10-Q 1 d409608d10q.htm FORM 10-Q Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

 

    x     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2012

or

 

    ¨     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     .

Commission File Number: 001-32270

 

 

STONEMOR PARTNERS L.P.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   80-0103159

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

311 Veterans Highway, Suite B

Levittown, Pennsylvania

  19056
(Address of principal executive offices)   (Zip Code)

(215) 826-2800

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The number of the registrant’s outstanding common units at November 1, 2012 was 19,538,051.

 

 

 


Table of Contents

Index – Form 10-Q

 

         Page  
Part I   Financial Information   

Item 1.

  Financial Statements (unaudited)      1   

Item 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      30   

Item 3.

  Quantitative and Qualitative Disclosures About Market Risk      51   

Item 4.

  Controls and Procedures      52   
Part II   Other Information   

Item 1.

  Legal Proceedings      53   

Item 1A.

  Risk Factors      53   

Item 2.

  Unregistered Sales of Equity Securities and Use of Proceeds      53   

Item 3.

  Defaults Upon Senior Securities      53   

Item 4.

  Mine Safety Disclosures      53   

Item 5.

  Other Information      53   

Item 6.

  Exhibits      54   
  Signatures      55   


Table of Contents

Part I – Financial Information

 

Item 1. Financial Statements

StoneMor Partners L.P.

Condensed Consolidated Balance Sheet

(in thousands)

(unaudited)

 

     September 30,
2012
     December 31,
2011
 

Assets

     

Current assets:

     

Cash and cash equivalents

   $ 8,128       $ 12,058   

Accounts receivable, net of allowance

     48,109         48,837   

Prepaid expenses

     4,727         4,266   

Other current assets

     15,548         16,670   
  

 

 

    

 

 

 

Total current assets

     76,512         81,831   

Long-term accounts receivable, net of allowance

     69,631         68,419   

Cemetery property

     309,340         298,938   

Property and equipment, net of accumulated depreciation

     79,567         73,777   

Merchandise trusts, restricted, at fair value

     372,775         344,515   

Perpetual care trusts, restricted, at fair value

     282,651         254,679   

Deferred financing costs, net of accumulated amortization

     9,681         8,817   

Deferred selling and obtaining costs

     73,904         68,542   

Deferred tax assets

     605         415   

Goodwill

     40,393         31,907   

Other assets

     14,878         16,918   
  

 

 

    

 

 

 

Total assets

   $ 1,329,937       $ 1,248,758   
  

 

 

    

 

 

 

Liabilities and partners’ capital

     

Current liabilities:

     

Accounts payable and accrued liabilities

   $ 22,914       $ 26,428   

Accrued interest

     5,688         1,632   

Current portion, long-term debt

     1,770         1,487   
  

 

 

    

 

 

 

Total current liabilities

     30,372         29,547   

Other long-term liabilities

     1,884         2,830   

Long-term debt

     236,118         193,835   

Deferred cemetery revenues, net

     484,941         441,678   

Deferred tax liabilities

     15,191         16,968   

Merchandise liability

     128,452         128,942   

Perpetual care trust corpus

     282,651         254,679   
  

 

 

    

 

 

 

Total liabilities

     1,179,609         1,068,479   
  

 

 

    

 

 

 

Commitments and contingencies

     

Partners’ capital

     

General partner

     944         2,192   

Common partners

     149,384         178,087   
  

 

 

    

 

 

 

Total partners’ capital

     150,328         180,279   
  

 

 

    

 

 

 

Total liabilities and partners’ capital

   $ 1,329,937       $ 1,248,758   
  

 

 

    

 

 

 

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

 

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Table of Contents

StoneMor Partners L.P.

Condensed Consolidated Statement of Operations

(in thousands, except unit data)

(unaudited)

 

     Three months ended
September 30,
    Nine months ended
September 30,
 
         2012         2011         2012         2011  

Revenues:

        

Cemetery

        

Merchandise

   $ 29,943      $ 28,738      $ 87,424      $ 81,277   

Services

     11,134        13,295        34,481        35,697   

Investment and other

     12,294        10,793        35,769        30,495   

Funeral home

        

Merchandise

     3,548        3,041        11,135        9,137   

Services

     5,278        4,458        14,483        13,057   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     62,197        60,325        183,292        169,663   
  

 

 

   

 

 

   

 

 

   

 

 

 

Costs and Expenses:

        

Cost of goods sold (exclusive of depreciation shown separately below):

        

Perpetual care

     1,616        1,373        4,398        4,097   

Merchandise

     6,030        5,787        16,904        15,272   

Cemetery expense

     14,252        15,312        41,819        42,860   

Selling expense

     11,290        12,192        36,200        33,923   

General and administrative expense

     7,015        7,111        21,403        20,569   

Corporate overhead (including $216 and $195 in unit-based compensation for the three months ended September 30, 2012 and 2011, and $625 and $576 for the nine months ended September 30, 2012 and 2011, respectively)

     6,546        5,628        20,905        17,572   

Depreciation and amortization

     2,199        1,886        6,759        6,374   

Funeral home expense

        

