UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2015
or
¨ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
to
.
Commission File Number: 001-32270
STONEMOR
PARTNERS L.P.
(Exact name of registrant as specified in its charter)
|
|
|
Delaware |
|
80-0103159 |
(State or other jurisdiction of
incorporation or organization) |
|
(I.R.S. Employer
Identification No.) |
|
|
|
311 Veterans Highway, Suite B
Levittown, Pennsylvania |
|
19056 |
(Address of principal executive offices) |
|
(Zip Code) |
(215) 826-2800
(Registrants telephone number, including area code)
Not Applicable
(Former
name, former address and former fiscal year, if changed since last report)
Indicate by
check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
|
|
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Large accelerated filer |
|
¨ |
|
Accelerated filer |
|
x |
|
|
|
|
Non-accelerated filer |
|
¨ (Do not check if a smaller reporting company) |
|
Smaller reporting company |
|
¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes ¨ No x
The number of the registrants outstanding common units at October 31, 2015 was 31,779,105.
Index Form 10-Q
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Page |
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Part I |
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Financial Information |
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Item 1. |
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Financial Statements (unaudited) |
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3 |
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Item 2. |
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
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38 |
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Item 3. |
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Quantitative and Qualitative Disclosures About Market Risk |
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60 |
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Item 4. |
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Controls and Procedures |
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62 |
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Part II |
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Other Information |
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Item 1. |
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Legal Proceedings |
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62 |
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Item 1A. |
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Risk Factors |
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63 |
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Item 2. |
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Unregistered Sales of Equity Securities and Use of Proceeds |
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63 |
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Item 3. |
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Defaults Upon Senior Securities |
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63 |
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Item 4. |
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Mine Safety Disclosures |
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63 |
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Item 5. |
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Other Information |
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63 |
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Item 6. |
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Exhibits |
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64 |
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Signatures |
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65 |
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Part I Financial Information
Item 1. |
Financial Statements |
StoneMor Partners L.P.
Condensed Consolidated Balance Sheet
(in thousands)
(unaudited)
|
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|
September 30, 2015 |
|
|
December 31, 2014 |
|
Assets |
|
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|
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|
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|
Current assets: |
|
|
|
|
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|
|
|
Cash and cash equivalents |
|
$ |
11,792 |
|
|
$ |
10,401 |
|
Accounts receivable, net of allowance |
|
|
66,099 |
|
|
|
62,503 |
|
Prepaid expenses |
|
|
7,064 |
|
|
|
4,708 |
|
Other current assets |
|
|
33,448 |
|
|
|
24,266 |
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
118,403 |
|
|
|
101,878 |
|
|
|
|
Long-term accounts receivable, net of allowance |
|
|
93,273 |
|
|
|
89,536 |
|
Cemetery property |
|
|
344,662 |
|
|
|
339,848 |
|
Property and equipment, net of accumulated depreciation |
|
|
102,671 |
|
|
|
100,391 |
|
Merchandise trusts, restricted, at fair value |
|
|
459,320 |
|
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|
484,820 |
|
Perpetual care trusts, restricted, at fair value |
|
|
311,781 |
|
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|
345,105 |
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Deferred financing costs, net of accumulated amortization |
|
|
7,907 |
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|
|
9,089 |
|
Deferred selling and obtaining costs |
|
|
108,754 |
|
|
|
97,795 |
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Deferred tax assets |
|
|
42 |
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|
40 |
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Goodwill |
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|
64,048 |
|
|
|
58,836 |
|
Intangible assets |
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|
67,681 |
|
|
|
68,990 |
|
Other assets |
|
|
3,158 |
|
|
|
3,136 |
|
|
|
|
|
|
|
|
|
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Total assets |
|
$ |
1,681,700 |
|
|
$ |
1,699,464 |
|
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Liabilities and partners capital |
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Current liabilities: |
|
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|
|
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Accounts payable and accrued liabilities |
|
$ |
37,448 |
|
|
$ |
35,382 |
|
Accrued interest |
|
|
4,868 |
|
|
|
1,219 |
|
Current portion, long-term debt |
|
|
3,294 |
|
|
|
2,251 |
|
|
|
|
|
|
|
|
|
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Total current liabilities |
|
|
45,610 |
|
|
|
38,852 |
|
|
|
|
Other long-term liabilities |
|
|
2,003 |
|
|
|
1,292 |
|
Obligation for lease and management agreements, net |
|
|
9,307 |
|
|
|
8,767 |
|
Long-term debt |
|
|
287,724 |
|
|
|
285,378 |
|
Deferred cemetery revenues, net |
|
|
645,233 |
|
|
|
643,408 |
|
Deferred tax liabilities |
|
|
17,815 |
|
|
|
17,708 |
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Merchandise liability |
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|
158,592 |
|
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|
150,192 |
|
Perpetual care trust corpus |
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311,781 |
|
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|
345,105 |
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|
|
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|
|
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Total liabilities |
|
|
1,478,065 |
|
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|
1,490,702 |
|
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Commitments and contingencies |
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|
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Partners capital (deficit) |
|
|
|
|
|
|
|
|
General partner deficit |
|
|
(8,612 |
) |
|
|
(5,113 |
) |
Common partners, 31,779 and 29,204 units outstanding as of September 30, 2015 and December 31, 2014, respectively |
|
|
212,247 |
|
|
|
213,875 |
|
|
|
|
|
|
|
|
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Total partners capital |
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203,635 |
|
|
|
208,762 |
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|
|
|
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|
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Total liabilities and partners capital |
|
$ |
1,681,700 |
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$ |
1,699,464 |
|
|
|
|
|
|
|
|
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|
See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
3
StoneMor Partners L.P.
Condensed Consolidated Statement of Operations
(in thousands, except per unit data)
(unaudited)
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Three months ended September 30, |
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Nine months ended September 30, |
|
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2015 |
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2014 |
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2015 |
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2014 |
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Revenues: |
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|
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Cemetery |
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|
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|
|
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Merchandise |
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$ |
34,709 |
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$ |
37,812 |
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$ |
97,688 |
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$ |
98,452 |
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Services |
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|
14,195 |
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|
|
14,971 |
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42,696 |
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|
37,760 |
|
Investment and other |
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|
15,054 |
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|
13,152 |
|
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|
43,062 |
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|
42,418 |
|
Funeral home |
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|
|
|
|
|
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|
|
|
|
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|
|
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Merchandise |
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|
6,588 |
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|
|
4,752 |
|
|
|
19,913 |
|
|
|
14,770 |
|
Services |
|
|
7,654 |
|
|
|
7,487 |
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|
|
23,083 |
|
|
|
20,694 |
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|
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|
|
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|
|
|
|
|
|
|
|
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|
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Total revenues |
|
|
78,200 |
|
|
|
78,174 |
|
|
|
226,442 |
|
|
|
214,094 |
|
|
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|
|
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|
|
|
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|
|
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|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold (exclusive of depreciation shown separately below): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Perpetual care |
|
|
1,993 |
|
|
|
1,898 |
|
|
|
5,727 |
|
|
|
5,110 |
|
Merchandise |
|
|
6,735 |
|
|
|
7,164 |
|
|
|
19,891 |
|
|
|
20,106 |
|
Cemetery expense |
|
|
18,245 |
|
|
|
18,076 |
|
|
|
53,789 |
|
|
|
47,546 |
|
Selling expense |
|
|
14,647 |
|
|
|
16,494 |
|
|
|
44,326 |
|
|
|
42,544 |
|
General and administrative expense |
|
|
8,819 |
|
|
|
9,808 |
|
|
|
27,340 |
|
|
|
26,333 |
|
Corporate overhead (including $277 and $265 in unit-based compensation for the three months ended September 30, 2015 and 2014, and
$824 and $802 for the nine months ended September 30, 2015 and 2014, respectively) |
|
|
8,152 |
|
|
|
8,392 |
|
|
|
26,979 |
|
|
|
22,394 |
|
Depreciation and amortization |
|
|
3,311 |
|
|
|
3,112 |
|
|
|
9,207 |
|
|
|
7,993 |
|
Funeral home expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchandise |
|
|
1,002 |
|
|
|
1,441 |
|
|
|
5,444 |
|
|
|
4,691 |
|
Services |
|
|
5,432 |
|
|
|
5,522 |
|
|
|
16,728 |
|
|
|
15,023 |
|
Other |
|
|
4,774 |
|
|
|
3,396 |
|
|
|
13,335 |
|
|
|
9,367 |
|
Acquisition related costs, net of recoveries |
|
|
963 |
|
|
|
451 |
|
|
|
1,648 |
|
|
|
2,040 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost and expenses |
|
|
74,073 |
|
|
|
75,754 |
|
|
|
224,414 |
|
|
|
203,147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Operating profit |
|
|
4,127 |
|
|
|
2,420 |
|
|
|
2,028 |
|
|
|
10,947 |
|
|
|
|
|
|
Legal settlement |
|
|
3,000 |
|
|
|
|
|
|
|
3,000 |
|
|
|
|
|
Gain on sale of funeral home |
|
|
|
|
|
|
244 |
|
|
|
|
|
|
|
244 |
|
Gain on acquisitions |
|
|
1,540 |
|
|
|
|
|
|
|
1,540 |
|
|
|
412 |
|
Gain on settlement agreement, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
888 |
|
Interest expense |
|
|
5,669 |
|
|
|
5,268 |
|
|
|
16,902 |
|
|
|
15,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss before income taxes |
|
|
(3,002 |
) |
|
|
(2,604 |
) |
|
|
(16,334 |
) |
|
|
(3,499 |
) |
|
|
|
|
|
Income tax expense (benefit) |
|
|
400 |
|
|
|
664 |
|
|
|
799 |
|
|
|
(522 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(3,402 |
) |
|
$ |
(3,268 |
) |
|
$ |
(17,133 |
) |
|
$ |
(2,977 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General partners interest in net loss for the period |
|
$ |
(42 |
) |
|
$ |
(44 |
) |
|
$ |
(227 |
) |
|
$ |
(49 |
) |
Limited partners interest in net loss for the period |
|
$ |
(3,360 |
) |
|
$ |
(3,224 |
) |
|
$ |
(16,906 |
) |
|
$ |
(2,928 |
) |
|
|
|
|
|
Net loss per limited partner unit (basic and diluted) |
|
$ |
(.11 |
) |
|
$ |
(.11 |
) |
|
$ |
(.56 |
) |
|
$ |
(.11 |
) |
|
|
|
|
|
Weighted average number of limited partners units outstanding (basic and diluted) |
|
|
31,491 |
|
|
|
29,018 |
|
|
|
30,011 |
|
|
|
25,712 |
|
Distributions declared per unit |
|
$ |
.650 |
|
|
$ |
.610 |
|
|
$ |
1.920 |
|
|
$ |
1.810 |
|
See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
4
StoneMor Partners L.P.
Condensed Consolidated Statement of
Partners Capital (Deficit)
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners Capital (Deficit) |
|
|
|
Common Unit Holders |
|
|
General Partner |
|
|
Total |
|
Balance, December 31, 2014 |
|
$ |
213,875 |
|
|
$ |
(5,113 |
) |
|
$ |
208,762 |
|
|
|
|
|
Proceeds from public offerings |
|
|
67,871 |
|
|
|
|
|
|
|
67,871 |
|
Issuance of common units |
|
|
4,331 |
|
|
|
|
|
|
|
4,331 |
|
Compensation related to unit awards |
|
|
824 |
|
|
|
|
|
|
|
824 |
|
Net loss |
|
|
(16,906 |
) |
|
|
(227 |
) |
|
|
(17,133 |
) |
Cash distributions |
|
|
(53,417 |
) |
|
|
(3,272 |
) |
|
|
(56,689 |
) |
Unit distributions |
|
|
(4,331 |
) |
|
|
|
|
|
|
(4,331 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2015 |
|
$ |
212,247 |
|
|
$ |
(8,612 |
) |
|
$ |
203,635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
5
StoneMor Partners L.P.
Condensed Consolidated Statement of Cash Flows
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended September 30, |
|
|
|
2015 |
|
|
2014 |
|
Operating activities: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(17,133 |
) |
|
$ |
(2,977 |
) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Cost of lots sold |
|
|
7,506 |
|
|
|
7,181 |
|
Depreciation and amortization |
|
|
9,207 |
|
|
|
7,993 |
|
Unit-based compensation |
|
|
824 |
|
|
|
802 |
|
Accretion of debt discounts |
|
|
2,207 |
|
|
|
2,127 |
|
Gain on acquisitions |
|
|
(1,540 |
) |
|
|
(412 |
) |
Gain on sale of funeral home |
|
|
|
|
|
|
(244 |
) |
Changes in assets and liabilities that provided cash: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(6,403 |
) |
|
|
(2,958 |
) |
Allowance for doubtful accounts |
|
|
1,565 |
|
|
|
2,647 |
|
Merchandise trust fund |
|
|
(33,403 |
) |
|
|
(26,547 |
) |
Prepaid expenses |
|
|
(2,356 |
) |
|
|
(2,913 |
) |
Other current assets |
|
|
(9,128 |
) |
|
|
(1,019 |
) |
Other assets |
|
|
(67 |
) |
|
|
(1,397 |
) |
Accounts payable and accrued and other liabilities |
|
|
5,550 |
|
|
|
7,382 |
|
Deferred selling and obtaining costs |
|
|
(10,959 |
) |
|
|
(6,855 |
) |
Deferred cemetery revenue |
|
|
60,572 |
|
|
|
45,475 |
|
Deferred taxes (net) |
|
|
106 |
|
|
|
(1,254 |
) |
Merchandise liability |
|
|
5,482 |
|
|
|
(3,793 |
) |
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
12,030 |
|
|
|
23,238 |
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
Cash paid for cemetery property |
|
|
(6,022 |
) |
|
|
(4,692 |
) |
Purchase of subsidiaries |
|
|
(13,100 |
) |
|
|
(54,000 |
) |
Consideration for lease and management agreements |
|
|
|
|
|
|
(53,000 |
) |
Proceeds from divestiture of funeral home |
|
|
|
|
|
|
297 |
|
Cash paid for property and equipment |
|
|
(5,011 |
) |
|
|
(6,430 |
) |
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(24,133 |
) |
|
|
(117,825 |
) |
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
Cash distributions |
|
|
(56,689 |
) |
|
|
(45,297 |
) |
Additional borrowings on long-term debt |
|
|
102,323 |
|
|
|
63,365 |
|
Repayments of long-term debt |
|
|
(99,945 |
) |
|
|
(86,788 |
) |
Proceeds from public offerings |
|
|
67,871 |
|
|
|
120,345 |
|
Proceeds from issuance of common units |
|
|
|
|
|
|
53,237 |
|
Cost of financing activities |
|
|
(66 |
) |
|
|
(275 |
) |
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
13,494 |
|
|
|
104,587 |
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
1,391 |
|
|
|
10,000 |
|
Cash and cash equivalents - Beginning of period |
|
|
10,401 |
|
|
|
12,175 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents - End of period |
|
$ |
11,792 |
|
|
$ |
22,175 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid during the period for interest |
|
$ |
10,918 |
|
|
$ |
10,303 |
|
Cash paid during the period for income taxes |
|
$ |
4,167 |
|
|
$ |
3,536 |
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Acquisition of assets by financing |
|
$ |
593 |
|
|
$ |
251 |
|
Acquisition of asset by assumption of directly related liability |
|
$ |
876 |
|
|
$ |
8,368 |
|
See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
6
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 September 30, 2015, the Partnership operated 306 cemeteries in 27 states and Puerto Rico, of which 275 are owned and 31 are operated under lease, management or operating agreements. The Partnership also owned and
operated 103 funeral homes in 19 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 September 30, 2015 and for the three
and nine months ended September 30, 2015 and 2014 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, 2014 condensed consolidated balance sheet data was derived from audited financial statements included in the Companys 2014 Annual
Report on Form 10-K (2014 Form 10-K), but does not include all disclosures required by GAAP, which are presented in the Companys 2014 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 31 cemeteries under long-term lease, 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 15 cemeteries under long-term lease, operating or management agreements
that do not qualify as acquisitions for accounting purposes, including 13 cemeteries related to the transaction with the Archdiocese of Philadelphia that closed in the second quarter of 2014. As a result, the 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 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 lease, operating or management 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.
New Accounting Pronouncements
In
the second quarter of 2014, the Financial Accounting Standards Board issued Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09), which supersedes the revenue recognition requirements in
Topic 605 - Revenue Recognition and most industry-specific guidance. The core principle of ASU 2014-09 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those goods or services. During the third quarter of 2015, Update No. 2015-14, Revenue from Contracts with Customers (Topic 606) (ASU 2015-14) was
released, deferring the effective date of the amendments to annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early application is permitted, only as of an annual reporting
period beginning after December 15, 2016. The Company is currently in the process of evaluating the potential impact of these updates on its financial statements.
7
In the first quarter of 2015, the Financial Accounting Standards Board issued Update
No. 2015-02, Consolidation (Topic 810) (ASU 2015-02), which amends previous consolidation analysis guidance. ASU 2015-02 requires companies to consider revised consolidation criteria regarding limited partnerships and
similar legal entities. The amendments are effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period. Early application is permitted. The Company has evaluated the impact of
this update, concluding that it will not have an impact on the Companys financial position, results of operations, or cash flows.
In the second quarter of 2015, the Financial Accounting Standards Board issued Update No. 2015-03, Interest - Imputation
of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (ASU 2015-03), which changes the presentation of debt issuance costs. During the third quarter of 2015, Update No. 2015-15, Interest
- Imputation of Interest (Subtopic 835-30) (ASU 2015-15) was released clarifying the treatment of debt issuance costs associated with line-of-credit arrangements. ASU 2015-03 requires that
debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by
ASU 2015-03. AUS 2015-15 allows the deferral and presentation of debt issuance costs pertaining to line-of-credit arrangements as an asset. The amendments in the update are effective for annual reporting periods beginning after December 15,
2015, including interim periods within those reporting periods. Early application is permitted. The Company is currently in the process of evaluating the potential impact of these updates on its financial statements.
In the third quarter of 2015, the Financial Accounting Standards Board issued Update No. 2015-16, Business Combinations (Topic
805): Simplifying the Accounting for Measurement-Period Adjustments (ASU 2015-16). ASU 2015-16 requires that an acquirer recognize adjustments to estimated amounts that are identified during the measurement period in the reporting
period in which the adjustment amounts are determined. The amendments are effective for fiscal years beginning after December 15, 2015. Early adoption is permitted. The Company is currently in the process of evaluating the potential impact of
this update on its financial statements.
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 trusts and perpetual care trusts,
allowance for cancellations, unit-based compensation, merchandise liability, deferred sales revenue, deferred margin, deferred merchandise trust investment earnings, deferred obtaining costs, assets and liabilities obtained via business combinations
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.
2. |
LONG-TERM ACCOUNTS RECEIVABLE, NET OF ALLOWANCE |
Long-term accounts receivable, net, consists of the following:
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
|
September 30, 2015 |
|
|
December 31, 2014 |
|
|
|
(in thousands) |
|
Customer receivables |
|
$ |
203,200 |
|
|
$ |
194,537 |
|
Unearned finance income |
|
|
(20,125 |
) |
|
|
(20,360 |
) |
Allowance for contract cancellations |
|
|
(23,703 |
) |
|
|
(22,138 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
159,372 |
|
|
|
152,039 |
|
Less: current portion, net of allowance |
|
|
66,099 |
|
|
|
62,503 |
|
|
|
|
|
|
|
|
|
|
Long-term portion, net of allowance |
|
$ |
93,273 |
|
|
$ |
89,536 |
|
|
|
|
|
|
|
|
|
|
8
Activity in the allowance for contract cancellations is as follows:
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended September 30, |
|
|
|
2015 |
|
|
2014 |
|
|
|
(in thousands) |
|
Balance - Beginning of period |
|
$ |
22,138 |
|
|
$ |
20,275 |
|
Provision for cancellations |
|
|
19,054 |
|
|
|
17,080 |
|
Charge-offs - net |
|
|
(17,489 |
) |
|
|
(13,610 |
) |
|
|
|
|
|
|
|
|
|
Balance - End of period |
|
$ |
23,703 |
|
|
$ |
23,745 |
|
|
|
|
|
|
|
|
|
|
There have been no changes to the Companys long-term accounts receivable accounting policies since the
filing of the Companys 2014 Form 10-K.
Cemetery property consists of the following:
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
|
September 30, 2015 |
|
|
December 31, 2014 |
|
|
|
(in thousands) |
|
Developed land |
|
$ |
82,048 |
|
|
$ |
79,058 |
|
Undeveloped land |
|
|
172,610 |
|
|
|
172,238 |
|
Mausoleum crypts and lawn crypts |
|
|
78,879 |
|
|
|
78,524 |
|
Other land |
|
|
11,125 |
|
|
|
10,028 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
344,662 |
|
|
$ |
339,848 |
|
|
|
|
|
|
|
|
|
|
4. |
PROPERTY AND EQUIPMENT |
Major classes of property and equipment follow:
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
|
September 30, 2015 |
|
|
December 31, 2014 |
|
|
|
(in thousands) |
|
Building and improvements |
|
$ |
114,673 |
|
|
$ |
108,178 |
|
Furniture and equipment |
|
|
51,947 |
|
|
|
49,290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
166,620 |
|
|
|
157,468 |
|
Less: accumulated depreciation |
|
|
(63,949 |
) |
|
|
(57,077 |
) |
|
|
|
|
|
|
|
|
|
Property and equipment - net |
|
$ |
102,671 |
|
|
$ |
100,391 |
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $2.8 million and $7.5 million for the three and nine months ended September 30,
2015, respectively, as compared to $2.5 million and $6.5 million during the same periods last year.
At September 30, 2015, the Companys merchandise trusts consisted of the following types of assets:
|
|
|
Money market funds that invest in low risk short term securities; |
9
|
|
|
Publicly traded mutual funds that invest in underlying debt securities; |
|
|
|
Publicly traded mutual funds that invest in underlying equity securities; |
|
|
|
Equity investments primarily in securities that are currently paying dividends or distributions. These investments include Master Limited Partnerships and global equity securities; |
|
|
|
Fixed maturity debt securities issued by various corporate entities; and |
|
|
|
Fixed maturity debt securities issued by U.S. states and local government agencies. |
|
|
|
Certain assets related to the July 21, 2015 and August 6, 2015 acquisitions of Gloria Weiss Realty, LLC and Herr Funeral Homes, LTD respectively (see Note 13). According to the terms of the agreement, the
seller was required to liquidate the holdings of the related trusts upon closing and forward the proceeds to the Company as soon as practicable. As of September 30, 2015, the Company has not received all of these amounts. Accordingly, a portion
of the assets are shown in a single line item in the disclosures below as Assets acquired via acquisition and the cost basis and fair value of such assets are based upon preliminary estimates that the Company is required to make in
accordance with Accounting Topic 805. |
These investments are classified as Available for Sale as defined by the Investments
in Debt and Equity topic of the ASC. Accordingly, all of the assets are carried at fair value. All of these investments are considered to be either Level 1 or Level 2 assets as defined by the Fair Value Measurements and Disclosures topic of the ASC.
See Note 15 for further details. There were no Level 3 assets.
The merchandise trusts are variable interest entities (VIE) for which the
Company is the primary beneficiary. The assets held in the merchandise trusts are required to be used to purchase the merchandise to which they relate. If the value of these assets falls below the cost of purchasing such merchandise, the Company may
be required to fund this shortfall.
The Company has included $8.1 million and $8.3 million of investments held in trust by the West
Virginia Funeral Directors Association at September 30, 2015 and December 31, 2014, 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.
