)
|
|
|
|
|
|
|
|
|
|
Deferred cemetery revenues, net
|
|
$
|
544,322
|
|
|
$
|
497,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred selling and obtaining costs
|
|
$
|
82,501
|
|
|
$
|
76,317
|
|
Deferred selling and obtaining costs are carried as an asset on the unaudited condensed consolidated
balance sheet in accordance with the Financial Services Insurance topic of the ASC.
11.
|
COMMITMENTS AND CONTINGENCIES
|
Legal
The Company is party to legal proceedings in the ordinary course of its business but does not expect the outcome of any proceedings, individually or in the aggregate, to have a material effect on the
Companys financial position, results of operations or liquidity.
Leases
At June 30, 2013, the Company was committed to operating lease payments for premises, automobiles and office equipment under various
operating leases with initial terms ranging from one to ten years and options to renew at varying terms. Expenses under operating leases were $0.6 million and $1.3 million for the three and six months ended June 30, 2013, respectively, and $0.7
million and $1.3 million for the three and six months ended June 30, 2012, respectively.
16
At June 30, 2013, operating leases will result in future payments in the following
approximate amounts from January 1, 2014 and beyond:
|
|
|
|
|
|
|
(in thousands)
|
|
2014
|
|
$
|
1,504
|
|
2015
|
|
|
952
|
|
2016
|
|
|
844
|
|
2017
|
|
|
796
|
|
2018
|
|
|
778
|
|
Thereafter
|
|
|
1,751
|
|
|
|
|
|
|
Total
|
|
$
|
6,625
|
|
|
|
|
|
|
Unit-Based Compensation
The Company has issued to certain key employees and management unit-based compensation in the form of unit appreciation rights and phantom partnership units.
Compensation expense recognized related to unit appreciation rights and restricted phantom unit awards for the three and six months ended
June 30, 2013 and 2012 are summarized in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
Unit appreciation rights
|
|
$
|
140
|
|
|
$
|
129
|
|
|
$
|
279
|
|
|
$
|
248
|
|
Restricted phantom units
|
|
|
220
|
|
|
|
81
|
|
|
|
411
|
|
|
|
161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unit-based compensation expense
|
|
$
|
360
|
|
|
$
|
210
|
|
|
$
|
690
|
|
|
$
|
409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2013, there was approximately $0.4 million in non-vested unit appreciation rights
outstanding. These unit appreciation rights will be expensed through the first half of 2017.
The diluted weighted average
number of limited partners units outstanding presented on the unaudited condensed consolidated statement of operations does not include 335,547 units and 325,083 units for the three and six months ended June 30, 2013, respectively, as
their effects would be anti-dilutive.
Other Unit Issuances
On February 19, 2013, the Company issued 159,635 units in connection with an acquisition. See Note 13. On June 21, 2013 and
2012, the Company issued 4,923 units and 9,853 units, respectively, in connection with an acquisition consummated in the second quarter of 2010. On June 6, 2012, the Company issued 13,720 units in connection with an acquisition. See Note
13.
On March 26, 2013, the Company completed a follow-on public offering of 1,610,000 common units at a price of $25.35
per unit. Net proceeds of the offering, after deducting underwriting discounts and offering expenses, were approximately $38.4 million. The proceeds from the offering were used to pay off debt on the Credit Facility.
First Quarter 2013 Acquisition
On February 19, 2013, StoneMor Florida Subsidiary LLC, a subsidiary of the Company, (the Buyer) entered into an Asset Purchase and Sale Agreement (the Seawinds Agreement) with
several Florida limited liability companies and one individual (collectively the Seller). Pursuant to the Agreement, the Buyer acquired six funeral homes in Florida, including certain related assets, and assumed certain related
liabilities.
17
In consideration for the net assets acquired, the Buyer paid the Seller $9.1 million in cash
and issued 159,635 common units, which equates to approximately $3.6 million worth of common units under the terms of the Seawinds Agreement. The Buyer also issued an unsecured promissory note in the amount of $3.0 million that is payable on
February 19, 2014 and bears interest at 5.0%. In addition, the Buyer will also pay an aggregate amount of $1.2 million in six equal annual installments commencing on February 19, 2014 in exchange for a non-compete agreement with the
Seller. The non-compete agreement will be amortized over the 6 year term of the agreement.
The table below reflects the
Companys preliminary assessment of the fair value of net assets acquired. The resulting goodwill is recorded in the Companys Funeral Homes operating segment. These amounts may be retrospectively adjusted as additional information is
received.
|
|
|
|
|
|
|
Preliminary
Assessment
|
|
|
|
(in thousands)
|
|
|
|
Assets:
|
|
|
|
|
Accounts receivable
|
|
$
|
995
|
|
Property and equipment
|
|
|
8,315
|
|
Merchandise trusts, restricted, at fair value
|
|
|
4,853
|
|
Non-compete agreements
|
|
|
1,927
|
|
|
|
|
|
|
Total assets
|
|
|
16,090
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
Deferred margin
|
|
|
2,419
|
|
Merchandise liabilities
|
|
|
2,233
|
|
|
|
|
|
|
Total liabilities
|
|
|
4,652
|
|
|
|
|
|
|
|
|
Fair value of net assets acquired
|
|
|
11,438
|
|
|
|
|
|
|
|
|
Consideration paid - cash
|
|
|
9,100
|
|
Consideration paid - units
|
|
|
3,592
|
|
Fair value of note payable
|
|
|
3,000
|
|
Fair value of debt assumed for non-compete agreements
|
|
|
924
|
|
|
|
|
|
|
Total consideration paid
|
|
|
16,616
|
|
|
|
|
|
|
Goodwill from purchase
|
|
$
|
5,178
|
|
|
|
|
|
|
First Quarter 2012 Acquisition
In the second quarter of 2009, the Company entered into a long-term operating agreement (the Operating Agreement) with Kingwood Memorial Park Association (Kingwood) wherein the
Company became the exclusive operator of the cemetery. At that time, the Operating Agreement did not qualify as an acquisition for accounting purposes. However, the existing merchandise and perpetual care trusts were consolidated as variable
interest entities. In addition, merchandise and other liabilities assumed by the Company were also recorded as of the initial contract date. The consideration paid for this transaction, including cash and an assumed liability, exceeded the net
assets recorded as of the initial contract date and an intangible asset was recorded for this amount.
In January of 2012, the
Company entered into an amended and restated operating agreement (the Amended Operating Agreement), that supersedes the Operating Agreement. The Amended Operating Agreement has a term of 40 years and the Company remains the exclusive
operator of the cemetery. As consideration for entering into the Amended Operating Agreement, the Company paid $1.7 million in cash and was relieved of a note payable to Kingwood. In addition, the prior trustees of Kingwood have resigned in favor of
new trustees appointed by the Company. As a result of the changes in the Amended Operating Agreement, for accounting purposes, the Company has gained control of Kingwood, and acquisition accounting is now applicable.
18
The table below reflects the Companys final assessment of the fair value of net assets
acquired, the elimination of debt and other assets, and the purchase price, which results in the recognition of goodwill recorded in the Companys Cemetery Operations Southeast segment.
|
|
|
|
|
|
|
Final
Assessment
|
|
|
|
(in thousands)
|
|
|
|
Net assets acquired:
|
|
|
|
|
Accounts receivable
|
|
$
|
66
|
|
Cemetery property
|
|
|
3,001
|
|
Property and equipment
|
|
|
102
|
|
|
|
|
|
|
Total net assets acquired
|
|
|
3,169
|
|
|
|
|
|
|
|
|
Assets and liabilities divested:
|
|
|
|
|
Note payable to Kingwood
|
|
|
519
|
|
Intangible asset representing underlying contract value
|
|
|
(2,236
|
)
|
|
|
|
|
|
|
|
Fair value of net assets acquired and divested
|
|
|
1,452
|
|
|
|
|
|
|
|
|
Consideration paid
|
|
|
1,652
|
|
|
|
|
|
|
|
|
Goodwill from purchase
|
|
$
|
200
|
|
|
|
|
|
|
Second Quarter 2012 Acquisitions
On April 10, 2012, certain subsidiaries of the Company (collectively the Buyer) entered into a Stock Purchase Agreement with several individuals (collectively the Seller) to
purchase all of the stock of Bronswood Cemetery, Inc., an Illinois Corporation. Through the purchase, the Buyer acquired one cemetery in Illinois, including certain related assets, and assumed certain related liabilities. In consideration for the
net assets acquired, the Buyer paid the Seller $0.9 million in cash.
The table below reflects the Companys final
assessment of the fair value of net assets acquired, the purchase price and the resulting gain on bargain purchase.
|
|
|
|
|
|
|
Final
Assessment
|
|
|
|
(in thousands)
|
|
|
|
Assets:
|
|
|
|
|
Accounts receivable
|
|
$
|
72
|
|
Cemetery property
|
|
|
842
|
|
Property and equipment
|
|
|
518
|
|
Perpetual care trusts, restricted, at fair value
|
|
|
2,780
|
|
Non-compete agreements
|
|
|
12
|
|
|
|
|
|
|
Total assets
|
|
|
4,224
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
Perpetual care trust corpus
|
|
|
2,780
|
|
Other liabilities
|
|
|
24
|
|
Deferred tax liability
|
|
|
374
|
|
|
|
|
|
|
Total liabilities
|
|
|
3,178
|
|
|
|
|
|
|
|
|
Fair value of net assets acquired
|
|
|
1,046
|
|
|
|
|
|
|
|
|
Consideration paid
|
|
|
924
|
|
|
|
|
|
|
Gain on bargain purchase
|
|
$
|
122
|
|
|
|
|
|
|
19
In addition, on June 6, 2012, certain subsidiaries of the Company (collectively the
Buyer) entered into a Purchase Agreement with several individuals and Lodi Funeral Home, Inc. (collectively the Seller) to purchase certain assets and assume certain liabilities of Lodi Funeral Home, Inc., a California
corporation and all of the stock of Lodi All Faiths Cremation, a California corporation. Through the purchase, the Buyer acquired two funeral homes in California including certain related assets, and assumed certain related liabilities. As part of
the agreement, the building and underlying real estate of Lodi Funeral Home, Inc. is being leased from the Seller. The lease agreement is a ten year agreement that contains one five year renewal term at the Buyers election. In addition, at the
end of the original lease or renewal term, the Buyer can elect to purchase the property for fair value less 10% of any rental amounts previously paid under the lease agreement. The Buyer also has a right of first refusal related to any potential
sale of the property occurring during the lease term.
In consideration for the net assets acquired, the Buyer paid the Seller
$0.85 million in cash and issued 13,720 units, which equates to $0.35 million worth of units. The Buyer will also pay an aggregate amount of $0.6 million in equal quarterly installments commencing on January 2, 2013 in exchange for non-compete
agreements with the Seller.
The table below reflects the Companys final assessment of the fair value of net assets
acquired. The resulting goodwill is recorded in the Companys Funeral Homes operating segment.
|
|
|
|
|
|
|
Final
Assessment
|
|
|
|
(in thousands)
|
|
|
|
Assets:
|
|
|
|
|
Property and equipment
|
|
$
|
48
|
|
Merchandise trusts, restricted, at fair value
|
|
|
105
|
|
Underlying lease value
|
|
|
64
|
|
Non-compete agreements
|
|
|
40
|
|
|
|
|
|
|
Total assets
|
|
|
257
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
Merchandise liabilities
|
|
|
105
|
|
|
|
|
|
|
Total liabilities
|
|
|
105
|
|
|
|
|
|
|
|
|
Fair value of net assets acquired
|
|
|
152
|
|
|
|
|
|
|
|
|
Consideration paid - cash
|
|
|
850
|
|
Consideration paid - units
|
|
|
350
|
|
Fair value of debt assumed for non-compete agreements
|
|
|
544
|
|
|
|
|
|
|
Total consideration paid
|
|
|
1,744
|
|
|
|
|
|
|
Goodwill from purchase
|
|
$
|
1,592
|
|
|
|
|
|
|
If the acquisitions from 2013 and 2012 had been consummated on January 1, 2012, on a pro forma
basis, for the three and six months ended June 30, 2013 and 2012, consolidated revenues, consolidated net income (loss), and net income (loss) per limited partner unit (basic and diluted) would have been as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
|
|
|
|
|
Revenue
|
|
$
|
62,422
|
|
|
$
|
62,779
|
|
|
$
|
122,609
|
|
|
$
|
123,981
|
|
Net income (loss)
|
|
|
(11,809
|
)
|
|
|
(1,948
|
)
|
|
|
(13,888
|
)
|
|
|
353
|
|
Net income (loss) per limited partner unit (basic and diluted)
|
|
$
|
(.54
|
)
|
|
$
|
(.10
|
)
|
|
$
|
(.66
|
)
|
|
$
|
.02
|
|
These pro forma results are unaudited and have been prepared for comparative purposes only and include
certain adjustments such as increased interest on the acquisition of debt. They do not purport to be indicative of the results of operations which actually would have resulted had the combination been in effect on January 1, 2012 or of future
results of operations of the locations. The Companys first quarter 2012 acquisition relates to the Amended Operating Agreement as noted above. Therefore, the results of operations for this property have been included in the Companys
results since 2009.
20
Since their respective dates of acquisition, the properties acquired in 2013 have
contributed $1.1 million and $1.5 million of revenue and $0.4 million and $0.5 million of operating profit for the three and six months ended June 30, 2013. The properties acquired in the first half 2012 have contributed $0.9 million and $1.6
million of revenue and $0.3 million and $0.4 million of operating profit for the three and six months ended June 30, 2013.
First
Quarter 2012 Contract Termination
During the third quarter of 2010, certain subsidiaries of the Company entered into a
long-term operating agreement (the Operating Agreement) with the Archdiocese of Detroit (the Archdiocese) wherein the Company became the exclusive operator of certain cemeteries in Michigan owned by the Archdiocese. The
Operating Agreement did not qualify as an acquisition for accounting purposes. However, the existing merchandise trust had been consolidated as a variable interest entity as the Company controlled and directly benefited from the operations of the
merchandise trust. In addition, liabilities assumed were also recorded as of the contract date. As no consideration was paid in this transaction, the Company had recorded a deferred gain of approximately $3.1 million within deferred cemetery
revenues, net, which represented the excess of the value of the merchandise trust over the liabilities assumed.
Effective
March 31, 2012, the Company and the Archdiocese agreed to terminate the Operating Agreement. As of the termination date, the Company no longer operated these properties. All activity occurring after March 31, 2012 is the responsibility of
the Archdiocese and the Company has no remaining obligation to fulfill any merchandise liabilities or responsibility to perform any obligations of the properties.
The Company received payments of approximately $2.0 million from the Archdiocese as a result of the termination. Consequently, the Company recognized a gain of $1.7 million during the six months ended
June 30, 2012, which is the amount by which the payments from the Archdiocese exceeded the value of the net assets transferred to the Archdiocese.
First and Second Quarter 2013 Settlement
During the six months
ended June 30, 2013 the Company recovered $18.4 million, net of legal fees, costs, and contractual obligations related to the settlement of claims from locations that the Company acquired in 2010 and 2011. Of this amount $6.5 million was
contributed directly to the related perpetual care and merchandise trusts on the Companys behalf. $3.4 million of these direct payments represent a gain on settlement agreement on the unaudited condensed consolidated statement of operations
due to an increase in the merchandise trusts not previously accrued for in purchase accounting.
The Company received $11.9
million in cash proceeds from the settlement. Of this amount, $1.7 million and $1.3 million are for the reimbursement of legal fees and are recorded as recoveries to corporate overhead and acquisition related costs, respectively. The remaining
proceeds were recorded as a gain on settlement agreement on the unaudited condensed consolidated statement of operations. The total gain on settlement for the six months ended June 30, 2013 was $12.3 million. Of the amounts noted above, $1.3
million, inclusive of a gain on settlement agreement of $0.9 million and $0.4 million of recovery of legal fees, was recognized during the first quarter of 2013.
The Company is organized into five distinct reportable segments which are classified as Cemetery Operations
Southeast, Cemetery Operations Northeast, Cemetery Operations West, Funeral Homes, and Corporate.
The Company
has chosen this level of organization of reportable segments due to the fact that a) each reportable segment has unique characteristics that set it apart from other segments; b) the Company has organized its management personnel at these operational
levels; and c) it is the level at which the Companys chief decision makers and other senior management evaluate performance.