Merchandise

     1,196        982        3,726        3,197   

Services

     3,739        3,107        10,446        8,456   

Other

     2,161        1,779        6,295        5,222   

Acquisition related costs

     1,085        1,189        2,198        3,147   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost and expenses

     57,129        56,346        171,053        160,689   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit

     5,068        3,979        12,239        8,974   

Expenses related to refinancing

     —          —          —          453   

Gain on termination of operating agreement

     —          —          1,737        —     

Gain on acquisition

     —          —          122        —     

Early extinguishment of debt

     —          —          —          4,010   

Interest expense

     5,273        4,824        15,109        14,266   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss before income taxes

     (205     (845     (1,011     (9,755

Income tax expense (benefit)

        

State

     (18     69        224        (829

Federal

     (1,248     (691     (2,157     (2,304
  

 

 

   

 

 

   

 

 

   

 

 

 

Total income tax expense (benefit)

     (1,266     (622     (1,933     (3,133
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 1,061      $ (223   $ 922      $ (6,622
  

 

 

   

 

 

   

 

 

   

 

 

 

General partner’s interest in net income (loss) for the period

   $ 21      $ (4   $ 18      $ (132

Limited partners’ interest in net income (loss) for the period

   $ 1,040      $ (219   $ 904      $ (6,490

Net income (loss) per limited partner unit (basic and diluted)

   $ .05      $ (.01   $ .05      $ (.35

Weighted average number of limited partners’ units outstanding - basic

     19,491        19,353        19,412        18,807   

Weighted average number of limited partners’ units outstanding - diluted

     19,743        19,353        19,672        18,807   

Distributions declared per unit

   $ .590      $ .585      $ 1.760      $ 1.755   

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

 

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Table of Contents

StoneMor Partners L.P.

Condensed Consolidated Statement of

Partners’ Capital

(in thousands)

(unaudited)

 

     Partners’ Capital  
     Common
Unit Holders
    General
Partner
    Total  

Balance, December 31, 2011

   $ 178,087      $ 2,192      $ 180,279   

Issuance of common units

     4,104        —          4,104   

Compensation related to UARs

     381        —          381   

General partner contribution

     —          89        89   

Net income

     904        18        922   

Cash distribution

     (34,092     (1,355     (35,447
  

 

 

   

 

 

   

 

 

 

Balance, September 30, 2012

   $ 149,384      $ 944      $ 150,328   
  

 

 

   

 

 

   

 

 

 

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

 

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Table of Contents

StoneMor Partners L.P.

Condensed Consolidated Statement of Cash Flows

(in thousands)

(unaudited)

 

     For the nine months ended September 30,  
     2012     2011  

Operating activities:

    

Net income (loss)

   $ 922      $ (6,622

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

    

Cost of lots sold

     6,180        5,004   

Depreciation and amortization

     6,759        6,374   

Unit-based compensation

     625        576   

Accretion of debt discounts

     1,230        950   

Gain on acquisition

     (122     —     

Gain on termination of operating agreement

     (1,737     —     

Write-off of deferred financing fees

     —          453   

Fees paid related to early extinguishment of debt

     —          4,010   

Changes in assets and liabilities that provided (used) cash:

    

Accounts receivable

     (2,333     (5,509

Allowance for doubtful accounts

     3,743        3,597   

Merchandise trust fund

     (8,177     (11,681

Prepaid expenses

     (368     586   

Other current assets

     (344     (6,024

Other assets

     125        244   

Accounts payable and accrued and other liabilities

     2,207        (1,290

Deferred selling and obtaining costs

     (5,363     (6,398

Deferred cemetery revenue

     35,440        31,560   

Deferred taxes (net)

     (2,341     (2,476

Merchandise liability

     (5,649     (2,285
  

 

 

   

 

 

 

Net cash provided by operating activities

     30,797        11,069   
  

 

 

   

 

 

 

Investing activities:

    

Cash paid for cemetery property

     (5,417     (4,258

Purchase of subsidiaries

     (25,676     (10,300

Cash paid for property and equipment

     (3,321     (4,601
  

 

 

   

 

 

 

Net cash used in investing activities

     (34,414     (19,159
  

 

 

   

 

 

 

Financing activities:

    

Cash distribution

     (35,447     (32,827

Additional borrowings on long-term debt

     63,500        27,800   

Repayments of long-term debt

     (26,137     (74,490

Proceeds from public offering

     —          103,207   

Proceeds from general partner contribution

     89        2,246   

Fees paid related to early extinguishment of debt

     —          (4,010

Cost of financing activities

     (2,318     (1,236
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     (313     20,690   
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     (3,930     12,600   

Cash and cash equivalents—Beginning of period

     12,058        7,535   
  

 

 

   

 

 

 

Cash and cash equivalents—End of period

   $ 8,128      $ 20,135   
  

 

 

   

 

 

 

Supplemental disclosure of cash flow information

    

