NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2017
Nature of Operations
StoneMor Partners L.P. (the “Partnership”) is a provider of funeral and cemetery products and services in the death care industry in the United States. As of
June 30, 2017
, the Partnership operated
316
cemeteries in
27
states and Puerto Rico, of which
285
are owned and
31
are operated under lease, management or operating agreements. The Partnership also owned and operated
98
funeral homes, including
45
located on the grounds of cemetery properties that we own, in
18
states and Puerto Rico.
Basis of Presentation
The accompanying condensed consolidated financial statements, which are unaudited except for the balance sheet at December 31, 2016, which is derived from audited financial statements, have been prepared in accordance with the requirements of Form 10-Q and accounting principles generally accepted in the United States (“GAAP”) for interim reporting. They do not include all disclosures normally made in financial statements contained in Form 10-K. In management’s opinion, all adjustments necessary for a fair presentation of the Partnership’s financial position, results of operations and cash flows for the periods disclosed have been made. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto presented in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2016. The results of operations for the three and
six months ended June 30, 2017
may not necessarily be indicative of the results of operations for the full year ending
December 31, 2017
.
Principles of Consolidation
The unaudited condensed consolidated financial statements include the accounts of each of the Partnership’s 100% owned subsidiaries. These statements also include the accounts of the merchandise and perpetual care trusts in which the Partnership has a variable interest and is the primary beneficiary. The Partnership operates
31
cemeteries under long-term lease, operating or management contracts. The operations of
16
of these managed cemeteries have been consolidated.
The Partnership operates
15
cemeteries under long-term leases and other agreements that do not qualify as acquisitions for accounting purposes. As a result, the Partnership did not consolidate all of the existing assets and liabilities related to these cemeteries. The Partnership has consolidated the existing assets and liabilities of the merchandise and perpetual care trusts associated with these cemeteries as variable interest entities since the Partnership controls and receives the benefits and absorbs any losses from operating these trusts. Under the long-term leases, and other agreements associated with these properties, which are subject to certain termination provisions, the Partnership is the exclusive operator of these cemeteries and earns revenues related to sales of merchandise, services and interment rights, and incurs expenses related to such sales, including the maintenance and upkeep of these cemeteries. Upon termination of these contracts, the Partnership will retain all of the benefits and related contractual obligations incurred from sales generated during the contract period. The Partnership has also recognized the existing customer contract related performance obligations that it assumed as part of these agreements.
Restatement of Previously Issued Unaudited Condensed Consolidated Financial Statements
On September 18, 2017, the Partnership filed its Annual Report on Form 10-K for the year ended December 31, 2016, which amended the Partnership's audited consolidated financial statements as of December 31, 2015, and for each of the two years in the period ended December 31, 2015 and the related notes thereto. This Form 10-Q amends the Partnership’s unaudited condensed consolidated financial statements for the
three and six
months ended
June 30, 2016
and the related notes thereto, included on Form 10-Q/A filed on November 9, 2016 ("Original Filing"). The Restatement reflects the correction of the following errors identified subsequent to the Original Filing:
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A.
|
The Partnership understated recognized revenues from the satisfaction of cemetery and funeral home performance obligations in its condensed consolidated statement of operations. The understatement was primarily due to lags in or omissions of the data entry of a contract servicing event. The adjustments to correct these accounting errors resulted in a net increase of
$0.7 million
in revenues for the
three months ended June 30, 2016
, of which
$0.6 million
related to merchandise revenues, and a net increase of
$1.9 million
in revenues for the
six months ended June 30, 2016
, of which
$1.6 million
related to merchandise revenues.
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B.
|
In conjunction with the foregoing revenue recognition errors, on its condensed consolidated balance sheet, the Partnership had historically (i) deferred incorrect and imprecise amounts of investment revenues and expenses related to its merchandise trusts, (ii) reserved incorrect amounts for future cancellations related to its cemetery and funeral home performance obligations, and (iii) deferred incorrect amounts of selling costs. The correction of these accounting errors resulted in a net increase in “Selling expense” of
$0.2 million
for the
three months ended June 30, 2016
. The correction of these accounting errors resulted in a net increase in “Cemetery investment and other revenues” of
$0.1 million
for the
six months ended June 30, 2016
due to changes in the inputs used to calculate trust income recognition. This also resulted in a decrease in “Cemetery merchandise revenues” of
$0.1 million
due to an increase in cancellation reserve expense and an increase in “Selling expense” of
$0.3 million
for the
six months ended June 30, 2016
.
|
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C.
|
Certain components of “Other current assets” and “Accounts payable and accrued liabilities” on its condensed consolidated balance sheet were determined to be inappropriate in the Partnership’s review of accounting policies during its ongoing remediation. The Partnership had historically presented intercompany deposits due to its merchandise and perpetual care trust funds within “Other current assets” and presented intercompany payables to its merchandise and perpetual care trusts in “Accounts payable and accrued liabilities”. The Partnership has determined the intercompany payables and liabilities to its consolidated trust funds should be eliminated. The correction of the error resulted in a reclassification of
$1.0 million
in the condensed consolidated statements of cash flows between "Other assets" and "Payables and other liabilities" for the
six months ended June 30, 2016
.
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D.
|
Specific to the Partnership’s disclosure in
Note 11
,
Supplemental Condensed Consolidating Financial Information
(“
Note 11
”), the Partnership recorded incorrect amounts for its individual cemetery and funeral home location-level equity and intercompany balances at its formation and in subsequent acquisitions. Additionally, the Partnership presented certain managed locations as guarantor subsidiaries instead of non-guarantor subsidiaries in
Note 11
. Note that this error had no impact to amounts presented on the face of the condensed consolidated financial statements.
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E.
|
The Partnership incorrectly presented the changes in “Accounts receivable, net of allowance” net of the income statement “Provision for cancellations” and omitted certain disclosures regarding the components of the changes in “Accounts receivable, net of allowance” and “Deferred revenues” in its condensed consolidated statement of cash flows. Additionally, specific to the Partnership’s related disclosure in
Note 2
,
Accounts Receivable, Net of Allowance
, the Partnership presented activity in the allowance for cancellations that related to deferred revenues on a gross basis instead of on a net basis. The correction of the error resulted in a reclassification of
$6.3 million
in the condensed consolidated statement of cash flows between "Provision for cancellations" and "Accounts receivable, net of allowance" for the
six months ended June 30, 2016
.
|
The effect of these adjustments on the Partnership’s unaudited condensed consolidated statements of operations for the
three and six months ended
June 30, 2016
and the unaudited condensed consolidated statement of cash flows for the
six months ended June 30, 2016
is summarized below for each affected caption (in thousands, except per unit data):
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CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (unaudited)
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Three Months Ended June 30, 2016
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Six Months Ended June 30, 2016
|
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|
Reference
|
|
As Filed
|
|
Restatement
Adjustments
|
|
As Restated
|
|
As Filed
|
|
Restatement
Adjustments
|
|
As Restated
|
|
Cemetery revenues:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
Merchandise
|
A, B
|
|
$
|
37,855
|
|
|
$
|
565
|
|
|
$
|
38,420
|
|
|
$
|
70,623
|
|
|
$
|
1,487
|
|
|
$
|
72,110
|
|
|
Services
|
A
|
|
13,676
|
|
|
57
|
|
|
13,733
|
|
|
27,139
|
|
|
313
|
|
|
27,452
|
|
|
Investment and other
|
B
|
|
12,012
|
|
|
39
|
|
|
12,051
|
|
|
26,387
|
|
|
78
|
|
|
26,465
|
|
|
Funeral home revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchandise
|
A
|
|
6,569
|
|
|
35
|
|
|
6,604
|
|
|
14,025
|
|
|
61
|
|
|
14,086
|
|
|
Total revenues
|
|
|
78,282
|
|
|
696
|
|
|
78,978
|
|
|
155,211
|
|
|
1,939
|
|
|
157,150
|
|
|
Selling expense
|
B
|
|
16,391
|
|
|
184
|
|
|
16,575
|
|
|
30,967
|
|
|
341
|
|
|
31,308
|
|
|
Funeral home expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Services
|
B
|
|
6,151
|
|
|
5
|
|
|
6,156
|
|
|
12,602
|
|
|
9
|
|
|
12,611
|
|
|
Total costs and expenses
|
|
|
80,535
|
|
|
189
|
|
|
80,724
|
|
|
158,007
|
|
|
350
|
|
|
158,357
|
|
|
Net loss
|
|
|
(8,651
|
)
|
|
507
|
|
|
(8,144
|
)
|
|
(16,126
|
)
|
|
1,589
|
|
|
(14,537
|
)
|
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General partner's interest for the period
|
|
|
1,085
|
|
|
6
|
|
|
1,091
|
|
|
2,173
|
|
|
19
|
|
|
2,192
|
|
|
Limited partners' interest for the period
|
|
|
(9,736
|
)
|
|
501
|
|
|
(9,235
|
)
|
|
(18,299
|
)
|
|
1,570
|
|
|
(16,729
|
)
|
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Net loss per limited partner unit (basic and diluted)
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$
|
(0.28
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.27
|
)
|
|
$
|
(0.54
|
)
|
|
$
|
0.04
|
|
|
$
|
(0.50
|
)
|
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|
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CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
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Six Months Ended June 30, 2016
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Reference
|
|
As Filed
|
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Restatement
Adjustments
|
|
As Restated
|
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Net loss
|
|
|
$
|
(16,126
|
)
|
|
$
|
1,589
|
|
|
$
|
(14,537
|
)
|
|
Provision for cancellations
|
E
|
|
—
|
|
|
6,324
|
|
|
6,324
|
|
|
Changes in assets and liabilities:
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|
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|
|
|
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Accounts receivable, net of allowance
|
E
|
|
(5,867
|
)
|
|
(6,324
|
)
|
|
(12,191
|
)
|
|
Other assets
|
B, C
|
|
(3,740
|
)
|
|
1,025
|
|
|
(2,715
|
)
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|
Deferred selling and obtaining costs
|
B
|
|
(6,868
|
)
|
|
349
|
|
|
(6,519
|
)
|
|
Deferred revenues
|
A, B
|
|
32,516
|
|
|
(1,937
|
)
|
|
30,579
|
|
|
Payables and other liabilities
|
C
|
|
4,890
|
|
|
(1,025
|
)
|
|
3,865
|
|
|
Net cash provided by operating activities
|
|
|
$
|
8,459
|
|
|
$
|
—
|
|
|
$
|
8,459
|
|
As shown above, the adjustments affecting the condensed consolidated statement of cash flows for the period noted are included in the Partnership’s net loss from operations and offset by changes in operating assets and liabilities. There were no adjustments related to cash used in investing and financing activities.
Uses and Sources of Liquidity
Our primary use of liquidity is to fund working capital requirements of our businesses, capital expenditures and for general corporate purposes, including debt repayment and distributions. As more fully discussed in
Note 7
, the terms of the Partnership's senior credit facility, as amended, place certain restrictions on the Partnership’s ability to increase and make distributions and obtain additional debt. Finally, the Partnership has incurred net losses for the reporting periods in this Form 10-Q, and the Consolidated Leverage Ratio under the credit facility has been nearing the maximum allowed ratio under existing covenants as disclosed in Note 7.
During 2016 and 2017, the Partnership completed various financing transactions to provide supplemental liquidity necessary to achieve management’s strategic objectives, including issuance of common units, utilization of the at-the-market equity program and establishment of a new credit facility which, as discussed more fully in
Note 7
and
Note 15
, was further amended during 2017. The Partnership acknowledges that it continues to face a challenging competitive environment, and while the Partnership continues to focus on its overall profitability, including managing expenses, the Partnership reported a loss for the
three
and
six months ended June 30, 2017
. The Partnership expects that the actions taken in 2016 and 2017 will enhance its liquidity and financial flexibility. The Partnership will likely seek to continue to supplement cash generation with proceeds from financing activities, including borrowings under the credit facility and other borrowings, the issuance of additional limited partner units, capital contributions from the general partner and the sale of assets and other transactions. As of
June 30, 2017
, the Partnership had
$3.5 million
of total available borrowing capacity under its revolving credit facility.
If the Partnership continues to experience operating losses and is not able to generate additional liquidity through the mechanisms described above or through some combination of other actions, the Partnership may be in breach of its covenants under the credit facility, and may not be able to access additional funds and the Partnership might need to secure additional sources of funds, which may or may not be available to the Partnership. Additionally, a failure to generate additional liquidity could negatively impact our access to inventory or services that are important to the operation of our business. Moreover, our ability to declare or pay future distributions may be impacted. Given the Partnership's current level of cash and cash equivalents, to preserve capital resources and liquidity, the Board of Directors of the General Partner has concluded that it is not in the best interest of unitholders to pay a second or third quarter 2017 distribution to unitholders. The Board expects to consider appropriate levels of distributions if and as conditions improve.
Summary of Significant Accounting Policies
Refer to
Note 1
to the Partnership's audited consolidated financial statements included in Item 8 of its Annual Report on Form 10-K for the year ended
December 31, 2016
for the complete summary of significant accounting policies.
Use of Estimates
The preparation of the Partnership’s unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the unaudited condensed consolidated financial statements, as well as the reported amounts of revenue and expense during the reporting periods. The Partnership’s unaudited condensed consolidated financial statements are based on a number of significant estimates, including revenue and expense accruals, depreciation and amortization, merchandise trust and perpetual care trust asset valuation, allowance for cancellations, unit-based compensation, deferred revenues, deferred merchandise trust investment earnings, deferred selling and obtaining costs, assets and liabilities obtained through business combinations and income taxes. As a result, actual results could differ from those estimates.