The cemetery operations segments sell interment rights, caskets, burial vaults, cremation niches, markers and other cemetery related merchandise. The nature of the Companys customers differs in each
of its regionally based cemetery operating segments. Cremation rates in the West region are substantially higher than they are in the Southeast region. Rates in the Northeast region tend to be somewhere between the two. Statistics indicate that
customers who select cremation services have certain attributes that differ from customers who select other methods of interment. The disaggregation of cemetery operations into the three distinct regional segments is primarily due to these
differences in customer attributes along with the previously mentioned management structure and senior management analysis methodologies.
21
The Companys Funeral Homes segment offers a range of funeral-related services such as
family consultation, the removal of and preparation of remains and the use of funeral home facilities for visitation. These services are distinctly different than the cemetery merchandise and services sold and provided by the cemetery operations
segments.
The Companys Corporate segment includes various home office selling and administrative expenses that are not
allocable to the other operating segments.
Segment information is as follows:
As of and for the three months ended June 30, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cemeteries
|
|
|
Funeral
|
|
|
|
|
|
|
|
|
|
|
|
|
Southeast
|
|
|
Northeast
|
|
|
West
|
|
|
Homes
|
|
|
Corporate
|
|
|
Adjustment
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
24,767
|
|
|
$
|
9,724
|
|
|
$
|
12,284
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(14,479
|
)
|
|
$
|
32,296
|
|
Service and other
|
|
|
8,474
|
|
|
|
5,754
|
|
|
|
6,611
|
|
|
|
|
|
|
|
|
|
|
|
(1,389
|
)
|
|
|
19,450
|
|
Funeral home
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,983
|
|
|
|
|
|
|
|
(1,307
|
)
|
|
|
10,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
33,241
|
|
|
|
15,478
|
|
|
|
18,895
|
|
|
|
11,983
|
|
|
|
|
|
|
|
(17,175
|
)
|
|
|
62,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
5,399
|
|
|
|
2,658
|
|
|
|
2,088
|
|
|
|
|
|
|
|
|
|
|
|
(2,433
|
)
|
|
|
7,712
|
|
Cemetery
|
|
|
6,987
|
|
|
|
3,885
|
|
|
|
4,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,408
|
|
Selling
|
|
|
7,932
|
|
|
|
3,435
|
|
|
|
3,669
|
|
|
|
|
|
|
|
461
|
|
|
|
(3,279
|
)
|
|
|
12,218
|
|
General and administrative
|
|
|
4,216
|
|
|
|
1,608
|
|
|
|
2,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,898
|
|
Corporate overhead
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,672
|
|
|
|
|
|
|
|
5,672
|
|
Depreciation and amortization
|
|
|
584
|
|
|
|
233
|
|
|
|
525
|
|
|
|
749
|
|
|
|
360
|
|
|
|
|
|
|
|
2,451
|
|
Funeral home
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,498
|
|
|
|
|
|
|
|
(134
|
)
|
|
|
9,364
|
|
Acquisition related costs, net of recoveries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(625
|
)
|
|
|
|
|
|
|
(625
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
25,118
|
|
|
|
11,819
|
|
|
|
12,892
|
|
|
|
10,247
|
|
|
|
5,868
|
|
|
|
(5,846
|
)
|
|
|
60,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
$
|
8,123
|
|
|
$
|
3,659
|
|
|
$
|
6,003
|
|
|
$
|
1,736
|
|
|
$
|
(5,868
|
)
|
|
$
|
(11,329
|
)
|
|
$
|
2,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
546,851
|
|
|
$
|
310,187
|
|
|
$
|
419,902
|
|
|
$
|
130,832
|
|
|
$
|
27,860
|
|
|
$
|
|
|
|
$
|
1,435,632
|
|
|
|
|
|
|
|
|
|
Amortization of cemetery property
|
|
$
|
1,179
|
|
|
$
|
737
|
|
|
$
|
314
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(304
|
)
|
|
$
|
1,926
|
|
|
|
|
|
|
|
|
|
Long lived asset additions
|
|
$
|
1,416
|
|
|
$
|
382
|
|
|
$
|
746
|
|
|
$
|
271
|
|
|
$
|
717
|
|
|
$
|
|
|
|
$
|
3,532
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
6,174
|
|
|
$
|
|
|
|
$
|
11,948
|
|
|
$
|
29,448
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
47,570
|
|
22
As of and for the six months ended June 30, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cemeteries
|
|
|
Funeral
|
|
|
|
|
|
|
|
|
|
|
|
|
Southeast
|
|
|
Northeast
|
|
|
West
|
|
|
Homes
|
|
|
Corporate
|
|
|
Adjustment
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
46,637
|
|
|
$
|
18,701
|
|
|
$
|
22,044
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(25,102
|
)
|
|
$
|
62,280
|
|
Service and other
|
|
|
19,580
|
|
|
|
12,305
|
|
|
|
15,741
|
|
|
|
|
|
|
|
|
|
|
|
(9,966
|
)
|
|
|
37,660
|
|
Funeral home
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,810
|
|
|
|
|
|
|
|
(2,716
|
)
|
|
|
22,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
66,217
|
|
|
|
31,006
|
|
|
|
37,785
|
|
|
|
24,810
|
|
|
|
|
|
|
|
(37,784
|
)
|
|
|
122,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
9,774
|
|
|
|
4,526
|
|
|
|
3,598
|
|
|
|
|
|
|
|
|
|
|
|
(3,896
|
)
|
|
|
14,002
|
|
Cemetery
|
|
|
12,959
|
|
|
|
7,118
|
|
|
|
8,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,193
|
|
Selling
|
|
|
15,144
|
|
|
|
6,593
|
|
|
|
6,762
|
|
|
|
|
|
|
|
833
|
|
|
|
(5,890
|
)
|
|
|
23,442
|
|
General and administrative
|
|
|
8,202
|
|
|
|
3,192
|
|
|
|
4,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,480
|
|
Corporate overhead
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,660
|
|
|
|
|
|
|
|
13,660
|
|
Depreciation and amortization
|
|
|
1,112
|
|
|
|
455
|
|
|
|
1,065
|
|
|
|
1,409
|
|
|
|
740
|
|
|
|
|
|
|
|
4,781
|
|
Funeral home
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,421
|
|
|
|
|
|
|
|
(321
|
)
|
|
|
18,100
|
|
Acquisition related costs, net of recoveries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
658
|
|
|
|
|
|
|
|
658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
47,191
|
|
|
|
21,884
|
|
|
|
23,627
|
|
|
|
19,830
|
|
|
|
15,891
|
|
|
|
(10,107
|
)
|
|
|
118,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
$
|
19,026
|
|
|
$
|
9,122
|
|
|
$
|
14,158
|
|
|
$
|
4,980
|
|
|
$
|
(15,891
|
)
|
|
$
|
(27,677
|
)
|
|
$
|
3,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
546,851
|
|
|
$
|
310,187
|
|
|
$
|
419,902
|
|
|
$
|
130,832
|
|
|
$
|
27,860
|
|
|
$
|
|
|
|
$
|
1,435,632
|
|
|
|
|
|
|
|
|
|
Amortization of cemetery property
|
|
$
|
2,030
|
|
|
$
|
1,358
|
|
|
$
|
561
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(338
|
)
|
|
$
|
3,611
|
|
|
|
|
|
|
|
|
|
Long lived asset additions
|
|
$
|
2,326
|
|
|
$
|
1,259
|
|
|
$
|
1,258
|
|
|
$
|
8,925
|
|
|
$
|
748
|
|
|
$
|
|
|
|
$
|
14,516
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
6,174
|
|
|
$
|
|
|
|
$
|
11,948
|
|
|
$
|
29,448
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
47,570
|
|
As of and for the three months ended June 30, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cemeteries
|
|
|
Funeral
|
|
|
|
|
|
|
|
|
|
|
|
|
Southeast
|
|
|
Northeast
|
|
|
West
|
|
|
Homes
|
|
|
Corporate
|
|
|
Adjustment
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
23,812
|
|
|
$
|
9,545
|
|
|
$
|
10,292
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(9,535
|
)
|
|
$
|
34,114
|
|
Service and other
|
|
|
9,255
|
|
|
|
7,138
|
|
|
|
7,373
|
|
|
|
|
|
|
|
|
|
|
|
(4,227
|
)
|
|
|
19,539
|
|
Funeral home
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,189
|
|
|
|
|
|
|
|
(334
|
)
|
|
|
7,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
33,067
|
|
|
|
16,683
|
|
|
|
17,665
|
|
|
|
8,189
|
|
|
|
|
|
|
|
(14,096
|
)
|
|
|
61,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
4,972
|
|
|
|
2,028
|
|
|
|
1,739
|
|
|
|
|
|
|
|
49
|
|
|
|
(1,552
|
)
|
|
|
7,236
|
|
Cemetery
|
|
|
6,746
|
|
|
|
3,814
|
|
|
|
4,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,775
|
|
Selling
|
|
|
7,691
|
|
|
|
3,322
|
|
|
|
3,395
|
|
|
|
|
|
|
|
370
|
|
|
|
(1,655
|
)
|
|
|
13,123
|
|
General and administrative
|
|
|
3,813
|
|
|
|
1,487
|
|
|
|
1,883
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
7,195
|
|
Corporate overhead
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,756
|
|
|
|
|
|
|
|
7,756
|
|
Depreciation and amortization
|
|
|
510
|
|
|
|
215
|
|
|
|
547
|
|
|
|
518
|
|
|
|
440
|
|
|
|
|
|
|
|
2,230
|
|
Funeral home
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,688
|
|
|
|
|
|
|
|
(73
|
)
|
|
|
6,615
|
|
Acquisition related costs, net of recoveries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
782
|
|
|
|
|
|
|
|
782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
23,732
|
|
|
|
10,866
|
|
|
|
11,779
|
|
|
|
7,206
|
|
|
|
9,409
|
|
|
|
(3,280
|
)
|
|
|
59,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
$
|
9,335
|
|
|
$
|
5,817
|
|
|
$
|
5,886
|
|
|
$
|
983
|
|
|
$
|
(9,409
|
)
|
|
$
|
(10,816
|
)
|
|
$
|
1,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
490,736
|
|
|
$
|
291,245
|
|
|
$
|
384,949
|
|
|
$
|
79,938
|
|
|
$
|
26,195
|
|
|
$
|
|
|
|
$
|
1,273,063
|
|
|
|
|
|
|
|
|
|
Amortization of cemetery property
|
|
$
|
1,022
|
|
|
$
|
853
|
|
|
$
|
275
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(21
|
)
|
|
$
|
2,129
|
|
|
|
|
|
|
|
|
|
Long lived asset additions
|
|
$
|
802
|
|
|
$
|
825
|
|
|
$
|
2,630
|
|
|
$
|
401
|
|
|
$
|
194
|
|
|
$
|
|
|
|
$
|
4,852
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
5,934
|
|
|
$
|
|
|
|
$
|
11,948
|
|
|
$
|
16,056
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
33,938
|
|
23
As of and for the six months ended June 30, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cemeteries
|
|
|
Funeral
|
|
|
|
|
|
|
|
|
|
|
|
|
Southeast
|
|
|
Northeast
|
|
|
West
|
|
|
Homes
|
|
|
Corporate
|
|
|
Adjustment
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
44,692
|
|
|
$
|
18,003
|
|
|
$
|
20,324
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(17,882
|
)
|
|
$
|
65,137
|
|
Service and other
|
|
|
18,783
|
|
|
|
13,713
|
|
|
|
14,894
|
|
|
|
|
|
|
|
|
|
|
|
(8,224
|
)
|
|
|
39,166
|
|
Funeral home
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,462
|
|
|
|
|
|
|
|
(670
|
)
|
|
|
16,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
63,475
|
|
|
|
31,716
|
|
|
|
35,218
|
|
|
|
17,462
|
|
|
|
|
|
|
|
(26,776
|
)
|
|
|
121,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
9,263
|
|
|
|
3,701
|
|
|
|
3,403
|
|
|
|
|
|
|
|
52
|
|
|
|
(2,763
|
)
|
|
|
13,656
|
|
Cemetery
|
|
|
12,451
|
|
|
|
6,879
|
|
|
|
8,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,567
|
|
Selling
|
|
|
14,716
|
|
|
|
6,458
|
|
|
|
6,607
|
|
|
|
|
|
|
|
831
|
|
|
|
(3,702
|
)
|
|
|
24,910
|
|
General and administrative
|
|
|
7,436
|
|
|
|
3,013
|
|
|
|
3,923
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
14,388
|
|
Corporate overhead
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,359
|
|
|
|
|
|
|
|
14,359
|
|
Depreciation and amortization
|
|
|
1,046
|
|
|
|
440
|
|
|
|
1,114
|
|
|
|
1,138
|
|
|
|
822
|
|
|
|
|
|
|
|
4,560
|
|
Funeral home
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,487
|
|
|
|
|
|
|
|
(116
|
)
|
|
|
13,371
|
|
Acquisition related costs, net of recoveries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,113
|
|
|
|
|
|
|
|
1,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
44,912
|
|
|
|
20,491
|
|
|
|
23,284
|
|
|
|
14,625
|
|
|
|
17,193
|
|
|
|
(6,581
|
)
|
|
|
113,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
$
|
18,563
|
|
|
$
|
11,225
|
|
|
$
|
11,934
|
|
|
$
|
2,837
|
|
|
$
|
(17,193
|
)
|
|
$
|
(20,195
|
)
|
|
$
|
7,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
490,736
|
|
|
$
|
291,245
|
|
|
$
|
384,949
|
|
|
$
|
79,938
|
|
|
$
|
26,195
|
|
|
$
|
|
|
|
$
|
1,273,063
|
|
|
|
|
|
|
|
|
|
Amortization of cemetery property
|
|
$
|
2,001
|
|
|
$
|
1,413
|
|
|
$
|
569
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(3
|
)
|
|
$
|
3,980
|
|
|
|
|
|
|
|
|
|
Long lived asset additions
|
|
$
|
4,765
|
|
|
$
|
1,374
|
|
|
$
|
3,100
|
|
|
$
|
460
|
|
|
$
|
606
|
|
|
$
|
|
|
|
$
|
10,305
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
5,934
|
|
|
$
|
|
|
|
$
|
11,948
|
|
|
$
|
16,056
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
33,938
|
|
Results of individual business units are presented based on our management accounting practices and
management structure. There is no comprehensive, authoritative body of guidance for management accounting equivalent to GAAP; therefore, the financial results of individual business units are not necessarily comparable with similar information for
any other company. The management accounting process uses assumptions and allocations to measure performance of the business units. Methodologies are refined from time to time as management accounting practices are enhanced and businesses change.
Revenues and associated expenses are not deferred in accordance with SAB No. 104; therefore, the deferral of these revenues and expenses is provided in the adjustment column to reconcile the Companys managerial financial statements to
those prepared in accordance with GAAP. Pre-need sales revenues included within the sales category consist primarily of the sale of burial lots, burial vaults, mausoleum crypts, grave markers and memorials, and caskets. Management accounting
practices included in the Southeast, Northeast, and Western Regions reflect these pre-need sales when contracts are signed by the customer and accepted by the Company. Pre-need sales reflected in the consolidated financial statements, prepared in
accordance with GAAP, recognize revenues for the sale of burial lots and mausoleum crypts when the product is constructed and at least 10% of the sales price is collected. With respect to the other products, the consolidated financial statements
prepared under GAAP recognize sales revenues when the criteria for delivery under SAB No. 104 are met. These criteria include, among other things, purchase of the product, delivery and installation of the product in the ground, and transfer of
title to the customer. In each case, costs are accrued in connection with the recognition of revenues; therefore, the consolidated financial statements reflect Deferred Cemetery Revenue, Net, and Deferred Selling and Obtaining Costs on the
consolidated balance sheet, whereas the Companys management accounting practices exclude these items.
24
15.
|
FAIR VALUE MEASUREMENTS
|
The Fair Value Measurements and Disclosures topic of the ASC defines fair value as the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between market participants. This topic also establishes a fair value hierarchy that gives the highest priority to observable inputs and the lowest priority to unobservable
inputs. The three levels of the fair value hierarchy defined by this topic are described below.
Level 1: Quoted market prices
available in active markets for identical assets or liabilities. The Company includes short-term investments, consisting primarily of money market funds, U.S. Government debt securities and publicly traded equity securities and mutual funds in its
level 1 investments.
Level 2: Quoted prices in active markets for similar assets; quoted prices in non-active markets for
identical or similar assets; inputs other than quoted prices that are observable. The Company includes U.S. state and municipal, corporate and other fixed income debt securities in its level 2 investments.
Level 3: Any and all pricing inputs that are generally unobservable and not corroborated by market data.