Cash paid during the period for interest

   $ 9,731      $ 9,897   

Cash paid during the period for income taxes

   $ 3,978      $ 2,242   

Non-cash investing and financing activities

    

Acquisition of assets by financing

   $ 199      $ 237   

Issuance of limited partner units for cemetery acquisition

   $ 4,103      $ 264   

Acquisition of asset by assumption of directly related liability

   $ 2,048      $ —     

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

 

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Table of Contents
1. NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

StoneMor Partners L.P. (“StoneMor”, the “Company” or the “Partnership”) is a provider of funeral and cemetery products and services in the death care industry in the United States. Through its subsidiaries, StoneMor offers a complete range of funeral merchandise and services, along with cemetery property, merchandise and services, both at the time of need and on a pre-need basis. As of September 30, 2012, the Partnership operated 276 cemeteries, 258 of which are owned, in 26 states and Puerto Rico and owned and operated 85 funeral homes in 18 states and Puerto Rico.

Basis of Presentation

The unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). All interim financial data is unaudited. However, in the opinion of management, the interim financial data as of September 30, 2012 and for the three and nine months ended September 30, 2012 and 2011 includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim periods. The results of operations for interim periods are not necessarily indicative of the results of operations to be expected for a full year. The December 31, 2011 condensed consolidated balance sheet data was derived from audited financial statements included in the Company’s 2011 Annual Report on Form 10-K (“2011 Form 10-K”) and has been adjusted to include the effects of retrospective adjustments resulting from the Company’s 2011 acquisitions, but does not include all disclosures required by GAAP, which are presented in the Company’s 2011 Form 10-K.

Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of each of the Company’s subsidiaries. These statements also include the accounts of the merchandise and perpetual care trusts in which the Company has a variable interest and is the primary beneficiary. The Company operates 18 cemeteries under long-term operating or management contracts. The operations of 16 of these managed cemeteries have been consolidated in accordance with the provisions of Accounting Standards Codification (ASC) 810.

The Company operates 2 cemeteries under long-term operating agreements that do not qualify as acquisitions for accounting purposes. As a result, the Company did not consolidate all of the existing assets and liabilities related to these cemeteries. The Company has consolidated the existing assets and liabilities of each of these cemeteries’ merchandise and perpetual care trusts as variable interest entities since the Company controls and receives the benefits and absorbs any losses from operating these trusts. Under these long-term operating agreements, which are subject to certain termination provisions, the Company is the exclusive operator of these cemeteries. The Company earns revenues related to sales of merchandise, services, and interment rights and incurs expenses related to such sales and the maintenance and upkeep of these cemeteries. Upon termination of these contracts, the Company will retain all of the benefits and related contractual obligations incurred from sales generated during the contract period. The Company has also recognized the existing merchandise liabilities that it assumed as part of these agreements.

Use of Estimates

Preparation of these unaudited condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the unaudited condensed consolidated financial statements and the reported amounts of revenue and expense during the reporting periods. As a result, actual results could differ from those estimates. The most significant estimates in the unaudited condensed consolidated financial statements are the valuation of assets in the merchandise trust and perpetual care trust, allowance for cancellations, unit-based compensation, merchandise liability, deferred sales revenue, deferred margin, deferred merchandise trust investment earnings, deferred obtaining costs and income taxes. Deferred sales revenue, deferred margin and deferred merchandise trust investment earnings are included in deferred cemetery revenues, net, on the unaudited condensed consolidated balance sheet.

 

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Table of Contents
2. LONG-TERM ACCOUNTS RECEIVABLE, NET OF ALLOWANCE

Long-term accounts receivable, net, consist of the following:

 

     As of  
     September 30,
2012
    December 31,
2011
 
     (in thousands)  

Customer receivables

   $ 156,224      $ 151,517   

Unearned finance income

     (18,017     (16,679

Allowance for contract cancellations

     (20,467     (17,582
  

 

 

   

 

 

 
     117,740        117,256   

Less: current portion, net of allowance

     48,109        48,837   
  

 

 

   

 

 

 

Long-term portion, net of allowance

   $ 69,631      $ 68,419   
  

 

 

   

 

 

 

Activity in the allowance for contract cancellations is as follows:

 

     For the nine months ended September 30,  
     2012     2011  
     (in thousands)  

Balance - Beginning of period

   $ 17,582      $ 15,832   

Provision for cancellations

     14,858        13,799   

Charge-offs - net

     (11,973     (10,315
  

 

 

   

 

 

 

Balance - End of period

   $ 20,467      $ 19,316   
  

 

 

   

 

 

 

 

3. CEMETERY PROPERTY

Cemetery property consists of the following:

 

     As of  
     September 30,
2012
     December 31,
2011
 
     (in thousands)  

Developed land

   $ 71,128       $ 64,266   

Undeveloped land

     168,724         164,723   

Mausoleum crypts and lawn crypts

     69,488         69,949   
  

 

 

    

 

 

 

Total

   $ 309,340       $ 298,938   
  

 

 

    

 

 

 

 

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Table of Contents
4. PROPERTY AND EQUIPMENT

Major classes of property and equipment follow:

 

     As of  
     September 30,
2012
    December 31,
2011
 
     (in thousands)  

Building and improvements

   $ 82,565      $ 75,076   

Furniture and equipment

     40,180        36,863   
  

 

 

   

 

 

 
     122,745        111,939   

Less: accumulated depreciation

     (43,178     (38,162
  

 

 

   

 

 

 

Property and equipment - net

   $ 79,567      $ 73,777   
  

 

 

   

 

 

 

Depreciation expense was $1.7 million and $5.2 million for the three and nine months ended September 30, 2012, respectively, as compared to $1.4 million and $4.3 million during the same periods last year.