10
The cost and market value associated with the assets held in the merchandise trusts at
September 30, 2015 and December 31, 2014 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2015 |
|
Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
|
|
(in thousands) |
|
Short-term investments |
|
$ |
27,125 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
27,125 |
|
Fixed maturities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. State and local government agency |
|
|
81 |
|
|
|
10 |
|
|
|
|
|
|
|
91 |
|
Corporate debt securities |
|
|
12,550 |
|
|
|
25 |
|
|
|
(880 |
) |
|
|
11,695 |
|
Other debt securities |
|
|
7,177 |
|
|
|
|
|
|
|
(9 |
) |
|
|
7,168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities |
|
|
19,808 |
|
|
|
35 |
|
|
|
(889 |
) |
|
|
18,954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds - debt securities |
|
|
260,872 |
|
|
|
33 |
|
|
|
(28,666 |
) |
|
|
232,239 |
|
Mutual funds - equity securities |
|
|
145,260 |
|
|
|
9 |
|
|
|
(27,011 |
) |
|
|
118,258 |
|
|
|
|
|
|
Equity securities |
|
|
60,169 |
|
|
|
340 |
|
|
|
(14,796 |
) |
|
|
45,713 |
|
Other invested assets |
|
|
7,046 |
|
|
|
152 |
|
|
|
|
|
|
|
7,198 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total managed investments |
|
$ |
520,280 |
|
|
$ |
569 |
|
|
$ |
(71,362 |
) |
|
$ |
449,487 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets acquired via acquisition |
|
|
1,722 |
|
|
|
|
|
|
|
|
|
|
|
1,722 |
|
West Virginia Trust Receivable |
|
|
8,111 |
|
|
|
|
|
|
|
|
|
|
|
8,111 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
530,113 |
|
|
$ |
569 |
|
|
$ |
(71,362 |
) |
|
$ |
459,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2014 |
|
Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
|
|
(in thousands) |
|
Short-term investments |
|
$ |
52,521 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
52,521 |
|
Fixed maturities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. State and local government agency |
|
|
270 |
|
|
|
|
|
|
|
(1 |
) |
|
|
269 |
|
Corporate debt securities |
|
|
9,400 |
|
|
|
23 |
|
|
|
(447 |
) |
|
|
8,976 |
|
Other debt securities |
|
|
7,157 |
|
|
|
|
|
|
|
(18 |
) |
|
|
7,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities |
|
|
16,827 |
|
|
|
23 |
|
|
|
(466 |
) |
|
|
16,384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds - debt securities |
|
|
150,477 |
|
|
|
869 |
|
|
|
(8,666 |
) |
|
|
142,680 |
|
Mutual funds - equity securities |
|
|
167,353 |
|
|
|
12,568 |
|
|
|
(463 |
) |
|
|
179,458 |
|
|
|
|
|
|
Equity securities |
|
|
81,639 |
|
|
|
4,167 |
|
|
|
(5,507 |
) |
|
|
80,299 |
|
Other invested assets |
|
|
5,400 |
|
|
|
|
|
|
|
(241 |
) |
|
|
5,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total managed investments |
|
$ |
474,217 |
|
|
$ |
17,627 |
|
|
$ |
(15,343 |
) |
|
$ |
476,501 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West Virginia Trust Receivable |
|
|
8,319 |
|
|
|
|
|
|
|
|
|
|
|
8,319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
482,536 |
|
|
$ |
17,627 |
|
|
$ |
(15,343 |
) |
|
$ |
484,820 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The contractual maturities of debt securities as of September 30, 2015 are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2015 |
|
Less than 1 year |
|
|
1 year through 5 years |
|
|
6 years through 10 years |
|
|
More than 10 years |
|
|
|
(in thousands) |
|
U.S. State and local government agency |
|
$ |
|
|
|
$ |
44 |
|
|
$ |
45 |
|
|
$ |
2 |
|
Corporate debt securities |
|
|
|
|
|
|
8,290 |
|
|
|
3,405 |
|
|
|
|
|
Other debt securities |
|
|
2,136 |
|
|
|
5,032 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities |
|
$ |
2,136 |
|
|
$ |
13,366 |
|
|
$ |
3,450 |
|
|
$ |
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
Temporary Declines in Fair Value
The Company evaluates declines in fair value below cost of each individual asset held in the merchandise trusts on a quarterly basis.
An aging of unrealized losses on the Companys investments in fixed maturities and equity securities at September 30, 2015 and
December 31, 2014 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months |
|
|
12 Months or more |
|
|
Total |
|
|
Number of Securities in Loss Position |
|
As of September 30, 2015 |
|
Fair Value |
|
|
Unrealized Losses |
|
|
Fair Value |
|
|
Unrealized Losses |
|
|
Fair Value |
|
|
Unrealized Losses |
|
|
|
|
(in thousands, except number of securities data) |
|
Fixed maturities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities |
|
$ |
6,277 |
|
|
$ |
254 |
|
|
$ |
4,641 |
|
|
$ |
626 |
|
|
$ |
10,918 |
|
|
$ |
880 |
|
|
|
64 |
|
Other debt securities |
|
|
160 |
|
|
|
|
|
|
|
6,374 |
|
|
|
9 |
|
|
|
6,534 |
|
|
|
9 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities |
|
|
6,437 |
|
|
|
254 |
|
|
|
11,015 |
|
|
|
635 |
|
|
|
17,452 |
|
|
|
889 |
|
|
|
75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds - debt securities |
|
|
20,308 |
|
|
|
1,896 |
|
|
|
208,471 |
|
|
|
26,770 |
|
|
|
228,779 |
|
|
|
28,666 |
|
|
|
45 |
|
Mutual funds - equity securities |
|
|
105,814 |
|
|
|
24,292 |
|
|
|
12,382 |
|
|
|
2,719 |
|
|
|
118,196 |
|
|
|
27,011 |
|
|
|
9 |
|
Equity securities |
|
|
22,291 |
|
|
|
5,088 |
|
|
|
20,096 |
|
|
|
9,708 |
|
|
|
42,387 |
|
|
|
14,796 |
|
|
|
89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
154,850 |
|
|
$ |
31,530 |
|
|
$ |
251,964 |
|
|
$ |
39,832 |
|
|
$ |
406,814 |
|
|
$ |
71,362 |
|
|
|
218 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months |
|
|
12 Months or more |
|
|
Total |
|
|
Number of Securities in Loss Position |
|
As of December 31, 2014 |
|
Fair Value |
|
|
Unrealized Losses |
|
|
Fair Value |
|
|
Unrealized Losses |
|
|
Fair Value |
|
|
Unrealized Losses |
|
|
|
|
(in thousands, except number of securities data) |
|
Fixed maturities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. State and local government agency |
|
$ |
143 |
|
|
$ |
1 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
143 |
|
|
$ |
1 |
|
|
|
3 |
|
Corporate debt securities |
|
|
5,905 |
|
|
|
342 |
|
|
|
1,506 |
|
|
|
105 |
|
|
|
7,411 |
|
|
|
447 |
|
|
|
58 |
|
Other debt securities |
|
|
2,370 |
|
|
|
8 |
|
|
|
4,769 |
|
|
|
10 |
|
|
|
7,139 |
|
|
|
18 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities |
|
|
8,418 |
|
|
|
351 |
|
|
|
6,275 |
|
|
|
115 |
|
|
|
14,693 |
|
|
|
466 |
|
|
|
74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds - debt securities |
|
|
32,072 |
|
|
|
1,039 |
|
|
|
95,629 |
|
|
|
7,627 |
|
|
|
127,701 |
|
|
|
8,666 |
|
|
|
34 |
|
Mutual funds - equity securities |
|
|
4,147 |
|
|
|
463 |
|
|
|
|
|
|
|
|
|
|
|
4,147 |
|
|
|
463 |
|
|
|
2 |
|
Equity securities |
|
|
44,563 |
|
|
|
4,641 |
|
|
|
3,909 |
|
|
|
866 |
|
|
|
48,472 |
|
|
|
5,507 |
|
|
|
60 |
|
Other invested assets |
|
|
|
|
|
|
|
|
|
|
4,881 |
|
|
|
241 |
|
|
|
4,881 |
|
|
|
241 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
89,200 |
|
|
$ |
6,494 |
|
|
$ |
110,694 |
|
|
$ |
8,849 |
|
|
$ |
199,894 |
|
|
$ |
15,343 |
|
|
|
171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were 218 and 171 securities in an unrealized loss position in merchandise trusts as of
September 30, 2015 and December 31, 2014, respectively, of which 102 and 39, respectively, were in an unrealized loss position for more than twelve months. For all securities in an unrealized loss position, the Company evaluated the
severity of the impairment, the length of time that a security has been in a loss position, and the securitys performance relative to the overall performance for the sector in which the security resides, and has concluded the decline in fair
value below the assets cost was temporary in nature. In addition, the Company is not aware of any circumstances that would prevent the future market value recovery for these securities.
Other-Than-Temporary Impairment of Trust Assets
During the three months ended September 30, 2015, the Company determined that there were no other than temporary impairments to the
investment portfolio in the merchandise trusts. During the nine months ended September 30, 2015, the Company determined that there were two securities with an aggregate cost basis of approximately $0.6 million and an aggregate
fair value of approximately $0.4 million, resulting in an impairment of $0.2 million, wherein such impairment was considered to be other-than-temporary. During the nine months ended September 30, 2014, the Company determined that there
were two securities with an aggregate cost basis of approximately $0.2 million and an aggregate fair value of approximately $0.1 million, resulting in an impairment of $0.1 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.
12
A reconciliation of the Companys merchandise trust activities for the nine months ended
September 30, 2015 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
at 12/31/2014 |
|
|
Contributions |
|
|
Distributions |
|
|
Interest/ Dividends |
|
|
Capital Gain Distributions |
|
|
Realized Net Gain/ (Loss) (1) |
|
|
Taxes |
|
|
Fees |
|
|
Unrealized Change in Fair Value |
|
|
Fair Value at 9/30/2015 |
|
(in thousands) |
|
$ |
484,820 |
|
|
|
60,875 |
|
|
|
(34,477 |
) |
|
|
13,642 |
|
|
|
(738 |
) |
|
|
14,190 |
|
|
|
(3,441 |
) |
|
|
(2,474 |
) |
|
|
(73,077 |
) |
|
$ |
459,320 |
|
(1) |
Includes $4.2 million representing the net effect of other-than-temporary impairment charges and the release of previously realized impairment charges, as a result of sales and maturities of impaired securities.
|
The Company made net contributions into the trusts of approximately $26.4 million during the nine months ended
September 30, 2015. During the nine months ended September 30, 2015, purchases and sales of securities available for sale included in trust investments were approximately $508.1 million and $489.6 million, respectively. Contributions
include $12.1 million of assets that were acquired through acquisitions during the nine months ended September 30, 2015.
At September 30, 2015, 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 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.
13
The cost and market value associated with the assets held in the perpetual care trusts at
September 30, 2015 and December 31, 2014 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2015 |
|
Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
|
|
(in thousands) |
|
Short-term investments |
|
$ |
14,455 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
14,455 |
|
Fixed maturities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and federal agency |
|
|
101 |
|
|
|
12 |
|
|
|
|
|
|
|
113 |
|
U.S. State and local government agency |
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
27 |
|
Corporate debt securities |
|
|
23,953 |
|
|
|
105 |
|
|
|
(1,381 |
) |
|
|
22,677 |
|
Other debt securities |
|
|
371 |
|
|
|
|
|
|
|
|
|
|
|
371 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities |
|
|
24,452 |
|
|
|
117 |
|
|
|
(1,381 |
) |
|
|
23,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds - debt securities |
|
|
229,047 |
|
|
|
1,572 |
|
|
|
(20,282 |
) |
|
|
210,337 |
|
Mutual funds - equity securities |
|
|
71,177 |
|
|
|
1,082 |
|
|
|
(10,965 |
) |
|
|
61,294 |
|
|
|
|
|
|
Equity securities |
|
|
1,927 |
|
|
|
407 |
|
|
|
(47 |
) |
|
|
2,287 |
|
Other invested assets |
|
|
220 |
|
|
|
|
|
|
|
|
|
|
|
220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
341,278 |
|
|
$ |
3,178 |
|
|
$ |
(32,675 |
) |
|
$ |
311,781 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2014 |
|
Cost |
|
|
Gross Unrealized Gains |
|
|
Gross Unrealized Losses |
|
|
Fair Value |
|
|
|
(in thousands) |
|
Short-term investments |
|
$ |
26,644 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
26,644 |
|
Fixed maturities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and federal agency |
|
|
100 |
|
|
|
16 |
|
|
|
|
|
|
|
116 |
|
U.S. State and local government agency |
|
|
78 |
|
|
|
1 |
|
|
|
|
|
|
|
79 |
|
Corporate debt securities |
|
|
24,275 |
|
|
|
104 |
|
|
|
(913 |
) |
|
|
23,466 |
|
Other debt securities |
|
|
371 |
|
|
|
|
|
|
|
|
|
|
|
371 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities |
|
|
24,824 |
|
|
|
121 |
|
|
|
(913 |
) |
|
|
24,032 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds - debt securities |
|
|
128,735 |
|
|
|
379 |
|
|
|
(5,220 |
) |
|
|
123,894 |
|
Mutual funds - equity securities |
|
|
103,701 |
|
|
|
23,003 |
|
|
|
(1,268 |
) |
|
|
125,436 |
|
|
|
|
|
|
Equity securities |
|
|
30,617 |
|
|
|
14,704 |
|
|
|
(247 |
) |
|
|
45,074 |
|
Other invested assets |
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
314,546 |
|
|
$ |
38,207 |
|
|
$ |
(7,648 |
) |
|
$ |
345,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The contractual maturities of debt securities as of September 30, 2015 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2015 |
|
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 |
|
$ |
|
|
|
$ |
113 |
|
|
$ |
|
|
|
$ |
|
|
U.S. State and local government agency |
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities |
|
|
256 |
|
|
|
15,888 |
|
|
|
6,515 |
|
|
|
18 |
|
Other debt securities |
|
|
371 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities |
|
$ |
654 |
|
|
$ |
16,001 |
|
|
$ |
6,515 |
|
|
$ |
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
Temporary Declines in Fair Value
The Company evaluates declines in fair value below cost of each individual asset held in the perpetual care trusts on a quarterly basis.
An aging of unrealized losses on the Companys investments in fixed maturities and equity securities at September 30, 2015 and
December 31, 2014 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months |
|
|
12 Months or more |
|
|
Total |
|
|
Number of Securities in Loss Position |
|
As of September 30, 2015 |
|
Fair Value |
|
|
Unrealized Losses |
|
|
Fair Value |
|
|
Unrealized Losses |
|
|
Fair Value |
|
|
Unrealized Losses |
|
|
|
|
(in thousands, except number of securities data) |
|
Fixed maturities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities |
|
$ |
9,916 |
|
|
$ |
455 |
|
|
$ |
7,549 |
|
|
$ |
926 |
|
|
$ |
17,465 |
|
|
$ |
1,381 |
|
|
|
68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities |
|
|
9,916 |
|
|
|
455 |
|
|
|
7,549 |
|
|
|
926 |
|
|
|
17,465 |
|
|
|
1,381 |
|
|
|
68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds - debt securities |
|
|
95,075 |
|
|
|
5,115 |
|
|
|
112,826 |
|
|
|
15,167 |
|
|
|
207,901 |
|
|
|
20,282 |
|
|
|
40 |
|
Mutual funds - equity securities |
|
|
43,893 |
|
|
|
10,965 |
|
|
|
|
|
|
|
|
|
|
|
43,893 |
|
|
|
10,965 |
|
|
|
4 |
|
Equity securities |
|
|
186 |
|
|
|
30 |
|
|
|
47 |
|
|
|
17 |
|
|
|
233 |
|
|
|
47 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
149,070 |
|
|
$ |
16,565 |
|
|
$ |
120,422 |
|
|
$ |
16,110 |
|
|
$ |
269,492 |
|
|
$ |
32,675 |
|
|
|
118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months |
|
|
12 Months or more |
|
|
Total |
|
|
Number of Securities in Loss Position |
|
As of December 31, 2014 |
|
Fair Value |
|
|
Unrealized Losses |
|
|
Fair Value |
|
|
Unrealized Losses |
|
|
Fair Value |
|
|
Unrealized Losses |
|
|
|
|
(in thousands, except number of securities data) |
|
Fixed maturities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities |
|
$ |
14,434 |
|
|
$ |
798 |
|
|
$ |
2,519 |
|
|
$ |
115 |
|
|
$ |
16,953 |
|
|
$ |
913 |
|
|
|
83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities |
|
|
14,434 |
|
|
|
798 |
|
|
|
2,519 |
|
|
|
115 |
|
|
|
16,953 |
|
|
|
913 |
|
|
|
83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds - debt securities |
|
|
30,345 |
|
|
|
768 |
|
|
|
86,814 |
|
|
|
4,452 |
|
|
|
117,159 |
|
|
|
5,220 |
|
|
|
31 |
|
Mutual funds - equity securities |
|
|
13,035 |
|
|
|
1,268 |
|
|
|
|
|
|
|
|
|
|
|
13,035 |
|
|
|
1,268 |
|
|
|
5 |
|
Equity securities |
|
|
3,866 |
|
|
|
245 |
|
|
|
620 |
|
|
|
2 |
|
|
|
4,486 |
|
|
|
247 |
|
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
61,680 |
|
|
$ |
3,079 |
|
|
$ |
89,953 |
|
|
$ |
4,569 |
|
|
$ |
151,633 |
|
|
$ |
7,648 |
|
|
|
148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were 118 and 148 securities in an unrealized loss position in perpetual care trusts as of
September 30, 2015 and December 31, 2014, respectively, of which 55 and 20, respectively, were in an unrealized loss position for more than twelve months. For all securities in an unrealized loss position, the Company evaluated the
severity of the impairment, the length of time that a security has been in a loss position, and the securitys performance relative to the overall performance for the sector in which the security resides, and has concluded the decline in fair
value below the assets cost was temporary in nature. In addition, the Company is not aware of any circumstances that would prevent the future market value recovery for these securities.
Other-Than-Temporary Impairment of Trust Assets
During the three and nine months ended September 30, 2015 and during the three months ended September 30, 2014, the Company
determined that there were no other than temporary impairments to the investment portfolio in the perpetual care trusts. During the nine months ended September 30, 2014, the Company determined that there were 2 securities with an aggregate cost
basis of approximately $1.3 million and an aggregate fair value of approximately $0.8 million, resulting in an impairment of $0.5 million, wherein such impairment was considered to be other-than-temporary. Accordingly, the Company adjusted the cost
basis of these assets to their current value and offset this change against the liability for perpetual care trust corpus.
15
A reconciliation of the Companys perpetual care trust activities for the nine months ended
September 30, 2015 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value at 12/31/2014 |
|
|
Contributions |
|
|
Distributions |
|
|
Interest/ Dividends |
|
|
Capital Gain Distributions |
|
|
Realized Net Gain/ (Loss) (1) |
|
|
Taxes |
|
|
Fees |
|
|
Unrealized Change in Fair Value |
|
|
Fair Value at 9/30/2015 |
|
(in thousands) |
|
$ |
345,105 |
|
|
|
12,058 |
|
|
|
(10,254 |
) |
|
|
13,236 |
|
|
|
41 |
|
|
|
13,942 |
|
|
|
(637 |
) |
|
|
(1,654 |
) |
|
|
(60,056 |
) |
|
$ |
311,781 |
|
(1) |
Includes $12.0 million representing the net effect of other-than-temporary impairment charges and the release of previously realized impairment charges, as a result of sales and maturities of impaired securities.
|
The Company made net contributions from the trusts of approximately $1.8 million during the nine months ended
September 30, 2015. During the nine months, ended September 30, 2015, purchases and sales of securities available for sale included in trust investments were approximately $326.9 million and $320.2 million, respectively. Contributions
include $3.6 million of assets that were acquired through acquisitions during the nine months ended September 30, 2015.
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.
There have been no
changes in the goodwill balance during the period and a summary by reportable segment is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cemeteries |
|
|
Funeral Homes |
|
|
Total |
|
|
|
Southeast |
|
|
Northeast |
|
|
West |
|
|
|
|
|
(in thousands) |
|
Balance as of December 31, 2014 |
|
$ |
8,950 |
|
|
$ |
3,288 |
|
|
$ |
11,948 |
|
|
$ |
34,650 |
|
|
$ |
58,836 |
|
Goodwill acquired from acquisitions during 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,212 |
|
|
|
5,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2015 |
|
$ |
8,950 |
|
|
$ |
3,288 |
|
|
$ |
11,948 |
|
|
$ |
39,862 |
|
|
$ |
64,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 lease,
management and operating agreements. All of the intangible assets are amortized as a component of depreciation and amortization in the unaudited condensed consolidated statement of operations. The major classes of intangible assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2015 |
|
|
As of December 31, 2014 |
|
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Intangible Asset |
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Intangible Asset |
|
|
|
(in thousands) |
|
Amortized intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease and management agreements |
|
$ |
59,758 |
|
|
$ |
(1,328 |
) |
|
$ |
58,430 |
|
|
$ |
59,758 |
|
|
$ |
(581 |
) |
|
$ |
59,177 |
|
Underlying contract value |
|
|
6,239 |
|
|
|
(975 |
) |
|
|
5,264 |
|
|
|
6,239 |
|
|
|
(858 |
) |
|
|
5,381 |
|
Non-compete agreements |
|
|
5,576 |
|
|
|
(2,860 |
) |
|
|
2,716 |
|
|
|
5,250 |
|
|
|
(2,126 |
) |
|
|
3,124 |
|
Other intangible assets |
|
|
1,439 |
|
|
|
(168 |
) |
|
|
1,271 |
|
|
|
1,439 |
|
|
|
(131 |
) |
|
|
1,308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets |
|
$ |
73,012 |
|
|
$ |
(5,331 |
) |
|
$ |
67,681 |
|
|
$ |
72,686 |
|
|
$ |
(3,696 |
) |
|
$ |
68,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Note 7 of the Companys 2014 Form 10-K for a discussion of the Companys intangible assets,
including its contract-based intangible asset pertaining to the lease and management agreements with the Archdiocese of Philadelphia.
16
The Company had the following outstanding debt:
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
September 30, 2015 |
|
|
December 31, 2014 |
|
|
|
(in thousands) |
|
7.875% Senior Notes, due June 2021 |
|
$ |
175,000 |
|
|
$ |
175,000 |
|
Credit Facility, due December 2019: |
|
|
|
|
|
|
|
|
Working Capital Draws |
|
|
75,000 |
|
|
|
85,902 |
|
Acquisition Draws |
|
|
38,500 |
|
|
|
25,000 |
|
Notes payable - acquisition debt |
|
|
732 |
|
|
|
861 |
|
Notes payable - acquisition non-competes |
|
|
1,894 |
|
|
|
2,765 |
|
Insurance and vehicle financing |
|
|
3,006 |
|
|
|
1,632 |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
294,132 |
|
|
|
291,160 |
|
Less current portion |
|
|
3,294 |
|
|
|
2,251 |
|
Less unamortized bond and note payable discounts |
|
|
3,114 |
|
|
|
3,531 |
|
|
|
|
|
|
|
|
|
|
Long-term portion |
|
$ |
287,724 |
|
|
$ |
285,378 |
|
|
|
|
|
|
|
|
|
|
This note includes a summary of material terms of the Companys senior notes and revolving credit
facility. For a more detailed description of the Companys long-term debt agreements, see the Companys 2014 Form 10-K.
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,
since December 1, 2013. The net proceeds from the offering were used to retire a $150.0 million aggregate principal amount of 10.25% Senior Notes due 2017 and the remaining proceeds were used for general corporate purposes. The Senior Notes
were issued at 97.832% of par resulting in gross proceeds of $171.2 million with an original issue discount of approximately $3.8 million. The Company incurred debt issuance costs and fees of approximately $4.6 million. These costs and fees are
deferred and are amortized over the life of the Senior Notes. Based on trades made on September 30, 2015, the Company has estimated the fair value of its Senior Notes to be in excess of par and trading at a premium of 3.0%, which would imply a
fair value of $180.3 million at September 30, 2015. The Senior Notes are valued using Level 2 inputs as defined by the Fair Value Measurements and Disclosures topic of the ASC in Note 15. As of September 30, 2015, the Company was in
compliance with all applicable covenants of the Senior Notes.