On the Companys unaudited condensed consolidated balance sheet, current assets, long-term accounts receivable and current
liabilities are recorded at amounts that approximate fair value.
25
The following table allocates the Companys assets measured at fair value as of
June 30, 2013 and December 31, 2012.
As of June 30, 2013
Merchandise Trust
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
$
|
50,286
|
|
|
$
|
|
|
|
$
|
50,286
|
|
|
|
|
|
Fixed maturities:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and federal agency
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. state and local government agency
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
|
|
|
|
8,961
|
|
|
|
8,961
|
|
Other debt securities
|
|
|
|
|
|
|
7,803
|
|
|
|
7,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity investments
|
|
|
|
|
|
|
16,764
|
|
|
|
16,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds - debt securities
|
|
|
103,289
|
|
|
|
|
|
|
|
103,289
|
|
Mutual funds - equity securities - real estate sector
|
|
|
53,575
|
|
|
|
|
|
|
|
53,575
|
|
Mutual funds - equity securities - energy sector
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds - equity securities - MLPs
|
|
|
37,966
|
|
|
|
|
|
|
|
37,966
|
|
Mutual funds - equity securities - other
|
|
|
60,207
|
|
|
|
|
|
|
|
60,207
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred REITs
|
|
|
65
|
|
|
|
|
|
|
|
65
|
|
Master limited partnerships
|
|
|
46,951
|
|
|
|
|
|
|
|
46,951
|
|
Global equity securities
|
|
|
32,202
|
|
|
|
|
|
|
|
32,202
|
|
Other invested assets
|
|
|
|
|
|
|
5,341
|
|
|
|
5,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
384,541
|
|
|
$
|
22,105
|
|
|
$
|
406,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Perpetual Care Trust
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
$
|
12,662
|
|
|
$
|
|
|
|
$
|
12,662
|
|
|
|
|
|
Fixed maturities:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and federal agency
|
|
|
503
|
|
|
|
|
|
|
|
503
|
|
U.S. state and local government agency
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
|
|
|
|
23,936
|
|
|
|
23,936
|
|
Other debt securities
|
|
|
|
|
|
|
371
|
|
|
|
371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity investments
|
|
|
503
|
|
|
|
24,307
|
|
|
|
24,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds - debt securities
|
|
|
114,233
|
|
|
|
|
|
|
|
114,233
|
|
Mutual funds - equity securities - real estate sector
|
|
|
44,443
|
|
|
|
|
|
|
|
44,443
|
|
Mutual funds - equity securities - energy sector
|
|
|
15,707
|
|
|
|
|
|
|
|
15,707
|
|
Mutual funds - equity securities - MLPs
|
|
|
45,721
|
|
|
|
|
|
|
|
45,721
|
|
Mutual funds - equity securities - other
|
|
|
9,134
|
|
|
|
|
|
|
|
9,134
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred REITs
|
|
|
38
|
|
|
|
|
|
|
|
38
|
|
Master limited partnerships
|
|
|
35,234
|
|
|
|
|
|
|
|
35,234
|
|
Global equity securities
|
|
|
791
|
|
|
|
|
|
|
|
791
|
|
Other invested assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
278,466
|
|
|
$
|
24,307
|
|
|
$
|
302,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
As of December 31, 2012
Merchandise Trust
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
$
|
27,890
|
|
|
$
|
|
|
|
$
|
27,890
|
|
|
|
|
|
Fixed maturities:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and federal agency
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. state and local government agency
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
|
|
|
|
8,714
|
|
|
|
8,714
|
|
Other debt securities
|
|
|
|
|
|
|
4,317
|
|
|
|
4,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity investments
|
|
|
|
|
|
|
13,031
|
|
|
|
13,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds - debt securities
|
|
|
107,921
|
|
|
|
|
|
|
|
107,921
|
|
Mutual funds - equity securities - real estate sector
|
|
|
51,986
|
|
|
|
|
|
|
|
51,986
|
|
Mutual funds - equity securities - energy sector
|
|
|
5,666
|
|
|
|
|
|
|
|
5,666
|
|
Mutual funds - equity securities - MLPs
|
|
|
29,336
|
|
|
|
|
|
|
|
29,336
|
|
Mutual funds - equity securities - other
|
|
|
58,082
|
|
|
|
|
|
|
|
58,082
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred REITs
|
|
|
563
|
|
|
|
|
|
|
|
563
|
|
Master limited partnerships
|
|
|
42,410
|
|
|
|
|
|
|
|
42,410
|
|
Global equity securities
|
|
|
24,434
|
|
|
|
|
|
|
|
24,434
|
|
Other invested assets
|
|
|
|
|
|
|
7,097
|
|
|
|
7,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
348,288
|
|
|
$
|
20,128
|
|
|
$
|
368,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Perpetual Care Trust
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Total
|
|
|
|
(in thousands)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
$
|
21,419
|
|
|
$
|
|
|
|
$
|
21,419
|
|
|
|
|
|
Fixed maturities:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and federal agency
|
|
|
512
|
|
|
|
|
|
|
|
512
|
|
U.S. state and local government agency
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
|
|
|
|
23,291
|
|
|
|
23,291
|
|
Other debt securities
|
|
|
|
|
|
|
371
|
|
|
|
371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity investments
|
|
|
512
|
|
|
|
23,662
|
|
|
|
24,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds - debt securities
|
|
|
107,188
|
|
|
|
|
|
|
|
107,188
|
|
Mutual funds - equity securities - real estate sector
|
|
|
42,365
|
|
|
|
|
|
|
|
42,365
|
|
Mutual funds - equity securities - energy sector
|
|
|
13,061
|
|
|
|
|
|
|
|
13,061
|
|
Mutual funds - equity securities - MLPs
|
|
|
34,805
|
|
|
|
|
|
|
|
34,805
|
|
Mutual funds - equity securities - other
|
|
|
8,981
|
|
|
|
|
|
|
|
8,981
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred REITs
|
|
|
486
|
|
|
|
|
|
|
|
486
|
|
Master limited partnerships
|
|
|
28,693
|
|
|
|
|
|
|
|
28,693
|
|
Global equity securities
|
|
|
726
|
|
|
|
|
|
|
|
726
|
|
Other invested assets
|
|
|
|
|
|
|
415
|
|
|
|
415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
258,236
|
|
|
$
|
24,077
|
|
|
$
|
282,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2 securities primarily consist of corporate and other fixed income debt securities. The Company
obtains pricing information for these securities from an independent pricing vendor. The pricing vendor uses various pricing models for each asset class that are consistent with what other market participants would use. The inputs and assumptions to
the pricing
27
vendors model are derived from market observable sources including benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers, and other
market-related data. Since many fixed income securities do not trade on a daily basis, the pricing vendor uses available information as applicable such as benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing. Thus,
certain securities may not be priced using quoted prices, but rather determined from market observable information. These investments are included in Level 2. The Company reviews the information provided by the pricing vendor on a regular basis. In
addition, the pricing vendor has an established process in place for the identification and resolution of potentially erroneous prices.
There were no level 3 assets.
On August 1, 2013, the Company entered into an Asset Purchase and Sale Agreement to acquire 1 cemetery in
Virginia, including certain related assets, and assumed certain related liabilities. In consideration for the net assets acquired, the Company paid $5.0 million in cash. A preliminary allocation of the purchase price and fair value of net assets
acquired has not been provided as more time is needed to accurately compile this information.
Item 2.
|
Managements Discussion and Analysis of Financial Condition and Results of Operations
|
The words we, us, our, StoneMor, the Partnership, the Company and
similar words, when used in a historical context prior to the closing of the initial public offering of StoneMor Partners L.P. on September 20, 2004, refer to Cornerstone Family Services, Inc. (Cornerstone), (and, after its
conversion, CFSI LLC), and its subsidiaries and thereafter refer to StoneMor Partners L.P. and its subsidiaries.
This
Managements Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form
10-Q (including the notes thereto).
Forward-Looking Statements
Certain statements contained in this Quarterly Report on Form 10-Q, including, but not limited to, information regarding the status and
progress of our operating activities, the plans and objectives of our management, assumptions regarding our future performance and plans, and any financial guidance provided, as well as certain information in our other filings with the SEC and
elsewhere are forward-looking statements. The words believe, may, will, estimate, continue, anticipate, intend, project, expect,
predict and similar expressions identify these forward-looking statements. These forward-looking statements are made subject to certain risks and uncertainties that could cause actual results to differ materially from those stated or
implied, including, but not limited to, the following: uncertainties associated with future revenue and revenue growth; the effect of the current economic downturn; the impact of our significant leverage on our operating plans; our ability to
service our debt and pay distributions; the decline in the fair value of certain equity and debt securities held in our 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 trusting 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; uncertainties associated with the
integration or anticipated benefits of our recent acquisitions or any future acquisitions; our ability to complete and fund additional acquisitions; litigation or legal proceedings that could expose us to significant liabilities and damage our
reputation ;our ability to maintain effective disclosure controls and procedures and internal control over financial reporting; 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.
When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements set forth in our
Annual Report on Form 10-K for the fiscal year ended December 31, 2012 (2012 Form 10-K), this Quarterly Report on Form 10-Q and our other reports filed with the SEC. Except as required under applicable law, we assume no obligation
to update or revise any forward-looking statements made herein or any other forward-looking statements made by us, whether as a result of new information, future events or otherwise.
28
Organization
We were organized on April 2, 2004 to own and operate the cemetery and funeral home business conducted by Cornerstone and its subsidiaries. On September 20, 2004, in connection with our initial
public offering of common units representing limited partner interests, Cornerstone contributed to us substantially all of its assets, liabilities and businesses, and then converted into CFSI LLC, a limited liability company. Cornerstone had been
founded in 1999 by members of our management team and a private equi
t
y investment firm in order to acquire a group of 123 cemetery properties and 4 funeral homes. Since that time, Cornerstone, succeeded by us, has acquired additional
cemeteries and funeral homes, entered into long term cemetery operating agreements, built funeral homes, and sold cemeteries and funeral homes, resulting in the operation of 276 cemeteries and 92 funeral homes as of June 30, 2013.
Capitalization
On
September 20, 2004, we completed our initial public offering. Since that time, we have completed additional follow-on public offerings and debt offerings. On March 26, 2013, we completed our most recent follow-on public offering of
1,610,000 common units at a price of $25.35 per unit. Net proceeds of the offering, after deducting underwriting discounts and offering expenses, were approximately $38.4 million. The proceeds from the offering were used to pay down debt on the
Credit Facility.
On May 28, 2013, we completed an offering of $175.0 million aggregate principal amount of 7.875% Senior
Notes due 2021. The net proceeds from the debt offering were used to pay the tender offer consideration and redeem our outstanding 10.25% Senior Notes due 2017, in aggregate, and the remaining proceeds were used for general corporate purposes.
Overview
Cemetery
Operations
We are currently the second largest owner and operator of cemeteries in the United States. As of
June 30, 2013, we operated 276 cemeteries in 27 states and Puerto Rico. We own 258 of these cemeteries, and we operate the remaining 18 under management or operating agreements with the nonprofit cemetery corporations that own the cemeteries.
As a result of the agreements, other control arrangements and applicable accounting rules, we have treated 16 of these cemeteries as acquisitions for accounting purposes.
We operate 2 cemeteries under long-term operating agreements that do not qualify as acquisitions for accounting purposes. As a result, we did not consolidate all of the existing assets and liabilities
related to these cemeteries. We have consolidated the existing assets and liabilities of each of these cemeteries merchandise and perpetual care trusts as variable interest entities since we control and receive the benefits and absorb any
losses from operating these trusts. Under these long-term operating agreements, which are subject to certain termination provisions, we are the exclusive operator of these cemeteries. We earn revenues related to sales of merchandise, services, and
interment rights and incur expenses related to such sales and the maintenance and upkeep of these cemeteries. Upon termination of these contracts, we will retain all of the benefits and related contractual obligations incurred from sales generated
during the contract period. We have also recognized the existing merchandise liabilities assumed as part of these agreements.
We sell cemetery products and services 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. Revenues from cemetery operations accounted for approximately 82.9% and 81.9% of our total revenues during the three and six months ended June 30, 2013 as compared to 87.2% and 86.1% during the same periods last year.
Our results of operations for our Cemetery Operations are determined primarily by the volume of sales of products and
services and the timing of product delivery and performance of services. We derive our cemetery revenues primarily from:
|
|
|
at-need sales of cemetery interment rights, merchandise and services, which we recognize as revenue when we have delivered the related merchandise or
performed the service;
|
|
|
|
pre-need sales of cemetery interment rights, which we generally recognize as revenues when we have collected 10% of the sales price from the customer;
|
|
|
|
pre-need sales of cemetery merchandise, which we recognize as revenues when we satisfy the criteria specified below for delivery of the merchandise to
the customer;
|
|
|
|
pre-need sales of cemetery services which we recognize as revenues when we perform the services for the customer;
|
|
|
|
investment income from assets held in our merchandise trusts, which we recognize as revenues when we deliver the underlying merchandise or perform the
underlying services and recognize the associated sales revenue as discussed above;
|
29
|
|
|
investment income from perpetual care trusts, excluding realized gains and losses on the sale of trust assets, which we recognize as revenues as the
income is earned in the trust; and
|
|
|
|
other items, such as interest income on pre-need installment contracts and sales of land.
|
The criteria for recognizing revenue related to the sale of cemetery merchandise is that such merchandise is delivered to our
customer, which generally means that:
|
|
|
the merchandise is complete and ready for installation; or
|
|
|
|
the merchandise is either installed or stored at an off-site location, at no additional cost to us, and specifically identified with a particular
customer; and
|
|
|
|
the risks and rewards of ownership have passed to the customer.
|
We generally satisfy these delivery criteria by purchasing the merchandise and either installing it on our cemetery property or storing
it, at the customers request, in third-party warehouses, at no additional cost to us, until the time of need. With respect to burial vaults, we install the vaults rather than storing them to satisfy the delivery criteria. When merchandise is
stored for a customer, we may issue a certificate of ownership to the customer to evidence the transfer to the customer of the risks and rewards of ownership.
Pre-need Sales
As previously noted, we do not recognize revenue on
pre-need sales of merchandise and services until we have delivered the merchandise or performed the services. Accordingly, deferred revenues from pre-need sales and related merchandise trust earnings are reflected as a liability on our unaudited
condensed consolidated balance sheet in deferred cemetery revenues, net.
Total deferred cemetery revenues, net, also includes
deferred revenues from pre-need sales that were entered into by entities we acquired prior to the time we acquired them. This includes both those entities that we acquired at the time of the formation of Cornerstone and other subsequent
acquisitions. Our profit margin on pre-need sales entered into by entities we subsequently acquired is generally less than our profit margin on other pre-need sales because, in accordance with industry practice at the time these acquired pre-need
sales were made, none of the selling expenses were recognized at the time of sale. As a result, we are required to recognize all of the expenses (including deferred selling expenses) associated with these acquired pre-need sales when we recognize
the revenues from that sale.
Pre-need products and services are typically sold on an installment basis. Subject to state law,
these contracts are normally subject to cooling-off periods, generally between three and thirty days, during which the customer may elect to cancel the contract and receive a full refund of amounts paid. Also, subject to applicable state
law, we are generally permitted to retain the amounts already paid on contracts, including any amounts that were required to be deposited into trust, on contracts cancelled after the cooling-off period. Historical post
cooling-off period cancellations total approximately 10% of our pre-need sales (based on contract dollar amounts). If the products and services purchased under a pre-need contract are needed for interment before payment has been made in
full, generally the balance due must be immediately paid in full.
Contracts related to pre-need installment sales are usually
for a period not to exceed 60 months, with payments of principal and interest required. Pre-need sales contracts normally contain provisions for both principal and interest. For those contracts that do not bear a market rate of interest, we impute
such interest based upon the prime rate plus 150 basis points, which resulted in a rate of 4.75% for the three and six months ended June 30, 2013 and 2012.
We normally offer prepayment incentives to customers whose pre-need contracts are longer than 36 months and bear interest. If those customers pay their contracts in full in less than 12 months, we rebate
the interest that we have collected from them. Even though this rebate policy reduces the amount of interest income we receive on our accounts receivable, the net effect is an increase in our immediate cash flow.
In certain cases, pre-need contracts will be cancelled before they are fully paid. In these circumstances, we are generally permitted to
retain amounts already paid to us, including any amounts that were required to be deposited into trust. In certain other cases, the products and services purchased under a pre-need contract are needed for interment before payment has been made in
full. In these cases, we are generally entitled to be immediately paid in full for any amounts still outstanding.