 

5. MERCHANDISE TRUSTS

At September 30, 2012, the Company’s merchandise trusts consisted of the following types of assets:

 

   

Money Market Funds that invest in low risk short term securities;

 

   

Publicly traded mutual funds that invest in underlying debt securities;

 

   

Publicly traded mutual funds that invest in underlying equity securities;

 

   

Equity investments that are currently paying dividends or distributions. These investments include Real Estate Investment Trusts (“REIT’s”), Master Limited Partnerships and global equity securities;

 

   

Fixed maturity debt securities issued by various corporate entities;

 

   

Fixed maturity debt securities issued by the U.S. Government and U.S. Government agencies; and

 

   

Fixed maturity debt securities issued by U.S. states and local government agencies.

All of these investments are classified as Available for Sale as defined by the Investments in Debt and Equity topic of the ASC. Accordingly, all of the assets are carried at fair value. All of these investments are considered to be either Level 1 or Level 2 assets as defined by the Fair Value Measurements and Disclosures topic of the ASC. See Note 15 for further details. There were no Level 3 assets.

The merchandise trusts are variable interest entities (VIE) for which the Company is the primary beneficiary. The assets held in the merchandise trusts are required to be used to purchase the merchandise to which they relate. If the value of these assets falls below the cost of purchasing such merchandise, the Company may be required to fund this shortfall.

The Company has included $7.4 million and $6.9 million of investments held in trust by the West Virginia Funeral Directors Association at September 30, 2012 and December 31, 2011, respectively, in its merchandise trust assets. As required by law, the Company deposits a portion of certain funeral merchandise sales in West Virginia into a trust that is held by the West Virginia Funeral Directors Association. These trusts are recorded at their account value, which approximates fair value.

 

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Table of Contents

The cost and market value associated with the assets held in merchandise trusts at September 30, 2012 and December 31, 2011 were as follows:

 

As of September 30, 2012

   Cost      Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Fair
Value
 
     (in thousands)  

Short-term investments

   $ 48,722       $ —         $ —        $ 48,722   

Fixed maturities:

          

U.S. Government and federal agency

     —           —           —          —     

U.S. State and local government agency

     23         —           —          23   

Corporate debt securities

     8,673         195         (127     8,741   

Other debt securities

     4,320         —           (7     4,313   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total fixed maturities

     13,016         195         (134     13,077   
  

 

 

    

 

 

    

 

 

   

 

 

 

Mutual funds - debt securities

     97,886         2,699         (500     100,085   

Mutual funds - equity securities

     128,537         6,099         (3,264     131,372   

Equity securities

     65,897         3,100         (3,498     65,499   

Other invested assets

     6,569         18         —          6,587   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total managed investments

   $ 360,627       $ 12,111       $ (7,396   $ 365,342   
  

 

 

    

 

 

    

 

 

   

 

 

 

West Virginia Trust Receivable

     7,433         —           —          7,433   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 368,060       $ 12,111       $ (7,396   $ 372,775   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

As of December 31, 2011

   Cost      Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Fair
Value
 
     (in thousands)  

Short-term investments

   $ 38,312       $ —         $ —        $ 38,312   

Fixed maturities:

          

U.S. Government and federal agency

     —           —           —          —     

U.S. State and local government agency

     23         —           —          23   

Corporate debt securities

     10,537         19         (791     9,765   

Other debt securities

     1,100         —           —          1,100   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total fixed maturities

     11,660         19         (791     10,888   
  

 

 

    

 

 

    

 

 

   

 

 

 

Mutual funds - debt securities

     68,291         1,711         (2,581     67,421   

Mutual funds - equity securities

     148,209         1,939         (8,860     141,288   

Equity securities

     71,760         3,723         (3,131     72,352   

Other invested assets

     7,326         34         —          7,360   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total managed investments

   $ 345,558       $ 7,426       $ (15,363   $ 337,621   
  

 

 

    

 

 

    

 

 

   

 

 

 

West Virginia Trust Receivable

     6,894         —           —          6,894   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 352,452       $ 7,426       $ (15,363   $ 344,515   
  

 

 

    

 

 

    

 

 

   

 

 

 

The contractual maturities of debt securities as of September 30, 2012 are as follows:

 

As of September 30, 2012

   Less than
1 year
     1 year through
5 years
     6 years through
10 years
     More than
10 years
 
     (in thousands)  