Credit Facility
On December 19, 2014, the Partnership entered into the Fourth Amended and Restated Credit Agreement (the Credit Agreement).
The Credit Agreement provides for a single revolving credit facility of $180.0 million (the Credit Facility) maturing on
December 19, 2019. Additionally the Credit Agreement provides for an uncommitted ability to increase the Credit Facility by an additional $70.0 million. The summary of the material terms of the Credit Agreement is set forth below.
Capitalized terms, which are not defined in the following description, shall have the meaning assigned to such terms in the Credit Agreement.
At September 30, 2015, amounts outstanding under the Credit Facility bore interest at rates of approximately 4.1%. The interest rates on
the Credit Facility are calculated as follows:
|
|
|
For Eurodollar Rate Loans, the outstanding principal amount thereof bears interest for each Interest Period at a rate per annum equal to the Eurodollar Rate for the Interest Period plus the Applicable Rate for
Eurodollar Rate Loans; and |
17
|
|
|
For Base Rate Loans and Swing Line Loans, the outstanding principal amount thereof bears interest from the applicable borrowing date at a rate per annum equal to the Base Rate plus the Applicable Rate for Base Rate
Loans. |
In addition, the Borrowers must pay a Letter of Credit Fee for each Letter of Credit equal to the Applicable Rate
for Letter of Credit Fees times the daily amount to be drawn under such Letter of Credit. The Applicable Rate is determined based on the Consolidated Leverage Ratio of the Partnership and its Subsidiaries, and ranges from 2.25% to 4.00% for
Eurodollar Rate Loans and Letter of Credit Fees, and 1.25% to 3.00% for Base Rate Loans. The current Applicable Rate for each of: (i) Eurodollar Rate Loans and Letter of Credit Fees is 3.25% and (ii) Base Rate Loans is 2.25% based on the
current Consolidated Leverage Ratio. The Credit Agreement also requires the Borrowers to pay a quarterly unused commitment fee, which is calculated based on the amount by which the commitments under the Credit Agreement exceeds the usage of such
commitments.
The Credit Agreement contains financial covenants, pursuant to which the Borrowers and the Guarantors will not permit:
|
|
|
Consolidated EBITDA for any Measurement Period to be less than the sum of (i) $80.0 million plus (ii) 80% of the aggregate of all Consolidated EBITDA for each Permitted Acquisition completed after
June 30, 2014; |
|
|
|
the Consolidated Debt Service Coverage Ratio to be less than 2.50 to 1.0 for any Measurement Period; and |
|
|
|
the Consolidated Leverage Ratio to be greater than 4.00 to 1.0 for any period. |
The covenants
include, among other limitations, limitations on: (i) liens, (ii) the creation or incurrence of debt, (iii) investments and acquisitions, (iv) dispositions of property, (v) dividends, distributions and redemptions, and
(vi) transactions with Affiliates.
The Credit Agreement provides that two types of draws are permitted with respect to the Credit
Facility: Acquisition Draws and Working Capital Draws. The proceeds of Acquisition Draws may be utilized by the Borrowers to finance Permitted Acquisitions, the purchase and construction of mausoleums and related costs or the net amount of
Merchandise Trust deposits made after the Closing Date under the Credit Agreement, irrespective of whether such amounts relate to new or existing cemeteries or funeral homes. The proceeds of Working Capital Draws, Letters of Credit and Swing Line
Loans may be utilized by the Borrowers to finance working capital requirements, Capital Expenditures and for other general corporate purposes. The borrowing of Working Capital Advances is subject to a borrowing formula of 85% of Eligible
Receivables. This limit was $135.5 million at September 30, 2015.
Each Acquisition Draw is subject to equal quarterly amortization
of the principal amount of such draw, with annual principal payments comprised of ten percent (10%) of the related draw amount, commencing on the second anniversary of such draw, with the remaining principal due on the Maturity Date, subject to
certain mandatory prepayment requirements. Working Capital Draws are due on the Maturity Date, subject to certain mandatory prepayment requirements.
Effective July 10, 2015, the Company entered into the First Amendment (the First Amendment) to the Credit Agreement to allow
the Company to apply Net Cash Proceeds received from certain: (i) Dispositions of property by any Credit Party or any of its Subsidiaries, (ii) sales or issuances of Equity Interests by the Company or any of its Subsidiaries and
(iii) Extraordinary Receipts received by or paid to or for the account of any Credit Party or any of its Subsidiaries and not otherwise included in clause (i) and (ii) above that are required to be prepaid to the Lenders, to
Acquisition Draws or Working Capital Draws, at the Companys discretion. Prior to the execution of the First Amendment, the Credit Agreement required that the Net Cash Proceeds from the transactions described above be applied to Acquisition
Draws before they could be applied to Working Capital Draws.
As of September 30, 2015, there were $113.5 million of outstanding
borrowings under the Credit Facility. The Credit Facility approximates fair value as it consists of multiple current LIBOR borrowings with maturities of 90 days or less, with amounts that can be rolled-over or reborrowed at market rates. It is
valued using Level 2 inputs. As of September 30, 2015, the Company complied with all applicable financial covenants.
The Company
routinely incurs debt financing costs and fees when borrowing under, or making amendments to, the Credit Facility. These costs and fees are deferred and are amortized over the life of the Credit Facility.
18
As of September 30, 2015, the Companys taxable corporate subsidiaries had federal net operating loss
carryforwards of approximately $223.1 million, which will begin to expire in 2017 and $272.0 million in state net operating loss carryforwards, 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 bases and operating loss and tax credit carryforwards.
Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
The provision for income taxes for the nine months ended
September 30, 2015 and 2014 is based upon the estimated annual effective tax rates expected to be applicable to the Company for 2015 and 2014, 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 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 2011 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. Based on 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 September 30, 2015 and December 31, 2014, deferred cemetery revenues, net, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
|
September 30, 2015 |
|
|
December 31, 2014 |
|
|
|
(in thousands) |
|
Deferred cemetery revenue |
|
$ |
517,840 |
|
|
$ |
456,632 |
|
Deferred merchandise trust revenue |
|
|
128,779 |
|
|
|
104,717 |
|
Deferred merchandise trust unrealized gains (losses) |
|
|
(70,793 |
) |
|
|
2,284 |
|
Deferred pre-acquisition margin |
|
|
140,389 |
|
|
|
140,378 |
|
Deferred cost of goods sold |
|
|
(70,982 |
) |
|
|
(60,603 |
) |
|
|
|
|
|
|
|
|
|
Deferred cemetery revenues, net |
|
$ |
645,233 |
|
|
$ |
643,408 |
|
|
|
|
|
|
|
|
|
|
Deferred selling and obtaining costs |
|
$ |
108,754 |
|
|
$ |
97,795 |
|
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 ASC 944.
19
11. |
COMMITMENTS AND CONTINGENCIES |
Legal
During
the third quarter of 2015, the Company recorded a charge pertaining to a legal settlement of a Fair Labor Standards Act claim. This $3.0 million amount is recorded under Legal settlement on the Consolidated Statement of Operations and
consists of a charge for the settlement amount and legal fees related to the case.
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 September 30,
2015, 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 twenty-four years and options to renew at varying terms. Expenses under
these operating leases were $0.9 million and $2.4 million for the three and nine months ended September 30, 2015, respectively, and $0.5 million and $1.7 million for the three and nine months ended September 30, 2014, respectively.
On June 5, 2015, the Company entered into a lease agreement for a new corporate office location in Trevose, Pennsylvania. The lease term
will commence on February 1, 2016 and will expire on July 31, 2028, with certain contractual renewal options. The Company does not expect this new lease to have a significant impact on its cash flows.
The operating leases will result in future payments in the following approximate amounts from September 30, 2015 and beyond:
|
|
|
|
|
|
|
(in thousands) |
|
2015 |
|
$ |
812 |
|
2016 |
|
|
3,087 |
|
2017 |
|
|
3,292 |
|
2018 |
|
|
3,205 |
|
2019 |
|
|
2,885 |
|
2020 |
|
|
1,691 |
|
Thereafter |
|
|
10,471 |
|
|
|
|
|
|
Total |
|
$ |
25,443 |
|
|
|
|
|
|
Other
See Note 13 of the Companys 2014 Form 10-K for a discussion of the Companys future commitments related to its agreements with the
Archdiocese of Philadelphia.
The table below reflects the activity relating to the number of common units outstanding for the nine months ended
September 30, 2015:
|
|
|
|
|
|
|
Nine months ended September 30, 2015 |
|
Outstanding, beginning of period |
|
|
29,203,595 |
|
Public offerings |
|
|
2,415,000 |
|
Unit distributions |
|
|
152,879 |
|
Unit-based compensation |
|
|
7,631 |
|
|
|
|
|
|
Outstanding, end of period |
|
|
31,779,105 |
|
|
|
|
|
|
20
Unit-Based Compensation
The Company has issued to certain key employees, management, and directors unit-based compensation in the form of unit appreciation rights and
restricted phantom partnership units.
Compensation expense recognized related to unit appreciation rights and restricted phantom unit
awards for the three and nine months ended September 30, 2015 and 2014 are summarized in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
|
(in thousands) |
|
|
(in thousands) |
|
Unit appreciation rights |
|
$ |
15 |
|
|
$ |
21 |
|
|
$ |
55 |
|
|
$ |
60 |
|
Restricted phantom units |
|
|
262 |
|
|
|
244 |
|
|
|
769 |
|
|
|
742 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unit-based compensation expense |
|
$ |
277 |
|
|
$ |
265 |
|
|
$ |
824 |
|
|
$ |
802 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2015, there was approximately $0.1 million in non-vested unit appreciation rights
expense outstanding. These unit appreciation rights will be expensed through 2018.
The diluted weighted average number of limited
partners units outstanding presented on the unaudited condensed consolidated statement of operations does not include 192,482 and 187,640 units for the three and nine months ended September 30, 2015, respectively, and 180,959 and 179,929
units for the three and nine months ended September 30, 2014, as their effects would be anti-dilutive.
During the nine months ended September 30, 2015, 7,631 common units were issued under the StoneMor Partners L.P. Long-Term Incentive Plans. See Note 11 of the Companys 2014 Form 10-K for a description of the Companys Long-Term Incentive Plan, as amended.
Other Unit Issuances
On
July 10, 2015, the Company completed a follow-on public offering of 2,415,000 common units at a public offering price of $29.63 per unit. Net proceeds of the offering, after deducting underwriting discounts and offering expenses, were
approximately $67.9 million. The proceeds were used to pay down outstanding indebtedness under our Credit Facility.
Pursuant to a Common
Unit Purchase Agreement, dated May 19, 2014, by and between the Company and American Cemeteries Infrastructure Investors, LLC, a Delaware limited liability company (ACII), the Company issued 54,622, 49,911 and 48,346 common units to
ACII in lieu of cash distributions of approximately $1.4 million, $1.4 million and $1.5 million on February 16, 2015, May 15, 2015 and August 14, 2015, respectively. Refer to the Companys 2014 Form 10-K, Note 17, for a
detailed discussion of the Common Unit Purchase Agreement.
Third Quarter 2015 Acquisitions
On July 21, 2015, certain subsidiaries of the Company (collectively the Buyer) entered into an Asset Purchase and Sale
Agreement with Gloria Weiss Realty, LLC. (the Seller). Pursuant to the Agreement, the Buyer acquired one funeral home in Florida, 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.
21
The table below reflects the Companys preliminary assessment of the fair value of net
assets acquired and the resulting goodwill from purchase. These amounts may be retrospectively adjusted as additional information is received. The acquired goodwill is recorded in the Companys Funeral Homes operating segment.
|
|
|
|
|
|
|
Preliminary Assessment |
|
|
|
(in thousands) |
|
Assets: |
|
|
|
|
Accounts receivable |
|
$ |
313 |
|
Property and equipment |
|
|
24 |
|
Merchandise trusts, restricted, at fair value |
|
|
1,211 |
|
|
|
|
|
|
Total assets |
|
|
1,548 |
|
|
|
|
|
|
Liabilities: |
|
|
|
|
Deferred margin |
|
|
200 |
|
Merchandise liabilities |
|
|
1,424 |
|
|
|
|
|
|
Total liabilities |
|
|
1,624 |
|
|
|
|
|
|
Fair value of net assets acquired |
|
|
(76 |
) |
|
|
|
|
|
Consideration paid |
|
|
900 |
|
|
|
|
|
|
Goodwill from purchase |
|
$ |
976 |
|
|
|
|
|
|
On August 6, 2015, certain subsidiaries of the Company (collectively the Buyer) entered into
an Asset Purchase and Sale Agreement with Herr Funeral Homes, LTD and Sunset Hill Memorial Estates, LTD. (the Sellers). Pursuant to the Agreement, the Buyer acquired three funeral homes and one cemetery in Illinois, including certain
related assets, and assumed certain related liabilities. In consideration for the net assets acquired, the Buyer paid the Sellers $5.7 million in cash.
22
The table below reflects the Companys preliminary assessment of the fair value of net
assets acquired and the resulting gain on bargain purchase. These amounts may be retrospectively adjusted as additional information is received.
|
|
|
|
|
|
|
Preliminary Assessment |
|
|
|
(in thousands) |
|
Assets: |
|
|
|
|
Accounts receivable |
|
$ |
62 |
|
Cemetery and funeral home property |
|
|
3,180 |
|
Property and equipment |
|
|
2,317 |
|
Merchandise trusts, restricted, at fair value |
|
|
511 |
|
Perpetual care trusts, restricted, at fair value |
|
|
2,032 |
|
Intangible assets |
|
|
150 |
|
|
|
|
|
|
Total assets |
|
|
8,252 |
|
|
|
|
|
|
Liabilities: |
|
|
|
|
Deferred margin |
|
|
139 |
|
Merchandise liabilities |
|
|
128 |
|
Perpetual care trust corpus |
|
|
2,032 |
|
|
|
|
|
|
Total liabilities |
|
|
2,299 |
|
|
|
|
|
|
Fair value of net assets acquired |
|
|
5,953 |
|
|
|
|
|
|
Consideration paid |
|
|
5,700 |
|
|
|
|
|
|
Gain on bargain purchase |
|
$ |
253 |
|
|
|
|
|
|
On August 20, 2015, certain subsidiaries of the Company (collectively the Buyer) entered into
an Asset Purchase and Sale Agreement with Bronze Stone, LLC (the Seller). Pursuant to the Agreement, the Buyer acquired two cemeteries in Illinois, including certain related assets, and assumed certain related liabilities. In
consideration for the net assets acquired, the Buyer paid the Seller $1.5 million in cash.
23
The table below reflects the Companys preliminary assessment of the fair value of net
assets acquired and the resulting gain on bargain purchase. These amounts may be retrospectively adjusted as additional information is received.
|
|
|
|
|
|
|
Preliminary Assessment |
|
|
|
(in thousands) |
|
Assets: |
|
|
|
|
Accounts receivable |
|
$ |
158 |
|
Cemetery property |
|
|
1,355 |
|
Property and equipment |
|
|
400 |
|
Merchandise trusts, restricted, at fair value |
|
|
1,999 |
|
Perpetual care trusts, restricted, at fair value |
|
|
1,541 |
|
Intangible assets |
|
|
33 |
|
|
|
|
|
|
Total assets |
|
|
5,486 |
|
|
|
|
|
|
Liabilities: |
|
|
|
|
Deferred margin |
|
|
602 |
|
Merchandise liabilities |
|
|
556 |
|
Perpetual care trust corpus |
|
|
1,541 |
|
|
|
|
|
|
Total liabilities |
|
|
2,699 |
|
|
|
|
|
|
Fair value of net assets acquired |
|
|
2,787 |
|
|
|
|
|
|
Consideration paid |
|
|
1,500 |
|
|
|
|
|
|
Gain on bargain purchase |
|
$ |
1,287 |
|
|
|
|
|
|
On August 31, 2015, certain subsidiaries of the Company (collectively the Buyer) entered into
an Asset Purchase and Sale Agreement with Vista Funeral Home, Inc. (the Seller). Pursuant to the Agreement, the Buyer acquired one funeral home in Florida, including certain related assets, and assumed certain related liabilities. In
consideration for the net assets acquired, the Buyer paid the Seller $5.0 million in cash and an additional $1.0 million will be paid in five equal annual installments. The Company has recorded the deferred cash payment as a liability to Other
long-term liabilities on its balance sheet at its estimated fair value of $0.9 million.
24
The table below reflects the Companys preliminary assessment of the fair value of net
assets acquired and the resulting goodwill from purchase. These amounts may be retrospectively adjusted as additional information is received. The acquired goodwill is recorded in the Companys Funeral Homes operating segment.
|
|
|
|
|
|
|
Preliminary Assessment |
|
|
|
(in thousands) |
|
Assets: |
|
|
|
|
Accounts receivable |
|
$ |
1,961 |
|
Funeral home property |
|
|
600 |
|
Property and equipment |
|
|
1,464 |
|
Merchandise trusts, restricted, at fair value |
|
|
8,380 |
|
Intangible assets |
|
|
143 |
|
Other assets |
|
|
56 |
|
|
|
|
|
|
Total assets |
|
|
12,604 |
|
|
|
|
|
|
Liabilities: |
|
|
|
|
Deferred margin |
|
|
2,275 |
|
Merchandise liabilities |
|
|
8,689 |
|
|
|
|
|
|
Total liabilities |
|
|
10,964 |
|
|
|
|
|
|
Fair value of net assets acquired |
|
|
1,640 |
|
|
|
|
|
|
Consideration paid |
|
|
5,000 |
|
Deferred cash consideration |
|
|
876 |
|
|
|
|
|
|
Goodwill from purchase |
|
$ |
4,236 |
|
|
|
|
|
|
First Quarter 2014 Acquisition
On January 16, 2014, certain subsidiaries of the Company (collectively the Buyer) entered into an Asset Purchase and Sale
Agreement with Carriage Cemetery Services, Inc. (the Seller). Pursuant to the Agreement, the Buyer acquired one cemetery in Florida, including certain related assets, and assumed certain related liabilities. In consideration for the net
assets acquired, the Buyer paid the Seller $0.2 million in cash.
25
The table below reflects the Companys final assessment of the fair value of net assets
acquired and the resulting gain on bargain purchase.
|
|
|
|
|
|
|
Final Assessment |
|
|
|
(in thousands) |
|
Assets: |
|
|
|
|
Accounts receivable |
|
$ |
47 |
|
Cemetery property |
|
|
470 |
|
Property and equipment |
|
|
140 |
|
Merchandise trusts, restricted, at fair value |
|
|
2,607 |
|
Perpetual care trusts, restricted, at fair value |
|
|
691 |
|
|
|
|
|
|
Total assets |
|
|
3,955 |
|
|
|
|
|
|
Liabilities: |
|
|
|
|
Deferred margin |
|
|
1,035 |
|
Merchandise liabilities |
|
|
956 |
|
Deferred tax liability |
|
|
641 |
|
Perpetual care trust corpus |
|
|
691 |
|
Other liabilities |
|
|
20 |
|
|
|
|
|
|
Total liabilities |
|
|
3,343 |
|
|
|
|
|
|
Fair value of net assets acquired |
|
|
612 |
|
|
|
|
|
|
Consideration paid |
|
|
200 |
|
|
|
|
|
|
Gain on bargain purchase |
|
$ |
412 |
|
|
|
|
|
|
Second Quarter 2014 Acquisition
On June 10, 2014, certain subsidiaries of the Company (collectively the Buyers) closed the transaction under the Asset Sale
Agreements (the Agreements), with certain subsidiaries of Service Corporation International (collectively the Sellers) to acquire nine funeral homes, twelve cemeteries and certain related assets in Central Florida, North
Carolina, Southeastern Pennsylvania and Virginia. In consideration for the net assets acquired, the Buyers paid the Sellers $53.8 million in cash.
The Company recorded an intangible asset of $1.2 million for a favorable interest in a lease at one of the acquired North Carolina funeral
home businesses. This asset will be amortized over the full remaining term of the lease agreement, which is approximately 36 years, with renewals. This asset was previously reported as a component of Other assets on the consolidated
balance sheet.
The table below reflects the Companys final assessment of the fair value of net assets acquired and the resulting
goodwill from purchase. There was no change to the amounts retrospectively adjusted in the fourth quarter of 2014. The
26
Company acquired goodwill of $2.8 million, $3.3 million and $2.4 million in the Companys Cemetery OperationsSoutheast, Cemetery OperationsNortheast and Funeral Homes operating
segments, respectively.
|
|
|
|
|
|
|
Final Assessment |
|
|
|
(in thousands) |
|
Assets: |
|
|
|
|
Accounts receivable |
|
$ |
6,188 |
|
Cemetery property |
|
|
26,029 |
|
Property and equipment |
|
|
15,776 |
|
Merchandise trusts, restricted, at fair value |
|
|
31,534 |
|
Perpetual care trusts, restricted, at fair value |
|
|
16,913 |
|
Intangible assets |
|
|
1,170 |
|
Other assets |
|
|
178 |
|
|
|
|
|
|
Total assets |
|
|
97,788 |
|
|
|
|
|
|
Liabilities: |
|
|
|
|
Deferred margin |
|
|
13,570 |
|
Merchandise liabilities |
|
|
19,905 |
|
Deferred tax liability |
|
|
2,010 |
|
Perpetual care trust corpus |
|
|
16,913 |
|
Other liabilities |
|
|
63 |
|
|
|
|
|
|
Total liabilities |
|
|
52,461 |
|
|
|
|
|
|
Fair value of net assets acquired |
|
|
45,327 |
|
|
|
|
|
|
Consideration paid |
|
|
53,800 |
|
|
|
|
|
|
Goodwill from purchase |
|
$ |
8,473 |
|
|
|
|
|
|
Agreements with the Archdiocese of Philadelphia
On May 28, 2014, certain subsidiaries of the Company (Tenant) and the Archdiocese of Philadelphia, an archdiocese governed by
Canon Law of the Roman Catholic Church (Landlord) closed a Lease Agreement (the Lease) and a Management Agreement (the Management Agreement), pursuant to which Tenant will operate 13 cemeteries in Pennsylvania for
a term of 60 years. The Company joined the Lease and the Management Agreement as a guarantor of all of Tenants obligations under this operating arrangement.
Landlord agreed to lease to Tenant eight cemetery sites in the Philadelphia area. The Lease granted Tenant a sole and exclusive license (the
License) to maintain and construct improvements in the operation of the cemeteries and to sell burial rights and all related merchandise and services, subject to the terms and conditions of the Lease. The Management Agreement enabled
Tenant, subject to certain closing conditions, to serve as the exclusive operator of the remaining five cemeteries. The Lease may be terminated pursuant to the terms of the Lease, including, but not limited to, by notice of termination given by
Landlord to Tenant at any time during Lease year 11 (a Lease Year 11 Termination) or by either party due to the default or bankruptcy of the other party in accordance with the termination provisions of the Lease. If the Lease is
terminated by Landlord or Tenant pursuant to the terms of the Lease, the Management Agreement will also be terminated.
At closing, Tenant
paid to Landlord an up-front rental payment of $53.0 million (the Up-Front Rent). Tenant shall also pay to Landlord aggregate fixed rent of $36.0 million (the Fixed Rent) for the Cemeteries in the following amounts:
|
|
|
Lease Years 1-5 |
|
None |
Lease Years 6-20 |
|
$1,000,000 per Lease Year |
Lease Years 21-25 |
|
$1,200,000 per Lease Year |
Lease Years 26-35 |
|
$1,500,000 per Lease Year |
Lease Years 36-60 |
|
None |
27
The Fixed Rent for Lease Years 6 through 11 (the Deferred Fixed Rent) shall be
deferred. If Landlord terminates the Lease pursuant to a Lease Year 11 Termination or Tenant terminates the Lease as a result of a Landlords default prior to the end of Lease Year 11 (collectively, a Covered Termination), the
Deferred Fixed Rent shall be forfeited by Landlord and shall be retained by Tenant. If the Lease is not terminated by a Covered Termination, the Deferred Fixed Rent shall become due and payable 30 days after the end of Lease Year 11.