At-need Sales
Revenue on at-need merchandise sales is deferred until the time that such merchandise is delivered. The lag between the
contract origination and delivery is normally minimal. At-need sales of products and services are generally required to be paid for in full at the time of sale. At that time, we will deposit amounts, as legally required, into our perpetual care
trusts. We are not required to deposit any amounts from our at-need sales into merchandise trusts.
30
Expenses
We analyze and categorize our operating expenses as follows:
1. Cost of goods
sold and selling expenses
Cost of goods sold reflects the actual cost of purchasing products and performing services. Sales
of cemetery lots and interment rights, whether at-need or pre-need, typically have a lower cost of goods sold than other merchandise that we sell.
Selling expenses consist of salesperson and sales management payroll costs, including selling commissions, bonuses and employee benefits. We self-insure medical expenses of our employees up to certain
individual and aggregate limits over which we have stop-loss insurance coverage. Our self-insurance policy may result in variability in our future operating expenses. Selling expenses also include other costs of obtaining product and service sales,
such as advertising, marketing, postage and telephone.
Direct costs associated with pre-need sales of cemetery merchandise
and services, such as sales commissions and cost of goods sold, are reflected in the unaudited condensed consolidated balance sheet in deferred selling and obtaining costs and deferred cemetery revenues, net, respectively, and are expensed as the
merchandise is delivered or the services are performed. Indirect costs, such as marketing and advertising costs, are expensed in the period in which they are incurred.
2. Cemetery Expenses
Cemetery expenses represent the cost to maintain and repair
our cemetery properties and consist primarily of labor and equipment, utilities, real estate taxes and other maintenance items. Repairs necessary to maintain our cemeteries are expensed as they are incurred. Other maintenance costs required over the
long term to maintain the operating capacity of our cemeteries, such as to build roads and install sprinkler systems, are capitalized.
3. General and administrative expenses
General and administrative expenses,
which do not include corporate overhead, primarily include personnel costs, insurance and other costs necessary to maintain our cemetery offices.
4. Depreciation and amortization
We depreciate our property and equipment on a
straight-line basis over their estimated useful lives.
5. Acquisition related costs
Acquisition related costs, which include legal fees and other third party costs incurred in acquisition related activities, are expensed
as incurred.
Funeral Home Operations
As of June 30, 2013, we owned and operated 92 funeral homes. These properties are located in 18 states and Puerto Rico. Forty-one of our funeral homes are located on the grounds of cemeteries that we
own.
We derive revenues at our funeral homes from the sale of funeral home merchandise, including caskets and related funeral
merchandise, and services, including removal and preparation of remains, the use of our facilities for visitation, worship and performance of funeral services and transportation services. We sell these services and merchandise almost exclusively at
the time of need utilizing salaried licensed funeral directors. Funeral home revenues accounted for approximately 17.1% and 18.1% of our total revenues during the three and six months ended June 30, 2013 as compared to 12.8% and 13.9% during
the same periods last year.
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.
31
We generally include revenues from pre-need casket sales in the results of our cemetery
operations. However, some states require that caskets be sold by funeral homes, and revenues from casket sales in those states are included in our funeral home results.
Our funeral home operating expenses consist primarily of compensation to our funeral directors, day to day costs of managing the business and the cost of caskets.
Corporate
We
incur fixed costs for corporate overhead primarily for centralized functions, such as payroll, accounting, collections and professional fees. We also incur expenses relating to reporting requirements under U.S. federal securities laws and certain
other additional expenses of being a public company.
2013 Developments
Significant business developments for the six months ended June 30, 2013 include the following:
|
|
|
Our federal income tax return for the year ended 2010 was audited by the Internal Revenue Service (IRS). The scope of this audit included
an audit of our qualifying income. In order to be treated as a partnership for federal income tax purposes, at least 90% of our gross income must be qualifying income. The IRS concluded its audit and notified us on April 11,
2013 that it was not proposing any adjustments to our return as filed.
|
|
|
|
On February 19, 2013, we entered into the First Amendment to the Third Amended and Restated Credit Agreement which increased the total
availability under the Credit Facility by $10.0 million to a total of $140.0 million. See Liquidity and Capital Resources for further discussion.
|
|
|
|
On February 19, 2013, we entered into an Asset Purchase and Sale Agreement to purchase certain assets and assume certain liabilities of six
funeral homes in Florida. In consideration for the net assets acquired, we paid $9.1 million in cash, issued $3.6 million in common units, issued an unsecured promissory note in the amount of $3.0 million that is payable on February 19, 2014
and we will pay an additional aggregate amount of $1.2 million in six equal annual installments commencing on February 19, 2014 in exchange for a non-compete agreement.
|
|
|
|
On March 26, 2013, we completed our most recent follow-on public offering of 1,610,000 common units at a price of $25.35 per unit. Net proceeds of
the offering, after deducting underwriting discounts and offering expenses, were approximately $38.4 million. The proceeds were used to pay off debt on our Credit Facility.
|
|
|
|
On May 28, 2013, we completed an offering of $175.0 million aggregate principal amount of 7.875% Senior Notes due 2021 at 97.832% of par. The net
proceeds from the debt offering were used to pay the tender offer consideration and redeem our outstanding 10.25% Senior Notes due 2017, in aggregate, and the remaining proceeds were used for general corporate purposes.
|
|
|
|
On June 18, 2013, we entered into the Third Amendment to the Third Amended and Restated Credit Agreement, which increased our Consolidated
Leverage Ratio to 4.00 to 1.0 through December 31, 2013, 3.875 at March 31, 2014, and 3.750 thereafter. The amendment also increased the ranges of the rates to 3.00%, 4.00%, and .800% for base rate loans, Eurodollar rate loans and letter
of credit fees, and commitment fees, respectively, when the Consolidated Leverage Ratio is greater than or equal to 3.75 to 1.0. See Liquidity and Capital Resources for further discussion.
|
We entered into a settlement agreement in the second quarter of 2013, which was a legal settlement related to our second quarter 2010
acquisition of cemeteries and funeral homes in Indiana, Michigan and Ohio and our fourth quarter 2011 acquisition of cemeteries and funeral homes in Tennessee, pursuant to which in the aggregate (i) $6.5 million was placed into pre-need
cemetery and funeral trust/escrows and endowment care trusts, and (ii) $8.9 million, net of attorneys fees, expenses, and contractual obligations, was returned to us as partial repayment of funds advanced to trusts/escrows in Indiana,
Michigan and Ohio at the time of the acquisitions.
Current Market Conditions and Economic Developments
The financial markets experienced fluctuations during 2012 but generally improved compared to 2011. This improvement continued as markets
trended higher during the first half of 2013. As of June 30, 2013, the market value of the assets in our merchandise trusts exceeded their amortized cost by 2.5%, which is an improvement from December 31, 2012
32
when the market value of the assets exceeded their amortized cost by 0.2%. As of June 30, 2013, the market value of the assets in our perpetual care trusts exceeded their amortized cost by
10.2% which is an improvement from December 31, 2012 when the market value of the assets exceeded their amortized cost by 5.8%.
As of June 30, 2013, the majority of our long-term debt consisted of $175.0 million in Senior Notes due in 2021 and $91.0 million of borrowings on our Credit Facility which expires in 2017. As of
June 30, 2013, we had an unused line of $49.0 million under our Credit Agreement. Further, on March 26, 2013, we raised capital via a follow-on public offering of our common units, representing a limited partnership interest in us.
The value of pre-need and at-need contracts written has continued to grow and the aggregate values of contracts written were
$71.3 million and $135.2 million for the three and six months ended June 30, 2013 as compared to $66.1 million and $127.1 million during the same periods last year.
Impact on Our Ability to Meet Our Debt Covenants
Current market
conditions have not negatively impacted our ability to meet our significant debt covenants. These covenants specifically relate to a certain measure of Consolidated EBITDA and certain coverage and leverage ratios as defined in the Credit Agreement
described below.
Consolidated EBITDA is primarily related to the current period value of contracts written, investment income
from the merchandise and perpetual care trusts, and current expenses incurred. The revenue recognition rules that we must follow for GAAP purposes are not considered.
We have two primary debt covenants that are dependent upon our financial results, the consolidated leverage ratio and the consolidated debt service coverage ratio. The consolidated leverage ratio relates
to the ratio of Consolidated Funded Indebtedness to Consolidated EBITDA. Our consolidated leverage ratio was 3.97 at June 30, 2013 compared to a maximum allowed ratio of 4.00. The consolidated debt service coverage ratio relates to the ratio of
Consolidated EBITDA to Consolidated Debt Service. Our consolidated debt service coverage ratio was 3.22 at June 30, 2013 compared to a minimum allowed ratio of 2.50.
Segment Reporting and Related Information
The Company is organized into
five distinct reportable segments which are classified as Cemetery Operations Southeast, Cemetery Operations Northeast, Cemetery Operations West, Funeral Homes, and Corporate.
We chose this level of organization and disaggregation of reportable segments because a) each reportable segment has unique
characteristics that set it apart from each other; b) we have organized our management personnel at these operational levels; and c) this is the level at which our chief decision makers and other senior management evaluate performance.
The Cemetery Operations segments sell interment rights, caskets, burial vaults, cremation niches, markers and other cemetery related
merchandise. The nature of our customers differs in each of our regionally based cemetery operating segments. Cremation rates in the West region are substantially higher than they are in the Southeast region. Rates in the Northeast region tend to be
somewhere between the two. Statistics indicate that customers who select cremation services have certain attributes that differ from customers who select other methods of interment. The disaggregation of cemetery operations into the three distinct
regional segments is primarily due to these differences in customer attributes along with the previously mentioned management structure and senior management analysis methodologies.
Our Funeral Homes segment offers a range of funeral-related services such as family consultation, the removal of and preparation of
remains and the use of funeral home facilities for visitation. These services are distinctly different than the cemetery merchandise and services sold and provided by the Cemetery Operations segments.
Our Corporate segment includes various home office expenses, miscellaneous selling, cemetery and general administrative expenses that are
not allocable to other operating segments, certain depreciation and amortization expenses and acquisition related costs.
Critical
Accounting Policies and Estimates
The unaudited condensed consolidated financial statements are prepared in conformity
with GAAP. The preparation of these financial statements required us to make estimates, judgments and assumptions that affected the reported amounts of assets and liabilities at the dates of the financial statements and the reported amounts of
revenues and expenses during the
33
reporting periods (see Note 1 to the unaudited condensed consolidated financial statements). Our critical accounting policies are those that are both important to the portrayal of our financial
condition and results of operations and require managements most difficult, subjective and complex judgment. These critical accounting policies are discussed in the Managements Discussion and Analysis of Financial Condition and Results
of Operations section of our 2012 Form 10-K. There have been no significant changes to our critical accounting policies since the filing of our 2012 Form 10-K.
Results of Operations Segments
We account for
and analyze the results of operations for our segments on a basis of accounting that is different from GAAP. We reconcile these non-GAAP accounting results of operations to GAAP based amounts at the consolidated level. This reconciliation is
included in Note 14 to the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
The method of accounting we utilize to analyze our overall results of operations, including segment results, provides for a production based view of our business. Under the production based view, we
recognize revenues at their contract value at the point in time in which the contract is written, less a historic cancellation reserve. All related costs are expensed in the period the contract is recognized as revenue. In contrast, GAAP requires
that we defer all revenues, and the direct costs associated with these revenues, until we meet certain delivery and performance requirements. The nature of our business is such that there is no meaningful relationship between the time that elapses
from the date a contract is executed and the date the underlying merchandise is delivered or the service, delivery and performance requirements are met. Further, certain factors affecting this time period, such as weather and supplier issues, are
out of our control. As a result, during a period of growth, operating profits as defined by GAAP will tend to lag behind operating profits on a production based view because of the required deferral of revenues. Our performance based view ignores
these delays and presents results based upon the underlying value of contracts written. We believe this is the most reliable indicator of our performance for a given period as the value of contracts written less a historical cancellation reserve
reflects the economic value added during a given period of time. Accordingly, the ensuing segment discussion is on a basis of accounting that differs from generally accepted accounting principles. See Note 1 to the consolidated financial statements
included in the 2012 Form 10-K for a more detailed discussion of our accounting policies under GAAP.
Three Months Ended June 30, 2013
Compared to Three Months Ended June 30, 2012
Cemetery Segments
Cemetery Operations Southeast
In the third quarter of 2012 we made
four acquisitions in our Cemetery Operations Southeast segment. Therefore, the results of operations for these properties have no impact on the three months ended June 30, 2012, but are included in the three months ended June 30,
2013. These acquisitions are contributing all of the revenue growth in this segment and absent these properties, our revenues for the three months ended June 30, 2013 would have declined approximately 2% compared to the same period last year.
These acquisitions are also contributing approximately one-half of the increase in costs and expenses.
The table below
compares the results of operations for our Cemetery Operations Southeast for the three months ended June 30, 2013 to the same period last year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
Change ($)
|
|
|
Change (%)
|
|
|
|
(in thousands)
|
|
|
|
(non-GAAP)
|
|
|
|
|
|
|
Total revenues
|
|
$
|
33,241
|
|
|
$
|
33,067
|
|
|
$
|
174
|
|
|
|
0.5
|
%
|
Total costs and expenses
|
|
|
25,118
|
|
|
|
23,732
|
|
|
|
1,386
|
|
|
|
5.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
$
|
8,123
|
|
|
$
|
9,335
|
|
|
$
|
(1,212
|
)
|
|
|
-13.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
The increase in revenues was primarily related to an overall increase in the value of contracts written, with increases of $0.3 million in the value of pre-need contracts, $0.7 million in the value of
at-need contracts, and $0.1 million in interest
34
income. This total increase was offset by a decrease of $0.9 million in income from our trusts. Our investment results can vary from period to period based on a number of factors including
realized income and the timing of the recognition of gains within the trusts.
Total costs and expenses
The net increase in costs and expenses was primarily related to:
|
|
|
A $0.4 million increase in cost of goods sold attributable to the corresponding increase in the value of contracts written.
|
|
|
|
A $0.2 million increase in selling expenses primarily attributable to an increase in commission related expenses.
|
|
|
|
A $0.3 million increase in cemetery expenses primarily due to increases of $0.1 million in each of the following: labor costs, repair and maintenance
costs, and utility and fuel costs.
|
|
|
|
A $0.4 million increase in general and administrative expense primarily due to an increase of $0.1 million in insurance costs, with the remaining
increase due to general office costs.
|
|
|
|
A $0.1 million increase in depreciation expense resulting from increases in property and equipment.
|
Cemetery Operations Northeast
The table below compares the results of operations for our Cemetery Operations Northeast for the three months ended June 30, 2013 to the same period last year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
Change ($)
|
|
|
Change (%)
|
|
|
|
(in thousands)
|
|
|
|
(non-GAAP)
|
|
|
|
|
|
|
Total revenues
|
|
$
|
15,478
|
|
|
$
|
16,683
|
|
|
$
|
(1,205
|
)
|
|
|
-7.2
|
%
|
Total costs and expenses
|
|
|
11,819
|
|
|
|
10,866
|
|
|
|
953
|
|
|
|
8.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
$
|
3,659
|
|
|
$
|
5,817
|
|
|
$
|
(2,158
|
)
|
|
|
-37.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
The decrease in revenues was primarily caused by decreases in at-need revenues of $0.7 million and income from our trusts of $1.3 million, partially offset by an increase of $0.9 million in the value of
pre-need contracts written. Our investment results can vary from period to period based on a number of factors including realized income and the timing of the recognition of gains within the trusts.
Total costs and expenses
The increase in costs and expenses was primarily related to:
|
|
A $0.6 million increase in cost of goods sold attributable to the increase in the value of contracts written.
|
|
|
A $0.1 million increase in selling expenses primarily due to increases in advertising costs.
|
|
|
A $0.1 million increase in cemetery expenses primarily attributable to $0.1 million increases in both labor and vehicle costs, partially offset by a
$0.1 million decrease in repair and maintenance costs.
|
|
|
A $0.1 million increase in general and administrative expenses primarily due to a $0.1 million increase in insurance costs.
|
Cemetery Operations West
In the second quarter of 2012 we made one acquisition in our Cemetery Operations West segment. Therefore, the results of operations for the acquired property have less of an impact on the three
months ended June 30, 2012 as compared to the three months ended June 30, 2013, and account for less than one-third of the increases in revenues and costs and expenses.