U.S. Government and federal agency

   $ —         $ —         $ —         $ —     

U.S. State and local government agency

     23         —           —           —     

Corporate debt securities

     —           5,866         2,742         133   

Other debt securities

     4,313         —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total fixed maturities

   $ 4,336       $ 5,866       $ 2,742       $ 133   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

An aging of unrealized losses on the Company’s investments in fixed maturities and equity securities at September 30, 2012 and December 31, 2011 is presented below:

 

     Less than 12 months      12 Months or more      Total  

As of September 30, 2012

   Fair
Value
     Unrealized
Losses
     Fair
Value
     Unrealized
Losses
     Fair
Value
     Unrealized
Losses
 
     (in thousands)  

Fixed maturities:

                 

U.S. Government and federal agency

   $ —         $ —         $ —         $ —         $ —         $ —     

U.S. State and local government agency

     —           —           —           —           —           —     

Corporate debt securities

     1,065         29         1,716         98         2,781         127   

Other debt securities

     4,313         7         —           —           4,313         7   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total fixed maturities

     5,378         36         1,716         98         7,094         134   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Mutual funds - debt securities

     13,885         128         4,255         372         18,140         500   

Mutual funds - equity securities

     23,238         2,304         25,658         960         48,896         3,264   

Equity securities

     20,562         1,205         9,330         2,293         29,892         3,498   

Other invested assets

     —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 63,063       $ 3,673       $ 40,959       $ 3,723       $ 104,022       $ 7,396   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     Less than 12 months      12 Months or more      Total  

As of December 31, 2011

   Fair
Value
     Unrealized
Losses
     Fair
Value
     Unrealized
Losses
     Fair
Value
     Unrealized
Losses
 
     (in thousands)  

Fixed maturities:

                 

U.S. Government and federal agency

   $ —         $ —         $ —         $ —         $ —         $ —     

U.S. State and local government agency

     —           —           —           —           —           —     

Corporate debt securities

     4,007         351         4,459         440         8,466         791   

Other debt securities

     —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total fixed maturities

     4,007         351         4,459         440         8,466         791   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Mutual funds - debt securities

     19,691         1,109         31,916         1,472         51,607         2,581   

Mutual funds - equity securities

     32,631         970         59,010         7,890         91,641         8,860   

Equity securities

     20,349         1,941         5,775         1,190         26,124         3,131   

Other invested assets

     —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 76,678       $ 4,371       $ 101,160       $ 10,992       $ 177,838       $ 15,363   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

A reconciliation of the Company’s merchandise trust activities for the nine months ended September 30, 2012 is presented below:

 

Fair

Value @

12/31/2011

  

Contributions

  

Distributions

  

Interest/
Dividends

  

Capital

Gain
Distributions

  

Realized
Gain/ Loss

  

Taxes

  

Fees

  

Unrealized
Change in
Fair Value

  

Fair

Value @
9/30/2012

     (in thousands)

$ 344,515

  

46,695

   (46,816)    12,240    110    8,750    (3,511)    (1,860)    12,652    $372,775

The Company made net withdrawals from the trusts of approximately $0.1 million during the nine months ended September 30, 2012. During the nine months ended September 30, 2012, purchases and sales of securities available for sale included in trust investments were approximately $404.7 million and $403.5 million, respectively. Contributions include $12.0 million of assets that were acquired through acquisitions during the nine months ended September 30, 2012. Distributions include $5.8 million of assets that were divested as a result of the termination of an operating agreement during the nine months ended September 30, 2012.

Other-than-temporary Impairments of Trust Assets

During the nine months ended September 30, 2012, the Company determined that there were six securities with an aggregate cost basis of approximately $1.6 million and an aggregate fair value of approximately $0.8 million, resulting in an impairment of $0.8 million, wherein such impairment was considered to be other-than-temporary. During the three months

 

9


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ended September 30, 2012, the Company determined that there were no other than temporary impairments to the investment portfolio for merchandise trusts. During the nine months ended September 30, 2011, the Company determined that there was a single security with an aggregate cost basis of approximately $0.2 million and an aggregate fair value of approximately $0.1 million, resulting in an impairment of $0.1 million, wherein such impairment was considered to be other-than-temporary. During the three months ended September 30, 2011, the Company determined that there were no other than temporary impairments to the investment portfolio for merchandise trusts. Accordingly, the Company adjusted the cost basis of these assets to their current value and offset this change against deferred revenue. This reduction in deferred revenue will be reflected in earnings in future periods as the underlying merchandise is delivered or the underlying service is performed.

 

6. PERPETUAL CARE TRUSTS

At September 30, 2012, the Company’s perpetual care trusts consisted of the following types of assets:

 

   

Money Market Funds that invest in low risk short term securities;

 

   

Publicly traded mutual funds that invest in underlying debt securities;

 

   

Publicly traded mutual funds that invest in underlying equity securities;

 

   

Equity investments that are currently paying dividends or distributions. These investments include REIT’s, Master Limited Partnerships and global equity securities;

 

   

Fixed maturity debt securities issued by various corporate entities;

 

   

Fixed maturity debt securities issued by the U.S. Government and U.S. Government agencies; and

 

   

Fixed maturity debt securities issued by U.S. states and local agencies.