If Landlord terminates the Lease pursuant to a Lease Year 11 Termination, Landlord must repay to Tenant all $53.0 million of the Up-Front
Rent. If the Lease is terminated for cause at any time, Landlord must repay to Tenant the unamortized portion of the Up-Front Rent: (i) based on a 60 year amortization schedule if terminated by Tenant due to Landlords default and
(ii) based on a 30 year amortization schedule if terminated by Landlord due to Tenants default.
Generally, 51% of gross
revenues from any source received by Tenant on account of the Cemeteries but unrelated to customary operations of the Cemeteries less Tenants and Landlords reasonable costs and expenses applicable to such unrelated activity shall be paid
to Landlord as additional rent. In addition, Tenant shall have the right to request from time to time that Landlord sell (to a party that is independent and not an affiliate of StoneMor or any party that is a Tenant) all or portions of undeveloped
land at the leased Cemeteries. If Landlord approves the sale of such undeveloped land, Tenant shall pay to Landlord, as additional rent, 51% of the net proceeds of any such sale.
The table below reflects the assets and liabilities recognized:
|
|
|
|
|
|
|
(in thousands) |
|
Assets: |
|
|
|
|
Accounts receivable |
|
$ |
1,610 |
|
Intangible asset |
|
|
59,758 |
|
|
|
|
|
|
Total assets |
|
|
61,368 |
|
|
|
|
|
|
Liabilities: |
|
|
|
|
Obligation for lease and management agreements |
|
|
36,000 |
|
Discount on obligation for lease and management agreements |
|
|
(27,632 |
) |
|
|
|
|
|
Obligation for lease and management agreements, net |
|
|
8,368 |
|
|
|
|
|
|
Total liabilities |
|
|
8,368 |
|
|
|
|
|
|
Total net assets |
|
$ |
53,000 |
|
|
|
|
|
|
The Company recorded the underlying value of the Lease and Management Agreements as a contract-based
intangible asset at the present value of the consideration, less the fair value of net assets received, consisting of acquired accounts receivable. A liability of $8.4 million was also recorded for the present value of the Fixed Rent, which is equal
to the $36.0 million gross amount due to the Archdiocese of Philadelphia in the future, net of a discount $27.6 million. The discounted values were determined using an effective annual rate of 8.3%, which represents an estimate of the return an
investor would require to make this type of investment in the Company over the rent payment period.
If the transactions noted above had
been consummated at the beginning of the comparable prior annual reporting period, on a pro forma basis, for the three and nine months ended September 30, 2015 and 2014, consolidated revenues,
28
consolidated net income (loss), and net income (loss) per limited partner unit (basic and diluted) would have been as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
|
(in thousands, except per unit data) |
|
Revenue |
|
$ |
78,972 |
|
|
$ |
79,576 |
|
|
$ |
229,971 |
|
|
$ |
231,752 |
|
Net income (loss) |
|
|
(4,606 |
) |
|
|
(2,770 |
) |
|
|
(17,358 |
) |
|
|
393 |
|
Net income (loss) per limited partner unit (basic and diluted) |
|
$ |
(.14 |
) |
|
$ |
(.09 |
) |
|
$ |
(.57 |
) |
|
$ |
.01 |
|
These pro forma results are unaudited, have been prepared for comparative purposes only, and may include
certain adjustments such as increased interest on the acquisition of debt, changes in the timing of financing events and the recognition of gains on acquisitions. They do not purport to be indicative of the results of operations which actually would
have resulted had these transactions been in effect at the beginning of the comparable prior annual reporting period or of future results of operations of the location.
The properties acquired in 2015 have contributed $0.6 million of revenue and $0.2 million of operating profit for the three and nine months
ended September 30, 2015, respectively. The properties above that were acquired in 2014 contributed $10.8 million and $31.6 million of revenue, for the three and nine months ended September 30, 2015, respectively, and $1.8 million and $4.8
million of operating profit for the three and nine months ended September 30, 2015. The properties contributed $8.0 million and $10.3 million of revenue, for the three and nine months ended September 30, 2014, respectively, and $0.4
million of operating profit for both the three and nine months ended September 30, 2014.
Other 2014 Acquisitions
See Note 13 of the Companys 2014 Form 10-K for a discussion of the Companys other 2014 acquisitions. There have been no changes
during the period to assessments of the fair value of net assets acquired in the other 2014 acquisitions. Those amounts may be retrospectively adjusted as additional information is received.
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.
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.
29
Segment information is as follows:
As of and for the three months ended September 30, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cemeteries |
|
|
Funeral |
|
|
|
|
|
|
|
|
|
|
|
|
Southeast |
|
|
Northeast |
|
|
West |
|
|
Homes |
|
|
Corporate |
|
|
Adjustment |
|
|
Total |
|
|
|
(in thousands) |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
26,264 |
|
|
$ |
15,475 |
|
|
$ |
12,628 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(15,622 |
) |
|
$ |
38,745 |
|
Service and other |
|
|
9,838 |
|
|
|
9,249 |
|
|
|
6,267 |
|
|
|
|
|
|
|
|
|
|
|
(141 |
) |
|
|
25,213 |
|
Funeral home |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,077 |
|
|
|
|
|
|
|
(2,835 |
) |
|
|
14,242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
36,102 |
|
|
|
24,724 |
|
|
|
18,895 |
|
|
|
17,077 |
|
|
|
|
|
|
|
(18,598 |
) |
|
|
78,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
5,690 |
|
|
|
3,318 |
|
|
|
2,324 |
|
|
|
|
|
|
|
|
|
|
|
(2,604 |
) |
|
|
8,728 |
|
Cemetery |
|
|
7,534 |
|
|
|
6,608 |
|
|
|
4,103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,245 |
|
Selling |
|
|
8,471 |
|
|
|
4,931 |
|
|
|
3,940 |
|
|
|
|
|
|
|
692 |
|
|
|
(3,387 |
) |
|
|
14,647 |
|
General and administrative |
|
|
4,629 |
|
|
|
2,616 |
|
|
|
1,574 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,819 |
|
Corporate overhead |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,152 |
|
|
|
|
|
|
|
8,152 |
|
Depreciation and amortization |
|
|
833 |
|
|
|
639 |
|
|
|
461 |
|
|
|
780 |
|
|
|
598 |
|
|
|
|
|
|
|
3,311 |
|
Funeral home |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,625 |
|
|
|
|
|
|
|
(417 |
) |
|
|
11,208 |
|
Acquisition related costs, net of recoveries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
963 |
|
|
|
|
|
|
|
963 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
27,157 |
|
|
|
18,112 |
|
|
|
12,402 |
|
|
|
12,405 |
|
|
|
10,405 |
|
|
|
(6,408 |
) |
|
|
74,073 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss) |
|
$ |
8,945 |
|
|
$ |
6,612 |
|
|
$ |
6,493 |
|
|
$ |
4,672 |
|
|
$ |
(10,405 |
) |
|
$ |
(12,190 |
) |
|
$ |
4,127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
622,820 |
|
|
$ |
419,729 |
|
|
$ |
427,419 |
|
|
$ |
185,712 |
|
|
$ |
26,020 |
|
|
$ |
|
|
|
$ |
1,681,700 |
|
Amortization of cemetery property |
|
$ |
1,457 |
|
|
$ |
1,131 |
|
|
$ |
322 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(697 |
) |
|
$ |
2,213 |
|
Long lived asset additions |
|
$ |
2,206 |
|
|
$ |
502 |
|
|
$ |
5,871 |
|
|
$ |
4,388 |
|
|
$ |
595 |
|
|
$ |
|
|
|
$ |
13,562 |
|
Goodwill |
|
$ |
8,950 |
|
|
$ |
3,288 |
|
|
$ |
11,948 |
|
|
$ |
39,862 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
64,048 |
|
30
As of and for the nine months ended September 30, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cemeteries |
|
|
Funeral |
|
|
|
|
|
|
|
|
|
|
|
|
Southeast |
|
|
Northeast |
|
|
West |
|
|
Homes |
|
|
Corporate |
|
|
Adjustment |
|
|
Total |
|
|
|
(in thousands) |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
78,128 |
|
|
$ |
44,024 |
|
|
$ |
36,809 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(50,567 |
) |
|
$ |
108,394 |
|
Service and other |
|
|
34,370 |
|
|
|
29,438 |
|
|
|
25,322 |
|
|
|
|
|
|
|
|
|
|
|
(14,078 |
) |
|
|
75,052 |
|
Funeral home |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,226 |
|
|
|
|
|
|
|
(7,230 |
) |
|
|
42,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
112,498 |
|
|
|
73,462 |
|
|
|
62,131 |
|
|
|
50,226 |
|
|
|
|
|
|
|
(71,875 |
) |
|
|
226,442 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
17,332 |
|
|
|
9,221 |
|
|
|
7,045 |
|
|
|
|
|
|
|
|
|
|
|
(7,980 |
) |
|
|
25,618 |
|
Cemetery |
|
|
22,518 |
|
|
|
19,378 |
|
|
|
11,893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53,789 |
|
Selling |
|
|
26,552 |
|
|
|
15,368 |
|
|
|
12,382 |
|
|
|
|
|
|
|
1,974 |
|
|
|
(11,950 |
) |
|
|
44,326 |
|
General and administrative |
|
|
13,921 |
|
|
|
7,731 |
|
|
|
5,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,340 |
|
Corporate overhead |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,979 |
|
|
|
|
|
|
|
26,979 |
|
Depreciation and amortization |
|
|
2,443 |
|
|
|
1,883 |
|
|
|
1,417 |
|
|
|
2,381 |
|
|
|
1,083 |
|
|
|
|
|
|
|
9,207 |
|
Funeral home |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,911 |
|
|
|
|
|
|
|
(1,404 |
) |
|
|
35,507 |
|
Acquisition related costs, net of recoveries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,648 |
|
|
|
|
|
|
|
1,648 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
82,766 |
|
|
|
53,581 |
|
|
|
38,425 |
|
|
|
39,292 |
|
|
|
31,684 |
|
|
|
(21,334 |
) |
|
|
224,414 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss) |
|
$ |
29,732 |
|
|
$ |
19,881 |
|
|
$ |
23,706 |
|
|
$ |
10,934 |
|
|
$ |
(31,684 |
) |
|
$ |
(50,541 |
) |
|
$ |
2,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
622,820 |
|
|
$ |
419,729 |
|
|
$ |
427,419 |
|
|
$ |
185,712 |
|
|
$ |
26,020 |
|
|
$ |
|
|
|
$ |
1,681,700 |
|
Amortization of cemetery property |
|
$ |
4,059 |
|
|
$ |
2,385 |
|
|
$ |
1,062 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(1,366 |
) |
|
$ |
6,140 |
|
Long lived asset additions |
|
$ |
6,451 |
|
|
$ |
2,272 |
|
|
$ |
6,804 |
|
|
$ |
4,859 |
|
|
$ |
780 |
|
|
$ |
|
|
|
$ |
21,166 |
|
Goodwill |
|
$ |
8,950 |
|
|
$ |
3,288 |
|
|
$ |
11,948 |
|
|
$ |
39,862 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
64,048 |
|
31
As of and for the three months ended September 30, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cemeteries |
|
|
Funeral Homes |
|
|
|
|
|
|
|
|
|
|
|
|
Southeast |
|
|
Northeast |
|
|
West |
|
|
|
Corporate |
|
|
Adjustment |
|
|
Total |
|
|
|
(in thousands) |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
22,653 |
|
|
$ |
13,228 |
|
|
$ |
11,512 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(4,719 |
) |
|
$ |
42,674 |
|
Service and other |
|
|
10,097 |
|
|
|
11,040 |
|
|
|
8,633 |
|
|
|
|
|
|
|
|
|
|
|
(6,509 |
) |
|
|
23,261 |
|
Funeral home |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,457 |
|
|
|
|
|
|
|
(2,218 |
) |
|
|
12,239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
32,750 |
|
|
|
24,268 |
|
|
|
20,145 |
|
|
|
14,457 |
|
|
|
|
|
|
|
(13,446 |
) |
|
|
78,174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
4,828 |
|
|
|
2,555 |
|
|
|
2,167 |
|
|
|
|
|
|
|
|
|
|
|
(488 |
) |
|
|
9,062 |
|
Cemetery |
|
|
7,533 |
|
|
|
6,576 |
|
|
|
3,967 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,076 |
|
Selling |
|
|
8,173 |
|
|
|
4,572 |
|
|
|
4,001 |
|
|
|
|
|
|
|
631 |
|
|
|
(883 |
) |
|
|
16,494 |
|
General and administrative |
|
|
4,343 |
|
|
|
2,132 |
|
|
|
3,333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,808 |
|
Corporate overhead |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,392 |
|
|
|
|
|
|
|
8,392 |
|
Depreciation and amortization |
|
|
800 |
|
|
|
670 |
|
|
|
539 |
|
|
|
867 |
|
|
|
236 |
|
|
|
|
|
|
|
3,112 |
|
Funeral home |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,674 |
|
|
|
|
|
|
|
(315 |
) |
|
|
10,359 |
|
Acquisition related costs, net of recoveries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
451 |
|
|
|
|
|
|
|
451 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
25,677 |
|
|
|
16,505 |
|
|
|
14,007 |
|
|
|
11,541 |
|
|
|
9,710 |
|
|
|
(1,686 |
) |
|
|
75,754 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss) |
|
$ |
7,073 |
|
|
$ |
7,763 |
|
|
$ |
6,138 |
|
|
$ |
2,916 |
|
|
$ |
(9,710 |
) |
|
$ |
(11,760 |
) |
|
$ |
2,420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
636,192 |
|
|
$ |
423,434 |
|
|
$ |
448,732 |
|
|
$ |
163,762 |
|
|
$ |
40,677 |
|
|
$ |
|
|
|
$ |
1,712,797 |
|
Amortization of cemetery property |
|
$ |
1,035 |
|
|
$ |
341 |
|
|
$ |
435 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
168 |
|
|
$ |
1,979 |
|
Long lived asset additions |
|
$ |
1,950 |
|
|
$ |
1,205 |
|
|
$ |
906 |
|
|
$ |
203 |
|
|
$ |
183 |
|
|
$ |
|
|
|
$ |
4,447 |
|
Goodwill |
|
$ |
8,949 |
|
|
$ |
3,288 |
|
|
$ |
11,948 |
|
|
$ |
33,025 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
57,210 |
|
As of and for the nine months ended September 30, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cemeteries |
|
|
Funeral Homes |
|
|
|
|
|
|
|
|
|
|
|
|
Southeast |
|
|
Northeast |
|
|
West |
|
|
|
Corporate |
|
|
Adjustment |
|
|
Total |
|
|
|
(in thousands) |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
$ |
69,319 |
|
|
$ |
31,583 |
|
|
$ |
35,211 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(26,605 |
) |
|
$ |
109,508 |
|
Service and other |
|
|
31,085 |
|
|
|
29,529 |
|
|
|
26,768 |
|
|
|
|
|
|
|
|
|
|
|
(18,260 |
) |
|
|
69,122 |
|
Funeral home |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,777 |
|
|
|
|
|
|
|
(5,313 |
) |
|
|
35,464 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
100,404 |
|
|
|
61,112 |
|
|
|
61,979 |
|
|
|
40,777 |
|
|
|
|
|
|
|
(50,178 |
) |
|
|
214,094 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
15,045 |
|
|
|
6,576 |
|
|
|
7,686 |
|
|
|
|
|
|
|
|
|
|
|
(4,091 |
) |
|
|
25,216 |
|
Cemetery |
|
|
21,057 |
|
|
|
14,499 |
|
|
|
11,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,546 |
|
Selling |
|
|
24,019 |
|
|
|
11,443 |
|
|
|
11,462 |
|
|
|
|
|
|
|
1,480 |
|
|
|
(5,860 |
) |
|
|
42,544 |
|
General and administrative |
|
|
13,053 |
|
|
|
5,533 |
|
|
|
7,747 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,333 |
|
Corporate overhead |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,394 |
|
|
|
|
|
|
|
22,394 |
|
Depreciation and amortization |
|
|
2,094 |
|
|
|
1,244 |
|
|
|
1,593 |
|
|
|
2,346 |
|
|
|
716 |
|
|
|
|
|
|
|
7,993 |
|
Funeral home |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,813 |
|
|
|
|
|
|
|
(732 |
) |
|
|
29,081 |
|
Acquisition related costs, net of recoveries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,040 |
|
|
|
|
|
|
|
2,040 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
75,268 |
|
|
|
39,295 |
|
|
|
40,478 |
|
|
|
32,159 |
|
|
|
26,630 |
|
|
|
(10,683 |
) |
|
|
203,147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss) |
|
$ |
25,136 |
|
|
$ |
21,817 |
|
|
$ |
21,501 |
|
|
$ |
8,618 |
|
|
$ |
(26,630 |
) |
|
$ |
(39,495 |
) |
|
$ |
10,947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
636,192 |
|
|
$ |
423,434 |
|
|
$ |
448,732 |
|
|
$ |
163,762 |
|
|
$ |
40,677 |
|
|
$ |
|
|
|
$ |
1,712,797 |
|
Amortization of cemetery property |
|
$ |
3,499 |
|
|
$ |
1,762 |
|
|
$ |
2,237 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(414 |
) |
|
$ |
7,084 |
|
Long lived asset additions |
|
$ |
28,470 |
|
|
$ |
72,515 |
|
|
$ |
3,350 |
|
|
$ |
9,024 |
|
|
$ |
443 |
|
|
$ |
|
|
|
$ |
113,802 |
|
Goodwill |
|
$ |
8,949 |
|
|
$ |
3,288 |
|
|
$ |
11,948 |
|
|
$ |
33,025 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
57,210 |
|
32
Results of individual operating segments 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 operating segments are not necessarily comparable with similar
information for any other company. The management accounting process uses assumptions and allocations to measure performance of the operating segments. 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 unaudited condensed
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 unaudited condensed 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 unaudited condensed consolidated financial statements
reflect Deferred Cemetery Revenue, Net, and Deferred Selling and Obtaining Costs on the unaudited condensed consolidated balance sheet, whereas the Companys management accounting practices exclude these items.
33
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.
34
The following table displays the Companys assets measured at fair value as of
September 30, 2015 and December 31, 2014.
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchandise Trust |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Total |
|
|
|
(in thousands) |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments |
|
$ |
27,125 |
|
|
$ |
|
|
|
$ |
27,125 |
|
|
|
|
|
Fixed maturities: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. state and local government agency |
|
|
|
|
|
|
91 |
|
|
|
91 |
|
Corporate debt securities |
|
|
|
|
|
|
11,695 |
|
|
|
11,695 |
|
Other debt securities |
|
|
|
|
|
|
7,168 |
|
|
|
7,168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity investments |
|
|
|
|
|
|
18,954 |
|
|
|
18,954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds - debt securities |
|
|
232,239 |
|
|
|
|
|
|
|
232,239 |
|
Mutual funds - equity securities - real estate sector |
|
|
17,366 |
|
|
|
|
|
|
|
17,366 |
|
Mutual funds - equity securities - energy sector |
|
|
8,279 |
|
|
|
|
|
|
|
8,279 |
|
Mutual funds - equity securities - MLPs |
|
|
13,899 |
|
|
|
|
|
|
|
13,899 |
|
Mutual funds - equity securities - other |
|
|
78,714 |
|
|
|
|
|
|
|
78,714 |
|
|
|
|
|
Equity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Master limited partnerships |
|
|
18,382 |
|
|
|
|
|
|
|
18,382 |
|
Global equity securities |
|
|
27,331 |
|
|
|
|
|
|
|
27,331 |
|
Other invested assets |
|
|
|
|
|
|
7,198 |
|
|
|
7,198 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
423,335 |
|
|
$ |
26,152 |
|
|
$ |
449,487 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Perpetual Care Trust |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Total |
|
|
|
(in thousands) |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments |
|
$ |
14,455 |
|
|
$ |
|
|
|
$ |
14,455 |
|
|
|
|
|
Fixed maturities: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and federal agency |
|
|
113 |
|
|
|
|
|
|
|
113 |
|
U.S. state and local government agency |
|
|
|
|
|
|
27 |
|
|
|
27 |
|
Corporate debt securities |
|
|
|
|
|
|
22,677 |
|
|
|
22,677 |
|
Other debt securities |
|
|
|
|
|
|
371 |
|
|
|
371 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity investments |
|
|
113 |
|
|
|
23,075 |
|
|
|
23,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds - debt securities |
|
|
210,337 |
|
|
|
|
|
|
|
210,337 |
|
Mutual funds - equity securities - real estate sector |
|
|
15,616 |
|
|
|
|
|
|
|
15,616 |
|
Mutual funds - equity securities - energy sector |
|
|
13,246 |
|
|
|
|
|
|
|
13,246 |
|
Mutual funds - equity securities - MLPs |
|
|
26,432 |
|
|
|
|
|
|
|
26,432 |
|
Mutual funds - equity securities - other |
|
|
6,000 |
|
|
|
|
|
|
|
6,000 |
|
|
|
|
|
Equity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Master limited partnerships |
|
|
1,268 |
|
|
|
|
|
|
|
1,268 |
|
Global equity securities |
|
|
1,019 |
|
|
|
|
|
|
|
1,019 |
|
Other invested assets |
|
|
|
|
|
|
220 |
|
|
|
220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
288,486 |
|
|
$ |
23,295 |
|
|
$ |
311,781 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchandise Trust |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Total |
|
|
|
(in thousands) |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments |
|
$ |
52,521 |
|
|
$ |
|
|
|
$ |
52,521 |
|
|
|
|
|
Fixed maturities: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. state and local government agency |
|
|
|
|
|
|
269 |
|
|
|
269 |
|
Corporate debt securities |
|
|
|
|
|
|
8,976 |
|
|
|
8,976 |
|
Other debt securities |
|
|
|
|
|
|
7,139 |
|
|
|
7,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity investments |
|
|
|
|
|
|
16,384 |
|
|
|
16,384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds - debt securities |
|
|
142,680 |
|
|
|
|
|
|
|
142,680 |
|
Mutual funds - equity securities - real estate sector |
|
|
58,672 |
|
|
|
|
|
|
|
58,672 |
|
Mutual funds - equity securities - energy sector |
|
|
7,733 |
|
|
|
|
|
|
|
7,733 |
|
Mutual funds - equity securities - MLPs |
|
|
22,927 |
|
|
|
|
|
|
|
22,927 |
|
Mutual funds - equity securities - other |
|
|
90,126 |
|
|
|
|
|
|
|
90,126 |
|
|
|
|
|
Equity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Master limited partnerships |
|
|
50,091 |
|
|
|
|
|
|
|
50,091 |
|
Global equity securities |
|
|
30,208 |
|
|
|
|
|
|
|
30,208 |
|
Other invested assets |
|
|
|
|
|
|
5,159 |
|
|
|
5,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
454,958 |
|
|
$ |
21,543 |
|
|
$ |
476,501 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Perpetual Care Trust |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Total |
|
|
|
(in thousands) |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments |
|
$ |
26,644 |
|
|
$ |
|
|
|
$ |
26,644 |
|
|
|
|
|
Fixed maturities: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and federal agency |
|
|
116 |
|
|
|
|
|
|
|
116 |
|
U.S. state and local government agency |
|
|
|
|
|
|
79 |
|
|
|
79 |
|
Corporate debt securities |
|
|
|
|
|
|
23,466 |
|
|
|
23,466 |
|
Other debt securities |
|
|
|
|
|
|
371 |
|
|
|
371 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity investments |
|
|
116 |
|
|
|
23,916 |
|
|
|
24,032 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds - debt securities |
|
|
123,894 |
|
|
|
|
|
|
|
123,894 |
|
Mutual funds - equity securities - real estate sector |
|
|
41,753 |
|
|
|
|
|
|
|
41,753 |
|
Mutual funds - equity securities - energy sector |
|
|
14,829 |
|
|
|
|
|
|
|
14,829 |
|
Mutual funds - equity securities - MLPs |
|
|
43,596 |
|
|
|
|
|
|
|
43,596 |
|
Mutual funds - equity securities - other |
|
|
25,258 |
|
|
|
|
|
|
|
25,258 |
|
|
|
|
|
Equity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Master limited partnerships |
|
|
43,207 |
|
|
|
|
|
|
|
43,207 |
|
Global equity securities |
|
|
1,867 |
|
|
|
|
|
|
|
1,867 |
|
Other invested assets |
|
|
|
|
|
|
25 |
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
321,164 |
|
|
$ |
23,941 |
|
|
$ |
345,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
Level 1 securities primarily consist of actively publicly traded money market funds, mutual funds
and equity securities.