35
The table below compares the results of operations for our Cemetery Operations West
for the three months ended June 30, 2013 to the same period last year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
Change ($)
|
|
|
Change (%)
|
|
|
|
(in thousands)
|
|
|
|
(non-GAAP)
|
|
|
|
|
|
|
Total revenues
|
|
$
|
18,895
|
|
|
$
|
17,665
|
|
|
$
|
1,230
|
|
|
|
7.0
|
%
|
Total costs and expenses
|
|
|
12,892
|
|
|
|
11,779
|
|
|
|
1,113
|
|
|
|
9.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
$
|
6,003
|
|
|
$
|
5,886
|
|
|
$
|
117
|
|
|
|
2.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
The increase in revenues was primarily related to an overall increase in the value of contracts written, with an increase of $1.9 million in the value of pre-need contracts and $0.2 million in the value
of at-need contracts, offset by a decrease of $1.0 million in income from our trusts. Our investment results can vary from period to period based on a number of factors including realized income and the timing of the recognition of gains within the
trusts.
Total costs and expenses
The increase in costs and expenses was primarily related to:
|
|
A $0.3 million increase in cost of goods sold attributable to the corresponding increase in the value of contracts written.
|
|
|
A $0.3 million increase in selling expense primarily attributable to an increase in commission and labor related expenses.
|
|
|
A $0.3 million increase in cemetery expenses primarily due to $0.2 million and $0.1 million increases in real estate taxes and repairs and maintenance
costs, respectively.
|
|
|
A $0.2 million increase in general and administrative expenses primarily due to increases in insurance and other general office costs.
|
Funeral Home Segment
In 2012 and 2013 we acquired twenty three funeral homes. Of these acquisitions, 2 occurred during the second quarter of 2012, 14 occurred during the third quarter of 2012, 1 occurred during the fourth
quarter of 2012 and 6 occurred during the first quarter of 2013. Therefore, the results of operations for these properties have a lesser or no impact on the three months ended June 30, 2012, but are included in the three months ended
June 30, 2013. These additions are primarily responsible for the increase to revenues and costs and expenses for this segment.
36
The table below compares the results of operations for our Funeral Home segment for the
three months ended June 30, 2013 to the same period last year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
Change ($)
|
|
|
Change (%)
|
|
|
|
(in thousands)
|
|
|
|
(non-GAAP)
|
|
|
|
|
|
|
Total revenues
|
|
$
|
11,983
|
|
|
$
|
8,189
|
|
|
$
|
3,794
|
|
|
|
46.3
|
%
|
Total costs and expenses
|
|
|
10,247
|
|
|
|
7,206
|
|
|
|
3,041
|
|
|
|
42.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
$
|
1,736
|
|
|
$
|
983
|
|
|
$
|
753
|
|
|
|
76.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
The increase in revenues was primarily attributable to a $2.0 million increase in pre-need revenues, a $1.4 million increase in at-need revenues and a $0.4 million increase in other revenues.
Total costs and expenses
The increase in costs and expenses was primarily attributable to increases of $1.5 million in personnel expenses, $0.6 million in merchandise costs, $0.1 million in advertising, $0.3 million in facility
related costs and $0.2 million in depreciation expense, with the remainder attributable to various increases in general and administrative and other expense categories.
Corporate Segment
The table below compares expenses incurred by the
Corporate segment for the three months ended June 30, 2013 to the same period last year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
Change ($)
|
|
|
Change (%)
|
|
|
|
(in thousands)
|
|
|
|
(non-GAAP)
|
|
|
|
|
|
|
Selling, cemetery and general and administrative expenses
|
|
$
|
461
|
|
|
$
|
431
|
|
|
$
|
30
|
|
|
|
7.0
|
%
|
Depreciation and amortization
|
|
|
360
|
|
|
|
440
|
|
|
|
(80
|
)
|
|
|
-18.2
|
%
|
Acquisition related costs, net of recoveries
|
|
|
(625
|
)
|
|
|
782
|
|
|
|
(1,407
|
)
|
|
|
-179.9
|
%
|
|
|
|
|
|
Corporate expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate personnel expenses
|
|
|
3,150
|
|
|
|
3,049
|
|
|
|
101
|
|
|
|
3.3
|
%
|
Other corporate expenses
|
|
|
2,522
|
|
|
|
4,707
|
|
|
|
(2,185
|
)
|
|
|
-46.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total corporate overhead
|
|
|
5,672
|
|
|
|
7,756
|
|
|
|
(2,084
|
)
|
|
|
-26.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total corporate expenses
|
|
$
|
5,868
|
|
|
$
|
9,409
|
|
|
$
|
(3,541
|
)
|
|
|
-37.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition related costs will vary from period to period depending on the amount of acquisition activity
that takes place. The decrease is primarily driven by a $1.3 million recovery of acquisition costs from a legal settlement received during the period. The decrease in total corporate overhead was primarily attributable to a decrease in professional
fees including a recovery of legal fees of $1.7 million from a legal settlement.
Reconciliation of Segment Results of Operations to
Consolidated Results of Operations
As discussed in the segment sections of this Managements Discussion and
Analysis of Financial Condition and Results of Operations, cemetery revenues and their associated costs as reported at the segment level are not deferred until such time that we satisfy the delivery criteria for revenue recognition.
37
Periodic consolidated revenues recorded in accordance with GAAP reflect the amount of total
merchandise and services which were delivered during the period. Accordingly, period over period changes to revenues can be impacted by:
|
|
Changes in the value of contracts written and other revenues generated during a period that are delivered in their period of origin and are recognized
as revenue and not deferred as of the end of their period of origination.
|
|
|
Changes in merchandise and services that are delivered during a period that had been originated during a prior period.
|
The table below analyzes results of operations and the changes therein for the three months ended June 30, 2013 as compared to the
same period last year. The table is structured so that our readers can determine whether changes were based upon changes in the level of merchandise and services and other revenues generated during each period and/ or changes in the timing of when
merchandise and services were delivered:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
Three months ended
|
|
|
|
|
|
|
|
|
|
June 30, 2013
|
|
|
June 30, 2012
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
Segment
|
|
|
|
|
|
|
|
|
Segment
|
|
|
|
|
|
|
|
|
Change in
|
|
|
Change in
|
|
|
|
Results
|
|
|
GAAP
|
|
|
GAAP
|
|
|
Results
|
|
|
GAAP
|
|
|
GAAP
|
|
|
GAAP results
|
|
|
GAAP results
|
|
|
|
(non-GAAP)
|
|
|
Adjustments
|
|
|
Results
|
|
|
(non-GAAP)
|
|
|
Adjustments
|
|
|
Results
|
|
|
($)
|
|
|
(%)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-need cemetery revenues
|
|
$
|
36,796
|
|
|
$
|
(12,961
|
)
|
|
$
|
23,835
|
|
|
$
|
33,773
|
|
|
$
|
(8,631
|
)
|
|
$
|
25,142
|
|
|
$
|
(1,307
|
)
|
|
|
-5.2
|
%
|
At-need cemetery revenues
|
|
|
20,595
|
|
|
|
(1,570
|
)
|
|
|
19,025
|
|
|
|
20,428
|
|
|
|
(850
|
)
|
|
|
19,578
|
|
|
|
(553
|
)
|
|
|
-2.8
|
%
|
Investment income from trusts
|
|
|
7,403
|
|
|
|
(1,405
|
)
|
|
|
5,998
|
|
|
|
10,542
|
|
|
|
(4,526
|
)
|
|
|
6,016
|
|
|
|
(18
|
)
|
|
|
-0.3
|
%
|
Interest income
|
|
|
1,860
|
|
|
|
|
|
|
|
1,860
|
|
|
|
1,799
|
|
|
|
|
|
|
|
1,799
|
|
|
|
61
|
|
|
|
3.4
|
%
|
Funeral home revenues
|
|
|
11,983
|
|
|
|
(1,307
|
)
|
|
|
10,676
|
|
|
|
8,189
|
|
|
|
(334
|
)
|
|
|
7,855
|
|
|
|
2,821
|
|
|
|
35.9
|
%
|
Other cemetery revenues
|
|
|
960
|
|
|
|
68
|
|
|
|
1,028
|
|
|
|
873
|
|
|
|
245
|
|
|
|
1,118
|
|
|
|
(90
|
)
|
|
|
-8.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
79,597
|
|
|
|
(17,175
|
)
|
|
|
62,422
|
|
|
|
75,604
|
|
|
|
(14,096
|
)
|
|
|
61,508
|
|
|
|
914
|
|
|
|
1.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
10,145
|
|
|
|
(2,433
|
)
|
|
|
7,712
|
|
|
|
8,788
|
|
|
|
(1,552
|
)
|
|
|
7,236
|
|
|
|
476
|
|
|
|
6.6
|
%
|
Cemetery expense
|
|
|
15,408
|
|
|
|
|
|
|
|
15,408
|
|
|
|
14,775
|
|
|
|
|
|
|
|
14,775
|
|
|
|
633
|
|
|
|
4.3
|
%
|
Selling expense
|
|
|
15,497
|
|
|
|
(3,279
|
)
|
|
|
12,218
|
|
|
|
14,778
|
|
|
|
(1,655
|
)
|
|
|
13,123
|
|
|
|
(905
|
)
|
|
|
-6.9
|
%
|
General and administrative expense
|
|
|
7,898
|
|
|
|
|
|
|
|
7,898
|
|
|
|
7,195
|
|
|
|
|
|
|
|
7,195
|
|
|
|
703
|
|
|
|
9.8
|
%
|
Corporate overhead
|
|
|
5,672
|
|
|
|
|
|
|
|
5,672
|
|
|
|
7,756
|
|
|
|
|
|
|
|
7,756
|
|
|
|
(2,084
|
)
|
|
|
-26.9
|
%
|
Depreciation and amortization
|
|
|
2,451
|
|
|
|
|
|
|
|
2,451
|
|
|
|
2,230
|
|
|
|
|
|
|
|
2,230
|
|
|
|
221
|
|
|
|
9.9
|
%
|
Funeral home expense
|
|
|
9,498
|
|
|
|
(134
|
)
|
|
|
9,364
|
|
|
|
6,688
|
|
|
|
(73
|
)
|
|
|
6,615
|
|
|
|
2,749
|
|
|
|
41.6
|
%
|
Acquisition related costs, net of recoveries
|
|
|
(625
|
)
|
|
|
|
|
|
|
(625
|
)
|
|
|
782
|
|
|
|
|
|
|
|
782
|
|
|
|
(1,407
|
)
|
|
|
-179.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
65,944
|
|
|
|
(5,846
|
)
|
|
|
60,098
|
|
|
|
62,992
|
|
|
|
(3,280
|
)
|
|
|
59,712
|
|
|
|
386
|
|
|
|
0.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
$
|
13,653
|
|
|
$
|
(11,329
|
)
|
|
$
|
2,324
|
|
|
$
|
12,612
|
|
|
$
|
(10,816
|
)
|
|
$
|
1,796
|
|
|
$
|
528
|
|
|
|
29.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
Pre-need cemetery revenues were $23.8 million for the three months ended June 30, 2013, a decrease of $1.3 million, or 5.2%, as compared to $25.1 million during the same period last year. The
decrease was primarily caused by an increase of $4.3 million in deferred revenue, which was offset by an increase of $3.0 million in the value of cemetery contracts written.
At-need cemetery revenues were $19.0 million for the three months ended June 30, 2013, a decrease of $0.6 million, or 2.8%, as compared to $19.6 million during the same period last year. The decrease
was primarily caused by an increase of $0.7 million in deferred revenue, which was offset by an increase of $0.1 million in the value of cemetery contracts written.
Investment income from trusts was $6.0 million for the three months ended June 30, 2013 and 2012. On a segment basis, we had a decrease of $3.1 million related to a decrease in realized gains on our
investments, which was offset by $3.1 million related to funds on which we met the requirements to allow us to recognize them as revenue.
Interest income on accounts receivable was $1.9 million for the three months ended June 30, 2013, an increase of $0.1 million, or 3.4%, as compared to $1.8 million during the same period last year.
Revenues for the Funeral Home segment were $10.7 million for the three months ended June 30, 2013, an increase of $2.8
million, or 35.9%, as compared to $7.9 million during the same period last year. The increase was primarily caused by an increase of $3.8 million in the value of contracts written which was offset by an increase of $1.0 million in deferred revenue.
The increase in the value of contracts written was primarily attributable to our acquisition of twenty one funeral homes subsequent to the second quarter of 2012.
Other cemetery revenues were $1.0 million for the three months ended June 30, 2013, a decrease of $0.1 million, or 8.1%, as compared to $1.1 million during the same period last year.
38
Costs and Expenses
Cost of goods sold were $7.7 million for the three months ended June 30, 2013, an increase of $0.5 million, or 6.6%, as compared to $7.2 million during the same period last year. The ratio of cost of
goods sold to pre-need and at-need cemetery revenues was 18.0% during the three months ended June 30, 2013 as compared to 16.2% during the same period last year. The change in the ratio primarily relates to changes in product mix.
Cemetery expenses were $15.4 million during the three months ended June 30, 2013, an increase of $0.6 million, or 4.3%, compared to
$14.8 million during the same period last year. Within this category, there were increases of $0.1 million in labor costs, $0.1 million in repair and maintenance, $0.2 million in real estate taxes and $0.2 million in utility costs. Cemetery expenses
relate to the current costs of managing and maintaining our cemetery properties. These costs are expensed as incurred and are not deferred. Accordingly, from a margin standpoint, the most effective gauge of measuring cemetery expenses is as a ratio
of segment level pre-need and at-need cemetery revenues. Changes in this ratio give an indication of our ability to manage and control our operating costs relative to our overall cemetery operations. An increase in the ratio indicates that expense
increases related to the operation and maintenance of our cemetery properties exceeded increases in the value of contracts written, while a decrease in the ratio indicates that expense growth did not exceed increases in the value of contracts
written. In the short-term, this ratio can be positively or negatively impacted by our acquisitions, including such factors as how long it takes us to fully implement our pre-need sales programs and whether there are any unanticipated costs. Over
the long-term, we would expect this ratio to slightly decline as many of the expenses in this category are fixed in nature. The ratio of cemetery expenses to segment level pre-need and at-need cemetery revenues was 26.8% during the three months
ended June 30, 2013 as compared to 27.3% during the same period last year.
Selling expenses were $12.2 million during
the three months ended June 30, 2013, a decrease of $0.9 million, or 6.9%, as compared to $13.1 million during the same period last year. The expense decrease was caused by an increase of $1.6 million in deferred selling expenses, offset by
increases of $0.4 million in commission related expenses and $0.1 million in travel expenses, with the remaining increases in other general selling expenses. The ratio of selling expenses to cemetery revenues was 28.5% during the three months ended
June 30, 2013 as compared to 29.3% during the same period last year. This ratio gives some indication of how effectively the money we invest in selling efforts is translating into sales. However, the majority of our selling expenses are
directly related to sales commissions and bonuses, which would be directly related to changes in the value of pre-need and at-need contracts written. As a result, we would expect this ratio to remain fairly consistent.
General and administrative expenses were $7.9 million during the three months ended June 30, 2013, an increase of $0.7 million, or
9.8%, compared to $7.2 million during the same period last year. The majority of the increase was due to increases of $0.3 million in insurance and $0.3 million in labor costs. General and administrative expenses are expensed as incurred and are not
deferred. Accordingly, from a margin standpoint, the most effective gauge of measuring general and administrative expenses is as a ratio of segment level pre-need and at-need cemetery revenues. Changes in this ratio give an indication of our ability
to manage and control our general and administrative costs relative to our overall cemetery operations. An increase in the ratio indicates that general and administrative percentage expense increases related to our cemetery properties exceeded
percent increases in the value of contracts written, while a decrease in the ratio indicates that expense growth on a percentage basis did not exceed percentage increases in the value of contracts written. In the short-term, this ratio can be
positively or negatively impacted by our acquisitions, including such factors as how long it takes us to fully implement our pre-need sales programs and whether there are any unanticipated costs. Over the long-term, we would expect this ratio to
slightly decrease as many of the expenses in this category are fixed in nature. The ratio of general and administrative expenses to segment level pre-need and at-need cemetery revenues was 13.8% during the three months ended June 30, 2013
as compared to 13.3% during the same period last year.
Total corporate overhead was $5.7 million for the three months ended
June 30, 2013, a decrease of $2.1 million, or 26.9% compared to $7.8 million during the same period last year. The decrease was primarily attributable to a decrease in professional fees primarily related to a recovery of legal fees of $1.7
million from a legal settlement.
Depreciation and amortization was $2.5 million during the three months ended June 30,
2013, an increase of $0.3 million, or 9.9%, as compared to $2.2 million during the same period last year. The increase was primarily due to additional depreciation and amortization from our recent acquisitions.