All of these investments are classified as Available for Sale as defined by the Investments in Debt and Equity topic of the ASC. Accordingly, all of the assets are carried at fair value. All of these investments are considered to be either Level 1 or Level 2 assets as defined by the Fair Value Measurements and Disclosures topic of the ASC. See Note 15 for further details. There were no Level 3 assets.

 

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Table of Contents

The cost and market value associated with the assets held in perpetual care trusts at September 30, 2012 and December 31, 2011 were as follows:

 

As of September 30, 2012

   Cost      Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Fair
Value
 
     (in thousands)  

Short-term investments

   $ 20,912       $ —         $ —        $ 20,912   

Fixed maturities:

          

U.S. Government and federal agency

     408         105         —          513   

U.S. State and local government agency

     66         81         —          147   

Corporate debt securities

     23,441         784         (327     23,898   

Other debt securities

     371         —           —          371   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total fixed maturities

     24,286         970         (327     24,929   
  

 

 

    

 

 

    

 

 

   

 

 

 

Mutual funds - debt securities

     104,648         3,822         (537     107,933   

Mutual funds - equity securities

     93,917         6,138         (2,329     97,726   

Equity Securities

     23,346         8,201         (396     31,151   

Other invested assets

     —           —           —          —     
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 267,109       $ 19,131       $ (3,589   $ 282,651   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

As of December 31, 2011

   Cost      Gross
Unrealized
Gains
     Gross
Unrealized
Losses
    Fair
Value
 
     (in thousands)  

Short-term investments

   $ 22,607       $ —         $ —        $ 22,607   

Fixed maturities:

          

U.S. Government and federal agency

     408         105         —          513   

U.S. State and local government agency

     66         81         —          147   

Corporate debt securities

     23,359         229         (1,434     22,154   

Other debt securities

     371         —           —          371   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total fixed maturities

     24,204         415         (1,434     23,185   
  

 

 

    

 

 

    

 

 

   

 

 

 

Mutual funds - debt securities

     61,700         185         (1,079     60,806   

Mutual funds - equity securities

     104,824         4,295         (9,621     99,498   

Equity Securities

     39,199         9,326         (112     48,413   

Other invested assets

     327         156         (313     170   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 252,861       $ 14,377       $ (12,559   $ 254,679   
  

 

 

    

 

 

    

 

 

   

 

 

 

The contractual maturities of debt securities as of September 30, 2012 are as follows:

 

As of September 30, 2012

   Less than
1 year
     1 year through
5 years
     6 years through
10 years
     More than
10 years
 
     (in thousands)  

U.S. Government and federal agency

   $ 129       $ 384       $ —         $ —     

U.S. State and local government agency

     147         —           —           —     

Corporate debt securities

     50         16,127         7,295         426   

Other debt securities

     371         —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total fixed maturities

   $ 697       $ 16,511       $ 7,295       $ 426   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

An aging of unrealized losses on the Company’s investments in fixed maturities and equity securities at September 30, 2012 and December 31, 2011 held in perpetual care trusts is presented below:

 

     Less than 12 months      12 Months or more      Total  

As of September 30, 2012

   Fair
Value
     Unrealized
Losses
     Fair
Value
     Unrealized
Losses
     Fair
Value
     Unrealized
Losses
 
     (in thousands)  

Fixed maturities:

                 

U.S. Government and federal agency

   $ —         $ —         $ —         $ —         $ —         $ —     

U.S. State and local government agency

     —           —           —           —           —           —     

Corporate debt securities

     3,074         82         4,397         245         7,471         327   

Other debt securities

     —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total fixed maturities

     3,074         82         4,397         245         7,471         327   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Mutual funds - debt securities

     5,229         228         1,033         309         6,262         537   

Mutual funds - equity securities

     —           —           7,904         2,329         7,904         2,329   

Equity securities

     3,135         396         —           —           3,135         396   

Other invested assets

     —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 11,438       $ 706       $ 13,334       $ 2,883       $ 24,772       $ 3,589   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     Less than 12 months      12 Months or more      Total  

As of December 31, 2011

   Fair
Value
     Unrealized
Losses
     Fair
Value
     Unrealized
Losses
     Fair Value      Unrealized
Losses
 
     (in thousands)  

Fixed maturities:

                 

U.S. Government and federal agency

   $ —         $ —         $ —         $ —         $ —         $ —     

U.S. State and local government agency

     —           —           —           —           —           —     

Corporate debt securities

     7,967         727         8,471         707         16,438         1,434   

Other debt securities

     —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total fixed maturities

     7,967         727         8,471         707         16,438         1,434   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Mutual funds - debt securities

     37,956         772         1,675         307         39,631         1,079   

Mutual funds - equity securities

     21,483         3,023         44,416         6,598         65,899         9,621   

Equity securities

     2,978         106         351         6         3,329         112   

Other invested assets

     170         313         —           —           170         313   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 70,554       $ 4,941       $ 54,913       $ 7,618       $ 125,467       $ 12,559   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