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 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.
37
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 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 and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
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 or guidance related to our future distributions, as well as certain information in our other filings with the SEC and elsewhere are forward-looking statements.
Generally, the words believe, may, will, estimate, continue,
anticipate, intend (including, but not limited to our intent to maintain or increase our distributions), 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. Our major risk is related to uncertainties associated with the cash flow from our pre-need and at-need sales, our trusts, and financings, which may impact our ability to meet our financial projections,
our ability to service our debt and pay distributions, and our ability to increase our distributions.
Our additional risks and
uncertainties, include, but are not limited to, the following: uncertainties associated with future revenue and revenue growth; uncertainties associated with the integration or anticipated benefits of our recent acquisitions or any future
acquisitions; our ability to complete and fund additional acquisitions; the effect of economic downturns; the impact of our significant leverage on our operating plans; the decline in the fair value of certain equity and debt securities held in 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; litigation or legal proceedings that could expose us to significant liabilities and damage our reputation; the effects of cyber security attacks due
to our significant reliance on information technology; uncertainties relating to the financial condition of third-party insurance companies that fund our pre-need funeral contracts; and various other uncertainties associated with the death care
industry and our operations in particular.
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, 2014 (2014 Form 10-K), our Current Report on Form 8-K filed with the SEC on July 6, 2015 and our other reports filed
with the SEC.
38
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.
Overview
Cemetery Operations
We are
currently the second largest owner and operator of cemeteries in the United States. As of September 30, 2015, we operated 306 cemeteries in 27 states and Puerto Rico. We own 275 of these cemeteries and we manage or operate the remaining 31
under lease, operating or management agreements. 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 15 cemeteries under long-term lease, operating or management 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 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 lease, operating or management 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 81.8% and 81.0% of our total revenues during the three and nine months ended September 30, 2015, respectively, as compared to 84.3% and 83.4% during the same periods
last year. The change in the contribution to total revenues was primarily due to one large land sale from the first quarter of 2014, as well as higher contributions during the current period from our 2014 funeral home acquisitions.
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 trust, 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; |
|
|
|
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. |
39
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 nine months ended September 30, 2015 and 2014.
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.
Expenses
We analyze and categorize our
operating expenses as follows:
1. Cost of goods sold and selling expenses
40
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 September 30, 2015, we owned and operated 103 funeral homes. These properties are located in 19 states and Puerto Rico. Forty-six 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 generally at the time of need utilizing salaried licensed funeral directors. Our funeral home operations also include revenues related to the sale of term and final expense whole life insurance in markets where we
do not own a funeral home, as well as pre-need whole life insurance in markets where we own a funeral home. Funeral home revenues accounted for approximately 18.2% and 19.0% of our total revenues during the three and nine months ended
September 30, 2015, respectively, as compared to 15.7% and 16.6% 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.
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.
41
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 related to reporting requirements under U.S. federal securities laws and certain other additional expenses of being a public company.
2015 Developments
Significant
business developments for 2015 include the following:
|
|
|
On June 5, 2015, we entered into a lease agreement for a new corporate office location in Trevose, Pennsylvania. The lease term will commence on February 1, 2016 and will expire on July 31, 2028, with
certain contractual renewal options. |
|
|
|
On July 10, 2015, we completed a follow-on public offering of 2,415,000 common units at a public offering price of $29.63 per unit. Net proceeds of the offering, after deducting underwriting discounts and offering
expenses, were approximately $67.9 million. The proceeds were used to pay down outstanding indebtedness under our Credit Facility. |
|
|
|
During the third quarter of 2015, we acquired three cemeteries in Illinois, three funeral homes in Illinois and two funeral homes in Florida for aggregate consideration of $14.0 million. After these acquisitions, we
operate 306 cemeteries and 103 funeral homes in 28 states and Puerto Rico. |
Current Market Conditions and Economic Developments
As of September 30, 2015, the amortized cost of the assets in our merchandise trusts exceeded their market value by 15.4%,
compared to December 31, 2014 when the market value of the assets exceeded their amortized cost by 0.5%. As of September 30, 2015, the amortized cost of the assets in our perpetual care trusts exceeded their market value by 9.5% as
compared to December 31, 2014 when the market value of the assets exceeded their amortized cost by 9.7%. Changes in the cost to market ratios are due in part to the repositioning of assets within our merchandise and perpetual care trust
portfolios, as well as declines in market conditions.
As of September 30, 2015, the majority of our long-term debt consisted of
$175.0 million in Senior Notes due 2021, the offering of which took place in May of 2013, and $113.5 million of borrowings under our credit facility, which expires in 2019. As of September 30, 2015, we had $66.5 million of total availability
under our revolving credit facility. The revolving credit facility provides for both acquisition draws, which are used primarily to finance acquisitions, acquisition related costs and mausoleum construction costs, and working capital draws, which
are used to finance all other corporate costs. As of September 30, 2015, we had $75.0 million of working capital draws, which are limited to a borrowing formula of 85% of eligible account receivables. This limit was $135.5 million at
September 30, 2015.
On July 10, 2015, we completed a follow-on public offering of 2,415,000 common units at a public offering
price of $29.63 per unit. Net proceeds of the offering, after deducting underwriting discounts and offering expenses, were approximately $67.9 million. The proceeds were used to pay down outstanding indebtedness under our Credit Facility.
The aggregate values of pre-need and at-need contracts written were $86.1 million and $254.6 million for the three and nine months ended
September 30, 2015, respectively, as compared to $77.6 million and $219.2 million during the same periods last year.
Impact on Our Ability to
Meet Our Debt Covenants
Debt covenants in the Credit Agreement 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 a non-GAAP financial
measure and is primarily related to the current period value of contracts written, investment income from the merchandise and perpetual care trusts, and current expenses incurred.
42
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 3.00 at
September 30, 2015 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 4.47 at
September 30, 2015 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 OperationsSoutheast, Cemetery
OperationsNortheast, Cemetery OperationsWest, Funeral Homes, and Corporate.
We chose this level of organization and
disaggregation of reportable segments due to the fact that 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. Our cemetery operations are disaggregated into three different geographically based segments. 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 consolidated financial
statements required us to make estimates, judgments and assumptions that affected the reported amounts of assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the
reporting periods (see Note 1 to the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q). 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 2014 Form 10-K. There have been no significant changes to our critical accounting policies since the filing of our 2014 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
43
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 GAAP. See Note 1 to the consolidated financial statements
included in the 2014 Form 10-K for a more detailed discussion of our accounting policies under GAAP.
Three Months Ended September 30, 2015
Compared to Three Months Ended September 30, 2014
Cemetery Segments
Cemetery Operations Southeast
In
June of 2014, we acquired nine properties in our Cemetery Operations Southeast segment. The acquired properties had less impact on the results for the three months ended September 30, 2014 as compared to the results for the three months
ended September 30, 2015. These properties contributed approximately $4.2 million of the revenues and $2.6 million of the costs and expenses for the three months ended September 30, 2015 as compared to $2.5 million and $1.9 million,
respectively, for the same period last year.
The table below compares the results of operations for our Cemetery Operations
Southeast for the three months ended September 30, 2015 to the same period last year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
|
|
2015 |
|
|
2014 |
|
|
Change ($) |
|
|
Change (%) |
|
|
|
(in thousands)
(non-GAAP) |
|
|
|
Total revenues |
|
$ |
36,102 |
|
|
$ |
32,750 |
|
|
$ |
3,352 |
|
|
|
10.2 |
% |
Total costs and expenses |
|
|
27,157 |
|
|
|
25,677 |
|
|
|
1,480 |
|
|
|
5.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
|
$ |
8,945 |
|
|
$ |
7,073 |
|
|
$ |
1,872 |
|
|
|
26.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
The increase in revenues was primarily related to increases of $3.0 million in the value of pre-need contracts written, $0.5 million in the
value of at-need contracts written and $0.5 million in interest and other income, partially offset by a $0.6 million decrease 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 $0.9 million increase in the cost of goods sold primarily attributable to the increase in the value of contracts written and changes in product mix. |
|
|
|
A $0.3 million increase in selling expenses primarily due to increases in commissions and personnel costs. |
|
|
|
A $0.3 million increase in general and administrative expenses primarily due to an increase of $0.1 million in professional fees and a $0.1 million in taxes with the remainder attributable to increases in other general
expense categories. |
Cemetery Operations Northeast
During the second quarter of 2014, we acquired three properties and separately obtained the rights from the Archdiocese of Philadelphia to
operate thirteen properties in our Cemetery Operations Northeast segment. These acquired properties had less impact on the results for the three months ended September 30, 2014 as compared to the
44
results for the three months ended September 30, 2015. These properties contributed approximately $10.5 million of the revenues and $7.2 million of the costs and expenses of the segment for
the three months ended September 30, 2015 as compared to $7.6 million and $5.5 million, respectively, for the same period last year.
The table below compares the results of operations for our Cemetery Operations Northeast for the three months ended September 30,
2015 to the same period last year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
|
|
2015 |
|
|
2014 |
|
|
Change ($) |
|
|
Change (%) |
|
|
|
(in thousands) |
|
|
|
(non-GAAP) |
|
Total revenues |
|
$ |
24,724 |
|
|
$ |
24,268 |
|
|
$ |
456 |
|
|
|
1.9 |
% |
Total costs and expenses |
|
|
18,112 |
|
|
|
16,505 |
|
|
|
1,607 |
|
|
|
9.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
|
$ |
6,612 |
|
|
$ |
7,763 |
|
|
$ |
(1,151 |
) |
|
|
-14.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
The increase in revenues was primarily related to increases of $2.2 million in the value of pre-need contracts written, $0.2 million in the
value of at-need contracts written and $0.4 million in interest and other income, partially offset by a $2.3 million decrease 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 $0.8 million increase in the cost of goods sold primarily attributable to the increase in the value of contracts written and changes in product mix. |
|
|
|
A $0.4 million increase in selling expenses primarily due to increases of $0.2 million in commissions and personnel costs and a $0.2 million increase in advertising and marketing costs. |
|
|
|
A $0.4 million increase in general and administrative expenses primarily due to increases of $0.1 million in both insurance costs and personnel costs and $0.2 million in professional fees. |
Cemetery Operations West
During
the third quarter of 2015, we acquired three properties in our Cemetery Operations West segment. The results of operations for these properties have no impact on the results for the three months ended September 30, 2014, but are included
in the results for the three months ended September 30, 2015. The additions have contributed approximately $0.5 million of the revenues and $0.3 million of the costs and expenses of the segment for the three months ended September 30,
2015.
The table below compares the results of operations for our Cemetery Operations West for the three months ended
September 30, 2015 to the same period last year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
|
|
2015 |
|
|
2014 |
|
|
Change ($) |
|
|
Change (%) |
|
|
|
(in thousands) |
|
|
|
(non-GAAP) |
|
Total revenues |
|
$ |
18,895 |
|
|
$ |
20,145 |
|
|
$ |
(1,250 |
) |
|
|
-6.2 |
% |
Total costs and expenses |
|
|
12,402 |
|
|
|
14,007 |
|
|
|
(1,605 |
) |
|
|
-11.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
|
$ |
6,493 |
|
|
$ |
6,138 |
|
|
$ |
355 |
|
|
|
5.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
Revenues
The decrease in revenues was primarily related to decreases of $2.5 million in income from our trusts and $0.1 million in the value of at-need
contracts written, partially offset by increases of $1.1 million in the value of pre-need contracts written and $0.2 million in interest and other 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 net decrease in costs and expenses was primarily related to:
|
|
|
A $0.2 million increase in the cost of goods sold primarily attributable to the change in the value of contracts written and changes in product mix. |
|
|
|
A $1.8 million decrease in general and administrative expenses primarily related to a decrease of $1.7 million in professional fees and legal costs related to a legal settlement in the prior year. |
Funeral Homes Segment
In the
fourth quarter of 2014, we acquired two funeral homes. During the third quarter of 2015, we acquired five funeral homes. Therefore, the results of operations for these properties have no impact on the results for the three months ended
September 30, 2014 as compared to the results for the three months ended September 30, 2015. The additions have contributed approximately $1.1 million of the revenues and $0.6 million of the costs and expenses of the segment for the three
months ended September 30, 2015.
The table below compares the results of operations for our Funeral Homes segment for the three
months ended September 30, 2015 to the same period last year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
|
|
2015 |
|
|
2014 |
|
|
Change ($) |
|
|
Change (%) |
|
|
|
(in thousands)
(non-GAAP) |
|
|
Total revenues |
|
$ |
17,077 |
|
|
$ |
14,457 |
|
|
$ |
2,620 |
|
|
|
18.1 |
% |
Total costs and expenses |
|
|
12,405 |
|
|
|
11,541 |
|
|
|
864 |
|
|
|
7.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
|
$ |
4,672 |
|
|
$ |
2,916 |
|
|
$ |
1,756 |
|
|
|
60.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
The increase in revenues was primarily attributable to increases of $1.1 million in the value of at-need contracts written, $1.6 million in
insurance-related revenues and $0.4 million in other income, partially offset by a decrease of $0.5 million in the value of pre-need contracts written.
Total costs and expenses
The net
increase in costs and expenses was primarily attributable to increases of $0.1 million in personnel costs, $0.2 million in facility related costs, $0.9 million in expenses related to insurance sales and $0.1 million in advertising and marketing
costs, partially offset by a decrease of $0.4 million in merchandise costs.
46
Corporate Segment
The table below compares expenses incurred by the Corporate segment for the three months ended September 30, 2015 to the same period last
year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
|
|
2015 |
|
|
2014 |
|
|
Change ($) |
|
|
Change (%) |
|
|
|
(in thousands)
(non-GAAP) |
|
|
Selling, cemetery and general and administrative expenses |
|
$ |
692 |
|
|
$ |
631 |
|
|
$ |
61 |
|
|
|
100.0 |
% |
Depreciation and amortization |
|
|
598 |
|
|
|
236 |
|
|
|
362 |
|
|
|
153.4 |
% |
Acquisition related costs, net of recoveries |
|
|
963 |
|
|
|
451 |
|
|
|
512 |
|
|
|
113.5 |
% |
|
|
|
|
|
Corporate expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate personnel expenses |
|
|
3,598 |
|
|
|
3,425 |
|
|
|
173 |
|
|
|
5.1 |
% |
Other corporate expenses |
|
|
4,554 |
|
|
|
4,967 |
|
|
|
(413 |
) |
|
|
-8.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total corporate overhead |
|
|
8,152 |
|
|
|
8,392 |
|
|
|
(240 |
) |
|
|
-2.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total corporate expenses |
|
$ |
10,405 |
|
|
$ |
9,710 |
|
|
$ |
695 |
|
|
|
7.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in corporate expenses was primarily driven by increases of $0.5 million acquisition related
costs, $0.4 million in depreciation and amortization and $0.2 million in personnel costs. These increases were partially offset by a decrease in corporate overhead of $0.4 million, primarily related to a reduction in professional fees. Acquisition
costs may vary from period to period depending on the amount of acquisition activity that takes place.
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, revenues and their associated costs as reported at the segment level are not deferred.
Periodic consolidated revenues recorded in accordance with GAAP reflect the amount of total merchandise and services that 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 origination 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 September 30, 2015 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. Since March 31, 2014, we acquired 15 cemeteries and 16 funeral homes, and obtained the rights from the Archdiocese of Philadelphia to operate 13 cemetery properties. The results of operations for these
properties had either less or no impact on the results for the three months
47
ended September 30, 2014, but are included in the results for the three months ended September 30, 2015. These properties are contributing a significant portion of the increases to
revenues and costs and expenses in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2015 |
|
|
Three months ended September 30, 2014 |
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
Segment Results (non-GAAP) |
|
|
GAAP Adjustments |
|
|
GAAP Results |
|
|
Segment Results (non-GAAP) |
|
|
GAAP Adjustments |
|
|
GAAP Results |
|
|
Change in GAAP results ($) |
|
|
Change in GAAP results (%) |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-need cemetery revenues |
|
$ |
42,492 |
|
|
$ |
(15,008 |
) |
|
$ |
27,484 |
|
|
$ |
36,170 |
|
|
$ |
(5,030 |
) |
|
$ |
31,140 |
|
|
$ |
(3,656 |
) |
|
|
-11.7 |
% |
At-need cemetery revenues |
|
|
25,151 |
|
|
|
(618 |
) |
|
|
24,533 |
|
|
|
24,746 |
|
|
|
244 |
|
|
|
24,990 |
|
|
|
(457 |
) |
|
|
-1.8 |
% |
Investment income from trusts |
|
|
8,691 |
|
|
|
(109 |
) |
|
|
8,582 |
|
|
|
13,985 |
|
|
|
(6,740 |
) |
|
|
7,245 |
|
|
|
1,337 |
|
|
|
18.5 |
% |
Interest income |
|
|
2,233 |
|
|
|
|
|
|
|
2,233 |
|
|
|
1,807 |
|
|
|
|
|
|
|
1,807 |
|
|
|
426 |
|
|
|
23.6 |
% |
Funeral home revenues |
|
|
17,077 |
|
|
|
(2,835 |
) |
|
|
14,242 |
|
|
|
14,457 |
|
|
|
(2,218 |
) |
|
|
12,239 |
|
|
|
2,003 |
|
|
|
16.4 |
% |
Other cemetery revenues |
|
|
1,154 |
|
|
|
(28 |
) |
|
|
1,126 |
|
|
|
455 |
|
|
|
298 |
|
|
|
753 |
|
|
|
373 |
|
|
|
49.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
96,798 |
|
|
|
(18,598 |
) |
|
|
78,200 |
|
|
|
91,620 |
|
|
|
(13,446 |
) |
|
|
78,174 |
|
|
|
26 |
|
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
|
11,332 |
|
|
|
(2,604 |
) |
|
|
8,728 |
|
|
|
9,550 |
|
|
|
(488 |
) |
|
|
9,062 |
|
|
|
(334 |
) |
|
|
-3.7 |
% |
Cemetery expense |
|
|
18,245 |
|
|
|
|
|
|
|
18,245 |
|
|
|
18,076 |
|
|
|
|
|
|
|
18,076 |
|
|
|
169 |
|
|
|
0.9 |
% |
Selling expense |
|
|
18,034 |
|
|
|
(3,387 |
) |
|
|
14,647 |
|
|
|
17,377 |
|
|
|
(883 |
) |
|
|
16,494 |
|
|
|
(1,847 |
) |
|
|
-11.2 |
% |
General and administrative expense |
|
|
8,819 |
|
|
|
|
|
|
|
8,819 |
|
|
|
9,808 |
|
|
|
|
|
|
|
9,808 |
|
|
|
(989 |
) |
|
|
-10.1 |
% |
Corporate overhead |
|
|
8,152 |
|
|
|
|
|
|
|
8,152 |
|
|
|
8,392 |
|
|
|
|
|
|
|
8,392 |
|
|
|
(240 |
) |
|
|
-2.9 |
% |
Depreciation and amortization |
|
|
3,311 |
|
|
|
|
|
|
|
3,311 |
|
|
|
3,112 |
|
|
|
|
|
|
|
3,112 |
|
|
|
199 |
|
|
|
6.4 |
% |
Funeral home expense |
|
|
11,625 |
|
|
|
(417 |
) |
|
|
11,208 |
|
|
|
10,674 |
|
|
|
(315 |
) |
|
|
10,359 |
|
|
|
849 |
|
|
|
8.2 |
% |
Acquisition related costs, net of recoveries |
|
|
963 |
|
|
|
|
|
|
|
963 |
|
|
|
451 |
|
|
|
|
|
|
|
451 |
|
|
|
512 |
|
|
|
113.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
80,481 |
|
|
|
(6,408 |
) |
|
|
74,073 |
|
|
|
77,440 |
|
|
|
(1,686 |
) |
|
|
75,754 |
|
|
|
(1,681 |
) |
|
|
-2.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
|
$ |
16,317 |
|
|
$ |
(12,190 |
) |
|
$ |
4,127 |
|
|
$ |
14,180 |
|
|
$ |
(11,760 |
) |
|
$ |
2,420 |
|
|
$ |
1,707 |
|
|
|
70.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
Pre-need cemetery revenues were $27.5 million for the three months ended September 30, 2015, a decrease of $3.6 million, or 11.7%, as
compared to $31.1 million during the same period last year. The decrease was primarily caused by an increase of $9.9 million in deferred revenue as activity on contracts written exceeded activity related to delivered products and services to a
greater degree during the current period. This decrease was partially offset by an increase of $6.3 million in the value of cemetery contracts written.
At-need cemetery revenues were $24.5 million for the three months ended September 30, 2015, a decrease of $0.5 million, or 1.8%, as
compared to $25.0 million during the same period last year. The decrease was primarily caused by an increase of $0.9 million in deferred revenue as activity on contracts written exceeded activity related to delivered products and services to a
greater degree during the current period. This decrease was partially offset by an increase of $0.4 million in the value of cemetery contracts written.
Investment income from trusts was $8.6 million for the three months ended September 30, 2015, an increase of $1.4 million, or 18.5%, as
compared to $7.2 million during the same period last year. On a segment basis, we had a decrease of $5.3 million, which was offset by an adjustment of $6.7 million related to funds for which we have met the requirements that would allow us to
recognize them as revenue. 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.
Interest income on accounts receivable was $2.2 million for the three months ended September 30, 2015, an increase of $0.4 million, or
23.6%, as compared to $1.8 million during the same period last year, primarily due to an increase in accounts receivable.
Funeral home revenues were $14.2 million for the three months ended September 30, 2015, an increase of $2.0 million, or 16.4%, as
compared to $12.2 million during the same period last year. The increase was primarily driven by the funeral homes we acquired in 2014 and 2015 and increased revenues from insurance sales.
Other cemetery revenues were $1.1 million during the three months ended September 30, 2015 as compared to $0.8 million in the same period
last year.
Costs and Expenses
The cost of goods sold was $8.7 million for the three months ended September 30, 2015, a decrease of $0.4 million, or 3.7%, as compared to
$9.1 million during the same period last year. The ratio of cost of goods sold to pre-need and at-need cemetery revenues was 16.8% during the three months ended September 30, 2015 as compared to 16.1% during the same period last year. The
change in the ratio primarily relates to changes in product mix.
Cemetery expenses were $18.2 million during the three months ended
September 30, 2015, an increase of $0.1 million, or 0.9%, compared to $18.1 million during the same period last year. Within this category, there was an increase
48
of $0.4 million in real estate tax expense, partially offset by a decrease of $0.3 million in repair and maintenance 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 such expenses to 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 27.0% during the three
months ended September 30, 2015 as compared to 29.7% during the same period last year.