Assets Held for Sale
We classify our assets or entities as held for sale in the period in which all of the following criteria are met:
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•
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management, having the authority to approve the action, commits to a plan to sell the entity;
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•
|
the entity is available for immediate sale in its present condition;
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•
|
an active program to locate a buyer and other actions required to complete the plan to sell have been initiated;
|
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•
|
the sale is probable and transfer is expected to be completed within one year;
|
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•
|
the entity is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and
|
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•
|
actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
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When the disposals of components of an entity or components of an entity that are classified as held for sale represent a strategic shift that has, or will have, a major effect on an entity's operations and financial results we account for such disposals as discontinued operations. Otherwise when the held for sale criteria is met but the disposal does not meet the criteria to be treated as discontinued operations, the assets or disposal group are reclassified from the corresponding balance sheet line items to held for sale. Assets classified as held for sale are carried at the lower of cost or market, with any gain or loss on sale recorded in "Other gains (losses), net" in the condensed consolidated statement of operations.
The Partnership classified certain assets of
three
cemeteries and
three
funeral homes as held for sale at
June 30, 2017
and
no
assets at
December 31, 2016
. The contributions of revenues and earnings by these assets in 2017 were not material. Assets held for sale consisted of the following at the date indicated (in thousands):
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|
June 30, 2017
|
|
Cemetery property
|
$
|
281
|
|
|
Buildings and improvements
|
718
|
|
|
Funeral home land
|
170
|
|
|
Assets held for sale
|
$
|
1,169
|
|
The Partnership recorded a loss on impairment of
$1.0 million
in "Other gains (losses), net" in the current period on the unaudited condensed consolidated statement of operations, given the net book value of the assets of two of these funeral home properties exceeded their estimated fair value.
In addition, for those assets that do not currently meet the classification as discontinued operations or held for sale, where, however, as a result of strategic discussions with third parties information is identified that an asset may be impaired an interim assessment of impairment is performed to determine whether the carrying value is impaired. At
June 30, 2017
, the Partnership conducted an interim assessment with regards to certain assets held for use of two funeral homes with net book value of
$0.9 million
held for use and recognized a loss on impairment of
$0.4 million
in "Other gains (losses), net" on the unaudited condensed consolidated statement of operations, resulting in an updated net book value of
$0.5 million
during the three months ended
June 30, 2017
.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired. Goodwill is not amortized, but instead is subject to impairment testing on an annual basis, and between annual tests whenever events or changes in circumstances indicate that the fair value of a reporting unit may be below its carrying amount.
No
such events have occurred during the
six months ended June 30, 2017
. Goodwill totaled approximately
$70.4 million
as of both
June 30, 2017
and
December 31, 2016
.
Income Taxes
The Partnership is not subject to U.S. federal and most state income taxes. The partners of the Partnership are liable for income tax in regard to their distributive share of the Partnership’s taxable income. Such taxable income may vary substantially from net income reported in the accompanying condensed consolidated financial statements. Certain corporate subsidiaries are subject to federal and state income tax. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and tax carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Partnership records a valuation allowance against its deferred tax assets if it deems that it is more likely than not that some portion or all of the recorded deferred tax assets will not be realizable in future periods.
The change in the deferred tax liability during the
six months ended June 30, 2017
was caused by an increase in deferred tax liabilities associated with long-lived intangibles that will reverse after the expiration of the existing deferred tax assets.
Net Income (Loss) per Common Unit
Basic net income (loss) attributable to common limited partners per unit is computed by dividing net income (loss) attributable to common limited partners, which is determined after the deduction of the general partner’s interest, by the weighted average number of common limited partner units outstanding during the period. Net income (loss) attributable to common limited partners is determined by deducting net income attributable to participating securities, if applicable, and net income (loss) attributable to the general partner’s units. The general partner’s interest in net income (loss) is calculated on a quarterly basis based upon its units and incentive distributions to be distributed for the quarter, with a priority allocation of net income to the general partner’s incentive distributions, if any, in accordance with the partnership agreement, and the remaining net income (loss) allocated with respect to the general partner’s and limited partners’ ownership interests.
The Partnership presents net income (loss) per unit under the two-class method for master limited partnerships, which considers whether the incentive distributions of a master limited partnership represent a participating security when considered in the calculation of earnings per unit under the two-class method. The two-class method considers whether the partnership agreement
contains any contractual limitations concerning distributions to the incentive distribution rights that would impact the amount of earnings to allocate to the incentive distribution rights for each reporting period. If distributions are contractually limited to the incentive distribution rights’ share of currently designated available cash for distributions as defined under the partnership agreement, undistributed earnings in excess of available cash should not be allocated to the incentive distribution rights. Under the two-class method, management of the Partnership believes the partnership agreement contractually limits cash distributions to available cash; therefore, undistributed earnings in excess of available cash are not allocated to the incentive distribution rights.
The following is a reconciliation of net income (loss) allocated to the common limited partners for purposes of calculating net income (loss) attributable to common limited partners per unit (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
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Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
(As restated -
see above)
|
|
|
|
(As restated -
see above)
|
|
Net loss
|
$
|
(11,582
|
)
|
|
$
|
(8,144
|
)
|
|
$
|
(20,143
|
)
|
|
$
|
(14,537
|
)
|
|
Less: Incentive distribution right (“IDR”) payments to general partner
|
—
|
|
|
1,195
|
|
|
—
|
|
|
2,387
|
|
|
Net loss to allocate to general and common limited partners
|
(11,582
|
)
|
|
(9,339
|
)
|
|
(20,143
|
)
|
|
(16,924
|
)
|
|
Less: General partner’s interest excluding IDRs
|
(121
|
)
|
|
(104
|
)
|
|
(210
|
)
|
|
(195
|
)
|
|
Net loss attributable to common limited partners
|
$
|
(11,461
|
)
|
|
$
|
(9,235
|
)
|
|
$
|
(19,933
|
)
|
|
$
|
(16,729
|
)
|
Diluted net income (loss) attributable to common limited partners per unit is calculated by dividing net income (loss) attributable to common limited partners, less income allocable to participating securities, by the sum of the weighted average number of common limited partner units outstanding and the dilutive effect of unit option awards, as calculated by the treasury stock or if converted methods, as applicable. These awards consist of common units issuable upon payment of an exercise price by the participant under the terms of the Partnership’s long-term incentive plan.
The following table sets forth the reconciliation of the Partnership’s weighted average number of common limited partner units used to compute basic net income (loss) attributable to common limited partners per unit with those used to compute diluted net income (loss) attributable to common limited partners per unit (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Weighted average number of common limited partner units - basic and diluted (1)
|
37,957
|
|
|
34,837
|
|
|
37,938
|
|
|
33,688
|
|
_____________________________
|
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|
|
(1)
|
The diluted weighted average number of limited partners’ units outstanding presented on the condensed consolidated statement of operations does not include
335 thousand
units and
299 thousand
units for the three months ended
June 30, 2017
and
2016
, respectively, and
329 thousand
units and
297 thousand
units for the six months ended
June 30, 2017
and
2016
, respectively, as their effects would be anti-dilutive.
|
Recently Issued Accounting Standard Updates - Not Yet Effective
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers (Topic 606).
This ASU supersedes the revenue recognition requirements in FASB ASC 605,
Revenue Recognition
, and in most industry-specific topics. The new guidance identifies how and when entities should recognize revenue. The new rules establish a core principle requiring the recognition of revenue to depict the transfer of promised goods or services to customers in an amount reflecting the consideration to which the entity expects to be entitled in exchange for such goods or services. In connection with this new standard, the FASB has issued several amendments to ASU 2014-09, as follows:
|
|
|
|
•
|
In March 2016, the FASB issued ASU 2016-08,
Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
. This standard improves the implementation guidance on principal versus agent considerations and whether an entity reports revenue on a gross or net basis.
|
|
|
|
|
•
|
In April 2016, the FASB issued ASU 2016-10,
Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing
. This standard clarifies identifying performance obligations and the licensing implementation guidance.
|
|
|
|
|
•
|
In May 2016, the FASB issued ASU 2016-12,
Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients
. This standard provides additional guidance on (a) the objective of the collectability criterion, (b) the presentation of sales tax collected from customers, (c) the measurement date of non-cash consideration received, (d) practical expedients in respect of contract modifications and completed contracts at transition and (e) disclosure of the effects of the accounting change in the period of adoption.
|
|
|
|
|
•
|
In December 2016, the FASB issued ASU No. 2016-20,
Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers
, which amends certain narrow aspects of the guidance, including the disclosure of remaining performance obligations and prior-period performance obligations, as well as other amendments to the guidance on loan guarantee fees, contract costs, refund liabilities, advertising costs and the clarification of certain examples.
|
|
|
|
|
•
|
In September 2017, the FASB issued ASU No. 2017-13,
Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments
, which provides additional clarification and implementation guidance on ASU 2014-09 and is effective consistent with the adoption schedule for ASU 2014-09.
|
The new guidance in ASU 2014-09, as well as all amendments discussed above, is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The new guidance permits two methods of adoption, full retrospective or modified retrospective and we intend to implement the standard with the modified retrospective approach, which recognizes the cumulative effect of application recognized on that date. Management has developed an implementation plan and is continuing to evaluate the impact that the adoption of this guidance will have on the financial statements of the Partnership. Management continues to monitor modifications, clarifications and interpretations issued by the FASB. Management's implementation plan includes the following:
|
|
|
|
•
|
Establishing an ASC 606 steering committee comprised of various functions across the Partnership;
|
|
|
|
|
•
|
Performing the detailed review of customer contracts in scope of ASU 2014-09;
|
|
|
|
|
•
|
Assessing the potential impact that the guidance will have on our current accounting policies and practices; and
|
|
|
|
|
•
|
Evaluating the changes, if any, to our business processes, systems and controls necessary to support recognition and disclosure under the new guidance.
|
Although the Partnership has not yet fully determined the impact of the new standard on our consolidated results of operations, financial position, cash flows and financial statement disclosures, management expects that there will be an impact to the financial reporting disclosures and internal control over financial reporting. Management is currently considering the impact of the new guidance on the key revenue policies.
The Partnership will adopt the requirements of the new standard upon its effective date of January 1, 2018.
In the first quarter of 2016, the FASB issued Update No. 2016-01,
Financial Instruments (Subtopic 825-10)
(“ASU 2016-01”). The core principle of ASU 2016-01 is that all equity investments should be measured at fair value with changes in the fair value recognized through net income. The amendment is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early application is not permitted for the key aspects of the amendment. The Partnership will adopt the requirements of ASU 2016-01 upon its effective date of January 1, 2018, and is evaluating the potential impact of the adoption on its financial position, results of operations and related disclosures.
In the first quarter of 2016, the FASB issued Update No. 2016-02,
Leases (Topic 842)
(“ASU 2016-02”). The core principle of ASU 2016-02 is that all leases create an asset and a liability for lessees and recognition of those lease assets and lease liabilities represents an improvement over previous GAAP, which did not require lease assets and lease liabilities to be recognized for most leases. The amendment is effective for annual reporting periods beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted. The Partnership plans to adopt the requirements of ASU 2016-02 upon its effective date of January 1, 2019, and is evaluating the potential impact of the adoption on its financial position, results of operations and related disclosures.
In the second quarter of 2016, the FASB issued Update No. 2016-13,
Credit Losses (Topic 326)
(“ASU 2016-13”). The core principle of ASU 2016-13 is that all assets measured at amortized cost basis should be presented at the net amount expected to be collected using historical experience, current conditions and reasonable and supportable forecasts as a basis for credit loss estimates,
instead of the probable initial recognition threshold used under current GAAP. The amendment is effective for annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years. Early application is permitted. The Partnership plans to adopt the requirements of ASU 2016-13 upon its effective date of January 1, 2020, and is evaluating the potential impact of the adoption on its financial position, results of operations and related disclosures.
In the third quarter of 2016, the FASB issued Update No. 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
(“ASU 2016-15”). The core principle of ASU 2016-15 is to provide cash flow statement classification guidance. The amendment is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those fiscal years. Early application is permitted. The Partnership plans to adopt the requirements of ASU 2016-15 upon its effective date of January 1, 2018, and is evaluating the potential impact of the adoption on its financial position, results of operations and related disclosures.
In the fourth quarter of 2016, the FASB issued Update No. 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash
(“ASU 2016-18”). The core principle of ASU 2016-18 is to provide guidance on the presentation of restricted cash or restricted cash equivalents in the statement of cash flows. The amendment is effective for annual reporting periods beginning after December 15, 2017, including interim periods within those fiscal years. Early application is permitted. The Partnership plans to adopt the requirements of ASU 2016-18 upon its effective date of January 1, 2018, and is evaluating the potential impact of the adoption on its financial position, results of operations and related disclosures.
In the first quarter of 2017, the FASB issued Update No. 2017-01,
Business Combinations (Topic 805): Clarifying the Definition of a Business
, which clarifies the definition of a business. The amendments affect all companies and other reporting organizations that must determine whether they have acquired or sold a business. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The amendments are intended to help companies and other organizations evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments are effective for annual periods beginning after December 15, 2017, including interim periods within those periods. The Partnership is evaluating the potential impact of the adoption on its financial position, results of operations and related disclosures.