A reconciliation of the Company’s perpetual care trust activities for the nine months ended September 30, 2012 is presented below:

 

Fair

Value @

12/31/2011

  

Contributions

  

Distributions

  

Interest/
Dividends

  

Capital

Gain
Distributions

  

Realized
Gain/ Loss

  

Taxes

  

Fees

  

Unrealized
Change in
Fair Value

  

Fair

Value @
9/30/2012

     (in thousands)

$ 254,679

   13,715    (10,954)    12,310    13    1,213    (681)    (1,368)    13,724    $282,651

The Company made net contributions to the trusts of approximately $2.8 million during the nine months ended September 30, 2012. During the nine months ended September 30, 2012, purchases and sales of securities available for sale included in trust investments were approximately $250.6 million and $247.3 million, respectively. Contributions include $5.0 million of assets that were acquired through acquisitions during the nine months ended September 30, 2012.

Other-than-temporary Impairments of Trust Assets

During the three and nine months ended September 30, 2012, the Company determined that there were no other than temporary impairments to the investment portfolio in the perpetual care trusts.

 

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Table of Contents

During the nine months ended September 30, 2011, the Company determined that there was a single security with an aggregate cost basis of less than $0.1 million which was substantially impaired, and such impairment was considered to be other-than-temporary. Accordingly, the Company adjusted the cost basis of this asset to its current value and offset this change against the liability for perpetual care trust corpus. During the three months ended September 30, 2011, the Company determined that there were no other than temporary impairments to the investment portfolio for perpetual care trusts.

 

7. GOODWILL AND INTANGIBLE ASSETS

Goodwill

Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in acquisitions.

A rollforward of goodwill by reportable segment is as follows:

 

     Cemeteries      Funeral
Homes
     Total  
     Southeast      Northeast      West        
     (in thousands)  

Balance as of December 31, 2011

   $ 5,662       $ —         $ 11,948       $ 14,297       $ 31,907   

Goodwill resulting from acquisitions during the nine months ended September 30, 2012

     532         —           —           7,954         8,486   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Balance as of September 30, 2012

   $ 6,194       $ —         $ 11,948       $ 22,251       $ 40,393   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

During the second quarter of 2012, the Company became aware that it will receive a payment of $3.8 million in a legal settlement related to its fourth quarter 2011 acquisition of cemeteries and funeral homes in Tennessee. In addition, there were other adjustments of $0.3 million related to an increase in merchandise trust assets and a small increase in accounts receivable. These amounts have been recorded retrospectively as a purchase price adjustment for this acquisition resulting in a decrease to goodwill of $4.1 million. Also, during the third quarter of 2012, the Company obtained additional information about its third quarter 2011 acquisition in Puerto Rico which resulted in a reduction of goodwill of $0.4 million. See Note 13 for further details. These adjustments have been reflected in the balance as of December 31, 2011 in the table above.

Other Acquired Intangible Assets

The Company has other acquired intangible assets, most of which have been recognized as a result of acquisitions and long-term operating agreements. These amounts are included within other assets on the condensed consolidated balance sheet. All of the intangible assets are subject to amortization. The major classes of intangible assets are as follows:

 

    

As of

September 30, 2012

    Net     

As of

December 31, 2011

    Net  
     Gross Carrying
Amount
     Accumulated
Amortization
    Intangible
Asset
     Gross Carrying
Amount
     Accumulated
Amortization
    Intangible
Asset
 
     (in thousands)  

Amortized Intangible Assets:

               

Underlying contract value

   $ 6,239       $ (503   $ 5,736       $ 8,484       $ (546   $ 7,938   

Non-compete agreements

     5,415         (2,136     3,279         3,820         (1,413     2,407   

Other intangible assets

     269         (77     192         205         (67     138   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total Intangible Assets

   $ 11,923       $ (2,716   $ 9,207       $ 12,509       $ (2,026   $ 10,483   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

The decrease in the underlying contract value is mostly the result of the Company entering into an amended operating agreement with Kingwood Memorial Park Association in January of 2012. See Note 13 for further details.

The increase in non-compete agreements was the result of acquisitions consummated in the second and third quarters of 2012. See Note 13 for further details.

 

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Table of Contents
8. LONG-TERM DEBT

The Company had the following outstanding debt:

 

     As of  
     September 30,
2012
     December 31,
2011
 
     (in thousands)  

Insurance premium financing

   $ 504       $ 211   

Vehicle financing

     953         1,147   

Acquisition Credit Facility, due January 2017

     —           10,750   

Revolving Credit Facility, due January 2017

     84,700         33,000   

Note Payable - Greenlawn acquisition

     1,214         1,321   

Note Payable - Nelms acquisition (net of discount)

     363         623   

Notes Payable - acquisition non-competes (net of discounts)

     3,062         1,490   

10.25% senior notes, due 2017

     150,000         150,000   
  

 

 

    

 

 

 

Total

     240,796         198,542   

Less current portion

     1,770         1,487   

Less unamortized bond discount

     2,908         3,220   
  

 

 

    

 

 

 

Long-term portion

   $ 236,118       $ 193,835   
  

 

 

    

 

 

 

This note includes a summary of material terms of the Company’s senior notes, senior secured notes, credit facilities and other debt obligations. For a more detailed description of the Company’s long-term debt agreements, see the Company’s 2011 Form 10-K.