Selling expenses were $14.6 million during
the three months ended September 30, 2015, a decrease of $1.9 million, or 11.2%, as compared to $16.5 million during the same period last year. The ratio of selling expenses to cemetery revenues was 28.2% during the three months ended
September 30, 2015 as compared to 29.4% during the same period last year. This is largely due to segment-based increases of $0.8 million in commissions and personnel costs, offset by a $2.5 million
increase in deferred selling expenses. The 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 follow relatively consistent trends over the long-term.
General and administrative expenses were $8.8 million during the three months ended September 30, 2015, a decrease of $1.0 million, or
10.1%, as compared to $9.8 million during the same period last year. The decrease was due to a decrease of $1.4 million in professional fees and legal costs primarily related to a legal settlement, partially offset by $0.1 million increases in both
insurance and tax expenses with the remainder attributable to increases in other general expense categories. 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 such expenses to 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 decrease slightly 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 13.0% during the three months ended September 30, 2015
as compared to 16.1% during the same period last year.
Total corporate overhead was $8.2 million for the three months ended
September 30, 2015, a decrease of $0.2 million, or 2.9% compared to $8.4 million during the same period last year. The decrease was primarily driven by a decrease in professional fees, partially offset by an increase in personnel costs.
Depreciation and amortization was $3.3 million for the three months ended September 30, 2015, an increase of $0.2 million, or 6.4%, as
compared to $3.1 million during the same period last year. The majority of the increase was attributable to acquired properties and amortization of the intangible assets relating to the lease and management agreements entered into in 2014.
Funeral home expenses were $11.2 million for the three months ended September 30, 2015, an increase of $0.8 million, or 8.2%, as compared
to $10.4 million during the same period last year. The increase was primarily attributable to an increase of $0.9 million in expenses relating to insurance sales.
Acquisition related costs were $1.0 million for the three months ended September 30, 2015, an increase of $0.5 million, or 113.5%, as
compared to $0.5 million during the same period last year. These costs may vary from period to period depending on the amount of acquisition activity that takes place.
49
Non-segment Allocated Results
Certain statement of operations amounts are not allocated to segment operations. These amounts are those line items that can be found on our
unaudited condensed consolidated statement of operations below operating profit and above net income (loss).
The table below summarizes
these items and the changes between the three months ended September 30, 2015 and 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
|
|
2015 |
|
|
2014 |
|
|
Change ($) |
|
|
Change (%) |
|
|
|
(in thousands) |
|
Legal settlement |
|
$ |
3,000 |
|
|
$ |
|
|
|
$ |
3,000 |
|
|
|
100.0 |
% |
Gain on sale of funeral home |
|
|
|
|
|
|
244 |
|
|
|
(244 |
) |
|
|
-100.0 |
% |
Gain on acquisitions |
|
|
1,540 |
|
|
|
|
|
|
|
1,540 |
|
|
|
100.0 |
% |
Interest expense |
|
|
5,669 |
|
|
|
5,268 |
|
|
|
401 |
|
|
|
7.6 |
% |
Income tax expense (benefit) |
|
$ |
400 |
|
|
$ |
664 |
|
|
$ |
(264 |
) |
|
|
-39.8 |
% |
During the third quarter of 2015, the Company recorded a charge pertaining to a legal settlement. The $3.0
million includes both the settlement amount and legal fees related to the case.
The gain on sale of funeral home recorded during the
three months ended September 30, 2014 pertains to the sale of one funeral home in California during September 2014.
The gain on
acquisitions recorded during the three months ended September 30, 2015 relates to our third quarter 2015 acquisitions.
There was an
increase in interest expense on amounts outstanding under the credit facility due to increases in both amounts outstanding and interest rates. Average amounts outstanding under the credit facility were $116.0 million and $92.4 million during the
three months ended September 30, 2015 and 2014, respectively.
We had income tax expense of $0.4 million for the three months ended
September 30, 2015, as compared to an income tax expense of $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.
Nine Months Ended September 30, 2015 Compared to
Nine Months Ended September 30, 2014
Cemetery Operations Southeast
During the first and second quarters of 2014, we acquired ten properties in our Cemetery Operations Southeast segment. The results of
operations for these acquired properties have less impact on the results for the nine months ended September 30, 2014 as compared to the results for the nine months ended September 30, 2015. The acquisitions contributed approximately $11.7
million of the revenues and $7.6 million of the costs and expenses for the nine months ended September 30, 2015 as compared to $3.2 million and $2.5 million, respectively, for the same period last year.
The table below compares the results of operations for our Cemetery Operations Southeast for the nine months ended September 30,
2015 to the same period last year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, |
|
|
|
2015 |
|
|
2014 |
|
|
Change ($) |
|
|
Change (%) |
|
|
|
(in thousands) |
|
|
|
(non-GAAP) |
|
Total revenues |
|
$ |
112,498 |
|
|
$ |
100,404 |
|
|
$ |
12,094 |
|
|
|
12.0 |
% |
Total costs and expenses |
|
|
82,766 |
|
|
|
75,268 |
|
|
|
7,498 |
|
|
|
10.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
|
$ |
29,732 |
|
|
$ |
25,136 |
|
|
$ |
4,596 |
|
|
|
18.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
Revenues
The increase in revenues was primarily related to increases of $5.3 million in the value of pre-need contracts written, $3.8 million in the
value of at-need contracts written, $1.2 million in interest and other income and $1.8 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 $2.3 million increase in cost of goods sold primarily attributable to the increase in the value of contracts written and changes in product mix. |
|
|
|
A $1.5 million increase in cemetery expenses primarily due to increases of $0.9 million in labor costs and $0.3 million in repairs and maintenance costs. |
|
|
|
A $2.5 million increase in selling expenses primarily due to increases in commissions and personnel costs. |
|
|
|
A $0.9 million increase in general and administrative expense primarily due to increases of $0.3 million in both personnel costs and insurance costs and $0.1 million in repairs and maintenance expense.
|
|
|
|
A $0.3 million increase in depreciation expense. |
Cemetery Operations Northeast
During the second quarter of 2014, we acquired three properties and separately obtained the rights from the Archdiocese of Philadelphia to
operate thirteen properties in our Cemetery Operations Northeast segment. The results of operations for these acquired properties have less impact on the results for the nine months ended September 30, 2014 as compared to the results for
the nine months ended September 30, 2015. The additions have contributed approximately $30.4 million of the revenues and $20.7 million of the costs and expenses of the segment for the nine months ended September 30, 2015 as compared to
$9.6 million and $7.4 million, respectively, for the same period last year.
The table below compares the results of operations for our
Cemetery Operations Northeast for the nine months ended September 30, 2015 to the same period last year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, |
|
|
|
2015 |
|
|
2014 |
|
|
Change ($) |
|
|
Change (%) |
|
|
|
(in thousands) |
|
|
|
(non-GAAP) |
|
Total revenues |
|
$ |
73,462 |
|
|
$ |
61,112 |
|
|
$ |
12,350 |
|
|
|
20.2 |
% |
Total costs and expenses |
|
|
53,581 |
|
|
|
39,295 |
|
|
|
14,286 |
|
|
|
36.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
|
$ |
19,881 |
|
|
$ |
21,817 |
|
|
$ |
(1,936 |
) |
|
|
-8.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
The increase in revenues was primarily related to increases of $11.2 million in the value of pre-need contracts written and $7.0 million in the
value of at-need contracts written, partially offset by a $3.0 million decrease in other income and $2.8 million decrease in income from our trusts. The comparison of other income was affected by the one-time land sale in the first quarter of 2014.
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 $2.6 million increase in cost of goods sold primarily attributable to the increase in the value of contracts written and changes in product mix. |
|
|
|
A $4.9 million increase in cemetery expenses primarily attributable to increases of $3.0 million in labor costs, $1.2 million in repairs and maintenance expense, $0.1 million in utility and fuel costs and $0.4 million
in real estate tax expense. |
51
|
|
|
A $3.9 million increase in selling expenses primarily attributable to increases of $3.1 million in commissions and personnel costs and $0.6 million in advertising and marketing expenses. |
|
|
|
A $2.3 million increase in general and administrative expenses primarily due to increases of $0.5 million in insurance costs, $0.4 million in professional fees and $0.9 million in personnel costs. |
|
|
|
A $0.6 million increase in depreciation and amortization expenses, $0.4 million of which was attributable to the amortization of the intangible assets relating to the lease and management agreements with the Archdiocese
of Philadelphia. |
Cemetery Operations West
During the third quarter of 2015, we acquired three properties in our Cemetery Operations West segment. The results of operations for
these properties have no impact on the results for the nine months ended September 30, 2014, but are included in the results for the nine months ended September 30, 2015. The additions have contributed approximately $0.5 million of the
revenues and $0.3 million of the costs and expenses of the segment for the nine months ended September 30, 2015.
The table below
compares the results of operations for our Cemetery Operations West for the nine months ended September 30, 2015 to the same period last year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, |
|
|
|
2015 |
|
|
2014 |
|
|
Change ($) |
|
|
Change (%) |
|
|
|
(in thousands) |
|
|
|
(non-GAAP) |
|
Total revenues |
|
$ |
62,131 |
|
|
$ |
61,979 |
|
|
$ |
152 |
|
|
|
0.2 |
% |
Total costs and expenses |
|
|
38,425 |
|
|
|
40,478 |
|
|
|
(2,053 |
) |
|
|
-5.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
|
$ |
23,706 |
|
|
$ |
21,501 |
|
|
$ |
2,205 |
|
|
|
10.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
The increase in revenues was primarily related to increases of $1.3 million in the value of pre-need contracts written, $0.1 million in the
value of at-need contracts written and $0.7 million in interest and other income, partially offset by a decrease of $1.9 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 decrease in costs and expenses was primarily related to:
|
|
|
A $0.6 million decrease in cost of goods sold primarily attributable to changes in product mix. |
|
|
|
A $0.1 million decrease in cemetery expenses primarily due to a decrease of $0.3 million in repairs and maintenance expenses, partially offset by an increase of $0.2 million in real estate tax expense.
|
|
|
|
A $0.9 million increase in selling expenses primarily due to a $0.8 million increase in commission and personnel costs and $0.1 million increase in travel expenses. |
|
|
|
A $2.1 million decrease in general and administrative expenses primarily due to a decrease in professional fees and legal costs related to a legal settlement in the prior year. |
|
|
|
A $0.2 million decrease in depreciation expense. |
Funeral Homes Segment
Since January 1, 2014, we have acquired sixteen properties in our Funeral Home operations. The first nine properties were acquired during
the second quarter of 2014, the next two properties were acquired during the fourth quarter of 2014 and the remaining five were acquired during the third quarter of 2015. Therefore, the results of operations for these properties have either less or
no impact on the results for the nine months ended September 30, 2014 as compared to the results for the nine months ended September 30, 2015. The additions have contributed approximately $9.1 million of the revenues and $6.6 million
of the costs and expenses of the segment for the nine months ended September 30, 2015 as compared to $2.9 million and $2.0 million, respectively, for the same period last year.
52
The table below compares the results of operations for our Funeral Homes segment for the nine
months ended September 30, 2015 to the same period last year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, |
|
|
|
2015 |
|
|
2014 |
|
|
Change ($) |
|
|
Change (%) |
|
|
|
(in thousands) |
|
|
|
(non-GAAP) |
|
Total revenues |
|
$ |
50,226 |
|
|
$ |
40,777 |
|
|
$ |
9,449 |
|
|
|
23.2 |
% |
Total costs and expenses |
|
|
39,292 |
|
|
|
32,159 |
|
|
|
7,133 |
|
|
|
22.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
|
$ |
10,934 |
|
|
$ |
8,618 |
|
|
$ |
2,316 |
|
|
|
26.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
The increase in revenues was primarily related to increases of $2.3 million in the value of pre-need contracts written, $4.5 million in the
value of at-need contracts written, $2.3 million in insurance-related revenues and $0.3 million in other income.
Total costs and expenses
The increase in costs and expenses was primarily attributable to increases of $2.4 million in personnel costs, $0.9 million in
merchandise costs, $0.7 million in other service and supplies costs, $0.6 million in facility costs, $0.6 million in general and administrative expenses, $1.8 million in expenses related to insurance sales and $0.1 million in advertising and
marketing expenses.
Corporate Segment
The table below compares expenses incurred by the Corporate segment for the nine months ended September 30, 2015 to the same period last
year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, |
|
|
|
2015 |
|
|
2014 |
|
|
Change ($) |
|
|
Change (%) |
|
|
|
(in thousands) |
|
|
|
(non-GAAP) |
|
Selling, cemetery and general and administrative expenses |
|
$ |
1,974 |
|
|
$ |
1,480 |
|
|
$ |
494 |
|
|
|
33.4 |
% |
Depreciation and amortization |
|
|
1,083 |
|
|
|
716 |
|
|
|
367 |
|
|
|
51.3 |
% |
Acquisition related costs, net of recoveries |
|
|
1,648 |
|
|
|
2,040 |
|
|
|
(392 |
) |
|
|
-19.2 |
% |
|
|
|
|
|
Corporate expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate personnel expenses |
|
|
10,987 |
|
|
|
9,784 |
|
|
|
1,203 |
|
|
|
12.3 |
% |
Other corporate expenses |
|
|
15,992 |
|
|
|
12,610 |
|
|
|
3,382 |
|
|
|
26.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total corporate overhead |
|
|
26,979 |
|
|
|
22,394 |
|
|
|
4,585 |
|
|
|
20.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total corporate expenses |
|
$ |
31,684 |
|
|
$ |
26,630 |
|
|
$ |
5,054 |
|
|
|
19.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in corporate expenses was primarily driven by an increase in corporate overhead of $4.6 million,
which included increases of $1.4 million in professional fees, $1.2 million in personnel costs, $0.7 million in advertising expenses, $0.1 million in utility costs, $0.1 million in bank fees and $0.3 million in information technology costs with the
remainder attributable to increases in other general expense categories. There was also an increase in corporate selling expenses, which included increases of $0.3 million in personnel costs and $0.2 million in advertising expenses. There was also
an increase of $0.4 million in depreciation and amortization expenses. These increases were partially offset by a $0.4 million decrease in acquisition related costs. Acquisition costs may vary from period to period depending on the amount of
acquisition activity that takes place.
53
Reconciliation of Segment Results of Operations to Consolidated Results of Operations
As discussed in the segment sections of this Managements Discussion and Analysis of Financial Condition and Results of Operations,
cemetery revenues and their associated costs as reported at the segment level are not deferred.
The table below analyzes results of
operations and the changes therein for the nine months ended September 30, 2015 as compared to the same period last year. The table is structured so that our readers can determine whether changes were based upon changes in the level of
merchandise and services and other revenues generated during each period and/or changes in the timing of when merchandise and services were delivered. During 2014, we acquired 13 cemeteries and 11 funeral homes, and obtained the rights from the
Archdiocese of Philadelphia to operate 13 cemetery properties and during the third quarter of 2015, we acquired three cemeteries and five funeral homes. The results of operations for these properties have either less or no impact on the results for
the nine months ended September 30, 2014, but are included in the results for the nine months ended September 30, 2015. These properties are contributing a significant portion of the increases to revenues and costs and expenses in the
table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2015 |
|
|
Nine months ended September 30, 2014 |
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
Segment Results (non-GAAP) |
|
|
GAAP Adjustments |
|
|
GAAP Results |
|
|
Segment Results (non-GAAP) |
|
|
GAAP Adjustments |
|
|
GAAP Results |
|
|
Change in GAAP results ($) |
|
|
Change in GAAP results (%) |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-need cemetery revenues |
|
$ |
122,397 |
|
|
$ |
(46,426 |
) |
|
$ |
75,971 |
|
|
$ |
104,555 |
|
|
$ |
(26,957 |
) |
|
$ |
77,598 |
|
|
$ |
(1,627 |
) |
|
|
-2.1 |
% |
At-need cemetery revenues |
|
|
78,562 |
|
|
|
(4,476 |
) |
|
|
74,086 |
|
|
|
67,704 |
|
|
|
614 |
|
|
|
68,318 |
|
|
|
5,768 |
|
|
|
8.4 |
% |
Investment income from trusts |
|
|
36,317 |
|
|
|
(14,120 |
) |
|
|
22,197 |
|
|
|
39,225 |
|
|
|
(19,529 |
) |
|
|
19,696 |
|
|
|
2,501 |
|
|
|
12.7 |
% |
Interest income |
|
|
6,617 |
|
|
|
|
|
|
|
6,617 |
|
|
|
5,848 |
|
|
|
|
|
|
|
5,848 |
|
|
|
769 |
|
|
|
13.1 |
% |
Funeral home revenues |
|
|
50,226 |
|
|
|
(7,230 |
) |
|
|
42,996 |
|
|
|
40,777 |
|
|
|
(5,313 |
) |
|
|
35,464 |
|
|
|
7,532 |
|
|
|
21.2 |
% |
Other cemetery revenues |
|
|
4,198 |
|
|
|
377 |
|
|
|
4,575 |
|
|
|
6,163 |
|
|
|
1,007 |
|
|
|
7,170 |
|
|
|
(2,595 |
) |
|
|
-36.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
298,317 |
|
|
|
(71,875 |
) |
|
|
226,442 |
|
|
|
264,272 |
|
|
|
(50,178 |
) |
|
|
214,094 |
|
|
|
12,348 |
|
|
|
5.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold |
|
|
33,598 |
|
|
|
(7,980 |
) |
|
|
25,618 |
|
|
|
29,307 |
|
|
|
(4,091 |
) |
|
|
25,216 |
|
|
|
402 |
|
|
|
1.6 |
% |
Cemetery expense |
|
|
53,789 |
|
|
|
|
|
|
|
53,789 |
|
|
|
47,546 |
|
|
|
|
|
|
|
47,546 |
|
|
|
6,243 |
|
|
|
13.1 |
% |
Selling expense |
|
|
56,276 |
|
|
|
(11,950 |
) |
|
|
44,326 |
|
|
|
48,404 |
|
|
|
(5,860 |
) |
|
|
42,544 |
|
|
|
1,782 |
|
|
|
4.2 |
% |
General and administrative expense |
|
|
27,340 |
|
|
|
|
|
|
|
27,340 |
|
|
|
26,333 |
|
|
|
|
|
|
|
26,333 |
|
|
|
1,007 |
|
|
|
3.8 |
% |
Corporate overhead |
|
|
26,979 |
|
|
|
|
|
|
|
26,979 |
|
|
|
22,394 |
|
|
|
|
|
|
|
22,394 |
|
|
|
4,585 |
|
|
|
20.5 |
% |
Depreciation and amortization |
|
|
9,207 |
|
|
|
|
|
|
|
9,207 |
|
|
|
7,993 |
|
|
|
|
|
|
|
7,993 |
|
|
|
1,214 |
|
|
|
15.2 |
% |
Funeral home expense |
|
|
36,911 |
|
|
|
(1,404 |
) |
|
|
35,507 |
|
|
|
29,813 |
|
|
|
(732 |
) |
|
|
29,081 |
|
|
|
6,426 |
|
|
|
22.1 |
% |
Acquisition related costs, net of recoveries |
|
|
1,648 |
|
|
|
|
|
|
|
1,648 |
|
|
|
2,040 |
|
|
|
|
|
|
|
2,040 |
|
|
|
(392 |
) |
|
|
-19.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
245,748 |
|
|
|
(21,334 |
) |
|
|
224,414 |
|
|
|
213,830 |
|
|
|
(10,683 |
) |
|
|
203,147 |
|
|
|
21,267 |
|
|
|
10.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
|
$ |
52,569 |
|
|
$ |
(50,541 |
) |
|
$ |
2,028 |
|
|
$ |
50,442 |
|
|
$ |
(39,495 |
) |
|
$ |
10,947 |
|
|
$ |
(8,919 |
) |
|
|
-81.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
Pre-need cemetery revenues were $76.0 million for the nine months ended September 30, 2015, a decrease of $1.6 million, or 2.1%, as
compared to $77.6 million during the same period last year. The decrease was primarily caused by an increase of $19.5 million in deferred revenue as activity on contracts written exceeded activity related to delivered products and services to a
greater degree during the current period. This decrease was partially offset by an increase of $17.9 million in the value of cemetery contracts written.
At-need cemetery revenues were $74.1 million for the nine months ended September 30, 2015, an increase of $5.8 million, or 8.4%, as
compared to $68.3 million during the same period last year. The increase was primarily caused by an increase of $10.9 million in the value of cemetery contracts written, partially offset by an increase of $5.1 million in deferred revenue as activity
on contracts written exceeded activity related to delivered products and services to a greater degree during the current period.
Investment income from trusts was $22.2 million for the nine months ended September 30, 2015, an increase of $2.5 million, or 12.7%, as
compared to $19.7 million during the same period last year. On a segment basis, we had a decrease of $2.9 million, which was offset by an adjustment of $5.4 million related to funds where we have met the requirements that allow us to recognize them
as revenue. 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.
Interest income on accounts receivable was $6.6 million for the nine months ended September 30, 2015, an increase of $0.8 million or
13.1%, as compared to $5.8 million during the same period last year, primarily due to a larger accounts receivable balance.
54
Funeral home revenues were $43.0 million for the nine months ended September 30, 2015, an
increase of $7.5 million, or 21.2%, compared to $35.5 million during the same period last year. The increase was primarily driven by the 16 funeral homes we acquired in 2014 and 2015.
Other cemetery revenues were $4.6 million for the nine months ended September 30, 2015, as compared to $7.2 million during the same
period last year. The comparison of other cemetery revenues was affected by the one-time land sale in the first quarter of 2014.
Costs and
Expenses
The cost of goods sold was $25.6 million for the nine months ended September 30, 2015, an increase of $0.4 million,
or 1.6%, as compared to $25.2 million during the same period last year. The ratio of cost of goods sold to pre-need and at-need cemetery revenues was 17.1% during the nine months ended September 30, 2015 as compared to 17.3% during the same
period last year. The change in the ratio primarily relates to changes in product mix.
Cemetery expenses were $53.8 million during the
nine months ended September 30, 2015, an increase of $6.3 million, or 13.1%, compared to $47.5 million during the same period last year. Within this category, there were increases of $1.2 million in repairs and maintenance expenses, $4.0
million in personnel costs and $0.6 million in real estate tax expense with the remaining increase in general cemetery 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 such expenses to 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 nine months ended September 30, 2015 as compared to 27.6% during the same period last year.
Selling expenses were $44.3 million during the nine months ended September 30, 2015, an increase of $1.8 million, or 4.2%, as compared to
$42.5 million during the same period last year. The overall expense increase was primarily caused by segment-based increases of $6.9 million in commissions and personnel costs, $0.7 million in advertising and marketing expenses, $0.1 million in
supplies and printing costs and $0.2 million in travel expenses, partially offset by an increase in deferred selling expenses of $6.1 million. The ratio of selling expenses to cemetery revenues was 29.5% during the nine months ended
September 30, 2015 as compared to 29.2% during the same period last year. The 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 follow relatively consistent trends over the long-term.
General and administrative expenses were $27.3 million during the nine months ended September 30, 2015, an increase of $1.0 million,
or 3.8%, compared to $26.3 million during the same period last year. The majority of the increase was due to increases of $1.3 million in personnel costs, $0.9 million in insurance costs and $0.2 million in repairs and maintenance costs, partially
offset by a decrease of $1.5 million in professional fees and legal costs, primarily related to a legal settlement. 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 such expenses to 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 decrease slightly 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 13.6% during the nine months ended September 30, 2015 as compared to 15.3% during the same
period last year.
Total corporate overhead was $27.0 million for the nine months ended September 30, 2015, an increase of $4.6
million, or 20.5% compared to $22.4 million during the same period last year. The increase in corporate expenses was
55
primarily attributable to increases of $1.4 million in professional fees, $1.2 million in personnel costs, $0.7 million in advertising expenses, $0.3 million in information technology costs, $0.1
million in utility costs and $0.1 million in bank fees with the remainder attributable to increases in other general expense categories.