In the first quarter of 2017, the FASB also issued Update No. 2017-04,
Intangibles-Goodwill and Other (Topic 350)
(“ASU 2017-04”) to simplify the subsequent measurement of goodwill. ASU 2017-04 eliminates Step 2 from the goodwill impairment test. Instead, impairment is defined as the amount by which the carrying value of the reporting unit exceeds its fair value, up to the total amount of goodwill. The Partnership plans to adopt the requirements of ASU 2017-04 upon its effective date of January 1, 2020, and is evaluating the impact, if any, on its financial position, results of operations and related disclosures.
|
|
|
|
|
|
2.
|
ACCOUNTS RECEIVABLE, NET OF ALLOWANCE
|
Long-term accounts receivable, net, consisted of the following at the dates indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
|
Customer receivables
|
$
|
226,154
|
|
|
$
|
223,326
|
|
|
Unearned finance income
|
(20,927
|
)
|
|
(21,034
|
)
|
|
Allowance for contract cancellations
|
(27,390
|
)
|
|
(26,153
|
)
|
|
Accounts receivable, net of allowance
|
177,837
|
|
|
176,139
|
|
|
Less: Current portion, net of allowance
|
77,127
|
|
|
77,253
|
|
|
Long-term portion, net of allowance
|
$
|
100,710
|
|
|
$
|
98,886
|
|
Activity in the allowance for contract cancellations was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
2017
|
|
2016
|
|
|
|
|
(As restated -
see Note 1)
|
|
Balance, beginning of period
|
$
|
26,153
|
|
|
$
|
23,985
|
|
|
Provision for cancellations
|
2,682
|
|
|
6,324
|
|
|
Cancellations
|
(1,445
|
)
|
|
(2,913
|
)
|
|
Balance, end of period
|
$
|
27,390
|
|
|
$
|
27,396
|
|
As noted in
Note 1
, the Partnership has changed its presentation herein to focus only on the provision and cancellations of amounts recognized. The allowance for contract cancellations included
$18.4 million
and
$17.4 million
related to deferred revenues as of
June 30, 2017
and
December 31, 2016
, respectively.
Cemetery property consisted of the following at the dates indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
|
Cemetery land
|
$
|
256,190
|
|
|
$
|
257,914
|
|
|
Mausoleum crypts and lawn crypts
|
78,266
|
|
|
79,401
|
|
|
Cemetery property
|
$
|
334,456
|
|
|
$
|
337,315
|
|
|
|
|
|
|
|
4.
|
PROPERTY AND EQUIPMENT
|
Property and equipment consisted of the following at the dates indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
|
Buildings and improvements
|
$
|
123,904
|
|
|
$
|
125,442
|
|
|
Furniture and equipment
|
56,578
|
|
|
56,408
|
|
|
Funeral home land
|
11,335
|
|
|
11,527
|
|
|
Property and equipment, gross
|
191,817
|
|
|
193,377
|
|
|
Less: Accumulated depreciation
|
(78,759
|
)
|
|
(75,096
|
)
|
|
Property and equipment, net of accumulated depreciation
|
$
|
113,058
|
|
|
$
|
118,281
|
|
Depreciation expense was
$2.7 million
and
$2.6 million
for the three months ended
June 30, 2017
and
2016
, respectively, and
$5.6 million
and
$5.1 million
for the
six months ended June 30, 2017
and
2016
, respectively.
At
June 30, 2017
and
December 31, 2016
, the Partnership’s merchandise trusts consisted of investments in debt and equity marketable securities and cash equivalents, both directly as well as through mutual and investment funds.
All of these investments are classified as available for sale, and accordingly, all of the assets are carried at fair value. All of the investments subject to the fair value hierarchy are considered either Level 1 or Level 2 assets pursuant to the three-level hierarchy described in
Note 10
. There were no Level 3 assets.
The merchandise trusts are variable interest entities ("VIE") of which the Partnership is the primary beneficiary. The assets held in the merchandise trusts are required to be used to purchase the merchandise and provide the services to which they relate. If the value of these assets falls below the cost of purchasing such merchandise and providing such services, the Partnership may be required to fund this shortfall.
The Partnership included
$8.9 million
and
$8.6 million
of investments held in trust by the West Virginia Funeral Directors Association at
June 30, 2017
and
December 31, 2016
, respectively, in its merchandise trust assets. As required by law, the
Partnership deposits a portion of certain funeral merchandise sales in West Virginia into a trust that is held by the West Virginia Funeral Directors Association. These trusts are recognized at their account value, which approximates fair value.
A reconciliation of the Partnership’s merchandise trust activities for the
six months ended
June 30, 2017
and
2016
is presented below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
2017
|
|
2016
|
|
Balance, beginning of period
|
$
|
507,079
|
|
|
$
|
464,676
|
|
|
Contributions
|
29,579
|
|
|
30,259
|
|
|
Distributions
|
(45,134
|
)
|
|
(29,645
|
)
|
|
Interest and dividends
|
12,600
|
|
|
11,686
|
|
|
Capital gain distributions
|
365
|
|
|
263
|
|
|
Realized gains and losses
|
14,570
|
|
|
2,337
|
|
|
Taxes
|
(1,358
|
)
|
|
(1,694
|
)
|
|
Fees
|
(1,628
|
)
|
|
(1,048
|
)
|
|
Unrealized change in fair value
|
(3,650
|
)
|
|
17,762
|
|
|
Balance, end of period
|
$
|
512,423
|
|
|
$
|
494,596
|
|
During the
six months ended
June 30, 2017
and
2016
, purchases of available for sale securities were
$269.2 million
and
$47.1 million
, respectively, while sales, maturities and paydowns of available for sale securities were
$285.1 million
and
$28.1 million
, respectively. Cash flows from pre-need customer contracts are presented as operating cash flows in our condensed consolidated statement of cash flows.
The cost and market value associated with the assets held in the merchandise trusts as of
June 30, 2017
and
December 31, 2016
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
Fair Value
Hierarchy Level
|
|
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
Short-term investments
|
1
|
|
$
|
30,142
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
30,142
|
|
|
Fixed maturities:
|
|
|
|
|
|
|
|
|
|
|
U.S. governmental securities
|
2
|
|
195
|
|
|
1
|
|
|
(61
|
)
|
|
135
|
|
|
Corporate debt securities
|
2
|
|
2,731
|
|
|
163
|
|
|
(308
|
)
|
|
2,586
|
|
|
Total fixed maturities
|
|
|
2,926
|
|
|
164
|
|
|
(369
|
)
|
|
2,721
|
|
|
Mutual funds - debt securities
|
1
|
|
250,201
|
|
|
2,799
|
|
|
(367
|
)
|
|
252,633
|
|
|
Mutual funds - equity securities
|
1
|
|
68,807
|
|
|
3,143
|
|
|
(2,397
|
)
|
|
69,553
|
|
|
Other investment funds (1)
|
|
|
121,892
|
|
|
101
|
|
|
(300
|
)
|
|
121,693
|
|
|
Equity securities
|
1
|
|
16,513
|
|
|
1,962
|
|
|
(385
|
)
|
|
18,090
|
|
|
Other invested assets
|
2
|
|
8,735
|
|
|
—
|
|
|
—
|
|
|
8,735
|
|
|
Total investments
|
|
|
$
|
499,216
|
|
|
$
|
8,169
|
|
|
$
|
(3,818
|
)
|
|
$
|
503,567
|
|
|
West Virginia Trust Receivable
|
|
|
8,856
|
|
|
—
|
|
|
—
|
|
|
8,856
|
|
|
Total
|
|
|
$
|
508,072
|
|
|
$
|
8,169
|
|
|
$
|
(3,818
|
)
|
|
$
|
512,423
|
|
______________________________
|
|
|
|
(1)
|
Other investment funds are measured at fair value using the net asset value per share practical expedient and have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the balance sheet. This asset class is composed of fixed income funds and equity funds, which have redemption periods ranging from
30
to
90
days, and private credit funds, which have lockup periods of
five
to
seven
years with
two
potential
one
year extensions at the discretion of the funds’ general partners. As of
June 30, 2017
, there were
$8.0 million
in unfunded commitments to the private credit funds, which are callable at any time.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
Fair Value
Hierarchy Level
|
|
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
Short-term investments
|
1
|
|
$
|
17,317
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
17,317
|
|
|
Fixed maturities:
|
|
|
|
|
|
|
|
|
|
|
U.S. governmental securities
|
2
|
|
172
|
|
|
2
|
|
|
(44
|
)
|
|
130
|
|
|
Corporate debt securities
|
2
|
|
6,311
|
|
|
269
|
|
|
(202
|
)
|
|
6,378
|
|
|
Total fixed maturities
|
|
|
6,483
|
|
|
271
|
|
|
(246
|
)
|
|
6,508
|
|
|
Mutual funds - debt securities
|
1
|
|
236,159
|
|
|
1,580
|
|
|
(96
|
)
|
|
237,643
|
|
|
Mutual funds - equity securities
|
1
|
|
126,215
|
|
|
3,361
|
|
|
(533
|
)
|
|
129,043
|
|
|
Other investment funds (1)
|
|
|
60,017
|
|
|
603
|
|
|
(387
|
)
|
|
60,233
|
|
|
Equity securities
|
1
|
|
35,079
|
|
|
3,640
|
|
|
(192
|
)
|
|
38,527
|
|
|
Other invested assets
|
2
|
|
9,239
|
|
|
—
|
|
|
—
|
|
|
9,239
|
|
|
Total investments
|
|
|
$
|
490,509
|
|
|
$
|
9,455
|
|
|
(1,454
|
)
|
|
$
|
498,510
|
|
|
West Virginia Trust Receivable
|
|
|
8,569
|
|
|
—
|
|
|
—
|
|
|
8,569
|
|
|
Total
|
|
|
$
|
499,078
|
|
|
$
|
9,455
|
|
|
$
|
(1,454
|
)
|
|
$
|
507,079
|
|
______________________________
|
|
|
|
(1)
|
Other investment funds are measured at fair value using the net asset value per share practical expedient and have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the balance sheet. This asset class is composed of fixed income funds and equity funds, which have redemption periods ranging from
30
to
90
days.
|
The contractual maturities of debt securities as of
June 30, 2017
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than
1 year
|
|
1 year through
5 years
|
|
6 years through
10 years
|
|
More than
10 years
|
|
U.S. governmental securities
|
$
|
—
|
|
|
$
|
71
|
|
|
$
|
64
|
|
|
$
|
—
|
|
|
Corporate debt securities
|
199
|
|
|
2,132
|
|
|
242
|
|
|
13
|
|
|
Total fixed maturities
|
$
|
199
|
|
|
$
|
2,203
|
|
|
$
|
306
|
|
|
$
|
13
|
|
Temporary Declines in Fair Value
The Partnership evaluates declines in fair value below cost for each asset held in the merchandise trusts on a quarterly basis.
An aging of unrealized losses on the Partnership’s investments in debt and equity securities within the merchandise trusts as of
June 30, 2017
and
December 31, 2016
is presented below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
12 months or more
|
|
Total
|
|
June 30, 2017
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fixed maturities:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. governmental securities
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
115
|
|
|
$
|
61
|
|
|
$
|
115
|
|
|
$
|
61
|
|
|
Corporate debt securities
|
280
|
|
|
123
|
|
|
356
|
|
|
185
|
|
|
636
|
|
|
308
|
|
|
Total fixed maturities
|
280
|
|
|
123
|
|
|
471
|
|
|
246
|
|
|
751
|
|
|
369
|
|
|
Mutual funds - debt securities
|
73,667
|
|
|
361
|
|
|
20
|
|
|
6
|
|
|
73,687
|
|
|
367
|
|
|
Mutual funds - equity securities
|
39,139
|
|
|
2,397
|
|
|
—
|
|
|
—
|
|
|
39,139
|
|
|
2,397
|
|
|
Other investment funds
|
56,930
|
|
|
300
|
|
|
—
|
|
|
—
|
|
|
56,930
|
|
|
300
|
|
|
Equity securities
|
4,257
|
|
|
335
|
|
|
461
|
|
|
50
|
|
|
4,718
|
|
|
385
|
|
|
Total
|
$
|
174,273
|
|
|
$
|
3,516
|
|
|
$
|
952
|
|
|
$
|
302
|
|
|
$
|
175,225
|
|
|
$
|
3,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
12 months or more
|
|
Total
|
|
December 31, 2016
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fixed maturities:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. governmental securities
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
87
|
|
|
$
|
44
|
|
|
$
|
87
|
|
|
$
|
44
|
|
|
Corporate debt securities
|
556
|
|
|
6
|
|
|
871
|
|
|
196
|
|
|
1,427
|
|
|
202
|
|
|
Total fixed maturities
|
556
|
|
|
6
|
|
|
958
|
|
|
240
|
|
|
1,514
|
|
|
246
|
|
|
Mutual funds - debt securities
|
6,040
|
|
|
61
|
|
|
754
|
|
|
35
|
|
|
6,794
|
|
|
96
|
|
|
Mutual funds - equity securities
|
7,475
|
|
|
357
|
|
|
2,578
|
|
|
176
|
|
|
10,053
|
|
|
533
|
|
|
Other investment funds
|
37,357
|
|
|
387
|
|
|
—
|
|
|
—
|
|
|
37,357
|
|
|
387
|
|
|
Equity securities
|
1,292
|
|
|
89
|
|
|
413
|
|
|
103
|
|
|
1,705
|
|
|
192
|
|
|
Total
|
$
|
52,720
|
|
|
$
|
900
|
|
|
$
|
4,703
|
|
|
$
|
554
|
|
|
$
|
57,423
|
|
|
$
|
1,454
|
|
For all securities in an unrealized loss position, the Partnership evaluated the severity of the impairment and length of time that a security has been in a loss position and concluded the decline in fair value below the asset’s cost was temporary in nature. In addition, the Partnership is not aware of any circumstances that would prevent the future market value recovery for these securities.