Funeral home expenses were $9.4 million for the three months ended June 30, 2013, an increase of $2.8 million, or 41.6%, compared to
$6.6 million during the same period last year. The increase was primarily driven by our most recent acquisitions and was mostly attributable to segment level increases of $1.5 million in personnel expenses, $0.6 million in merchandise costs, $0.1
million in advertising, and $0.3 million in facility related costs, with the remainder attributable to various increases in general and administrative and other expense categories.
Due to a legal settlement during the period, acquisition related costs resulted in a net recovery of $0.6 million for the three months
ended June 30, 2013, a decrease of $1.4 million, or 179.9%, as compared to an expense of $0.8 million during the same period last year. These costs will vary from period to period depending on the amount of acquisition activity that takes
place.
39
Non-segment Allocated Results
Certain income statement amounts are not allocated to segment operations. These amounts are those line items that can be found on our
income statement below operating profit and above net loss.
The table below summarizes these items and the changes between
the three months ended June 30, 2013 and 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
Change ($)
|
|
|
Change (%)
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
Gain (loss) on termination of operating agreement
|
|
$
|
|
|
|
$
|
(83
|
)
|
|
$
|
83
|
|
|
|
-100.0
|
%
|
Gain on settlement agreement, net
|
|
|
11,349
|
|
|
|
|
|
|
|
11,349
|
|
|
|
100.0
|
%
|
Gain on acquisition
|
|
|
|
|
|
|
122
|
|
|
|
(122
|
)
|
|
|
-100.0
|
%
|
Loss on early extinguishment of debt
|
|
|
21,595
|
|
|
|
|
|
|
|
21,595
|
|
|
|
100.0
|
%
|
Gain on sale of other assets
|
|
|
155
|
|
|
|
|
|
|
|
155
|
|
|
|
100.0
|
%
|
Interest expense
|
|
|
5,132
|
|
|
|
4,870
|
|
|
|
262
|
|
|
|
5.4
|
%
|
Income tax benefit
|
|
$
|
(1,090
|
)
|
|
$
|
(866
|
)
|
|
$
|
(224
|
)
|
|
|
25.9
|
%
|
During the three months ended June 30, 2012, as new information became available, we recorded an
adjustment to reduce the gain previously recognized on the termination of an operating agreement that occurred in the first quarter of 2012. Refer to Note 13 of our unaudited condensed consolidated financial statements in Item 1 of Form 10-Q
for a more detailed discussion.
During the second quarter of 2013 certain proceeds received from a legal settlement were
recorded as a gain on settlement agreement on the unaudited condensed consolidated statement of operations, resulting in a total gain on settlement of $11.3 million.
The gain on acquisition recorded during the three months ended June 30, 2012 relates to one of our second quarter 2012 acquisitions.
The early extinguishment of debt charge of $21.6 million relates to the tender premium of $14.9 million we paid in connection with the
early repayment of $150.0 million of our 10.25% Senior Notes due 2017 and the write-off of $6.7 million of unamortized fees and discounts related to those notes.
Interest expense has increased during the three months ended June 30, 2013 as compared to the same period last year. This increase is primarily caused by increased borrowings on our Credit Facility.
Average amounts outstanding under our Credit Facility were $86.3 million and $61.5 million during the three months ended June 30, 2013 and 2012, respectively.
We had an income tax benefit of $1.1 million for the three months ended June 30, 2013, as compared to 0.9 million during the same period last year. Our effective tax rate differs from our
statutory tax rate primarily because our legal entity structure includes different tax filing entities, including a significant number of partnerships that are not subject to paying tax.
Six Months Ended June 30, 2013 Compared to Six Months Ended June 30, 2012
Cemetery Operations Southeast
In the third quarter of 2012 we made four acquisitions in our Cemetery Operations Southeast segment. Therefore, the results of operations for these properties have no impact on the six months ended
June 30, 2012, but are included in the six months ended June 30, 2013. These additions are contributing approximately two-thirds of the increases in revenues and costs and expenses for this segment.
40
The table below compares the results of operations for our Cemetery Operations
Southeast for the six months ended June 30, 2013 to the same period last year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
Change ($)
|
|
|
Change (%)
|
|
|
|
(in thousands)
|
|
|
|
(non-GAAP)
|
|
|
|
|
|
|
Total revenues
|
|
$
|
66,217
|
|
|
$
|
63,475
|
|
|
$
|
2,742
|
|
|
|
4.3
|
%
|
Total costs and expenses
|
|
|
47,191
|
|
|
|
44,912
|
|
|
|
2,279
|
|
|
|
5.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
$
|
19,026
|
|
|
$
|
18,563
|
|
|
$
|
463
|
|
|
|
2.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
The increase in revenues was related to an overall increase in the value of contracts written, with increases of $1.3 million in the value of at-need contracts and $1.0 million in the value of pre-need
contracts. We also had an increase of $0.3 million in income from our trusts.
Total costs and expenses
The increase in costs and expenses was primarily related to:
|
|
|
A $0.5 million increase in cost of goods sold attributable to the corresponding increase in the value of contracts written.
|
|
|
|
A $0.4 million increase in selling expenses primarily attributable to increases in commission related expenses.
|
|
|
|
A $0.5 million increase in cemetery expenses primarily due to increases of $0.2 million in both labor costs and repair and maintenance costs and an
increase of $0.1 million in utility and fuel costs.
|
|
|
|
An $0.8 million increase in general and administrative expense due to increases of $0.2 million in personnel expenses, $0.1 million in professional
fees and $0.1 million in insurance, with the remaining increase due to general office costs.
|
|
|
|
A $0.1 million increase in depreciation expense resulting from increases in property and equipment.
|
Cemetery Operations Northeast
The table below compares the results of operations for our Cemetery Operations Northeast for the six months ended June 30, 2013 to the same period last year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
Change ($)
|
|
|
Change (%)
|
|
|
|
(in thousands)
|
|
|
|
(non-GAAP)
|
|
|
|
|
|
|
Total revenues
|
|
$
|
31,006
|
|
|
$
|
31,716
|
|
|
$
|
(710
|
)
|
|
|
-2.2
|
%
|
Total costs and expenses
|
|
|
21,884
|
|
|
|
20,491
|
|
|
|
1,393
|
|
|
|
6.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
$
|
9,122
|
|
|
$
|
11,225
|
|
|
$
|
(2,103
|
)
|
|
|
-18.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
The decrease in revenues can be disaggregated into an increase of $1.4 million in the value of pre-need contracts, offset wholly by decreases of $0.5 million in the value of at-need contracts written,
$1.5 million in income from our trusts and $0.1 million of interest income. Our investment results can vary from period to period based on a number of factors including realized income and the timing of the recognition of gains within the trusts.
Total costs and expenses
The increase in costs and expenses was primarily related to:
|
|
An $0.8 million increase in cost of goods sold attributable to the increase in the value of contracts written.
|
|
|
A $0.1 million increase in selling expenses primarily due to increases in advertising costs.
|
|
|
A $0.2 million increase in cemetery expenses primarily attributable to increases in labor costs.
|
|
|
A $0.2 million increase in general and administrative expenses primarily due to $0.1 million increases in both insurance costs and personnel costs.
|
41
Cemetery Operations West
Effective March 31, 2012, we terminated our operating agreement with the Archdiocese of Detroit. Therefore, the results of operations
for these properties are only included in the six months ended June 30, 2012 up to that point and have no impact on the six months ended June 30, 2013. The removal of these properties from our results of operations resulted in a $1.8
million decrease in revenues and a $1.6 million decrease in costs and expenses period over period.
Further, in the second
quarter of 2012 we made one acquisition in our Cemetery Operations West segment. Therefore, the results of operations for the acquired property have less of an impact on the six months ended June 30, 2012 as compared to the six months
ended June 30, 2013, accounting for approximately one-third of the increase in revenues and slightly more than the entire increase in costs and expenses.
The table below compares the results of operations for our Cemetery Operations West for the six months ended June 30, 2013 to the same period last year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
Change ($)
|
|
|
Change (%)
|
|
|
|
(in thousands)
|
|
|
|
(non-GAAP)
|
|
|
|
|
|
|
Total revenues
|
|
$
|
37,785
|
|
|
$
|
35,218
|
|
|
$
|
2,567
|
|
|
|
7.3
|
%
|
Total costs and expenses
|
|
|
23,627
|
|
|
|
23,284
|
|
|
|
343
|
|
|
|
1.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
$
|
14,158
|
|
|
$
|
11,934
|
|
|
$
|
2,224
|
|
|
|
18.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
The increase in revenues was driven by additional revenue from the aforementioned acquisition and an increase in the value of contracts written, offset partially by the aforementioned contract
termination. There was an increase of $1.7 million in the value of pre-need contracts written and an increase of $1.2 million in income from our trusts, offset by a decrease of $0.3 million in the value of at-need contracts written. Our investment
results can vary from period to period based on a number of factors including realized income and the timing of the recognition of gains within the trusts.
Total costs and expenses
The increase in costs and expenses was
primarily related to:
|
|
A $0.2 million increase in cost of goods sold attributable to the corresponding increase in the value of contracts written.
|
|
|
A $0.1 million increase in selling expenses primarily due to increases in commission and personnel related costs.
|
|
|
A $0.1 million decrease in cemetery expenses primarily due to a decrease of $0.6 million in labor costs, offset by an increase of $0.3 million in
repairs and maintenance and an increase of $0.2 in real estate tax costs.
|
|
|
A $0.2 million increase in general and administrative expenses primarily due to an increase in general office costs.
|
|
|
A $0.1 million decrease in depreciation.
|
Funeral Home Segment
In 2012 and 2013 we acquired twenty three
funeral homes. Of these acquisitions, 2 occurred during the second quarter of 2012, 14 occurred during the third quarter of 2012, 1 occurred during the fourth quarter of 2012 and 6 occurred during the first quarter of 2013. Therefore, the results of
operations for these properties have a lesser or no impact on the six months ended June 30, 2012, but are included in the six months ended June 30, 2013. These additions are primarily responsible for the increase to revenues and costs and
expenses for this segment.
42
The table below compares the results of operations for our Funeral Home segment for the six
months ended June 30, 2013 to the same period last year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
Change ($)
|
|
|
Change (%)
|
|
|
|
(in thousands)
|
|
|
|
(non-GAAP)
|
|
|
|
|
|
|
Total revenues
|
|
$
|
24,810
|
|
|
$
|
17,462
|
|
|
$
|
7,348
|
|
|
|
42.1
|
%
|
Total costs and expenses
|
|
|
19,830
|
|
|
|
14,625
|
|
|
|
5,205
|
|
|
|
35.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
$
|
4,980
|
|
|
$
|
2,837
|
|
|
$
|
2,143
|
|
|
|
75.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
The increase in revenues was primarily attributable to a $2.7 million increase in at-need revenues, a $4.0 million increase in pre-need revenues and a $0.6 million increase in other revenues.
Total costs and expenses
The increase in costs and expenses was primarily attributable to increases of $2.6 million in personnel expenses, $0.5 million in facility costs, $0.8 million in merchandise costs, $0.4 million in
advertising and $0.3 million in depreciation, with the remainder attributable to increases in other general expense categories.
Corporate Segment
The table below compares expenses incurred by the Corporate segment for the six months ended June 30, 2013 to the same period last
year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
Change ($)
|
|
|
Change (%)
|
|
|
|
(in thousands)
|
|
|
|
(non-GAAP)
|
|
|
|
|
|
|
Selling, cemetery and general and administrative expenses
|
|
$
|
833
|
|
|
$
|
899
|
|
|
$
|
(66
|
)
|
|
|
-7.3
|
%
|
Depreciation and amortization
|
|
|
740
|
|
|
|
822
|
|
|
|
(82
|
)
|
|
|
-10.0
|
%
|
Acquisition related costs, net of recoveries
|
|
|
658
|
|
|
|
1,113
|
|
|
|
(455
|
)
|
|
|
-40.9
|
%
|
|
|
|
|
|
Corporate expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate personnel expenses
|
|
|
7,454
|
|
|
|
6,197
|
|
|
|
1,257
|
|
|
|
20.3
|
%
|
Other corporate expenses
|
|
|
6,206
|
|
|
|
8,162
|
|
|
|
(1,956
|
)
|
|
|
-24.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total corporate overhead
|
|
|
13,660
|
|
|
|
14,359
|
|
|
|
(699
|
)
|
|
|
-4.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total corporate expenses
|
|
$
|
15,891
|
|
|
$
|
17,193
|
|
|
$
|
(1,302
|
)
|
|
|
-7.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition related costs will vary from period to period depending on the amount of acquisition activity
that takes place. The decrease in total corporate overhead was primarily attributable to a decrease in professional fees primarily related to a recovery of legal fees of $1.7 million from a legal settlement and a decrease in advertising costs of
$0.3 million, offset by a $1.3 million increase in personnel expenses.
Reconciliation of Segment Results of Operations to Consolidated
Results of Operations
As discussed in the segment sections of this Managements Discussion and Analysis of
Financial Condition and Results of Operations, cemetery revenues and their associated costs as reported at the segment level are not deferred until such time that we satisfy the delivery criteria for revenue recognition.
43
The table below analyzes results of operations and the changes therein for the six months
ended June 30, 2013 as compared to the same period last year. The table is structured so that our readers can determine whether changes were based upon changes in the level of merchandise and services and other revenues generated during each
period and/ or changes in the timing of when merchandise and services were delivered:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
|
Six months ended
|
|
|
|
|
|
|
|
|
|
June 30, 2013
|
|
|
June 30, 2012
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
Segment
|
|
|
|
|
|
|
|
|
Segment
|
|
|
|
|
|
|
|
|
Change in
|
|
|
Change in
|
|
|
|
Results
|
|
|
GAAP
|
|
|
GAAP
|
|
|
Results
|
|
|
GAAP
|
|
|
GAAP
|
|
|
GAAP results
|
|
|
GAAP results
|
|
|
|
(non-GAAP)
|
|
|
Adjustments
|
|
|
Results
|
|
|
(non-GAAP)
|
|
|
Adjustments
|
|
|
Results
|
|
|
($)
|
|
|
(%)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-need cemetery revenues
|
|
$
|
67,739
|
|
|
$
|
(22,390
|
)
|
|
$
|
45,349
|
|
|
$
|
63,615
|
|
|
$
|
(15,726
|
)
|
|
$
|
47,889
|
|
|
$
|
(2,540
|
)
|
|
|
-5.3
|
%
|
At-need cemetery revenues
|
|
|
41,337
|
|
|
|
(2,934
|
)
|
|
|
38,403
|
|
|
|
40,860
|
|
|
|
(1,978
|
)
|
|
|
38,882
|
|
|
|
(479
|
)
|
|
|
-1.2
|
%
|
Investment income from trusts
|
|
|
20,505
|
|
|
|
(9,878
|
)
|
|
|
10,627
|
|
|
|
20,405
|
|
|
|
(8,909
|
)
|
|
|
11,496
|
|
|
|
(869
|
)
|
|
|
-7.6
|
%
|
Interest income
|
|
|
3,725
|
|
|
|
|
|
|
|
3,725
|
|
|
|
3,737
|
|
|
|
|
|
|
|
3,737
|
|
|
|
(12
|
)
|
|
|
-0.3
|
%
|
Funeral home revenues
|
|
|
24,810
|
|
|
|
(2,716
|
)
|
|
|
22,094
|
|
|
|
17,462
|
|
|
|
(670
|
)
|
|
|
16,792
|
|
|
|
5,302
|
|
|
|
31.6
|
%
|
Other cemetery revenues
|
|
|
1,702
|
|
|
|
134
|
|
|
|
1,836
|
|
|
|
1,792
|
|
|
|
507
|
|
|
|
2,299
|
|
|
|
(463
|
)
|
|
|
-20.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
159,818
|
|
|
|
(37,784
|
)
|
|
|
122,034
|
|
|
|
147,871
|
|
|
|
(26,776
|
)
|
|
|
121,095
|
|
|
|
939
|
|
|
|
0.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
17,898
|
|
|
|
(3,896
|
)
|
|
|
14,002
|
|
|
|
16,419
|
|
|
|
(2,763
|
)
|
|
|
13,656
|
|
|
|
346
|
|
|
|
2.5
|
%
|
Cemetery expense
|
|
|
28,193
|
|
|
|
|
|
|
|
28,193
|
|
|
|
27,567
|
|
|
|
|
|
|
|
27,567
|
|
|
|
626
|
|
|
|
2.3
|
%
|
Selling expense
|
|
|
29,332
|
|
|
|
(5,890
|
)
|
|
|
23,442
|
|
|
|
28,612
|
|
|
|
(3,702
|
)
|
|
|
24,910
|
|
|
|
(1,468
|
)
|
|
|
-5.9
|
%
|
General and administrative expense
|
|
|
15,480
|
|
|
|
|
|
|
|
15,480
|
|
|
|
14,388
|
|
|
|
|
|
|
|
14,388
|
|
|
|
1,092
|
|
|
|
7.6
|
%
|
Corporate overhead
|
|
|
13,660
|
|
|
|
|
|
|
|
13,660
|
|
|
|
14,359
|
|
|
|
|
|
|
|
14,359
|
|
|
|
(699
|
)
|
|
|
-4.9
|
%
|
Depreciation and amortization
|
|
|
4,781
|
|
|
|
|
|
|
|
4,781
|
|
|
|
4,560
|
|
|
|
|
|
|
|
4,560
|
|
|
|
221
|
|
|
|
4.8
|
%
|
Funeral home expense
|
|
|
18,421
|
|
|
|
(321
|
)
|
|
|
18,100
|
|
|
|
13,487
|
|
|
|
(116
|
)
|
|
|
13,371
|
|
|
|
4,729
|
|
|
|
35.4
|
%
|
Acquisition related costs, net of recoveries
|
|
|
658
|
|
|
|
|
|
|
|
658
|
|
|
|
1,113
|
|
|
|
|
|
|
|
1,113
|
|
|
|
(455
|
)
|
|
|
-40.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
128,423
|
|
|
|
(10,107
|
)
|
|
|
118,316
|
|
|
|
120,505
|
|
|
|
(6,581
|
)
|
|
|
113,924
|
|
|
|
4,392
|
|
|
|
3.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
$
|
31,395
|
|
|
$
|
(27,677
|
)
|
|
$
|
3,718
|
|
|
$
|
27,366
|
|
|
$
|
(20,195
|
)
|
|
$
|
7,171
|
|
|
$
|
(3,453
|
)
|
|
|
-48.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
Pre-need cemetery revenues were $45.3 million for the six months ended June 30, 2013, a decrease of $2.6 million, or 5.3%, as compared to $47.9 million during the same period last year. The decrease
was primarily caused by an increase of $6.7 million in deferred revenue, which was offset by an increase of $4.1 million in the value of cemetery contracts written.