Depreciation and amortization was $9.2 million during the nine months ended September 30, 2015, an increase of $1.2 million, or 15.2%, as
compared to $8.0 million during the same period last year. The majority of the increase was attributable to acquired properties and amortization of the intangible assets relating to the lease and management agreements entered into in 2014.
Funeral home expenses were $35.5 million for the nine months ended September 30, 2015, an increase of $6.4 million, or 22.1%, compared to
$29.1 million during the same period last year. The increase was primarily attributable to increases of $1.7 million in personnel costs, $0.8 million in merchandise costs, $0.5 million in other service and supplies costs, $0.5 million in facility
costs, $0.5 million in general and administrative expenses and $1.8 million in expenses related to insurance sales with the remainder attributable to increases in other general expense categories.
Acquisition related costs were $1.6 million for the nine months ended September 30, 2015, a decrease of $0.4 million, or 19.2%, as
compared to $2.0 million during the same period last year. These costs may vary from period to period depending on the amount of acquisition activity that takes place.
Non-segment Allocated Results
As
previously mentioned, certain statement of operations amounts are not allocated to segment operations. These amounts are those line items that can be found on our unaudited condensed consolidated statement of operations below operating profit and
above net income (loss).
The table below summarizes these items and the changes between the nine months ended September 30, 2015 and
2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, |
|
|
|
2015 |
|
|
2014 |
|
|
Change ($) |
|
|
Change (%) |
|
|
|
(in thousands) |
|
Legal settlement |
|
$ |
3,000 |
|
|
$ |
|
|
|
$ |
3,000 |
|
|
|
100.0 |
% |
Gain on sale of funeral home |
|
|
|
|
|
|
244 |
|
|
|
(244 |
) |
|
|
-100.0 |
% |
Gain on acquisitions |
|
|
1,540 |
|
|
|
412 |
|
|
|
1,128 |
|
|
|
273.8 |
% |
Gain on settlement agreement, net |
|
|
|
|
|
|
888 |
|
|
|
(888 |
) |
|
|
-100.0 |
% |
Interest expense |
|
|
16,902 |
|
|
|
15,990 |
|
|
|
912 |
|
|
|
5.7 |
% |
Income tax expense (benefit) |
|
$ |
799 |
|
|
$ |
(522 |
) |
|
$ |
1,321 |
|
|
|
-253.1 |
% |
During the third quarter of 2015, the Company recorded a charge pertaining to a legal settlement. The $3.0
million includes both the settlement amount and legal fees related to the case.
The gain on sale of funeral home recorded during the nine
months ended September 30, 2014 pertains to the sale of one funeral home in California during September 2014.
The gain on
acquisitions recorded during the nine months ended September 30, 2015 relates to our third quarter 2015 acquisitions. The gain on acquisition recorded during the nine months ended September 30, 2014 relates to our first quarter 2014
acquisition.
During the nine months ended September 30, 2014, we recovered an additional $1.5 million related to the settlement of
claims from locations acquired in 2010. A gain of $0.9 million has been recorded as gain on settlement agreement on the unaudited condensed consolidated statement of operations, which was net of legal fees of $0.6 million.
There was an increase in interest expense on amounts outstanding under the credit facility due to an increase in amounts outstanding. Average
amounts outstanding under the credit facility were $127.5 million and $92.6 million during the nine months ended September 30, 2015 and 2014, respectively.
We had an income tax expense of $0.8 million for the nine months ended September 30, 2015, as compared to an income tax benefit of $0.5
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.
56
Supplemental Data
The following table presents supplemental operating data for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2015 |
|
|
Three months ended September 30, 2014 |
|
|
Nine months ended September 30, 2015 |
|
|
Nine months ended September 30, 2014 |
|
Operating Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interments performed |
|
|
12,878 |
|
|
|
13,079 |
|
|
|
41,514 |
|
|
|
36,580 |
|
|
|
|
|
|
Interment rights sold (1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lots |
|
|
8,086 |
|
|
|
8,613 |
|
|
|
23,980 |
|
|
|
24,360 |
|
Mausoleum crypts (including pre-construction) |
|
|
446 |
|
|
|
494 |
|
|
|
1,779 |
|
|
|
1,697 |
|
Niches |
|
|
441 |
|
|
|
363 |
|
|
|
1,285 |
|
|
|
1,144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interment rights sold (1) |
|
|
8,973 |
|
|
|
9,470 |
|
|
|
27,044 |
|
|
|
27,201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of contracts written |
|
|
30,722 |
|
|
|
29,633 |
|
|
|
92,664 |
|
|
|
82,286 |
|
Aggregate contract amount, in thousands (excluding interest) |
|
$ |
86,092 |
|
|
$ |
77,568 |
|
|
$ |
254,600 |
|
|
$ |
219,178 |
|
Average amount per contract (excluding interest) |
|
$ |
2,802 |
|
|
$ |
2,618 |
|
|
$ |
2,748 |
|
|
$ |
2,664 |
|
|
|
|
|
|
Number of pre-need contracts written |
|
|
15,257 |
|
|
|
14,215 |
|
|
|
44,687 |
|
|
|
40,474 |
|
Aggregate pre-need contract amount, in thousands (excluding interest) |
|
$ |
58,211 |
|
|
$ |
50,222 |
|
|
$ |
168,216 |
|
|
$ |
144,233 |
|
Average amount per pre-need contract (excluding interest) |
|
$ |
3,815 |
|
|
$ |
3,533 |
|
|
$ |
3,764 |
|
|
$ |
3,564 |
|
|
|
|
|
|
Number of at-need contracts written |
|
|
15,465 |
|
|
|
15,418 |
|
|
|
47,977 |
|
|
|
41,812 |
|
Aggregate at-need contract amount, in thousands (excluding interest) |
|
$ |
27,881 |
|
|
$ |
27,346 |
|
|
$ |
86,384 |
|
|
$ |
74,945 |
|
Average amount per at-need contract (excluding interest) |
|
$ |
1,803 |
|
|
$ |
1,774 |
|
|
$ |
1,801 |
|
|
$ |
1,792 |
|
(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 flows from operations and
amounts available under our revolving 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 revolving credit facility and under our senior notes.
We believe that cash generated from operations and our borrowing capacity under our revolving 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, we issued $175.0 million aggregate principal amount of 7.875% Senior Notes due 2021 (the Senior
Notes). We pay 7.875% interest per annum on the principal amount of the Senior Notes, payable in cash semi-annually in arrears on June 1 and December 1 of each year, since December 1, 2013. The net proceeds from the offering
were used to retire our previously outstanding $150.0 million aggregate principal amount of 10.25% Senior Notes due 2017 and the remaining proceeds were used for general corporate purposes. The Senior Notes were issued at 97.832% of par resulting in
gross proceeds of $171.2 million with an original issue discount of approximately $3.8 million. We incurred debt issuance costs and fees of approximately $4.6 million. These costs and fees are deferred and are amortized over the life of the Senior
Notes. As of September 30, 2015, we were in compliance with all applicable covenants of the Senior Notes.
57
Credit Facility
On December 19, 2014, we entered into the Fourth Amended and Restated Credit Agreement (the Credit Agreement).
The Credit Agreement provides for a single revolving credit facility of $180.0 million (the Credit Facility) maturing on
December 19, 2019. Additionally the Credit Agreement provides for an uncommitted ability to increase the Credit Facility by an additional $70.0 million. The summary of the material terms of the Credit Agreement is set forth below.
Capitalized terms, which are not defined in the following description, shall have the meaning assigned to such terms in the Credit Agreement.
At September 30, 2015, amounts outstanding under the Credit Facility bore interest at rates of approximately 4.1%. The interest rates on
the Credit Facility are calculated as follows:
|
|
|
For Eurodollar Rate Loans, the outstanding principal amount thereof bears interest for each Interest Period at a rate per annum equal to the Eurodollar Rate for the Interest Period plus the Applicable Rate for
Eurodollar Rate Loans; and |
|
|
|
For Base Rate Loans and Swing Line Loans, the outstanding principal amount thereof bears interest from the applicable borrowing date at a rate per annum equal to the Base Rate plus the Applicable Rate for Base Rate
Loans. |
In addition, the Borrowers must pay a Letter of Credit Fee for each Letter of Credit equal to the Applicable Rate
for Letter of Credit Fees times the daily amount to be drawn under such Letter of Credit. The Applicable Rate is determined based on our Consolidated Leverage Ratio, and ranges from 2.25% to 4.00% for Eurodollar Rate Loans and Letter of Credit Fees,
and 1.25% to 3.00% for Base Rate Loans. The current Applicable Rate for each of: (i) Eurodollar Rate Loans and Letter of Credit Fees is 3.25% and (ii) Base Rate Loans is 2.25% based on the current Consolidated Leverage Ratio. The Credit
Agreement also requires the Borrowers to pay a quarterly 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 Credit Agreement contains financial covenants, pursuant to which the Borrowers and the Guarantors will not permit:
|
|
|
Consolidated EBITDA for any Measurement Period to be less than the sum of (i) $80.0 million plus (ii) 80% of the aggregate of all Consolidated EBITDA for each Permitted Acquisition completed after
June 30, 2014; |
|
|
|
the Consolidated Debt Service Coverage Ratio to be less than 2.50 to 1.0 for any Measurement Period; and |
|
|
|
the Consolidated Leverage Ratio to be greater than 4.00 to 1.0 for any period. |
The covenants
include, among other limitations, limitations on: (i) liens, (ii) the creation or incurrence of debt, (iii) investments and acquisitions, (iv) dispositions of property, (v) dividends, distributions and redemptions, and
(vi) transactions with Affiliates.
As of September 30, 2015, we were in compliance with all applicable financial covenants.
The Credit Agreement provides that two types of draws are permitted with respect to the Credit Facility: Acquisition Draws and Working
Capital Draws. The proceeds of Acquisition Draws may be utilized by the Borrowers to finance Permitted Acquisitions, the purchase and construction of mausoleums and related costs or the net amount of Merchandise Trust deposits made after the Closing
Date under the Credit Agreement, irrespective of whether such amounts relate to new or existing cemeteries or funeral homes. The proceeds of Working Capital Draws, Letters of Credit and Swing Line Loans may be utilized by the Borrowers to finance
working capital requirements, Capital Expenditures and for other general corporate purposes. The borrowing of Working Capital Advances is subject to a borrowing formula of 85% of Eligible Receivables.
Each Acquisition Draw is subject to equal quarterly amortization of the principal amount of such draw, with annual principal payments
comprised of ten percent (10%) of the related draw amount, commencing on the second anniversary of such draw, with the remaining principal due on the Maturity Date, subject to certain mandatory prepayment requirements. Working Capital Draws are
due on the Maturity Date, subject to certain mandatory prepayment requirements.
58
Effective July 10, 2015, we entered into the First Amendment (the First
Amendment) to the Credit Agreement to allow us to apply Net Cash Proceeds received from certain: (i) Dispositions of property by any Credit Party or any of its Subsidiaries, (ii) sales or issuances of Equity Interests by us or any of
our Subsidiaries and (iii) Extraordinary Receipts received by or paid to or for the account of any Credit Party or any of its Subsidiaries and not otherwise included in clause (i) and (ii) above that are required to be prepaid to the
Lenders, to Acquisition Draws or Working Capital Draws, at the Companys discretion. Prior to the execution of the First Amendment, the Credit Agreement required that the Net Cash Proceeds from the transactions described above be applied to
Acquisition Draws before they could be applied to Working Capital Draws. We used the proceeds from the follow-on public offering in July 2015 to reduce our Working Capital Draws.
Amounts outstanding under our Credit Facility fluctuated during the nine months ended September 30, 2015 and 2014. At the beginning of
2014, we had $114.0 million outstanding on our Credit Facility. During the first quarter of 2014, we reduced our borrowings on the Credit Facility by $36.6 million as we had borrowed $17.0 million prior to February 27, 2014 and then we used the
net proceeds from our February 27, 2014 follow-on public offering and other available cash to repay $53.6 million of amounts outstanding on our Credit Facility. During the second quarter of 2014, we increased our borrowings on the Credit
Facility by $1.0 million as we had borrowed $19.0 million prior to June 12, 2014 and then we used a portion of the proceeds from our June 12, 2014 follow-on public offering and other available cash to repay $18.0 million of amounts
outstanding on our Credit Facility. During the third quarter of 2014, we increased our borrowings on the Credit Facility by a net $13.0 million resulting in outstanding borrowings of $91.4 million at September 30, 2014. At the beginning of
2015, we had $110.9 million outstanding on our Credit Facility. During the first quarter of 2015, we increased our borrowings on the Credit Facility by a net $12.0 million. During the second quarter of 2015, we increased our borrowings on the Credit
Facility by a net $29.0 million. During the third quarter of 2015, we reduced our borrowings on the Credit Facility by $38.4 million. We used the net proceeds from our July follow-on public offering to repay amounts borrowed on our working capital
line and we had additional borrowings to fund our working capital needs, as well as borrowings of $13.5 million related to our third quarter 2015 acquisitions, resulting in outstanding borrowings of $113.5 million at September 30, 2015. The
average amounts outstanding under our Credit Facility were $127.5 million and $92.6 million for the nine months ended September 30, 2015 and 2014, respectively.
For a more detailed description of our long-term debt agreements, see our 2014 Form 10-K.
Legal Settlement
During the third
quarter of 2015, the Company recorded a charge pertaining to a legal settlement of a Fair Labor Standards Act claim. This $3.0 million amount is recorded under Legal settlement on the Consolidated Statement of Operations and consists of
a charge for the settlement amount and legal fees related to the case.
Corporate Office Lease
On June 5, 2015, the Company entered into a lease agreement for a new corporate office location in Trevose, Pennsylvania. Refer to Note 11
of our unaudited condensed consolidated financial statements in Item 1 of this Form 10-Q for a more detailed discussion.
Cash Flow from
Operating Activities
Net cash flows provided by operating activities were $12.0 million during the nine months ended
September 30, 2015, compared to net cash flows provided by operating activities of $23.2 million during the same period last year. The main factors contributing to the net decrease in cash flows were contributions to trust and less cash
generated from accounts receivable.
Cash Flow from Investing Activities
Net cash used in investing activities was $24.1 million during the nine months ended September 30, 2015 as compared to $117.8 million
during the same period last year. Cash flows used for investing activities during the nine months ended September 30, 2015 were $13.1 million for the acquisitions of 5 funeral homes and 3 cemeteries and $11.0 million for other capital
expenditures. Cash flows used for investing activities during the nine months ended September 30, 2014 were $54.0 million for the acquisition of 13 cemeteries and 9 funeral homes, $53.0 million for up-front rent for the transaction with the
Archdiocese of Philadelphia and $11.1 million for other capital expenditures.
59
Cash Flow from Financing Activities
Net cash flows provided by financing activities were $13.5 million during the nine months ended September 30, 2015 as compared to $104.6
million during the same period last year. Cash flows provided by financing activities for the nine months ended September 30, 2015 consisted of $2.4 million of net increases in long-term debt offset by cash distributions to unit holders of
$56.7 million. In addition, proceeds of $67.9 million from our follow-on public offering on July 10, 2015 were used to pay down outstanding indebtedness under our Credit Facility. Cash flows provided by financing activities for the nine months
ended September 30, 2014 consisted of $173.6 million of net proceeds from our follow-on public offerings and our issuance of common units to ACII, partially offset by net repayments of long-term debt of $23.4 million, cost of financing
activities of $0.3 million, and cash distributions to unit holders of $45.3 million.
Capital Expenditures
The following table summarizes total maintenance capital expenditures and expansion capital expenditures, including expenditures for
acquisitions described in Note 13 of our unaudited condensed consolidated financial statements in Item 1 of Part I of this Form 10-Q and the construction of mausoleums for the periods presented. Prior period expansion capital expenditures are
higher as a result of acquisitions and lease and management agreements completed during the period.
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|
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|
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|
|
|
|
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|
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|
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
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|
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2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
|
(in thousands) |
|
|
(in thousands) |
|
Maintenance capital expenditures |
|
$ |
1,632 |
|
|
$ |
2,326 |
|
|
$ |
5,011 |
|
|
$ |
6,430 |
|
Expansion capital expenditures |
|
|
15,251 |
|
|
|
1,778 |
|
|
|
19,122 |
|
|
|
111,692 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures |
|
$ |
16,883 |
|
|
$ |
4,104 |
|
|
$ |
24,133 |
|
|
$ |
118,122 |
|
|
|
|
|
|
|
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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.
Item 3. |
Quantitative and Qualitative Disclosure About Market Risk |
The information presented
below should be read in conjunction with the notes to our unaudited condensed consolidated financial statements included under Part I, Item 1. Financial Statements in this Quarterly Report on Form 10-Q.
The market risk inherent in our market risk sensitive instruments and positions is the potential change arising from increases or decreases in
interest rates and the prices of marketable equity securities, as discussed below. Our exposure to market risk includes forward-looking statements and represents an estimate of possible changes in fair value or future earnings that would occur
assuming hypothetical future movements in interest rates or debt and equity markets. Our views on market risk are not necessarily indicative of actual results that may occur and do not represent the maximum possible gains and losses that may occur,
since actual gains and losses will differ from those estimated, based on actual fluctuations in interest rates, equity markets and the timing of transactions. We classify our market risk sensitive instruments and positions as other than
trading.
Interest-Bearing Investments
Our fixed-income securities subject to market risk consist primarily of investments in our merchandise trusts and perpetual care trusts. As of
September 30, 2015, the fair value of fixed-income securities in our merchandise trusts represented 4.1% of the fair value of total trust assets while the fair value of fixed-income securities in our perpetual care trusts represented 7.4% of
the fair value of total trust assets. The aggregate quoted fair value of these fixed-income securities was $19.0 million and $23.2 million in merchandise trusts and perpetual care trusts, respectively, as of September 30, 2015. Each 1% change
in interest rates on these fixed-income securities would result in changes of approximately $190,000 and $232,000 in the fair market value of the assets in our merchandise trusts and perpetual care trusts, respectively, based on discounted expected
future cash flows. If these securities are held to maturity, no change in fair market value will be realized.
Our money market and other
short-term investments subject to market risk consist primarily of investments in our merchandise trusts and perpetual care trusts. As of September 30, 2015, the fair value of money market and short-term
60
investments in our merchandise trusts represented 5.9% of the fair value of total trust assets while the fair value of money market and short-term investments in our perpetual care trusts
represented 4.6% of the fair value of total trust assets. The aggregate quoted fair value of these money market and short-term investments was $27.1 million and $14.5 million in the merchandise trusts and perpetual care trusts, respectively, as of
September 30, 2015. Each 1% change in interest rates on these money market and short-term investments would result in changes of approximately $271,000 and $145,000 in the fair market value of the assets in our merchandise trusts and perpetual
care trusts, respectively, based on discounted expected future cash flows.
Marketable Equity Securities
Our marketable equity securities subject to market risk consist primarily of investments held in our merchandise trusts and perpetual care
trusts. These assets consist of investments in both individual equity securities as well as closed and open-ended mutual funds. As of September 30, 2015, the fair value of marketable equity securities in our merchandise trusts represented 10.0%
of the fair value of total trust assets while the fair value of marketable equity securities in our perpetual care trusts represented 0.7% of total trust assets. The aggregate quoted fair market value of these marketable equity securities was $45.7
million and $2.3 million in our merchandise trusts and perpetual care trusts, respectively, as of September 30, 2015, based on final quoted sales prices. Each 10% change in the average market prices of the equity securities would result in a
change of approximately $4.6 million and $0.2 million in the fair market value of securities held in the merchandise trusts and perpetual care trusts, respectively. As of September 30, 2015, the fair value of marketable closed and
open-ended mutual funds in our merchandise trusts represented 76.3% of the fair value of total trust assets, 66.3% of which pertained to fixed-income mutual funds. As of September 30, 2015, the fair value of closed and open-ended mutual funds
in our perpetual care trusts represented 87.1% of total trust assets, 77.4% of which pertained to fixed-income mutual funds. The aggregate quoted fair market value of these closed and open-ended mutual funds was $350.5 million and $271.6 million,
respectively, in the merchandise trusts and perpetual care trusts as of September 30, 2015, based on final quoted sales prices, of which $232.2 million and $210.3 million, respectively, pertained to fixed-income mutual funds. Each 10% change in
the average market prices of the closed and open-ended mutual funds would result in a change of approximately $35.1 million and $27.2 million in the fair market value of securities held in our merchandise trusts and perpetual care trusts,
respectively.
Investment Strategies and Objectives
Our internal investment strategies and objectives for funds held in the merchandise trusts and perpetual care trusts are specified in an
Investment Policy Statement that requires us to do the following:
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State in a written document our expectations, objectives, tolerances for risk and guidelines in the investment of our assets; |
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Set forth a disciplined and consistent structure for managing all trust assets. This structure is based on a long-term asset allocation strategy, which is diversified across asset classes, investment styles and
strategies. We believe this structure is likely to meet our stated objectives within our tolerances for risk and variability. This structure also includes ranges around the target allocations allowing for adjustments when appropriate to reduce risk
or enhance returns. It further includes guidelines for the selection of investment managers and vehicles through which to implement the investment strategy; |
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Provide specific guidelines for each investment manager. These guidelines control the level of overall risk and liquidity assumed in each portfolio; |
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Appoint third-party investment advisors to oversee the specific investment managers and advise our Trust Committee; and |
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Establish criteria to monitor, evaluate and compare the performance results achieved by the overall trust portfolios and by our investment managers. This allows us to compare the performance results of the trusts to our
objectives and other benchmarks, including peer performance, on a regular basis. |
Our investment guidelines are based on
relatively long investment horizons, which vary with the type of trust. Because of this, interim fluctuations should be viewed with appropriate perspective. The strategic asset allocation of the trust portfolios is also based on this longer-term
perspective. However, in developing our investment policy, we have taken into account the potential negative impact on our operations and financial performance of significant short-term declines in market value.
We recognize the challenges we face in achieving our investment objectives in light of the uncertainties and complexities of contemporary
investment markets. Furthermore, we recognize that in order to achieve the stated long-term objectives we may have short-term declines in market value. Given the need to maintain consistent values in the
61
portfolio, we have attempted to develop a strategy, which is likely to maximize returns and earnings without experiencing overall declines in value in excess of 3% over any 12-month period.
However, we are considering alternative strategies in light of current market conditions.
In order to consistently achieve the stated
return objectives within our tolerance for risk, we use a strategy of allocating appropriate portions of our portfolio to a variety of asset classes with attractive risk and return characteristics, and low to moderate correlations of returns. See
the notes to our unaudited condensed consolidated financial statements for a breakdown of the assets held in our merchandise trusts and perpetual care trusts by asset class.
Debt Instruments
Our Credit Facility
bears interest at a floating rate, based on LIBOR, which is adjusted quarterly. This subjects us to increases in interest expense resulting from movements in interest rates. As of September 30, 2015, we had $113.5 million of borrowings
outstanding under our Credit Facility. After these borrowings, our total available borrowing capacity under the Credit Facility is $66.5 million. The revolving credit facility provides for both acquisition draws, which are used primarily to finance
acquisitions, acquisition related costs and mausoleum construction costs, and working capital draws, which are used to finance all other corporate costs. As of September 30, 2015, we had approximately $75.0 million of working capital draws,
which are limited to a borrowing formula of 85% of eligible account receivables. This limit was $135.5 million at September 30, 2015. The amounts outstanding under the Credit Facility bore interest at rates of approximately 4.1% at
September 30, 2015.