Other-Than-Temporary Impairment of Trust Assets
The Partnership assesses its merchandise trust assets for other-than-temporary declines in fair value on a quarterly basis. During the six months ended
June 30, 2017
and
2016
, the Partnership determined that there were
no
other-than-temporary impairments to the investment portfolio in the merchandise trusts.
At
June 30, 2017
and
December 31, 2016
, the Partnership’s perpetual care trusts consisted of investments in debt and equity marketable securities and cash equivalents, both directly as well as through mutual and investment funds.
All of these investments are classified as available for sale and, accordingly, all of the assets are carried at fair value. All of the investments subject to the fair value hierarchy are considered either Level 1 or Level 2 assets pursuant to the three-level hierarchy described in
Note 10
. There were no Level 3 assets. The perpetual care trusts are VIEs of which the Partnership is the primary beneficiary.
A reconciliation of the Partnership’s perpetual care trust activities for the three months ended
June 30, 2017
and
2016
is presented below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
2017
|
|
2016
|
|
Balance, beginning of period
|
$
|
333,780
|
|
|
$
|
307,804
|
|
|
Contributions
|
4,214
|
|
|
5,146
|
|
|
Distributions
|
(8,056
|
)
|
|
(7,818
|
)
|
|
Interest and dividends
|
7,816
|
|
|
8,127
|
|
|
Capital gain distributions
|
240
|
|
|
85
|
|
|
Realized gains and losses
|
1,439
|
|
|
(470
|
)
|
|
Taxes
|
(430
|
)
|
|
(757
|
)
|
|
Fees
|
(602
|
)
|
|
(622
|
)
|
|
Unrealized change in fair value
|
(717
|
)
|
|
10,205
|
|
|
Balance, end of period
|
$
|
337,684
|
|
|
$
|
321,700
|
|
During the
six months ended
June 30, 2017
and
2016
, purchases of available for sale securities were
$74.8 million
and
$161.3 million
, respectively, while sales, maturities and paydowns of available for sale securities were
$64.0 million
and
$156.1 million
, respectively. Cash flows from perpetual care trust related contracts are presented as operating cash flows in our condensed consolidated statement of cash flows.
The cost and market value associated with the assets held in the perpetual care trusts as of
June 30, 2017
and
December 31, 2016
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
Fair Value
Hierarchy Level
|
|
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
Short-term investments
|
1
|
|
$
|
9,866
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9,866
|
|
|
Fixed maturities:
|
|
|
|
|
|
|
|
|
|
|
U.S. governmental securities
|
2
|
|
523
|
|
|
5
|
|
|
(34
|
)
|
|
494
|
|
|
Corporate debt securities
|
2
|
|
6,428
|
|
|
197
|
|
|
(180
|
)
|
|
6,445
|
|
|
Total fixed maturities
|
|
|
6,951
|
|
|
202
|
|
|
(214
|
)
|
|
6,939
|
|
|
Mutual funds - debt securities
|
1
|
|
160,815
|
|
|
2,708
|
|
|
(486
|
)
|
|
163,037
|
|
|
Mutual funds - equity securities
|
1
|
|
30,391
|
|
|
1,764
|
|
|
(822
|
)
|
|
31,333
|
|
|
Other investment funds (1)
|
|
|
101,051
|
|
|
2,577
|
|
|
(483
|
)
|
|
103,145
|
|
|
Equity securities
|
1
|
|
22,718
|
|
|
1,589
|
|
|
(1,133
|
)
|
|
23,174
|
|
|
Other invested assets
|
2
|
|
190
|
|
|
—
|
|
|
—
|
|
|
190
|
|
|
Total investments
|
|
|
$
|
331,982
|
|
|
$
|
8,840
|
|
|
$
|
(3,138
|
)
|
|
$
|
337,684
|
|
______________________________
|
|
|
|
(1)
|
Other investment funds are measured at fair value using the net asset value per share practical expedient and have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the balance sheet. This asset class is composed of fixed income funds and equity funds, which have a redemption period ranging from
30
to
90
days, and private credit funds, which have lockup periods ranging from
five
to
ten
years with
three
potential
one
year extensions at the discretion of the funds’ general partners. As of
June 30, 2017
, there were
$67.8 million
in unfunded commitments to the private credit funds, which are callable at any time.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
Fair Value
Hierarchy Level
|
|
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
Short-term investments
|
1
|
|
$
|
16,113
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16,113
|
|
|
Fixed maturities:
|
|
|
|
|
|
|
|
|
|
|
U.S. governmental securities
|
2
|
|
483
|
|
|
14
|
|
|
(23
|
)
|
|
474
|
|
|
Corporate debt securities
|
2
|
|
12,598
|
|
|
380
|
|
|
(152
|
)
|
|
12,826
|
|
|
Total fixed maturities
|
|
|
13,081
|
|
|
394
|
|
|
(175
|
)
|
|
13,300
|
|
|
Mutual funds - debt securities
|
1
|
|
127,033
|
|
|
1,187
|
|
|
(669
|
)
|
|
127,551
|
|
|
Mutual funds - equity securities
|
1
|
|
30,708
|
|
|
1,940
|
|
|
(26
|
)
|
|
32,622
|
|
|
Other investment funds (1)
|
|
|
119,196
|
|
|
2,672
|
|
|
(622
|
)
|
|
121,246
|
|
|
Equity securities
|
1
|
|
20,978
|
|
|
2,150
|
|
|
(432
|
)
|
|
22,696
|
|
|
Other invested assets
|
2
|
|
252
|
|
|
—
|
|
|
—
|
|
|
252
|
|
|
Total investments
|
|
|
$
|
327,361
|
|
|
$
|
8,343
|
|
|
$
|
(1,924
|
)
|
|
$
|
333,780
|
|
______________________________
|
|
|
|
(1)
|
Other investment funds are measured at fair value using the net asset value per share practical expedient and have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the balance sheet. This asset class is composed of fixed income funds and equity funds, which have a redemption period ranging from
30
to
90
days, and private credit funds, which have lockup periods ranging from
six
to
ten
years with
three
potential
one
year extensions at the discretion of the funds’ general partners. As of
December 31, 2016
, there were
$45.1 million
in unfunded commitments to the private credit funds, which are callable at any time.
|
The contractual maturities of debt securities as of
June 30, 2017
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than
1 year
|
|
1 year through
5 years
|
|
6 years through
10 years
|
|
More than
10 years
|
|
U.S. governmental securities
|
$
|
—
|
|
|
$
|
289
|
|
|
$
|
163
|
|
|
$
|
42
|
|
|
Corporate debt securities
|
935
|
|
|
4,878
|
|
|
561
|
|
|
71
|
|
|
Total fixed maturities
|
$
|
935
|
|
|
$
|
5,167
|
|
|
$
|
724
|
|
|
$
|
113
|
|
Temporary Declines in Fair Value
The Partnership evaluates declines in fair value below cost of each individual asset held in the perpetual care trusts on a quarterly basis.
An aging of unrealized losses on the Partnership’s investments in debt and equity securities within the perpetual care trusts as of
June 30, 2017
and
December 31, 2016
is presented below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
12 months or more
|
|
Total
|
|
June 30, 2017
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fixed maturities:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. governmental securities
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
424
|
|
|
$
|
34
|
|
|
$
|
424
|
|
|
$
|
34
|
|
|
Corporate debt securities
|
954
|
|
|
65
|
|
|
1,572
|
|
|
115
|
|
|
2,526
|
|
|
180
|
|
|
Total fixed maturities
|
954
|
|
|
65
|
|
|
1,996
|
|
|
149
|
|
|
2,950
|
|
|
214
|
|
|
Mutual funds - debt securities
|
23,044
|
|
|
442
|
|
|
627
|
|
|
44
|
|
|
23,671
|
|
|
486
|
|
|
Mutual funds - equity securities
|
12,524
|
|
|
822
|
|
|
—
|
|
|
—
|
|
|
12,524
|
|
|
822
|
|
|
Other investment funds
|
47,655
|
|
|
483
|
|
|
—
|
|
|
—
|
|
|
47,655
|
|
|
483
|
|
|
Equity securities
|
9,813
|
|
|
1,127
|
|
|
164
|
|
|
6
|
|
|
9,977
|
|
|
1,133
|
|
|
Total
|
$
|
93,990
|
|
|
$
|
2,939
|
|
|
$
|
2,787
|
|
|
$
|
199
|
|
|
$
|
96,777
|
|
|
$
|
3,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
12 months or more
|
|
Total
|
|
December 31, 2016
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fair
Value
|
|
Unrealized
Losses
|
|
Fixed maturities:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. governmental securities
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
283
|
|
|
$
|
23
|
|
|
$
|
283
|
|
|
$
|
23
|
|
|
Corporate debt securities
|
747
|
|
|
10
|
|
|
2,980
|
|
|
142
|
|
|
3,727
|
|
|
152
|
|
|
Total fixed maturities
|
747
|
|
|
10
|
|
|
3,263
|
|
|
165
|
|
|
4,010
|
|
|
175
|
|
|
Mutual funds - debt securities
|
24,026
|
|
|
620
|
|
|
1,908
|
|
|
49
|
|
|
25,934
|
|
|
669
|
|
|
Mutual funds - equity securities
|
3,836
|
|
|
16
|
|
|
452
|
|
|
10
|
|
|
4,288
|
|
|
26
|
|
|
Other investment funds
|
37,577
|
|
|
622
|
|
|
—
|
|
|
—
|
|
|
37,577
|
|
|
622
|
|
|
Equity securities
|
4,532
|
|
|
409
|
|
|
145
|
|
|
23
|
|
|
4,677
|
|
|
432
|
|
|
Total
|
$
|
70,718
|
|
|
$
|
1,677
|
|
|
$
|
5,768
|
|
|
$
|
247
|
|
|
$
|
76,486
|
|
|
$
|
1,924
|
|
For all securities in an unrealized loss position, the Partnership evaluated the severity of the impairment and length of time that a security has been in a loss position and concluded the decline in fair value below the asset’s cost was temporary in nature. In addition, the Partnership is not aware of any circumstances that would prevent the future market value recovery for these securities.
Other-Than-Temporary Impairment of Trust Assets
The Partnership assesses its perpetual care trust assets for other-than-temporary declines in fair value on a quarterly basis. During the six months ended
June 30, 2017
and
2016
, the Partnership determined that there were
no
other-than-temporary impairments to the investment portfolio in the perpetual care trusts.
Total debt consisted of the following at the dates indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
|
Credit facility
|
$
|
142,924
|
|
|
$
|
137,125
|
|
|
7.875% Senior Notes, due June 2021
|
172,856
|
|
|
172,623
|
|
|
Notes payable - acquisition debt
|
404
|
|
|
502
|
|
|
Notes payable - acquisition non-competes
|
708
|
|
|
928
|
|
|
Insurance and vehicle financing
|
3,384
|
|
|
1,807
|
|
|
Less deferred financing costs, net of accumulated amortization
|
(10,329
|
)
|
|
(10,859
|
)
|
|
Total debt
|
309,947
|
|
|
302,126
|
|
|
Less current maturities
|
(3,251
|
)
|
|
(1,775
|
)
|
|
Total long-term debt
|
$
|
306,696
|
|
|
$
|
300,351
|
|
Credit Facility
On August 4, 2016, StoneMor Operating LLC (the “Operating Company”), a
100%
owned subsidiary of the Partnership, entered into the Credit Agreement (the “Credit Agreement”) among each of the Subsidiaries of the Operating Company (together with the Operating Company, “Borrowers”), the Lenders identified therein, Capital One, National Association (“Capital One”), as Administrative Agent, Issuing Bank and Swingline Lender, Citizens Bank of Pennsylvania, as Syndication Agent, and TD Bank, N.A. and Raymond James Bank, N.A., as Co-Documentation Agents. In addition, on the same date, the Partnership, the Borrowers and Capital One, as Administrative Agent, entered into the Guaranty and Collateral Agreement (the “Guaranty Agreement,” and together with the Credit Agreement, “New Agreements”). Capitalized terms which are not defined in the following description of the New Agreements shall have the meaning assigned to such terms in the New Agreements, as amended.
On
March 15, 2017
, the Borrowers, Capital One, as Administrative Agent and acting in accordance with the written consent of the Required Lenders, entered into the First Amendment to Credit Agreement (as so amended, the "Original Credit Agreement"). The Original Credit Agreement provided for up to
$210.0 million
initial aggregate amount of Revolving Commitments, which may be increased, from time to time, in minimum increments of
$5.0 million
so long as the aggregate amount of such increases does not exceed
$100.0 million
. The Operating Company may also request the issuance of Letters of Credit for up to
$15.0 million
in the aggregate, of which there were
$7.5 million
outstanding at
June 30, 2017
and
$6.8 million
outstanding at December 31, 2016. The Maturity Date under the Original Credit Agreement is the earlier of (i)
August 4, 2021
and (ii) the date that is six months prior to the earliest scheduled maturity date of any outstanding Permitted Unsecured Indebtedness (at present, such date is
December 1, 2020
, which is six months prior to
June 1, 2021
maturity date of outstanding
7.875%
senior notes).
As of
June 30, 2017
, the outstanding amount of borrowings under the Original Credit Agreement was
$142.9 million
, which was used to pay down outstanding obligations under the Partnership's prior credit agreement, to pay fees, costs and expenses related to the New Agreements and to fund working capital needs. Generally, proceeds of the Loans under the Original Credit Agreement can be used to finance the working capital needs and for other general corporate purposes of the Borrowers and Guarantors, including acquisitions and distributions permitted under the Original Credit Agreement. As of
June 30, 2017
, the Partnership had
$3.5 million
of total available borrowing capacity under its revolving credit facility.