At-need cemetery revenues were $38.4 million for the six months ended June 30, 2013, a decrease of $0.5 million, or 1.2%, as compared to $38.9 million during the same period last year. The decrease
was primarily caused by an increase of $1.0 million in deferred revenue, which was offset by an increase of $0.5 million in the value of cemetery contracts written.
Investment income from trusts was $10.6 million for the six months ended June 30, 2013, a decrease of $0.9 million, or 7.6%, as compared to $11.5 million during the same period last year. On a
segment basis, we had an increase of $0.1 million, which was offset by an adjustment of $1.0 million related to funds for which we have not met the requirements that would allow us to recognize them as revenue.
Interest income on accounts receivable was $3.7 million for the six months ended June 30, 2013 and 2012.
Revenues for the Funeral Home segment were $22.1 million for the six months ended June 30, 2013, an increase of $5.3 million, or
31.6%, compared to $16.8 million during the same period last year. The increase was driven by the 23 funeral homes we acquired in 2012 and 2013.
Other cemetery revenues were $1.8 million for the six months ended June 30, 2013, as compared to $2.3 million during the same period last year.
Costs and Expenses
Cost of goods sold were $14.0 million for the six months ended June 30, 2013, an increase of $0.3 million, or 2.5%, as compared to
$13.7 million during the same period last year. The ratio of cost of goods sold to pre-need and at-need cemetery revenues was 16.7% during the six months ended June 30, 2013 as compared to 15.7% during the same period last year. The change in
the ratio primarily relates to changes in product mix.
Cemetery expenses were $28.2 million during the six months ended
June 30, 2013, an increase of $0.6 million, or 2.3%, compared to $27.6 million during the same period last year. Within this category, there were increases of $0.4 million in repair and maintenance, $0.2 million in real estate taxes, and $0.1
million in utility costs offset by a decrease of $0.2 million in labor costs, with the remaining increase in general cemetery overhead costs. Cemetery expenses relate to the current costs of managing and maintaining our cemetery properties. These
costs are expensed as incurred and are not deferred. Accordingly, from a margin standpoint, the most effective gauge of measuring cemetery expenses is as a ratio of segment
44
level pre-need and at-need cemetery revenues. Changes in this ratio give an indication of our ability to manage and control our operating costs relative to our overall cemetery operations. An
increase in the ratio indicates that expense increases related to the operation and maintenance of our cemetery properties exceeded increases in the value of contracts written, while a decrease in the ratio indicates that expense growth did not
exceed increases in the value of contracts written. In the short-term, this ratio can be positively or negatively impacted by our acquisitions, including such factors as how long it takes us to fully implement our pre-need sales programs and whether
there are any unanticipated costs. Over the long-term, we would expect this ratio to slightly decline as many of the expenses in this category are fixed in nature. The ratio of cemetery expenses to segment level pre-need and at-need cemetery
revenues was 25.8% during the six months ended June 30, 2013 as compared to 26.4% during the same period last year.
Selling expenses were $23.4 million during the six months ended June 30, 2013, a decrease of $1.5 million, or 5.9%, as compared to
$24.9 million during the same period last year. The overall expense decrease was caused by an increase in deferred selling expenses of $2.2 million, offset by increases of $0.4 million in commission related expenses and $0.2 million in travel
expenses, with the remaining increases in other general selling expenses. The ratio of selling expenses to cemetery revenues was 28.0% during the six months ended June 30, 2013 as compared to 28.7% during the same period last year. This ratio
gives some indication of how effectively the money we invest in selling efforts is translating into sales. However, the majority of our selling expenses are directly related to sales commissions and bonuses, which would be directly related to
changes in the value of pre-need and at-need contracts written. As a result, we would expect this ratio to remain fairly consistent.
General and administrative expenses were $15.5 million during the six months ended June 30, 2013, an increase of $1.1 million, or 7.6%, compared to $14.4 million during the same period last year. The
majority of the increase was due to increases of $0.3 million in both labor costs and insurance costs, and $0.1 million in professional fees, with the remaining due to general office costs. General and administrative expenses are expensed as
incurred and are not deferred. Accordingly, from a margin standpoint, the most effective gauge of measuring general and administrative expenses is as a ratio of segment level pre-need and at-need cemetery revenues. Changes in this ratio give an
indication of our ability to manage and control our general and administrative costs relative to our overall cemetery operations. An increase in the ratio indicates that general and administrative percentage expense increases related to our cemetery
properties exceeded percent increases in the value of contracts written, while a decrease in the ratio indicates that expense growth on a percentage basis did not exceed percentage increases in the value of contracts written. In the short-term, this
ratio can be positively or negatively impacted by our acquisitions, including such factors as how long it takes us to fully implement our pre-need sales programs and whether there are any unanticipated costs. Over the long-term, we would expect this
ratio to slightly decrease as many of the expenses in this category are fixed in nature. The ratio of general and administrative expenses to segment level pre-need and at-need cemetery revenues was 14.2% during the six months ended
June 30, 2013 as compared to 13.8% during the same period last year.
Total corporate overhead was $13.7 million for the
six months ended June 30, 2013, a decrease of $0.7 million, or 4.9% compared to $14.4 million during the same period last year. The decrease in total corporate overhead was primarily attributable to a decrease in professional fees primarily
related to a recovery of legal fees of $1.7 million from a legal settlement and a decrease in advertising costs of $0.3 million, offset by a $1.3 million increase in personnel expenses.
Depreciation and amortization was $4.8 million during the six months ended June 30, 2013, an increase of $0.2 million, or 4.8%, as
compared to $4.6 million during the same period last year. The increase was primarily due to additional depreciation and amortization from our recent acquisitions.
Funeral home expenses were $18.1 million for the six months ended June 30, 2013, an increase of $4.7 million, or 35.4%, compared to $13.4 million during the same period last year. The increase was
primarily driven by our most recent acquisitions and was primarily attributable to segment level increases of $2.6 million in personnel expenses, $0.5 million in facility costs, $0.8 million in merchandise costs and $0.4 million in advertising, with
the remainder attributable to increases in other general expense categories.
Acquisition related costs were $0.7 million for
the six months ended June 30, 2013, a decrease of $0.4 million, or 40.9%, as compared to $1.1 million during the same period last year, primarily due to a legal settlement which resulted in a recovery of legal fees. These costs will vary from
period to period depending on the amount of acquisition activity that takes place.
45
Non-segment Allocated Results
As previously mentioned, certain income statement amounts are not allocated to segment operations. These amounts are those line items that
can be found on our income statement below operating profit and above net loss.
The table below summarizes these items and
the changes between the six months ended June 30, 2013 and 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
Change ($)
|
|
|
Change (%)
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
Gain (loss) on termination of operating agreement
|
|
$
|
|
|
|
$
|
1,737
|
|
|
$
|
(1,737
|
)
|
|
|
-100.0
|
%
|
Gain on settlement agreement, net
|
|
|
12,261
|
|
|
|
|
|
|
|
12,261
|
|
|
|
100.0
|
%
|
Gain on acquisition
|
|
|
|
|
|
|
122
|
|
|
|
(122
|
)
|
|
|
-100.0
|
%
|
Loss on early extinguishment of debt
|
|
|
21,595
|
|
|
|
|
|
|
|
21,595
|
|
|
|
100.0
|
%
|
Gain on sale of other assets
|
|
|
155
|
|
|
|
|
|
|
|
155
|
|
|
|
100.0
|
%
|
Interest expense
|
|
|
10,595
|
|
|
|
9,836
|
|
|
|
759
|
|
|
|
7.7
|
%
|
Income tax benefit
|
|
$
|
(2,047
|
)
|
|
$
|
(667
|
)
|
|
$
|
(1,380
|
)
|
|
|
206.9
|
%
|
During the six months ended June 30, 2012, we recognized a gain of $1.7 million related to the
termination of an operating agreement. Refer to Note 13 of our unaudited condensed consolidated financial statements in Item 1 of Form 10-Q for a more detailed discussion.
During the six months ended June 30, 2013 certain proceeds received from a legal settlement were recorded as a gain on settlement
agreement on the unaudited condensed consolidated statement of operations, resulting in a total gain on settlement of $12.3 million.
The gain on acquisition recorded during the six months ended June 30, 2012 relates to one of our second quarter 2012 acquisitions.
The early extinguishment of debt charge of $21.6 million relates to the tender premium of $14.9 million we paid in connection with the
early repayment of $150.0 million of our 10.25% Senior Notes due 2017 and the write-off of $6.7 million of unamortized fees and discounts related to those notes.
Interest expense has increased during the six months ended June 30, 2013 as compared to the same period last year. This increase is primarily caused by increased borrowings on our Credit Facility.
Average amounts outstanding under our Credit Facility were $97.7 million and $54.7 million during the six months ended June 30, 2013 and 2012, respectively.
We had an income tax benefit of $2.0 million for the six months ended June 30, 2013, as compared to $0.7 million during the same period last 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.
46
Supplemental Data
The following table presents supplemental operating data for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended
June 30, 2013
|
|
|
Three months
ended
June 30, 2012
|
|
|
Six months
ended
June 30, 2013
|
|
|
Six months
ended
June 30, 2012
|
|
|
|
|
|
|
Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interments performed
|
|
|
11,325
|
|
|
|
11,127
|
|
|
|
23,444
|
|
|
|
22,928
|
|
|
|
|
|
|
Interment rights sold (1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lots
|
|
|
8,228
|
|
|
|
7,627
|
|
|
|
13,987
|
|
|
|
13,857
|
|
Mausoleum crypts (including pre-construction)
|
|
|
596
|
|
|
|
624
|
|
|
|
1,052
|
|
|
|
1,201
|
|
Niches
|
|
|
271
|
|
|
|
245
|
|
|
|
558
|
|
|
|
519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interment rights sold (1)
|
|
|
9,095
|
|
|
|
8,496
|
|
|
|
15,597
|
|
|
|
15,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of contracts written
|
|
|
27,047
|
|
|
|
25,834
|
|
|
|
51,541
|
|
|
|
50,240
|
|
Aggregate contract amount, in thousands (excluding interest)
|
|
$
|
71,327
|
|
|
$
|
66,070
|
|
|
$
|
135,151
|
|
|
$
|
127,094
|
|
Average amount per contract (excluding interest)
|
|
$
|
2,637
|
|
|
$
|
2,557
|
|
|
$
|
2,622
|
|
|
$
|
2,530
|
|
|
|
|
|
|
Number of pre-need contracts written
|
|
|
13,777
|
|
|
|
12,930
|
|
|
|
25,719
|
|
|
|
24,516
|
|
Aggregate pre-need contract amount, in thousands (excluding interest)
|
|
$
|
48,538
|
|
|
$
|
43,292
|
|
|
$
|
89,837
|
|
|
$
|
81,978
|
|
Average amount per pre-need contract (excluding interest)
|
|
$
|
3,523
|
|
|
$
|
3,348
|
|
|
$
|
3,493
|
|
|
$
|
3,344
|
|
|
|
|
|
|
Number of at-need contracts written
|
|
|
13,270
|
|
|
|
12,904
|
|
|
|
25,822
|
|
|
|
25,724
|
|
Aggregate at-need contract amount, in thousands (excluding interest)
|
|
$
|
22,789
|
|
|
$
|
22,778
|
|
|
$
|
45,314
|
|
|
$
|
45,116
|
|
Average amount per at-need contract (excluding interest)
|
|
$
|
1,717
|
|
|
$
|
1,765
|
|
|
$
|
1,755
|
|
|
$
|
1,754
|
|
(1)
|
Net of cancellations. Sales of double-depth burial lots are counted as two sales.
|
Liquidity and Capital Resources
Overview
Our primary short-term liquidity needs are to fund general working capital requirements, repay our debt obligations, service our debt,
make routine maintenance capital improvements and pay distributions. We will need additional liquidity to construct mausoleum and lawn crypts on the grounds of our cemetery properties.
Our primary sources of liquidity are cash flow from operations and amounts available under our Credit Facility as described below. In the
past, we have been able to increase our liquidity through long-term bank borrowings and the issuance of additional common units and other partnership securities, including debt, subject to the restrictions in our Credit Facility and under our Senior
Notes.
We believe that cash generated from operations and our borrowing capacity under our Credit Facility, which is
discussed below, will be sufficient to meet our working capital requirements as well as our anticipated capital expenditures for the foreseeable future.
In addition to macroeconomic conditions, our ability to satisfy our debt service obligations, fund planned capital expenditures, make acquisitions and pay distributions to partners will depend upon our
future operating performance. Our operating performance is primarily dependent on the sales volume of customer contracts, the cost of purchasing cemetery merchandise that we have sold, the amount of funds withdrawn from merchandise trusts and
perpetual care trusts and the timing and amount of collections on our pre-need installment contracts.
Long-term Debt
7.875% Senior Notes due 2021
On May 28, 2013, the Company and Cornerstone Family Services of West Virginia Subsidiary, Inc., a subsidiary of the Company (collectively, the Issuers), issued $175.0 million aggregate
principal amount of 7.875% Senior Notes due 2021 (the Senior Notes). The Issuers 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, commencing on December 1, 2013. The Notes mature on June 1, 2021.
The proceeds from the offering were
used to retire our 10.25% Senior Notes due 2017 and the remaining proceeds were used to for general corporate purposes. The Senior Notes were issued at 97.832% of par resulting in gross proceeds of $171.2 million with an original issue discount of
approximately $3.8 million. The Company incurred debt issuance costs and fees of approximately $4.2 million. These costs and fees are deferred and will be amortized over the life of these notes.
47
On May 28, 2013, the Issuers, certain subsidiaries of the Company
(Guarantors), and Wilmington Trust, National Association (the Trustee) entered into an indenture (the Indenture) governing the Senior Notes.
The Senior Notes are senior unsecured obligations of the Issuers, which are jointly and severally guaranteed (the Note
Guarantees) by each subsidiary of the Company other than Cornerstone Co., that the Company has caused or will cause to become a Guarantor pursuant to the terms of the Indenture (each, a Restricted Subsidiary).