Item 4. |
Controls and Procedures |
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we
file or submit under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms, and that such information is
accumulated and communicated to our management, including our Chief Executive Officer and Interim Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our
Disclosure Committee and management, including our Chief Executive Officer and our Interim Chief Financial Officer, of the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b). Based upon, and as of
the date of this evaluation, our Chief Executive Officer and our Interim Chief Financial Officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information we are required to disclose in our
reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms, and that such information is accumulated and communicated to our management, including our Chief
Executive Officer and Interim Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal
Control over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during our
last fiscal quarter ended September 30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II Other Information
Item 1. |
Legal Proceedings |
We and certain of our subsidiaries are parties to legal proceedings
that have arisen in the ordinary course of business. We do not expect these matters to have a material adverse effect on our consolidated financial position, results of operations or cash flows. We carry insurance with coverage and coverage limits
that we believe to be customary in the funeral home and cemetery industries. Although there can be no assurance that such insurance will be sufficient to protect us against all contingencies, we believe that our insurance protection is reasonable in
view of the nature and scope of our operations.
62
In addition to the other information set forth in this Quarterly Report on
Form 10-Q, you should carefully consider the risk factors discussed in Part I, Item 1A. Risk Factors in our 2014 Form 10-K, Current Report on Form 8-K filed with the SEC on July 6, 2015 and other reports that we file with the
SEC, which could materially affect our business, financial condition or future results.
The risks described in the 2014 Form 10-K,
Current Report on Form 8-K filed with the SEC on July 6, 2015 and other reports that we file with the SEC are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial
also may materially adversely affect our business, financial condition and/or operating results.
This Quarterly Report on Form 10-Q
contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of many factors, including the risks faced by us described in
our 2014 Form 10-K, Current Report on Form 8-K filed with the SEC on July 6, 2015 and other reports that we file with the SEC.
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
None.
Item 3. |
Defaults Upon Senior Securities |
None.
Item 4. |
Mine Safety Disclosures |
None.
Item 5. |
Other Information |
None.
63
|
|
|
Exhibit Number |
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Description |
|
|
10.1 |
|
First Amendment to Fourth Amended and Restated Credit Agreement, dated July 10, 2015, by and among StoneMor Operating LLC, its Subsidiaries, StoneMor GP LLC, StoneMor Partners L.P., the Lenders party thereto and Bank of America,
N.A., as Administrative Agent, Swing Line Lender and L/C Issuer (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended June 30, 2015). |
|
|
10.2 |
|
Letter Agreement by and between Sean P. McGrath and StoneMor GP LLC. |
|
|
10.3 |
|
Confidentiality and Non-Compete Agreement by and between Sean P. McGrath and StoneMor GP LLC. |
|
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31.1 |
|
Certification pursuant to Exchange Act Rule 13a-14(a) of Lawrence Miller, Chief Executive Officer, President and Chairman of the Board of Directors. |
|
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31.2 |
|
Certification pursuant to Exchange Act Rule 13a-14(a) of Sean P. McGrath, Chief Financial Officer. |
|
|
32.1 |
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350) and Exchange Act Rule 13a-14(b) of Lawrence Miller, Chief Executive Officer, President and Chairman of the Board of Directors (furnished
herewith). |
|
|
32.2 |
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350) and Exchange Act Rule 13a-14(b) of Sean P. McGrath, Chief Financial Officer (furnished herewith). |
|
|
101 |
|
Attached as Exhibit 101 to this report are the following Interactive Data Files formatted in XBRL (eXtensible Business Reporting Language): (i) Unaudited Condensed Consolidated Balance Sheets as of September 30, 2015, and
December 31, 2014; (ii) Unaudited Condensed Consolidated Statements of Operations for the three months and nine months ended September 30, 2015 and 2014; (iii) Unaudited Condensed Consolidated Statement of Partners Capital (Deficit); (iv)
Unaudited Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2015 and 2014; and (v) Notes to the Unaudited Condensed Consolidated Financial Statements. Users of this data are advised that the information
contained in the XBRL documents is unaudited and these are not the official publicly filed financial statements of StoneMor Partners L.P. |
64
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
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STONEMOR PARTNERS L.P. |
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By: StoneMor GP LLC |
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|
|
its general partner |
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|
November 9, 2015 |
|
|
|
/s/ Lawrence Miller |
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|
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Lawrence Miller |
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|
|
Chief Executive Officer, President and Chairman of the Board of Directors (Principal Executive Officer) |
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|
|
November 9, 2015 |
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|
|
/s/ Sean P. McGrath |
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|
|
Sean P. McGrath |
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|
|
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Chief Financial Officer (Principal Financial Officer) |
65
Exhibit Index
|
|
|
Exhibit Number |
|
Description |
|
|
10.1 |
|
First Amendment to Fourth Amended and Restated Credit Agreement, dated July 10, 2015, by and among StoneMor Operating LLC, its Subsidiaries, StoneMor GP LLC, StoneMor Partners L.P., the Lenders party thereto and Bank of America,
N.A., as Administrative Agent, Swing Line Lender and L/C Issuer (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended June 30, 2015). |
|
|
10.2 |
|
Letter Agreement by and between Sean P. McGrath and StoneMor GP LLC. |
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10.3 |
|
Confidentiality and Non-Compete Agreement by and between Sean P. McGrath and StoneMor GP LLC. |
|
|
31.1 |
|
Certification pursuant to Exchange Act Rule 13a-14(a) of Lawrence Miller, Chief Executive Officer, President and Chairman of the Board of Directors. |
|
|
31.2 |
|
Certification pursuant to Exchange Act Rule 13a-14(a) of Sean P. McGrath, Chief Financial Officer. |
|
|
32.1 |
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350) and Exchange Act Rule 13a-14(b) of Lawrence Miller, Chief Executive Officer, President and Chairman of the Board of Directors (furnished
herewith). |
|
|
32.2 |
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350) and Exchange Act Rule 13a-14(b) of Sean P. McGrath, Chief Financial Officer (furnished herewith). |
|
|
101 |
|
Attached as Exhibit 101 to this report are the following Interactive Data Files formatted in XBRL (eXtensible Business Reporting Language): (i) Unaudited Condensed Consolidated Balance Sheets as of September 30, 2015, and
December 31, 2014; (ii) Unaudited Condensed Consolidated Statements of Operations for the three months and nine months ended September 30, 2015 and 2014; (iii) Unaudited Condensed Consolidated Statement of Partners Capital (Deficit); (iv)
Unaudited Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2015 and 2014; and (v) Notes to the Unaudited Condensed Consolidated Financial Statements. Users of this data are advised that the information
contained in the XBRL documents is unaudited and these are not the official publicly filed financial statements of StoneMor Partners L.P. |
66
Exhibit 10.2
August 26, 2015
Mr. Sean McGrath
Dear Sean:
I am delighted to offer you the position of Chief Financial Officer and Secretary of StoneMor GP LLC (the Company). All of us at StoneMor are
pleased with your decision to join the team and excited about working with you. This letter, when signed by you, will constitute your employment with the Company. In accordance with our discussions, set forth below are the terms and conditions of
your employment:
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TITLE: |
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Chief Financial Officer and Secretary |
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REPORTING TO: |
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Larry Miller, Chief Executive Officer, President and Chairman of the Board |
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START DATE: |
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On or before September 28, 2015 |
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|
BASE SALARY: |
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$350,000 annually (payable weekly or pursuant to standard company practice) |
|
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ANNUAL BONUS: |
|
For each calendar year of your employment, you shall have the opportunity to earn an annual incentive bonus with a target bonus equal to 75%
of Base Salary. The actual incentive bonus awarded is discretionary and will be based on Company performance against performance targets established by the Compensation Committee as well as mutually agreed upon personal performance goals.
For your service during the 2015 calendar year, you will be awarded an annual incentive
bonus of $175,000, paid during the Companys normal bonus award cycle in the first quarter of 2016. |
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EQUITY PARTICIPATION: |
|
Annually, you will receive long-term equity incentive awards at nominal values approved by the Compensation Committee. This award is
currently targeted at 75% of Base Salary and will be comprised of StoneMor LP units. Half (50%) of this award will vest ratably over three (3) years and the other half (50%) will vest based upon performance criteria approved by the Compensation
Committee in 2015 or 2016. Additionally, within our General Partner, you will receive
a 1 % GP Incentive Interest which will feature two sources of cash flow to you: (1) ongoing quarterly cash distributions from the GP/Incentive Distribution Rights (IDRs) and (2) the exit value upon GP monetization. |
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VACATION: |
|
Four weeks |
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|
MEDICAL BENEFITS: |
|
You will receive the same benefit terms and conditions as for all Company employees and officers. This benefits summary will be provided to you within a separate document. During the waiting period to become eligible for health
coverage at the Company, you will be fully reimbursed for the cost of COBRA payments to maintain your current plan at your prior employer. |
|
|
SEVERANCE POLICY: |
|
Should you be terminated from the Company without cause (including due to a change of control), you will be eligible to receive a severance payment equal to one (1) year of base salary at the time of your termination, assuming that
you have executed a separation agreement and full release of claims as provided by the Company. |
|
|
OTHER BENEFITS: |
|
You will have the option between accepting a company- provided mobile phone or receiving a $170 monthly allowance. |
You also acknowledge and agree that, during your employment with the StoneMor, you will be subject to the Companys
standard policies, if any, relating to non-disparagement, non-solicitation, non-competition and confidentiality, as set forth in any Company policies or plans generally applicable to its executives. (Attached) In addition, this letter does not
constitute an employment contract. Your employment will be at-will, meaning that you or StoneMor may terminate the employment relationship at any time, with or without cause, and with or without notice.
This offer is contingent upon satisfactory completion of our standard pre-hire requirements, including completion
of references, a pre-employment drug and alcohol test and background check. This letter shall be governed by, and construed in accordance with, the laws of the State of Pennsylvania, without regard to principles of conflict of laws thereof.
Sean, Im again looking forward to our partnership together and your contributions to the growth and success of StoneMor. Please feel free to contact me
if you have further questions regarding this offer.
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Best Regards, |
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By: |
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/s/ Lawrence Miller |
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Lawrence Miller |
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|
Chief Executive Officer, President and Chairman of the Board |
|
Agreed and Accepted, |
This 31 day of August, 2015: |
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By: |
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/s/ Sean McGrath |
|
|
Sean McGrath |
Exhibit 10.3
CONFIDENTIALITY AND NON-COMPETE AGREEMENT
In consideration of the commencement of my employment as Chief Financial Officer and Secretary at StoneMor GP LLC (StoneMor or
Company), the General Partner of StoneMor Partners, L.P., as described in my offer letter, and the other consideration as described in more detail below, the receipt and sufficiency of which I hereby acknowledge, and intending to be
legally bound hereby, I, Sean McGrath, state and agree as follows:
1. Business. StoneMor GP LLC, its parents, affiliates,
subsidiaries, divisions, and related companies or entities, and their respective predecessors, successors and assigns, now existing or hereafter created, (collectively referred to herein as StoneMor), are engaged in the deathcare
industry and provide a broad scope of products and services through the ownership, development, and operation of cemeteries and funeral homes (the Business):
a. StoneMor invests substantial time, money, and effort, on an ongoing basis, to train its employees with specialized skills and
knowledge unique to StoneMor and its Business, to develop products and services for the Business, to maintain and expand its customer base, and to improve and develop its products and services;
b. In my executive role as Chief Financial Officer and Secretary, from the outset of and during my employment with StoneMor, I will
have access to, receive, learn, develop and/or conceive information that is proprietary and/or confidential to StoneMor related to all aspects of its business, including but not limited to financials, customers and contracts;
c. This information must be kept in strict confidence to protect StoneMors Business and maintain its competitive position in the
marketplace, and this information would be useful to StoneMors existing and potential competitors for indefinite periods of time;
d. From the outset of and during my employment with StoneMor, I will have access to and will be required to develop, maintain, and/or
supervise technology, products and customer relationships and intellectual property that are valuable to StoneMor and which it has a legitimate interest in protecting;
e. StoneMor would be irreparably harmed by my subsequent work with, for or as a competitor of StoneMor, due to the possibility that
there would be inadvertent or other disclosures of StoneMors proprietary and/or confidential information or that there would be improper interference with its valuable customer relationships and goodwill;
f. The commencement of my employment with StoneMor is adequate consideration for signing this Confidentiality and Non-Compete Agreement
(the Agreement);
g. The restrictions in this Agreement are reasonable and necessary to protect StoneMors
legitimate business interests;
h. The post-termination restrictions set forth in this Agreement shall apply regardless of
whether my employment is terminated with or without cause and regardless of whether the termination was initiated by me or by StoneMor; and
i. The post-termination restrictions set forth in this Agreement may limit, but do not prohibit, me from earning a satisfactory
livelihood.
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/s/ SM Initial |
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Page 1 of 6 |
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2. Covenants.
a. No Solicitation. During my employment with StoneMor and for a period of two (2) years thereafter, I will not, directly
or indirectly: (i) solicit, entice, persuade or induce any employee, director, officer, associate, consultant, agent or independent contractor of the Company to terminate his or her employment or engagement by the Company to become employed or
engaged in competition with the Company by any person, firm, corporation or other business enterprise other than a member of the Company, except in furtherance of my responsibility during my employment with StoneMor; (ii) authorize or assist in
the taking of such action by any third party; or (iii) solicit or persuade any customer or prospect to discontinue its business relationship with the Company. For purposes of this Section 2.a, the terms employee,
director, officer, associate, consultant, agent, and independent contractor shall include any person with such status at any time during my employment and for one year following
my termination of employment.
b. No Competition. During my employment with StoneMor and for a period of one (1) year
thereafter, I will not, directly or indirectly, engage, participate, make any financial investment in, or become employed by or render advisory or other services to or for any person, firm, corporation or other business enterprise (the
Competing Enterprise) which is engaged, directly or indirectly, during the period of my employment or at the time of the termination of my employment, as the case may be, in any Business of the type and character engaged in or
competitive with that conducted by the Company in any state or marketing area in which the Company is doing business or is qualified to do business. I acknowledge that these restrictions on competition are fair because, in my position as Chief
Financial Officer and Secretary, I will have knowledge of and access to all business practices and information, without limitation to a specific geography, department or customer.
c. Confidentiality. During my employment and thereafter without limit as to time, I will not (other than in the regular course
and in furtherance of the Companys business) divulge, furnish or make available to any person any knowledge or information with respect to the business or affairs of the Company which is confidential, including, without limitation,
know-how, trade secrets, customer lists, pricing policies, operational methods, marketing plans or strategies, product development techniques or plans, business acquisition or disposition plans, new personnel employment plans, methods,
technical processes, designs and design projects, inventions and research projects and financial data, analyses, budgets and forecasts of the Company except (1) information which at the time is available to others in the business or generally
known to the public other than as a result of disclosure by the Company not permitted hereunder, and (2) when required to do so by a court of competent jurisdiction, by any governmental agency or by any administrative body or legislative body
(including a committee thereof) with purported or apparent jurisdiction to order me to divulge, disclose or make accessible such information. All memoranda, notes, lists, records, electronically stored data, recordings or videotapes and other
documents (and all copies thereof) made or compiled by me or made available to me (whether during my employment by the Company or by any predecessor thereof) concerning the business of the Company or any predecessor thereof shall be the property of
the Company and shall be delivered to the Company promptly upon the termination of my employment. Nothing in this Agreement is intended to prohibit Employee from voluntarily communicating with the United States Securities and Exchange Commission
(SEC) or any other governmental agency about a good-faith belief that a securities law violation may have occurred. Employee does not require prior authorization of Company to make a
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/s/ SM Initial |
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Page 2 of 6 |
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report or disclosure about a potential securities law violation to any governmental agency or entity, including but not limited to the Department of Justice, the SEC, the Congress, or any agency
Inspector General, nor is Employee required to notify the Company that such reports or disclosures were made. Nothing in this Agreement shall waive or release any rights or claims that Employee may have under the Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank).
d. Nondisclosure. Except as set forth in Schedule A (attached hereto), I
shall not disclose or utilize in my work with the Company any Intellectual Property or secret or confidential information of others (including any prior employers), or any Intellectual Property, inventions or innovations of my own which are not
included within the scope of this agreement (collectively, Prior Inventions). For the purposes of this Agreement, Intellectual Property shall include, but shall not be limited to, ideas, inventions, methods, know-how,
discoveries, processes, works of authorship, designs, analyses, drawings, reports, trademarks, service marks, slogans, logos, trade dress, technical, business, sales, operations and computer software innovations. If disclosure of any Prior Invention
would cause me to violate any prior confidentiality agreement, I understand that I should not list such Prior Inventions in Schedule A, but I should only disclose a cursory name for each such Prior Invention, listing of the party/ies to which it
belongs and the fact that full disclosure as to such Prior Inventions has not been made for that reason. If no such disclosure is attached, I represent that there are no Prior Inventions. If, in the course of my employment with the Company, I
incorporate a Prior Invention into a StoneMor service, product or process, the Company is hereby granted and shall have a nonexclusive, royalty-free, irrevocable, perpetual, worldwide license (with rights to sublicense through multiple tiers of
sublicenses) to make, have made, modify, use and sell such Prior Invention. Notwithstanding the foregoing, I agree that I will not incorporate, or permit to be incorporated, Prior Inventions in any StoneMor service, product or process without the
Companys prior written consent and I represent that I have the right to provide all such Prior Inventions.
e. Employee
Innovation. I acknowledge that all developments, including, without limitation, inventions, patentable or otherwise, trade secrets, discoveries, improvements, ideas and writings that alone or jointly with others I may conceive, make, develop or
acquire during my employment by the Company and any predecessor thereof (collectively, the Developments), are and shall remain the sole and exclusive property of the Company and I hereby assigns to the Company all of my right, title and
interest in all such Developments. I shall promptly and fully disclose all future Developments to the Companys Board, and, at any time upon request and at the expense of the Company, shall execute, acknowledge and deliver to the Company all
instruments that the Company shall prepare, give evidence, and take all other actions that are necessary or desirable in the reasonable opinion of the Companys counsel, to enable the Company to file and prosecute applications for and to
acquire, maintain and enforce all letters patent, trademark registrations or copyrights covering the Developments in all countries in which the same are deemed necessary.
f. Remedies. I acknowledge that the services to be rendered by me are of a special, unique and extraordinary character and, in
connection with such services, I will have access to and be furnished with confidential information vital to the Companys business and that irreparable injury would be sustained by the Company in the event of my breach of any of the covenants
contained in this Section 2, which injury could not be remedied adequately by the recovery of damages in an action at law. Accordingly, I agree that, upon a breach or threatened breach by me of any of such covenants, the Company shall be
entitled, in addition to and not in lieu of any and all other remedies, to an injunction to be issued by any court of competent jurisdiction restraining the commission or continuance of any such breach or threatened breach upon minimal bond, with or
without surety, and that such an injunction will
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not work an undue hardship on me. I acknowledge that the covenant periods set forth in this Section shall be extended by the period of any breach by me. Further, any proven breach by me shall
result in the forfeiture of any remaining payments of benefits due to me hereunder.
g. Survival. The provisions of this
Section 2 shall survive the termination of this Agreement, without regard to the reasons therefore.
3. Severability and
Reformation. If any court determines that any of the provisions of this Agreement is invalid or unenforceable, the remainder of such provisions shall not thereby be affected and shall be given full effect without regard to the invalid
provisions. If any court construes any of the provisions of this Agreement, or any part thereof, to be unreasonable because of the duration of such provision or the geographic scope thereof, such court shall have the power to reduce the duration or
restrict the geographic scope of such provision and to enforce such provision as so reduced or restricted.
4. Waiver.
A decision by StoneMor or any third-party beneficiary to enforce certain breaches of this Agreement but not others shall not be construed as a waiver of any possible remedy that StoneMor or any third-party beneficiary has for my breach of this
Agreement regardless of any claims that I may have against StoneMor.
5. Modification; Termination. This Agreement
may not be modified or terminated, in whole or part, except in writing signed by an authorized representative of StoneMor.
6.
Choice of Law and Forum. This Agreement will be governed by Pennsylvania law applicable to contracts entered into and performed in Pennsylvania. I agree that this Agreement shall exclusively be enforced by any federal or state court of
competent jurisdiction in the Commonwealth of Pennsylvania and hereby consent to the personal jurisdiction of these courts.
7.
Assignment. I agree that StoneMor may assign part or all of this Agreement to any direct or indirect parent, affiliate, subsidiary, division, related company or entity of StoneMor and to any transferee of substantially all of the assets
of StoneMor and that any assignee shall have the same rights as StoneMor. I understand that I have no rights to assign this Agreement.
8. No Other Agreements or Obligations. I represent that, except as stated below, I have not signed any non-competition or other
contract that prohibits me from being employed by StoneMor or assigning my works and ideas to StoneMor.
[Signature Page Follows]
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I INTEND TO BE LEGALLY BOUND BY THIS AGREEMENT:
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Sean McGrath: |
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Date: |
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9/1/15 |
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/s/ Sean McGrath |
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Sean McGrath |
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STONEMOR GP LLC |
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Date: |
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By: |
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/s/ Lawrence Miller |
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Name: |
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Lawrence Miller |
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Title: |
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President and Chief Executive Officer |
SCHEDULE A
Employee Innovation and Non-Disclosure Agreement
I have set forth herein all such ideas, inventions, methods, know-how, discoveries, processes, works of authorship, designs, analyses,
drawings, reports, trademarks, service marks, slogans, logos, trade dress, technical, business, sales, operations, computer software innovations, trade secrets and all other Intellectual Property which are not included within the scope of this
Agreement, or a short summary of anything that cannot be listed, and I have disclosed in writing to StoneMor on or before the date of this Agreement the title or identifying criteria, and a full description, of each such item, including, without
limitation, the state of completion of each such item, and whether and the extent to which each item is the subject of a trademark, service mark, or copyright application or registration, or a patent application or patent. I understand and agree
that no such ideas, inventions, methods, know-how, discoveries, processes, works of authorship, designs, analyses, drawings, reports, trademarks, service marks, slogans, logos, trade dress, or technical, business, sales, operations, clinical,
computer software innovations, trade secrets or other Intellectual Property will be excluded from the scope of this Agreement except to the extent disclosed and described below.
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Sean McGrath: |
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Date: |
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9/1/15 |
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/s/ Sean McGrath |
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Sean McGrath |
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STONEMOR GP LLC |
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Date: |
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By: |
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/s/ Lawrence Miller |
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Name: |
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Lawrence Miller |
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Title: |
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President and Chief Executive Officer |
CERTIFICATION
Exhibit 31.1
I, Lawrence Miller,
certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of StoneMor Partners L.P.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the
registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over
financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants
internal control over financial reporting.
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Date: November 9, 2015 |
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By: |
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/s/ Lawrence Miller |
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Lawrence Miller |
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President and Chief Executive Officer |
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(Principal Executive Officer) |
CERTIFICATION
Exhibit 31.2
I, Sean P. McGrath,
certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of StoneMor Partners L.P.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the
registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over
financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants
internal control over financial reporting.
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Date: November 9, 2015 |
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By: |
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/s/ Sean P. McGrath |
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Sean P. McGrath |
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Chief Financial Officer |
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(Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18
of the United States Code), the undersigned officer of StoneMor GP LLC, the general partner of StoneMor Partners L.P. (the Partnership), does hereby certify with respect to the Quarterly Report of the Partnership on Form 10-Q for
the quarter ended September 30, 2015 (the Report) that:
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The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership. |
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/s/ Lawrence Miller |
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President and Chief Executive Officer |
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Date: November 9, 2015 |
(Principal Executive Officer) |
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The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section
1350 of Chapter 63 of Title 18 of the United States Code) and is not being filed as part of the Report or as a separate disclosure document.
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18
of the United States Code), the undersigned officer of StoneMor GP LLC, the general partner of StoneMor Partners L.P. (the Partnership), does hereby certify with respect to the Quarterly Report of the Partnership on Form 10-Q for
the quarter ended September 30, 2015 (the Report) that:
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The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership. |
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/s/ Sean P. McGrath |
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Chief Financial Officer |
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Date: November 9, 2015 |
(Principal Financial Officer) |
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The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section
1350 of Chapter 63 of Title 18 of the United States Code) and is not being filed as part of the Report or as a separate disclosure document.
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