Each Borrowing under the Original Credit Agreement is comprised of Base Rate Loans or Eurodollar Loans. The Loans comprising each Base Rate Borrowing (including each Swingline Loan) bear interest at the Base Rate plus the Applicable Rate, and the Loans comprising each Eurodollar Borrowing bear interest at the Eurodollar Rate plus the Applicable Rate.
The Applicable Rate is determined based on the Consolidated Leverage Ratio of the Partnership and its Subsidiaries and ranges from
1.75%
to
3.75%
for Eurodollar Rate Loans and
0.75%
to
2.75%
for Base Rate Loans. Based on our Consolidated Leverage Ratio for the compliance period ended
June 30, 2017
, the Applicable Rate for Eurodollar Rate Loans was
3.75%
and for Base Rate Loans was
2.75%
. The Original Credit Agreement also requires the Borrowers to pay a quarterly unused commitment fee, which accrues at the Applicable Rate on the amount by which the commitments under the Original Credit Agreement exceed the usage of such commitments, and which is included within interest expense on the Partnership’s condensed consolidated statements of operations. On
June 30, 2017
, the weighted average interest rate on outstanding borrowings under the Original Credit Agreement was
5.0%
.
The Original Credit Agreement contains financial covenants, pursuant to which the Partnership will not permit:
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•
|
the ratio of Consolidated Funded Indebtedness to Consolidated EBITDA, or the Consolidated Leverage Ratio, as of the last day of any fiscal quarter, commencing on September 30, 2016, determined for the period of
four
consecutive fiscal quarters ending on such date (the “Measurement Period”), to be greater than
4.25
to 1.0 for periods ended through September 30, 2017, and
4.00
to 1.0 for periods thereafter, which may be increased to
4.25
to 1.0 (in case of a Designated Acquisition made subsequent to the last day of the immediately preceding fiscal quarter) as of the last day of the fiscal quarter in which such Designated Acquisition occurs and as of the last day of the immediately succeeding fiscal quarter; and
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•
|
the ratio of Consolidated EBITDA to Consolidated Debt Service, or the Consolidated Debt Service Coverage Ratio, as of the last day of any fiscal quarter, commencing on September 30, 2016 to be less than
2.50
to 1.0 for any Measurement Period.
|
As of
June 30, 2017
, the Partnership’s Consolidated Leverage Ratio was
4.21
compared to a maximum allowable ratio of
4.25
, and the Consolidated Debt Service Coverage Ratio was
3.33
compared to a minimum required ratio of
2.50
.
The Original Credit Agreement prohibits the Partnership from increasing its regularly scheduled quarterly cash distributions otherwise permitted under the Original Credit Agreement until January 1, 2018 unless at the time such distribution is declared and on a pro forma basis after giving effect to the payment of any such distribution the Consolidated Leverage Ratio is no greater than
3.75
:1.00. Additional covenants include customary limitations, subject to certain exceptions, on, among others: (i) the incurrence of Indebtedness; (ii) granting of Liens; (iii) fundamental changes and dispositions; (iv) investments, loans, advances, guarantees and acquisitions; (v) swap agreements; (vi) transactions with Affiliates; (vii) Restricted Payments; and (viii) Sale and Leaseback Transactions. The Partnership was in compliance with the Original Credit Agreement covenants as of
June 30, 2017
.
The Borrowers’ obligations under the Original Credit Agreement are guaranteed by the Partnership and the Borrowers. Pursuant to the Guaranty Agreement, the Borrowers’ obligations under the Original Credit Agreement are secured by a first priority lien and security interest (subject to permitted liens and security interests) in substantially all of the Partnership’s and Borrowers’ assets, whether then owned or thereafter acquired, excluding certain excluded assets, which include, among others: (i) Trust Accounts, certain proceeds required by law to be placed into such Trust Accounts and funds held in such Trust Accounts; and (ii) Excluded Real Property, including owned and leased real property that may not be pledged as a matter of law.
On July 26, 2017, StoneMor Operating LLC (the “Operating Company”), a 100% owned subsidiary of StoneMor Partners L.P. (the “Partnership”), the Subsidiaries (as defined in the Amended Credit Agreement) of the Operating Company (together with the Operating Company, “Borrowers”), the Lenders party thereto and Capital One, National Association (“Capital One”), as Administrative Agent (in such capacity, the “Administrative Agent”), entered into a Second Amendment and Limited Waiver (the "Second Amendment") and those parties subsequently entered into a Third Amendment and Limited Waiver effective as of August 15, 2017 (the "Third Amendment") and a Fourth Amendment to Credit Agreement dated
September 29, 2017
(the “Fourth Amendment”). The cumulative effect of the Second Amendment, Third Amendment and Fourth Amendment was to modify the Original Credit Agreement to:
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•
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increase the facility’s Consolidated Leverage Ratio to
4.5
0:1.00 for the period ended September 30, 2017 and the period ending
December 31, 2017
, stepping down to
4.25
:1.00 for periods ending in fiscal 2018, and then reverting back to
4.0
0:1.00;
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•
|
provide that, in calculating Consolidated EBITDA for purposes of various financial covenants:
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◦
|
the Partnership is entitled to add back:
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|
▪
|
non-cash compensation or other expense attributable to equity compensation awards and certain other non-cash expenses;
|
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|
▪
|
unrealized losses (less unrealized gains) and non-cash expenses arising from or attributable to the early termination of any swap agreement;
|
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|
|
|
▪
|
other non-recurring cash expenses, losses, costs and charges subject to a limit of
$14.3 million
for the period ended June 30, 2017,
$12.0 million
for the period ended
September 30, 2017
and periods ending
December 31, 2017
,
March 31, 2018
and
June 30, 2018
,
$4.0 million
for the period ending
September 30, 2018
and
$2.0 million
for periods thereafter;
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▪
|
non-recurring cash expenses, costs and charges relating to the previously announced Securities and Exchange Commission investigation and related actions, ongoing class action litigation and any other non-ordinary course of business legal matters in an aggregate amount for all periods not to exceed
$5.0 million
; and
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▪
|
certain cash expenses, costs and charges with respect to liability or casualty events to the extent insurance or indemnity recovery from a third party is actually received or is reasonably expected to be received within 90 days following the end of the applicable period; and
|
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|
◦
|
require the Partnership to subtract the following:
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|
|
|
▪
|
non-cash items increasing Consolidated Net Income for the applicable period;
|
|
|
|
|
▪
|
federal, state, local and foreign income tax credits or refunds during such period;
|
|
|
|
|
▪
|
certain cash payments made during the applicable period in respect of any noncash accrual, reserve or other non-cash charge that is accounted for in a prior period which was added to Consolidated Net Income to determine Consolidated EBITDA for such prior period and which does not otherwise reduce Consolidated Net Income for the current period; and
|
|
|
|
|
▪
|
the amount of any insurance or indemnity recovery not so received within the 90 day period (or such longer period) set forth above and any recovery payments which are made by third parties within the 90 day period (or such longer period) set forth above, in each case to the extent added back to consolidated net income in the prior period;
|
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|
•
|
amend the definition of “Consolidated Leverage Ratio” to permit the Partnership to deduct from Indebtedness the aggregate amount of all unrestricted cash and Cash Equivalents of the Partnership and its Subsidiaries in accounts subject to a first priority, perfected lien (subject to certain permitted liens) in favor of the Administrative Agent in an amount not to exceed
$5,000,000
;
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|
•
|
reduce the revolver commitment to
$200.0 million
;
|
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|
|
•
|
add provisions relating to a Fixed Charge Coverage Ratio that:
|
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|
◦
|
establish a minimum Consolidated Fixed Charge Coverage Ratio (as described below), as of the last day of any fiscal quarter, commencing on September 30, 2017, determined for the period of four (
4
) consecutive fiscal quarters ending on such date, of
1.20
:1.00 for the four fiscal quarter period ending on such measurement date;
|
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|
◦
|
define “Consolidated Fixed Charge Ratio” as the ratio of (i) Consolidated EBITDA for the four fiscal quarter period ending on the applicable measurement date, minus (x) the aggregate of all expenditures by the Partnership and its Subsidiaries for a specified period which are included in “Maintenance Capital Expenditures” or “Growth Capital Expenditures” reflected in the consolidated statement of cash flows of the Partnership, but excluding any such expenditures to the extent financed from the proceeds of Indebtedness (other than Revolving Loans) or insurance proceeds or other similar recoveries paid on account of the loss of or damage to the assets being replaced or restored or other assets and that are made during such period, (y) any federal, state, local and foreign taxes paid by the Partnership and its Subsidiaries during such period (net of any tax credits or refunds during such period), and (z) all Restricted Payments (which includes distributions) paid in cash by the Partnership during such period, to (ii) Consolidated Fixed Charges for the four fiscal quarter period ending on such measurement date; and
|
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|
◦
|
define “Consolidated Fixed Charges” as the sum of (i) Consolidated Interest Expense paid or payable in cash plus (ii) the aggregate amount of all scheduled principal payments with respect to all Consolidated Funded Indebtedness, but excluding any such payments to the extent refinanced through the incurrence of additional Indebtedness permitted under the Amended Credit Agreement;
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•
|
prior to the date on which the Partnership shall have achieved, as of the last day of any fiscal quarter after September 29, 2017, a Consolidated Leverage Ratio of less than
4.00
:1.00 for the four consecutive fiscal quarters ending on such date: (a) limit Revolving Credit Availability to (i) the lesser of the Borrowing Base, which is equal to the sum of
80%
of accounts receivable outstanding less than 120 days plus
40%
of the book value, net of depreciation, of property, plant and equipment, and the aggregate Revolving Commitments of the Lenders at such time, minus (ii) the aggregate outstanding amount of Revolving Credit Exposures of the Lenders and (b) in the event the sum of the aggregate principal amount of all of the Revolving Credit Exposures of the Lenders exceeds the Borrowing Base then in effect, require the Borrowers to immediately prepay borrowings in an amount so that the Revolving Credit Availability is at least
$0
; and
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•
|
extend the deadline for filing the Partnership’s Form 10-Q for the period ended
September 30, 2017
to
forty-five
days following the filing of its Form 10-Q for the period ended
June 30, 2017
, but not later than
January 31, 2018
.
|
Senior Notes
On May 28, 2013, the Partnership issued
$175.0 million
aggregate principal amount of
7.875%
Senior Notes due 2021 (the “Senior Notes”). The Partnership pays
7.875%
interest per annum on the principal amount of the Senior Notes, payable in cash semi-annually in arrears on June 1 and December 1 of each year. The net proceeds from the offering were used to retire a
$150.0 million
aggregate principal amount of
10.25%
Senior Notes due 2017 and the remaining proceeds were used for general corporate purposes. The Senior Notes were issued at
97.832%
of par resulting in gross proceeds of
$171.2 million
with an original issue discount of approximately
$3.8 million
. The Partnership incurred debt issuance costs and fees of approximately
$4.6 million
. These costs and fees are deferred and are being amortized over the life of the Senior Notes. The Senior Notes mature on
June 1, 2021
.
At any time on or after June 1, 2016, we may redeem the Senior Notes, in whole or in part, at the redemption prices (expressed as percentages of the principal amount) set forth below, together with accrued and unpaid interest, if any, to the redemption date, if redeemed during the
12
-month period beginning June 1 of the years indicated:
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Year
|
Percentage
|
|
2017
|
103.938%
|
|
2018
|
101.969%
|
|
2019 and thereafter
|
100.000%
|
Subject to certain exceptions, upon the occurrence of a Change of Control (as defined in the Indenture), each holder of the Senior Notes will have the right to require the Partnership to purchase that holder’s Senior Notes for a cash price equal to
101%
of the principal amounts to be purchased, plus accrued and unpaid interest.
The Senior Notes are jointly and severally guaranteed by certain of the Partnership’s subsidiaries. The Indenture governing the Senior Notes contains covenants, including limitations of the Partnership’s ability to incur certain additional indebtedness and liens, make certain dividends, distributions, redemptions or investments, enter into certain transactions with affiliates, make certain asset sales, and engage in certain mergers, consolidations or sales of all or substantially all of the Partnership's assets, among other items. As of
June 30, 2017
, the Partnership was in compliance with these covenants.
The Partnership defers revenues and all direct costs associated with the sale of pre-need cemetery merchandise and services until the merchandise is delivered or the services are performed. The Partnership recognizes deferred merchandise and service revenues as deferred revenues within long-term liabilities on its condensed consolidated balance sheet. The Partnership recognizes deferred direct costs associated with pre-need cemetery merchandise and service revenues as deferred selling and obtaining costs within long-term assets on its condensed consolidated balance sheet. The Partnership also defers the costs to obtain new pre-need cemetery and new prearranged funeral business as well as the investment earnings on the prearranged services and merchandise trusts.
Deferred revenues and related costs consisted of the following at the dates indicated (in thousands):
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|
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|
|
June 30, 2017
|
|
December 31, 2016
|
|
Deferred contract revenues
|
$
|
796,232
|
|
|
$
|
782,120
|
|
|
Deferred merchandise trust revenue
|
97,673
|
|
|
76,512
|
|
|
Deferred merchandise trust unrealized gains
|
4,351
|
|
|
8,001
|
|
|
Deferred revenues
|
$
|
898,256
|
|
|
$
|
866,633
|
|
|
Deferred selling and obtaining costs
|
$
|
123,177
|
|
|
$
|
116,890
|
|
Deferred revenues presented in the table above are net of the allowance for contract cancellations disclosed in
Note 2
.