At any time on or after June 1, 2016, the Issuers, at their option, may redeem the Senior Notes, in whole or in part, at the
redemption prices (expressed as percentages of the principal amount) set forth below, together with accrued and unpaid interest, if any, to the redemption date, if redeemed during the 12-month period beginning June 1 of the years indicated:
|
|
|
|
|
Year
|
|
Percentage
|
|
2016
|
|
|
105.906
|
%
|
2017
|
|
|
103.938
|
%
|
2018
|
|
|
101.969
|
%
|
2019 and thereafter
|
|
|
100.000
|
%
|
At any time prior to June 1, 2016, the Issuers may, on one or more occasions, redeem all or any
portion of the Senior Notes, upon not less than 30 nor more than 60 days notice, at a redemption price equal to 100% of the principal amount of the Senior Notes redeemed, plus the Applicable Premium (as defined in the Indenture) as of the
redemption date, including accrued and unpaid interest to the redemption date.
In addition, at any time prior to June 1,
2016, the Issuers, at their option, may redeem up to 35% of the aggregate principal amount of the Senior Notes issued under the Indenture with the net cash proceeds of certain equity offerings of the Company described in the Indenture at a
redemption price equal to 107.875% of the principal amount of the Senior Notes to be redeemed, plus accrued and unpaid interest, if any, to the redemption date provided, however, that (i) at least 65% of the aggregate principal amount of the
Senior Notes issued under the Indenture remain outstanding immediately after the occurrence of such redemption and (ii) the redemption occurs within 180 days of the closing date of such offering.
Subject to certain exceptions, upon the occurrence of a Change of Control (as defined in the Indenture), each holder of Senior Notes will
have the right to require the Issuers 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 to the date of purchase.
The Indenture requires the Issuers and/or the Guarantors, as applicable, to comply with various covenants including, but not limited to,
covenants that, subject to certain exceptions, limit the Companys and its Restricted Subsidiaries ability to (i) incur additional indebtedness; (ii) make certain dividends, distributions, redemptions or investments;
(iii) enter into certain transactions with affiliates; (iv) create, incur, assume or permit to exist certain liens against their assets; (v) make certain sales of their assets; and (vi) engage in certain mergers, consolidations
or sales of all or substantially all of their assets. As of June 30, 2013, the Company was in compliance with all applicable financial covenants.
Events of default under the Indenture that could, subject to certain conditions, cause all amounts owing under the Senior Notes to become immediately due and payable include, but are not limited to, the
following:
|
|
|
failure by the Issuers to pay interest on any of the Senior Notes when it becomes due and the continuance of any such failure for 30 days;
|
|
|
|
failure by the Issuers to pay the principal on any of the Senior Notes when it becomes due and payable, whether at stated maturity, upon redemption,
upon purchase, upon acceleration or otherwise;
|
|
|
|
the Issuers failure to comply with the agreements and covenants relating to limitations on entering into certain mergers, consolidations or sales
of all or substantially all of their assets or in respect of their obligations to purchase the Senior Notes in connection with a Change of Control;
|
|
|
|
failure by the Issuers to comply with any other agreement or covenant in the Indenture and the continuance of this failure for 60 days after notice of
the failure has been given to the Company by the Trustee or holders of at least 25% of the aggregate principal amount of the Senior Notes then outstanding;
|
48
|
|
|
failure by the Company to comply with its covenant to deliver certain reports and the continuance of such failure to comply for a period of 120 days
after written notice thereof has been given to the Company by the Trustee or by the holders of at least 25% in aggregate principal amount of the Senior Notes then outstanding;
|
|
|
|
certain defaults under mortgages, indentures or other instruments or agreements under which there may be issued or by which there may be secured or
evidenced indebtedness of the Company or any Restricted Subsidiary, whether such indebtedness now exists or is incurred after the date of the Indenture;
|
|
|
|
certain judgments or orders that exceed $10.0 million in the aggregate for the payment of money have been entered by a court of competent jurisdiction
against the Company or any Restricted Subsidiary and such judgments have not been satisfied, stayed, annulled or rescinded within 60 days of being entered;
|
|
|
|
certain events of bankruptcy of the Company, StoneMor GP LLC, the general partner of the Company (the General Partner), or any Significant
Subsidiary (as defined in the Indenture); or
|
|
|
|
other than in accordance with the terms of the Note Guarantee and the Indenture, the Note Guarantee of any Significant Subsidiary ceasing to be in full
force and effect, being declared null and void and unenforceable, found to be invalid or any Guarantor denying its liability under its Note Guarantee.
|
In connection with the sale of the Senior Notes, the Issuers, the Guarantors party thereto and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representative of the initial purchasers of
the Senior Notes, entered into a Registration Rights Agreement (the Registration Rights Agreement), pursuant to which the Issuers and the Guarantors agreed, for the benefit of the holders of the Senior Notes, to use their commercially
reasonable efforts to file a registration statement with the SEC with respect to a registered offer to exchange the Senior Notes for new exchange notes having terms substantially identical in all material respects to the Senior Notes,
with certain exceptions (the Exchange Offer). If the Senior Notes are not freely tradable by persons other than affiliates pursuant to Rule 144 under the Securities Act on or before the 366th day after the issuance of the Senior Notes
(the Exchange Date), the Issuers and the Guarantors agreed to use their commercially reasonable efforts (i) to consummate such Exchange Offer on or before the Exchange Date, and (ii) upon the occurrence of certain events
described in the Registration Rights Agreement which result in the inability to consummate the Exchange Offer, to cause a shelf registration statement covering resales of the Senior Notes to be declared effective. The Issuers are required to pay
additional interest to the holders of the Senior Notes under certain circumstances if they fail to comply with their obligations under the Registration Rights Agreement.
10.25% Senior Notes due 2017
Prior to their retirement in the second
quarter of 2013, we had outstanding a $150.0 million aggregate principal amount of 10.25% Senior Notes due 2017 (the Prior Senior Notes), with an original issue discount of approximately $4.0 million. We paid 10.25% interest per annum on
the principal amount of the Prior Senior Notes, payable in cash semi-annually in arrears on June 1 and December 1 of each year. The Prior Senior Notes were due to mature on December 1, 2017. In the second quarter of 2013, we retired
the notes using the proceeds from the Senior Notes offering described above.
StoneMor Operating LLC (the Operating
Company), Cornerstone Co. and Osiris Holding of Maryland Subsidiary, Inc. (Osiris Co., and together with the Operating Company and Cornerstone Co., the 2017 Notes Issuers), each of which is a subsidiary of the Company,
conducted a cash tender offer and consent solicitation to purchase any and all of their outstanding $150 million aggregate principal amount of the Prior Senior Notes and to obtain consents to amendments to the 2009 Indenture. In connection with the
expiration of the consent solicitation, on May 24, 2013, 2017 Notes Issuers, the Company, the other Guarantors named therein and the trustee, entered into the Supplemental Indenture to the Indenture dated as of November 24, 2009 (the
2009 Indenture) governing the Prior Senior Notes. The Supplemental Indenture amended the 2009 Indenture to shorten to three business days the minimum notice period for optional redemptions and eliminated substantially all of the
restrictive covenants and certain events of default contained in the 2009 Indenture.
On June 14, 2013, the remaining
Prior Senior Notes were redeemed, pursuant to redemption provisions set forth in the 2009 Indenture, at a price of 100% of the principal amount of the Prior Senior Notes, plus the Applicable Premium (as defined in the 2009 Indenture) equal to
9.554%, together with accrued and unpaid interest to, but not including, June 14, 2013. The 2009 Indenture was satisfied and discharged in accordance with its terms, effective the Redemption Date.
49
We made a tender offer to repurchase the Prior Senior Notes and paid $14.9 million to retire
the Prior Senior Notes inclusive of the tender premium and accrued interest through December 1, 2013, the first redemption date for the Prior Senior Notes. In addition, the Company incurred expenses of $6.7 million related to the refinancing
event inclusive of $2.6 million of unamortized original issue discount and $4.1 million of unamortized capitalized debt issue costs related to the Prior Senior Notes.
Credit Facility
On January 19, 2012, we entered into the Third
Amended and Restated Credit Agreement (the Credit Agreement). The terms of the Credit Agreement are substantially the same as the terms of the previous agreement. Capitalized terms which are not defined in the following description shall
have the meaning assigned to such terms in the Credit Agreement.
On February 19, 2013, we entered into the First
Amendment to the Credit Agreement, which increased the total availability under the Revolving Credit Facility by $10.0 million to $140.0 million of which $91.0 million was outstanding at June 30, 2013. The Credit Facility may be used to finance
working capital requirements, Permitted Acquisitions and Capital Expenditures. The maturity date of the Credit Facility is January 19, 2017.
On May 8, 2013, we entered into the Second Amendment to the Credit Agreement, which allowed us to incur additional indebtedness to be evidenced by the 2021 Senior Notes, to enter into the related
indenture and to use the proceeds of the Senior Notes offering, in part, to fund the retirement of the Prior Senior Notes.
On
June 18, 2013, we entered into the Third Amendment to the Credit Agreement, which increased our Consolidated Leverage Ratio to 4.00 through December 31, 2013, 3.875 at March 31, 2014, and 3.750 thereafter. The amendment also increased
the ranges of the Applicable Rates to 3.00%, 4.00%, and .800% for Base Rate Loans, Eurodollar Rate Loans and Letter of Credit Fees, and Commitment Fees, respectively, when the Consolidated Leverage Ratio is greater than or equal to 3.75 to 1.0. The
amendment also increased the amount of aggregate consideration that we may pay for a Permitted Acquisition after March 31, 2014, without Required Lender approval, to $10.0 million on an individual basis and $50.0 million when aggregated with
the total Aggregate Consideration paid by or on behalf of us for all other Permitted Acquisitions which closed within the immediately preceding 365 days.
The Third Amendment added a defined term for Significant Permitted Acquisition Transaction to describe a Permitted Acquisition in which the Aggregate Consideration exceeds $35.0 million when aggregated
with the total Aggregate Consideration for all other Permitted Acquisitions which closed within the immediately preceding 180 days. In the case of a Significant Permitted Acquisition Transaction, the Third Amendment permits the Borrowers, subject to
certain limitations, to temporarily increase the Consolidated Leverage Ratio to 4.00 to 1.0 for one or more the four immediately succeeding covenant measurement periods. In addition, the Third Amendment includes certain conforming changes to reflect
the issuance of the Senior Notes.
At June 30, 2013, amounts outstanding under the Credit Facility bore interest at rates
between 3.5% and 4.0%. Amounts borrowed may be either Base Rate Loans or Eurodollar Rate Loans and amounts repaid or prepaid during the term may be reborrowed. Depending on the type of loan, borrowings bear interest at the Base Rate or Eurodollar
Rate, plus applicable margins ranging from 1.25% to 3.00% and 2.25% to 4.00%, respectively, depending on our Consolidated Leverage Ratio. The Base Rate is the highest of the Prime Rate, the Federal Funds Rate plus 0.50%, or the Eurodollar Rate plus
1.0%. The Eurodollar rate is the British Bankers Association LIBOR Rate. Amounts outstanding under the Credit Facility approximate their fair value.
The Credit Agreement requires us to pay an unused Commitment Fee, which is calculated based on the amount by which the commitments under the Credit Agreement exceed the usage of such commitments. The
Commitment Fee Rate ranges from 0.375% to 0.800% depending on our Consolidated Leverage Ratio.
The Credit Agreement contains
restrictive covenants that, among other things, prohibit distributions upon defined events of default, restrict investments and sales of assets and require us to maintain certain financial covenants, including specified financial ratios. A material
decrease in revenues could cause us to breach certain of our financial covenants. Any such breach could allow the Lenders to accelerate our debt which would have a material adverse effect on our business, financial condition or results of
operations. Our covenants include a Consolidated Leverage Ratio and a Consolidated Debt Service Coverage Ratio. As of June 30, 2013, we were in compliance with all applicable financial covenants.
Amounts outstanding under our Credit Facility fluctuated during the six months ended June 30, 2013 and 2012. At the beginning of
2013, we had $101.7 million outstanding under our Credit Facility. During the first quarter of 2013, we reduced
50
our borrowings on the Credit Facility by $19.8 million as we had borrowed $18.6 million prior to March 26, 2013 and then we used the net proceeds of approximately $38.4 million from our
March 26, 2013 follow-on public offering to repay amounts outstanding on our Credit Facility. We borrowed an additional $21.0 million during the second quarter of 2013 and then we used the remaining proceeds of approximately $11.9 million from
our May 28, 2013 debt offering to further repay amounts outstanding on our Credit Facility, resulting in outstanding borrowings of $91.0 million on our Credit Facility at June 30, 2013. At the beginning of 2012, we had $43.8 million
outstanding on our Credit Facilities. These amounts were combined into one facility in January of 2012. We borrowed an additional $7.3 million and $10.9 million during the first and second quarters of 2012, respectively, and had outstanding
borrowings of $62.0 million on our Credit Facility at June 30, 2012. The average amounts borrowed under our Credit Facility were $97.7 million and $54.7 million for the six months ended June 30, 2013 and 2012, respectively.
For a more detailed description of our long-term debt agreements, see our 2012 Form 10-K.
Cash Flow from Operating Activities
Cash flows provided by operating activities were $16.5 million during the six months ended June 30, 2013, an increase of $2.3 million compared to $14.2 million during the same period last year.
Factors contributing to an increase in cash flows from operations include cash received in our legal settlement, less cash used for accounts payables and accrued liabilities and merchandise liabilities. These amounts more than offset increased uses
of cash into our accounts receivable and merchandise trusts.
Cash Flow from Investing Activities
Net cash used in investing activities was $15.1 million during the six months ended June 30, 2013 as compared to $8.9 million during
the same period last year. Cash flows used for investing activities during the six months ended June 30, 2013 were $9.1 million for the acquisition of 6 funeral homes and $6.2 million for other capital expenditures offset by $0.2 million in
proceeds from the sale of other assets. Cash flows used for investing activities during the six months ended June 30, 2012 were $3.4 million paid for the acquisition of 1 cemetery and 2 funeral homes and the execution of a revised operating
agreement and $5.4 million for other capital expenditures.
Cash Flow from Financing Activities
Cash flows provided by financing activities were $4.8 million during the six months ended June 30, 2013 as compared to cash flows
used in financing activities of $9.6 million during the same period last year. Cash flows provided by financing activities for the six months ended June 30, 2013 consisted of $38.4 million of proceeds from our follow-on public offering and
$217.1 million from long term borrowings on our Credit Facility combined with the issuance of $175.0 million of Senior Notes offset by repayments of long-term debt of $205.8 million, inclusive of the retirement of our $150.0 million of senior notes,
and fees associated with this retirement of $14.9 million, costs of financing activities of $4.7 million and cash distributions to unit holders of $25.3 million. Cash flows used in financing activities for the six months ended June 30, 2012
were cash distributions to unit holders of $23.6 million and financing costs related to our amended credit facility of $1.8 million, offset by net borrowings of $15.8 million.
Capital Expenditures
The following table summarizes total
maintenance capital expenditures and expansion capital expenditures, including expenditures for the construction of mausoleums and for acquisitions, for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30,
|
|
|
Six months ended
June 30,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
|
(in thousands)
|
|
|
(in thousands)
|
|
|
|
|
|
|
Maintenance capital expenditures
|
|
$
|
2,149
|
|
|
$
|
937
|
|
|
$
|
3,920
|
|
|
$
|
1,835
|
|
Expansion capital expenditures
|
|
|
1,176
|
|
|
|
4,157
|
|
|
|
11,352
|
|
|
|
7,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures
|
|
$
|
3,325
|
|
|
$
|
5,094
|
|
|
$
|
15,272
|
|
|
$
|
8,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pursuant to our partnership agreement, in connection with determining operating cash flows available for
distribution, costs to construct mausoleum crypts and lawn crypts may be considered to be a combination of maintenance capital expenditures and expansion capital expenditures depending on the purposes for construction. Our general partner, with the
concurrence of its Conflicts Committee, has the discretion to determine how to allocate a capital expenditure for the
51
construction of a mausoleum crypt or a lawn crypt between maintenance capital expenditures and expansion capital expenditures. In addition, maintenance capital expenditures for the construction
of a mausoleum crypt or a lawn crypt are not subtracted from operating surplus in the quarter incurred but rather are subtracted from operating surplus ratably during the estimated number of years it will take to sell all of the available spaces in
the mausoleum or lawn crypt. Estimated life is determined by our general partner, with the concurrence of its Conflicts Committee.
Seasonality
The death
care business is relatively stable and predictable. Although we experience seasonal increases in deaths due to extreme weather conditions and winter flu, these increases have not historically had any significant impact on our results of operations.
In addition, we perform fewer initial openings and closings in the winter when the ground is frozen.