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9.
|
COMMITMENTS AND CONTINGENCIES
|
Legal
The Partnership is currently subject to class or collective actions under the Securities Exchange Act of 1934 and for related state law claims that certain of our officers and directors breached their fiduciary duty to the Partnership and its unitholders. The Partnership could also become subject to additional claims and legal proceedings relating to the factual allegations made in these actions. While management cannot reasonably estimate the potential exposure in these matters at this time, if the Partnership does not prevail in any such proceedings, the Partnership could be required to pay substantial damages or settlement costs, subject to certain insurance coverages. Management has determined that, based on the status of the claims and legal proceedings against us, the amount of the potential losses cannot be reasonably estimated at this time. These actions are summarized below.
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•
|
Anderson v. StoneMor Partners, LP, et al., No. 2:16-cv-06111, filed on November 21, 2016, in the United States District Court for the Eastern District of Pennsylvania. The plaintiffs in this case (as well as Klein v. StoneMor Partners, LP, et al., No. 2:16-cv-06275, filed in the United States District Court for the Eastern District of Pennsylvania on December 2, 2016, which has been consolidated with this case) brought an action on behalf of a putative class of the holders of Partnership units and allege that the Partnership made misrepresentations to investors in violation of Section 10(b) of the Securities Exchange Act of 1934 by, among other things and in general, failing to clearly disclose the use of proceeds from debt and equity offerings by making allegedly false or misleading statements concerning (a) the Partnership’s strength or health in connection with a particular quarter’s distribution announcement, (b) the connection between operations and distributions and (c) the Partnership’s use of cash from equity offerings and its credit facility. Lead plaintiffs have been appointed in this case, and filed a Consolidated Amended Class Action Complaint on April 24, 2017. Defendants filed a motion to dismiss that Consolidated Amended Complaint on June 8, 2017. See Note 15 for a discussion of the status of this motion. Plaintiffs seek damages from the Partnership and certain of its officers and directors on behalf of the class of Partnership unitholders, as well as costs and attorneys’ fees.
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•
|
Bunim v. Miller, et al., No. 2:17-cv-00519-ER, pending in the United States District Court for the Eastern District of Pennsylvania, and filed on February 6, 2017. The plaintiff in this case brought, derivatively on behalf of the Partnership, claims that StoneMor GP’s officers and directors aided and abetted in breaches of StoneMor GP’s purported fiduciary duties by, among other things and in general, allegedly making misrepresentations through the use of non-GAAP accounting standards in its public filings, by allegedly failing to clearly disclose the use of proceeds from debt and equity offerings, and by allegedly approving unsustainable distributions. The plaintiff also claims that these actions and misrepresentations give rise to causes of action for gross mismanagement, unjust enrichment, and (in connection with a purportedly misleading proxy statement filed in 2014) violations of Section 14(a) of the Securities Exchange Act of 1934. The derivative plaintiff seeks an award of damages, attorneys’ fees and costs in favor of the Partnership as nominal plaintiff, as well as general compliance and governance changes. This case has been stayed, by the agreement of the parties, pending final resolution of the motion to dismiss filed in the Anderson case, provided that either side may terminate the stay on 30 days' notice. See Note 15 for a discussion of the status of this motion.
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•
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Muth v. StoneMor G.P. LLC, et al., December Term, 2016, No. 01196 and Binder v. StoneMor G.P. LLC, et al., January Term, 2017, No. 04872, both pending in the Court of Common Pleas for Philadelphia County, Pennsylvania, and filed on December 20, 2016 and February 3, 2017, respectively. In these cases, the plaintiffs brought, derivatively on behalf of the Partnership, claims that StoneMor GP’s officers and directors aided and abetted in breaches of StoneMor GP’s purported fiduciary duties by, among other things and in general, allegedly making misrepresentations through the use of non-GAAP accounting standards in its public filings and by failing to clearly disclose the use of proceeds from debt and equity offerings, as well as approving unsustainable distributions. The plaintiffs also claim that these actions and misrepresentations give rise to a cause of action for unjust enrichment. The derivative plaintiffs seek an award of damages, attorneys’ fees and costs in favor of the Partnership as nominal plaintiff, as well as alterations to the procedures for electing members to the board of StoneMor GP, and other compliance and governance changes. These cases have been consolidated and stayed, by the agreement of the parties, pending final resolution of the motion to dismiss filed in the Anderson case, provided that either side may terminate the stay on 30 days' notice. See Note 15 for a discussion of the status of this motion.
|
The Partnership has received two subpoenas from the Philadelphia Regional Office of the Securities and Exchange Commission, Enforcement Division, in connection with a fact-finding as to whether violations of federal securities laws have occurred. The subpoenas themselves state that the fact-finding should not be construed as an indication that any violations of securities laws occurred. The first subpoena, received on April 25, 2017, sought information from us relating to, among other things, our prior restatements, financial statements, internal control over financial reporting, public disclosures, use of non-GAAP financial measures and matters pertaining to unitholder distributions and the sources of funds therefor. The second subpoena, received on July 13, 2017, sought information relating to protection of our confidential information and our policies regarding insider trading. We are continuing to cooperate with the SEC staff, by providing information requested in the first subpoena, and we have delivered all information requested in the second, more limited, subpoena.
The Partnership is party to other legal proceedings in the ordinary course of its business but does not expect the outcome of any such proceedings, individually or in the aggregate, to have a material adverse effect on its financial position, results of operations or cash flows. The Partnership carries insurance with coverage and coverage limits that it believes to be customary in the cemetery and funeral home industry. Although there can be no assurance that such insurance will be sufficient to protect the Partnership against all contingencies, management believes that the insurance protection is reasonable in view of the nature and scope of the operations.
Other
During the first quarter of 2016, the Partnership moved its corporate headquarters to Trevose, Pennsylvania. Due to the relocation, a cease-use expense of
$2.4 million
, of which
$0.5 million
was incurred in the first quarter of 2016, was recorded in “Other gains (losses), net” on the unaudited condensed consolidated statement of operations. This charge represents the net recognition of the discounted liability for future rent payments due under the lease on the previous headquarters, net of estimated sublease collections and deferred rent and lease incentives pertaining to the previous corporate office location.
In connection with the Partnership’s lease and management agreements with the Archdiocese of Philadelphia, it has committed to pay aggregate fixed rent of
$36.0 million
in the following amounts:
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Lease Years 1-5 (May 28, 2014 - May 31, 2019)
|
None
|
|
Lease Years 6-20 (June 1, 2019 - May 31, 2034)
|
$1,000,000 per Lease Year
|
|
Lease Years 21-25 (June 1, 2034 - May 31, 2039)
|
$1,200,000 per Lease Year
|
|
Lease Years 26-35 (June 1, 2039 - May 31, 2049)
|
$1,500,000 per Lease Year
|
|
Lease Years 36-60 (June 1, 2049 - May 31, 2074)
|
None
|
The fixed rent for lease years
6
through
11
, an aggregate of
$6.0 million
, is deferred. If, prior to May 31, 2024, the Archdiocese exercises its right in its sole discretion to terminate the agreements during lease year 11 or the Partnership terminates the agreements as a result of a default by the Archdiocese, the Partnership is entitled to retain the deferred fixed rent. If the agreements are not terminated, the deferred fixed rent will become due and payable on or before June 30, 2024.
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10.
|
FAIR VALUE OF FINANCIAL INSTRUMENTS
|
Management has established a hierarchy to measure the Partnership’s financial instruments at fair value, which requires it to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs represent market data obtained from independent sources, whereas unobservable inputs reflect the Partnership’s own market assumptions, which are used if observable inputs are not reasonably available without undue cost and effort. The hierarchy defines three levels of inputs that may be used to measure fair value:
Level 1 – Unadjusted quoted market prices in active markets for identical, unrestricted assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset and liability or can be corroborated with observable market data for substantially the same contractual term of the asset or liability.
Level 3 – Unobservable inputs that the entity’s own assumptions about the assumptions market participants would use in the pricing of the asset or liability and are consequently not based on market activity but rather through particular valuation techniques.
The Partnership’s current assets and liabilities and customer receivables, excluding assets held for sale, on its condensed consolidated balance sheets are similar to cash basis financial instruments, and their estimated fair values approximate their carrying values due to their short-term nature and thus are categorized as Level 1. The Partnership’s merchandise and perpetual care trusts consist of investments in debt and equity marketable securities and cash equivalents, are carried at fair value, and are considered either Level 1 or Level 2 (see Notes 5 and 6). Where quoted prices are available in active markets, securities are classified as Level 1 investments pursuant to the fair value measurement hierarchy.
Where quoted market prices are not available for the specific security, fair values are estimated by using either quoted prices of securities with similar characteristics or an income approach fair value model with observable inputs that include a combination of interest rates, yield curves, credit risks, prepayment speeds, rating and tax-exempt status. These securities are classified as Level 2 investments pursuant to the fair value measurement hierarchy. Certain investments in the merchandise and perpetual care trusts are excluded from the fair value leveling hierarchy in accordance with GAAP. These funds are measured at fair value using the net asset value per share practical expedient and have not been categorized in the fair value hierarchy.
The Partnership’s other financial instruments as of
June 30, 2017
and
December 31, 2016
consist of its Senior Notes and outstanding borrowings under its revolving credit facility (see
Note 7
). The estimated fair values of the Partnership’s Senior Notes as of
June 30, 2017
and
December 31, 2016
were
$177.2 million
and
$168.0 million
, respectively, based on trades made on those dates, compared with the carrying amounts of
$172.9 million
and
$172.6 million
, respectively. As of
June 30, 2017
and
December 31, 2016
, the carrying values of outstanding borrowings under the Partnership’s revolving credit facility (see
Note 7
), which bears interest at variable interest rates with maturities of
90
days or less, approximated their estimated fair values. The Senior Notes and the credit facility are valued using Level 2 inputs.
The Partnership may be required to measure certain assets and liabilities at fair value on a nonrecurring basis in accordance with GAAP from time to time. These adjustments to fair value usually result from the application of lower of cost or fair value accounting on assets held for sale. The lower of cost or estimated fair value of assets held for sale was
$1.2 million
with an original net book value of
$2.1 million
prior to an adjustment of
$0.9 million
at
June 30, 2017
. Assets held for sale are valued at lower of cost or estimated fair value based on broker comps and estimates at the time the assets are classified as held for sale. These assets held for sale are classified as Level 3 pursuant to the fair value measurement hierarchy. In addition, the Partnership had
$0.9 million
of assets held for use which were impaired by
$0.4 million
resulting in an updated net book value of
$0.5 million
during the three months ended
June 30, 2017
.
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11.
|
SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
|
The Partnership’s Senior Notes are guaranteed by StoneMor Operating LLC and its 100% owned subsidiaries, other than the co-issuer, as described below. The guarantees are full, unconditional, joint and several. The Partnership, or the “Parent,” and its 100% owned subsidiary, Cornerstone Family Services of West Virginia Subsidiary Inc., are the co-issuers of the Senior Notes. The Partnership’s unaudited condensed consolidated financial statements as of
June 30, 2017
and
December 31, 2016
and for the three months ended
June 30, 2017
and
2016
include the accounts of cemeteries owned by other entities but which we operate under long-term lease, operating or management agreements. For the purposes of this note, these entities are deemed non-guarantor subsidiaries, as they are not 100% owned by the Partnership. The Partnership’s unaudited condensed consolidated financial statements also contain merchandise and perpetual care trusts that are also non-guarantor subsidiaries for the purposes of this note.
The following unaudited supplemental condensed consolidating financial information reflects the Partnership’s standalone accounts, the combined accounts of the subsidiary co-issuer, the combined accounts of the guarantor subsidiaries, the combined accounts of the non-guarantor subsidiaries, the consolidating adjustments and eliminations and the Partnership’s consolidated accounts as of
June 30, 2017
and
December 31, 2016
and for the
three and six
months ended
June 30, 2017
and
2016
. For the purpose of the following financial information, the Partnership’s investments in its subsidiaries and the guarantor subsidiaries’ investments in their respective subsidiaries are presented in accordance with the equity method of accounting:
CONDENSED CONSOLIDATING BALANCE SHEETS (Unaudited, in thousands)
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|
June 30, 2017
|
Parent
|
|
Subsidiary
Issuer
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,334
|
|
|
$
|
2,492
|
|
|
$
|
—
|
|
|
$
|
6,826
|
|
|
Assets held for sale
|
—
|
|
|
—
|
|
|
1,169
|
|
|
—
|
|
|
—
|
|
|
1,169
|
|
|
Other current assets
|
—
|
|
|
3,889
|
|
|
86,576
|
|
|
17,253
|
|
|
—
|
|
|
107,718
|
|
|
Total current assets
|
—
|
|
|
3,889
|
|
|
92,079
|
|
|
19,745
|
|
|
—
|
|
|
115,713
|
|
|
Long-term accounts receivable
|
—
|
|
|
2,001
|
|
|
85,604
|
|
|
13,105
|
|
|
—
|
|
|
100,710
|
|
|
Cemetery property and equipment
|
—
|
|
|
849
|
|
|
412,774
|
|
|
33,891
|
|
|
—
|
|
|
447,514
|
|
|
Merchandise trusts
|
—
|
|
|
—
|
|
|
—
|
|
|
512,423
|
|
|
—
|
|
|
512,423
|
|
|
Perpetual care trusts
|
—
|
|
|
—
|
|
|
—
|
|
|
337,684
|
|
|
—
|
|
|
337,684
|
|
|
Deferred selling and obtaining costs
|
—
|
|
|
6,005
|
|
|
96,141
|
|
|
21,031
|
|
|
—
|
|
|
123,177
|
|
|
Goodwill and intangible assets
|
—
|
|
|
—
|
|
|
72,367
|
|
|
62,335
|
|
|
—
|
|
|
134,702
|
|
|
Other assets
|
—
|
|
|
—
|
|
|
17,914
|
|
|
2,813
|
|
|
—
|
|
|
20,727
|
|
|
Investments in and amounts due from affiliates eliminated upon consolidation
|
214,308
|
|
|
133,802
|
|
|
557,492
|
|
|
—
|
|
|
(905,602
|
)
|
|
—
|
|
|
Total assets
|
$
|
214,308
|
|
|
$
|
146,546
|
|
|
$
|
1,334,371
|
|
|
$
|
1,003,027
|
|
|
$
|
(905,602
|
)
|
|
$
|
1,792,650
|
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
$
|
—
|
|
|
$
|
243
|
|
|
$
|
43,106
|
|
|
$
|
1,359
|
|
|
$
|
—
|
|
|
$
|
44,708
|
|
|
Long-term debt, net of deferred financing costs
|
68,154
|
|
|
104,701
|
|
|
133,841
|
|
|
—
|
|
|
—
|
|
|
306,696
|
|
|
Deferred revenues
|
—
|
|
|
34,322
|
|
|
759,852
|
|
|
104,082
|
|
|
—
|
|
|
898,256
|
|
|
Perpetual care trust corpus
|
—
|
|
|
—
|
|
|
—
|
|
|
337,684
|
|
|
—
|
|
|
337,684
|
|
|
Other long-term liabilities
|
—
|
|
|
—
|
|
|
47,599
|
|
|
11,553
|
|
|
—
|
|
|
59,152
|
|
|
Due to affiliates
|
—
|
|
|
—
|
|
|
172,855
|
|
|
575,584
|
|
|
(748,439
|
)
|
|
—
|
|
|
Total liabilities
|
68,154
|
|
|
139,266
|
|
|
1,157,253
|
|
|
1,030,262
|
|
|
(748,439
|
)
|
|
1,646,496
|
|
|
Partners' capital
|
146,154
|
|
|
7,280
|
|
|
177,118
|
|
|
(27,235
|
)
|
|
(157,163
|
)
|
|
146,154
|
|
|
Total liabilities and partners' capital
|
$
|
214,308
|
|
|
$
|
146,546
|
|
|
$
|
1,334,371
|
|
|
$
|
1,003,027
|
|
|
$
|
(905,602
|
)
|
|
$
|
1,792,650
|
|
CONDENSED CONSOLIDATING BALANCE SHEETS (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
Parent
|
|
Subsidiary
Issuer
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9,145
|
|
|
$
|
3,425
|
|
|
$
|
—
|
|
|
$
|
12,570
|
|
|
Other current assets
|
—
|
|
|
4,567
|
|
|
83,765
|
|
|
17,919
|
|
|
—
|
|
|
106,251
|
|
|
Total current assets
|
—
|
|
|
4,567
|
|
|
92,910
|
|
|
21,344
|
|
|
—
|
|
|
118,821
|
|
|
Long-term accounts receivable
|
—
|
|
|
1,725
|
|
|
83,993
|
|
|
13,168
|
|
|
—
|
|
|
98,886
|
|
|
Cemetery property and equipment
|
—
|
|
|
930
|
|
|
420,077
|
|
|
34,589
|
|
|
—
|
|
|
455,596
|
|
|
Merchandise trusts
|
—
|
|
|
—
|
|
|
—
|
|
|
507,079
|
|
|
—
|
|
|
507,079
|
|
|
Perpetual care trusts
|
—
|
|
|
—
|
|
|
—
|
|
|
333,780
|
|
|
—
|
|
|
333,780
|
|
|
Deferred selling and obtaining costs
|
—
|
|
|
5,668
|
|
|
91,252
|
|
|
19,970
|
|
|
—
|
|
|
116,890
|
|
|
Goodwill and intangible assets
|
—
|
|
|
—
|
|
|
72,963
|
|
|
62,911
|
|
|
—
|
|
|
135,874
|
|
|
Other assets
|
—
|
|
|
—
|
|
|
17,244
|
|
|
2,843
|
|
|
—
|
|
|
20,087
|
|
|
Investments in and amounts due from affiliates eliminated upon consolidation
|
258,417
|
|
|
182,060
|
|
|
557,455
|
|
|
—
|
|
|
(997,932
|
)
|
|
—
|
|
|
Total assets
|
$
|
258,417
|
|
|
$
|
194,950
|
|
|
$
|
1,335,894
|
|
|
$
|
995,684
|
|
|
$
|
(997,932
|
)
|
|
$
|
1,787,013
|
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
$
|
—
|
|
|
$
|
320
|
|
|
$
|
38,336
|
|
|
$
|
237
|
|
|
$
|
—
|
|
|
$
|
38,893
|
|
|
Long-term debt, net of deferred financing costs
|
68,063
|
|
|
104,560
|
|
|
127,728
|
|
|
—
|
|
|
—
|
|
|
300,351
|
|
|
Deferred revenues
|
—
|
|
|
30,321
|
|
|
738,184
|
|
|
98,128
|
|
|
—
|
|
|
866,633
|
|
|
Perpetual care trust corpus
|
—
|
|
|
—
|
|
|
—
|
|
|
333,780
|
|
|
—
|
|
|
333,780
|
|
|
Other long-term liabilities
|
—
|
|
|
—
|
|
|
45,802
|
|
|
11,200
|
|
|
—
|
|
|
57,002
|
|
|
Due to affiliates
|
—
|
|
|
—
|
|
|
172,623
|
|
|
581,427
|
|
|
(754,050
|
)
|
|
—
|
|
|
Total liabilities
|
68,063
|
|
|
135,201
|
|
|
1,122,673
|
|
|
1,024,772
|
|
|
(754,050
|
)
|
|
1,596,659
|
|
|
Partners’ capital
|
190,354
|
|
|
59,749
|
|
|
213,221
|
|
|
(29,088
|
)
|
|
(243,882
|
)
|
|
190,354
|
|
|
Total liabilities and partners’ capital
|
$
|
258,417
|
|
|
$
|
194,950
|
|
|
$
|
1,335,894
|
|
|
$
|
995,684
|
|
|
$
|
(997,932
|
)
|
|
$
|
1,787,013
|
|
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS (Unaudited, in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2017
|
Parent
|
|
Subsidiary
Issuer
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Total revenues
|
$
|
—
|
|
|
$
|
1,494
|
|
|
$
|
71,266
|
|
|
$
|
15,195
|
|
|
$
|
(2,003
|
)
|
|
$
|
85,952
|
|
|
Total costs and expenses
|
—
|
|
|
(3,803
|
)
|
|
(74,139
|
)
|
|
(13,126
|
)
|
|
2,003
|
|
|
(89,065
|
)
|
|
Other loss
|
—
|
|
|
—
|
|
|
(1,071
|
)
|
|
—
|
|
|
—
|
|
|
(1,071
|
)
|
|
Net loss from equity investment in subsidiaries
|
(8,877
|
)
|
|
(8,901
|
)
|
|
—
|
|
|
—
|
|
|
17,778
|
|
|
—
|
|
|
Interest expense
|
(1,359
|
)
|
|
(2,087
|
)
|
|
(3,066
|
)
|
|
(229
|
)
|
|
—
|
|
|
(6,741
|
)
|
|
Net income (loss) before income taxes
|
(10,236
|
)
|
|
(13,297
|
)
|
|
(7,010
|
)
|
|
1,840
|
|
|
17,778
|
|
|
(10,925
|
)
|
|
Income tax expense
|
—
|
|
|
—
|
|
|
(657
|
)
|
|
—
|
|
|
—
|
|
|
(657
|
)
|
|
Net income (loss)
|
$
|
(10,236
|
)
|
|
$
|
(13,297
|
)
|
|
$
|
(7,667
|
)
|
|
$
|
1,840
|
|
|
$
|
17,778
|
|
|
$
|
(11,582
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2016 (As restated, see A)
|
Parent
|
|
Subsidiary
Issuer
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
|
|
|
|
B
|
|
B
|
|
|
|
|
|
Total revenues
|
$
|
—
|
|
|
$
|
1,698
|
|
|
$
|
65,819
|
|
|
$
|
13,829
|
|
|
$
|
(2,368
|
)
|
|
$
|
78,978
|
|
|
Total costs and expenses
|
—
|
|
|
(2,588
|
)
|
|
(66,764
|
)
|
|
(13,740
|
)
|
|
2,368
|
|
|
(80,724
|
)
|
|
Other loss
|
—
|
|
|
—
|
|
|
(191
|
)
|
|
—
|
|
|
—
|
|
|
(191
|
)
|
|
Net loss from equity investment in subsidiaries
|
(6,785
|
)
|
|
(7,729
|
)
|
|
—
|
|
|
—
|
|
|
14,514
|
|
|
—
|
|
|
Interest expense
|
(1,359
|
)
|
|
(2,087
|
)
|
|
(2,066
|
)
|
|
(195
|
)
|
|
—
|
|
|
(5,707
|
)
|
|
Net loss before income taxes
|
(8,144
|
)
|
|
(10,706
|
)
|
|
(3,202
|
)
|
|
(106
|
)
|
|
14,514
|
|
|
(7,644
|
)
|
|
Income tax expense
|
—
|
|
|
—
|
|
|
(500
|
)
|
|
—
|
|
|
—
|
|
|
(500
|
)
|
|
Net income (loss)
|
$
|
(8,144
|
)
|
|
$
|
(10,706
|
)
|
|
$
|
(3,702
|
)
|
|
$
|
(106
|
)
|
|
$
|
14,514
|
|
|
$
|
(8,144
|
)
|
|
|
|
|
A.
|
See
Note 1
for a summary of those accounting adjustments and the impact on the unaudited condensed consolidated financial statements for the three months ended June 30, 2016.
|
|
|
|
|
B.
|
The Partnership incorrectly presented the accounts of certain cemeteries owned by other entities but which we operate under long-term lease, operating or management agreements, as guarantor subsidiaries instead of non-guarantor subsidiaries. The adjustments to correctly present these cemeteries as non-guarantor subsidiaries resulted in a
$1.0 million
increase in each of non-guarantor revenues and non-guarantor costs and expenses and corresponding reductions to guarantor revenues and costs and expenses for the three months ended June 30, 2016.
|
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS (Unaudited, in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2017
|
Parent
|
|
Subsidiary
Issuer
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Total revenues
|
$
|
—
|
|
|
$
|
3,539
|
|
|
$
|
139,908
|
|
|
$
|
30,137
|
|
|
$
|
(4,686
|
)
|
|
$
|
168,898
|
|
|
Total costs and expenses
|
—
|
|
|
(7,207
|
)
|
|
(143,621
|
)
|
|
(26,918
|
)
|
|
4,686
|
|
|
(173,060
|
)
|
|
Other loss
|
—
|
|
|
—
|
|
|
(1,071
|
)
|
|
—
|
|
|
—
|
|
|
(1,071
|
)
|
|
Net loss from equity investment in subsidiaries
|
(16,080
|
)
|
|
(17,115
|
)
|
|
—
|
|
|
—
|
|
|
33,195
|
|
|
—
|
|
|
Interest expense
|
(2,717
|
)
|
|
(4,174
|
)
|
|
(6,102
|
)
|
|
(454
|
)
|
|
—
|
|
|
(13,447
|
)
|
|
Net income (loss) before income taxes
|
(18,797
|
)
|
|
(24,957
|
)
|
|
(10,886
|
)
|
|
2,765
|
|
|
33,195
|
|
|
(18,680
|
)
|
|
Income tax expense
|
—
|
|
|
—
|
|
|
(1,463
|
)
|
|
—
|
|
|
—
|
|
|
(1,463
|
)
|
|
Net income (loss)
|
$
|
(18,797
|
)
|
|
$
|
(24,957
|
)
|
|
$
|
(12,349
|
)
|
|
$
|
2,765
|
|
|
$
|
33,195
|
|
|
$
|
(20,143
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2016 (As restated, see A)
|
Parent
|
|
Subsidiary
Issuer
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
|
|
|
|
B
|
|
B
|
|
|
|
|
|
Total revenues
|
$
|
—
|
|
|
$
|
2,967
|
|
|
$
|
130,165
|
|
|
$
|
28,750
|
|
|
$
|
(4,732
|
)
|
|
$
|
157,150
|
|
|
Total costs and expenses
|
—
|
|
|
(5,114
|
)
|
|
(131,787
|
)
|
|
(26,188
|
)
|
|
4,732
|
|
|
(158,357
|
)
|
|
Other loss
|
—
|
|
|
—
|
|
|
(1,073
|
)
|
|
—
|
|
|
—
|
|
|
(1,073
|
)
|
|
Net loss from equity investment in subsidiaries
|
(11,820
|
)
|
|
(13,981
|
)
|
|
—
|
|
|
—
|
|
|
25,801
|
|
|
—
|
|
|
Interest expense
|
(2,717
|
)
|
|
(4,174
|
)
|
|
(4,220
|
)
|
|
(386
|
)
|
|
—
|
|
|
(11,497
|
)
|
|
Net income (loss) before income taxes
|
(14,537
|
)
|
|
(20,302
|
)
|
|
(6,915
|
)
|
|
2,176
|
|
|
25,801
|
|
|
(13,777
|
)
|
|
Income tax expense
|
—
|
|
|
—
|
|
|
(760
|
)
|
|
—
|
|
|
—
|
|
|
(760
|
)
|
|
Net income (loss)
|
$
|
(14,537
|
)
|
|
$
|
(20,302
|
)
|
|
$
|
(7,675
|
)
|
|
$
|
2,176
|
|
|
$
|
25,801
|
|
|
$
|
(14,537
|
)
|
|
|
|
|
A.
|
See
Note 1
for a summary of those accounting adjustments and the impact on the unaudited condensed consolidated financial statements for the
six months ended June 30, 2016
.
|
|
|
|
|
B.
|
The Partnership incorrectly presented the accounts of certain cemeteries owned by other entities but which we operate under long-term lease, operating or management agreements, as guarantor subsidiaries instead of non-guarantor subsidiaries. The adjustments to correctly present these cemeteries as non-guarantor subsidiaries resulted in a
$2.2 million
increase in non-guarantor revenues and a
$2.0 million
increase in non-guarantor costs and expenses with corresponding reductions to guarantor revenues and costs and expenses for the
six months ended June 30, 2016
.
|
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (Unaudited, in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2017
|
Parent
|
|
Subsidiary
Issuer
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
Net cash provided by (used in) operating activities
|
$
|
24,545
|
|
|
$
|
53
|
|
|
$
|
22,722
|
|
|
$
|
(384
|
)
|
|
$
|
(31,436
|
)
|
|
$
|
15,500
|
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for acquisitions and capital expenditures, net of proceeds from divestitures and asset sales
|
—
|
|
|
(53
|
)
|
|
(1,857
|
)
|
|
(549
|
)
|
|
—
|
|
|
(2,459
|
)
|
|
Net cash used in investing activities
|
—
|
|
|
(53
|
)
|
|
(1,857
|
)
|
|
(549
|
)
|
|
—
|
|
|
(2,459
|
)
|
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash distributions
|
(24,545
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(24,545
|
)
|
|
Payments to affiliates
|
—
|
|
|
—
|
|
|
(31,436
|
)
|
|
—
|
|
|
31,436
|
|
|
—
|
|
|
Net borrowings of debt
|
—
|
|
|
—
|
|
|
6,536
|
|
|
—
|
|
|
—
|
|
|
6,536
|
|
|
Other financing activities
|
—
|
|
|
—
|
|
|
(776
|
)
|
|
—
|
|
|
—
|
|
|
(776
|
)
|
|
Net cash used in financing activities
|
(24,545
|
)
|
|
—
|
|
|
(25,676
|
)
|
|
—
|
|
|
31,436
|
|
|
(18,785
|
)
|
|
Net decrease in cash and cash equivalents
|
—
|
|
|
—
|
|
|
(4,811
|
)
|
|
(933
|
)
|
|
—
|
|
|
(5,744
|
)
|
|
Cash and cash equivalents - Beginning of period
|
—
|
|
|
—
|
|
|
9,145
|
|
|
3,425
|
|
|
—
|
|
|
12,570
|
|
|
Cash and cash equivalents - End of period
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,334
|
|
|
$
|
2,492
|
|
|
$
|
—
|
|
|
$
|
6,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2016 (As restated, see A)
|
Parent
|
|
Subsidiary
Issuer
|
|
Guarantor
Subsidiaries
|
|
Non-Guarantor
Subsidiaries
|
|
Eliminations
|
|
Consolidated
|
|
|
|
|
|
|
B
|
|
B
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
$
|
2,624
|
|
|
$
|
61
|
|
|
$
|
13,493
|
|
|
$
|
1,796
|
|
|
$
|
(9,515
|
)
|
|
$
|
8,459
|
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for acquisitions and capital expenditures, net of proceeds from asset sales
|
—
|
|
|
(61
|
)
|
|
(5,380
|
)
|
|
(1,715
|
)
|
|
—
|
|
|
(7,156
|
)
|
|
Payments to affiliates
|
(32,458
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
32,458
|
|
|
—
|
|
|
Net cash provided by (used in) investing activities
|
(32,458
|
)
|
|
(61
|
)
|
|
(5,380
|
)
|
|
(1,715
|
)
|
|
32,458
|
|
|
(7,156
|
)
|
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash distributions
|
(44,703
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(44,703
|
)
|
|
Payments from affiliates
|
—
|
|
|
—
|
|
|
22,943
|
|
|
—
|
|
|
(22,943
|
)
|
|
—
|
|
|
Net repayments of debt
|
—
|
|
|
—
|
|
|
(36,503
|
)
|
|
—
|
|
|
—
|
|
|
(36,503
|
)
|
|
Proceeds from issuance of common units
|
74,537
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
74,537
|
|
|
Other financing activities
|
—
|
|
|
—
|
|
|
(351
|
)
|
|
—
|
|
|
—
|
|
|
(351
|
)
|
|
Net cash provided by (used in) financing activities
|
29,834
|
|
|
—
|
|
|
(13,911
|
)
|
|
—
|
|
|
(22,943
|
)
|
|
(7,020
|
)
|
|
Net increase (decrease) in cash and cash equivalents
|
—
|
|
|
—
|
|
|
(5,798
|
)
|
|
81
|
|
|
—
|
|
|
(5,717
|
)
|
|
Cash and cash equivalents - Beginning of period
|
—
|
|
|
—
|
|
|
11,809
|
|
|
3,344
|
|
|
—
|
|
|
15,153
|
|
|
Cash and cash equivalents - End of period
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,011
|
|
|
$
|
3,425
|
|
|
$
|
—
|
|
|
$
|
9,436
|
|
|
|
|
|
A.
|
See
Note 1
for a summary of those accounting adjustments and the impact on the unaudited condensed consolidated financial statements for the
six months ended June 30, 2016
.
|
|
|
|
|
B.
|
The Partnership incorrectly presented the accounts of certain cemeteries owned by other entities but which we operate under long-term lease, operating or management agreements, as guarantor subsidiaries instead of non-guarantor subsidiaries. The adjustments to correctly present these cemeteries as non-guarantor subsidiaries resulted in a
$0.3 million
increase in non-guarantor cash provided by operating activities, with a corresponding decrease in guarantor cash provided by operating activities for the
six months ended June 30, 2016
.
|
|
|
|
|
|
|
12.
|
ISSUANCES OF LIMITED PARTNERSHIP UNITS
|
Pursuant to a Common Unit Purchase Agreement, dated May 19, 2014, by and between the Partnership and American Cemeteries Infrastructure Investors, LLC, a Delaware limited liability company (“ACII”), the Partnership did
no
t issue any paid-in-kind units to ACII during the three months ended
June 30, 2017
. The Partnership issued
78,342
paid-in-kind units to ACII in lieu of cash distributions of
$0.7 million
for the six months ended
June 30, 2017
.
The Partnership’s operations include
two
reportable operating segments, Cemetery Operations and Funeral Home Operations. These operating segments reflect the way the Partnership managed its operations and made business decisions as of
June 30, 2017
. Operating segment data for and as of the periods indicated were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
STATEMENT OF OPERATIONS DATA:
|
|
|
(As restated -
see Note 1)
|
|
|
|
(As restated -
see Note 1)
|
|
Cemetery Operations:
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
70,746
|
|
|
$
|
64,204
|
|
|
$
|
136,273
|
|
|
$
|
126,027
|
|
|
Operating costs and expenses
|
(57,543
|
)
|
|
(55,095
|
)
|
|
(114,175
|
)
|
|
(105,608
|
)
|
|
Depreciation and amortization
|
(2,298
|
)
|
|
(2,014
|
)
|
|
(4,559
|
)
|
|
(3,984
|
)
|
|
Segment income
|
$
|
10,905
|
|
|
$
|
7,095
|
|
|
$
|
17,539
|
|
|
$
|
16,435
|
|
|
Funeral Home Operations:
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
15,206
|
|
|
$
|
14,774
|
|
|
$
|
32,625
|
|
|
$
|
31,123
|
|
|
Operating costs and expenses
|
(12,064
|
)
|
|
(12,737
|
)
|
|
(24,868
|
)
|
|
(26,481
|
)
|
|
Depreciation and amortization
|
(810
|
)
|
|
(858
|
)
|
|
(1,616
|
)
|
|
(1,735
|
)
|
|
Segment income
|
$
|
2,332
|
|
|
$
|
1,179
|
|
|
$
|
6,141
|
|
|
$
|
2,907
|
|
|
Reconciliation of segment income to net loss:
|
|
|
|
|
|
|
|
|
Cemetery Operations
|
$
|
10,905
|
|
|
$
|
7,095
|
|
|
$
|
17,539
|
|
|
$
|
16,435
|
|
|
Funeral Home Operations
|
2,332
|
|
|
1,179
|
|
|
6,141
|
|
|
2,907
|
|
|
Total segment income
|
13,237
|
|
|
8,274
|
|
|
23,680
|
|
|
19,342
|
|
|
Corporate overhead
|
(16,067
|
)
|
|
(9,737
|
)
|
|
(27,171
|
)
|
|
(20,048
|
)
|
|
Corporate depreciation and amortization
|
(283
|
)
|
|
(283
|
)
|
|
(671
|
)
|
|
(501
|
)
|
|
Other gains (losses), net
|
(1,071
|
)
|
|
(191
|
)
|
|
(1,071
|
)
|
|
(1,073
|
)
|
|
Interest expense
|
(6,741
|
)
|
|
(5,707
|
)
|
|
(13,447
|
)
|
|
(11,497
|
)
|
|
Income tax expense
|
(657
|
)
|
|
(500
|
)
|
|
(1,463
|
)
|
|
(760
|
)
|
|
Net loss
|
$
|
(11,582
|
)
|
|
$
|
(8,144
|
)
|
|
$
|
(20,143
|
)
|
|
$
|
(14,537
|
)
|
|
|
|
|
|
|
|
|
|
|
CASH FLOW DATA:
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
Cemetery Operations
|
$
|
1,667
|
|
|
$
|
2,691
|
|
|
$
|
2,976
|
|
|
$
|
4,632
|
|
|
Funeral Home Operations
|
80
|
|
|
44
|
|
|
127
|
|
|
495
|
|
|
Corporate
|
68
|
|
|
209
|
|
|
208
|
|
|
2,377
|
|
|
Total capital expenditures
|
$
|
1,815
|
|
|
$
|
2,944
|
|
|
$
|
3,311
|
|
|
$
|
7,504
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE SHEET DATA:
|
June 30, 2017
|
|
December 31, 2016
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Cemetery Operations
|
$
|
1,578,196
|
|
|
$
|
1,573,494
|
|
|
|
|
|
|
Funeral Home Operations
|
201,928
|
|
|
198,200
|
|
|
|
|
|
|
Corporate
|
12,526
|
|
|
15,319
|
|
|
|
|
|
|
Total assets
|
$
|
1,792,650
|
|
|
$
|
1,787,013
|
|
|
|
|
|
|
Goodwill:
|
|
|
|
|
|
|
|
|
Cemetery Operations
|
$
|
24,862
|
|
|
$
|
24,862
|
|
|
|
|
|
|
Funeral Home Operations
|
45,574
|
|
|
45,574
|
|
|
|
|
|
|
Total goodwill
|
$
|
70,436
|
|
|
$
|
70,436
|
|
|
|
|
|
|
|
|
|
|
|
14.
|
SUPPLEMENTAL CONDENSED CONSOLIDATING CASH FLOW INFORMATION
|
The tables presented below provide supplemental information to the condensed consolidated statements of cash flows regarding contract origination and maturity activity included in the pertinent captions on the Partnership's condensed consolidated statements of cash flows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
2017
|
|
2016
|
|
Pre-need/at-need contract originations (sales on credit)
|
$
|
(54,229
|
)
|
|
$
|
(54,632
|
)
|
|
Cash receipts from sales on credit (post-origination)
|
49,283
|
|
|
42,441
|
|
|
Changes in Accounts receivable, net of allowance
|
$
|
(4,946
|
)
|
|
$
|
(12,191
|
)
|
|
|
|
|
|
|
Deferrals:
|
|
|
|
|
Cash receipts from customer deposits at origination, net of refunds
|
$
|
76,686
|
|
|
$
|
76,828
|
|
|
Withdrawals of realized income from merchandise trusts during the period
|
5,947
|
|
|
6,974
|
|
|
Pre-need/at-need contract originations (sales on credit)
|
54,229
|
|
|
54,632
|
|
|
Undistributed merchandise trust investment earnings (losses), net
|
(32,938
|
)
|
|
5,244
|
|
|
Recognition:
|
|
|
|
|
Merchandise trust investment income, net withdrawn as of end of period
|
(4,756
|
)
|
|
(4,203
|
)
|
|
Recognized maturities of customer contracts collected as of end of period
|
(101,750
|
)
|
|
(95,486
|
)
|
|
Recognized maturities of customer contracts uncollected as of end of period
|
(15,051
|
)
|
|
(13,410
|
)
|
|
Changes in Deferred revenues
|
$
|
(17,633
|
)
|
|
$
|
30,579
|
|
On
July 26, 2017
, the Borrowers, Capital One, as Administrative Agent and acting in accordance with the written consent of the Required Lenders, entered into the Second Amendment and Limited Waiver. Those parties subsequently entered into a Third Amendment and Limited Waiver effective as of
August 15, 2017
and a Fourth Amendment to Credit Agreement dated
September 29, 2017
. See
Note 7
for a discussion of the cumulative effect of these amendments.
The Partnership operates certain cemetery and funeral home properties in Florida and Puerto Rico, which were affected by hurricanes during September 2017. The Partnership is currently assessing potential losses caused by these events, which could reach a maximum exposure of
$10.1 million
. As these events occurred in September 2017,
no
liability for the estimated losses incurred has been recorded within the unaudited condensed consolidated financial statements or the notes thereto.
On October 31, 2017, the court granted defendants' motion to dismiss the Consolidated Amended Complaint in the Anderson case discussed in
Note 9
. The court entered judgment dismissing the case on November 30, 2017, and the plaintiffs have a period of 30 days in which to appeal that judgment.