10.25% Senior Notes due 2017

The Company has outstanding a $150.0 million aggregate principal amount of 10.25% Senior Notes due 2017 (the “Senior Notes”), with an original issue discount of approximately $4.0 million. The Company pays 10.25% 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 Senior Notes mature on December 1, 2017. The Company’s Senior Notes are considered to be a Level 2 liability as defined by the Fair Value Measurements and Disclosures topic of the ASC. Based on trades made at the end of the quarter, the Company has estimated the fair value of its Senior Notes to be in excess of par and trading at a premium of 1.54%.

Credit Facility

On January 19, 2012, the Company entered into the Third Amended and Restated Credit Agreement (the “Credit Agreement”). The terms of the Credit Agreement are substantially the same as the terms of the prior agreement. Capitalized terms which are not defined in the following description shall have the meaning assigned to such terms in the Credit Agreement.

The Credit Agreement provides for a total Revolving Credit Facility of $130.0 million (the “Credit Facility”). Previously, the agreement had an Acquisition Credit Facility and a Revolving Credit Facility with different borrowing limits. The proceeds of the Credit Facility may be used to finance working capital requirements, Permitted Acquisitions and the purchase and construction of mausoleums. The maturity date of the Credit Facility is January 19, 2017.

At September 30, 2012, amounts outstanding under the Credit Facility bear interest at rates between 3.7% and 4.2%. Amounts borrowed may be either Base Rate Loans or Eurodollar Rate Loans and amounts repaid or prepaid during the term may be reborrowed. Depending on the type of loan, borrowings bear interest at the Base Rate or Eurodollar Rate, plus applicable margins ranging from 1.25% to 2.75% and 2.25% to 3.75%, respectively, depending on the Company’s Consolidated Leverage Ratio. The Base Rate is the highest of the Prime Rate, the Federal Funds Rate plus 0.50%, or the Eurodollar Rate plus 1.0%. The Eurodollar rate is the British Bankers Association LIBOR Rate. Amounts outstanding under the Revolving Credit Facility approximate their fair value.

 

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Table of Contents

The Credit Agreement requires the Company to pay an unused Commitment Fee, which is calculated based on the amount by which the commitments under the Credit Agreement exceed outstanding amounts under the Credit Facility. The Commitment Fee Rate under the Credit Agreement ranges from 0.375% to 0.75% depending on the Company’s Consolidated Leverage Ratio.

The Credit Agreement contains restrictive covenants that, among other things, prohibit distributions upon defined events of default, restrict investments and sales of assets and require the Company to maintain certain financial covenants, including specified financial ratios. A material decrease in revenues could cause the Company to breach certain of its financial covenants. Any such breach could allow the Lenders to accelerate the Company’s debt which would have a material adverse effect on the Company’s business, financial condition or results of operations. The Company’s covenants include a Consolidated Leverage Ratio and a Consolidated Debt Service Coverage Ratio. As of September 30, 2012, the Company was in compliance with all applicable financial covenants.

 

9. INCOME TAXES

As of September 30, 2012, the Company’s taxable corporate subsidiaries had federal net operating loss carryforwards of approximately $152.8 million, which will begin to expire in 2019 and $184.1 million in state net operating losses, a portion of which expires annually.

The Partnership is not a taxable entity for federal and state income tax purposes; rather, the Partnership’s tax attributes (except those of its corporate subsidiaries) are to be included in the individual tax returns of its partners. Neither the Partnership’s financial reporting income, nor the cash distributions to unit-holders, can be used as a substitute for the detailed tax calculations that the Partnership must perform annually for its partners. Net income from the Partnership is not treated as “passive income” for federal income tax purposes. As a result, partners subject to the passive activity loss rules are not permitted to offset income from the Partnership with passive losses from other sources.

The Partnership’s corporate subsidiaries account for their income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carryforwards.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

The provision for income taxes for the three and nine months ended September 30, 2012 and 2011 is based upon the estimated annual effective tax rates expected to be applicable to the Company for 2012 and 2011, respectively. The Company’s effective tax rate differs from its statutory tax rate primarily because the Company’s legal entity structure includes different tax filing entities, including a significant number of partnerships that are not subject to paying tax.

The Company is not currently under examination by any federal or state jurisdictions. The federal statute of limitations and certain state statutes of limitations are open from 2008 forward. Management believes that the accrual for tax liabilities is adequate for all open years. This assessment relies on estimates and assumptions and may involve a series of complex judgments about future events. On the basis of present information, it is the opinion of the Company’s management that there are no pending assessments that will result in a material effect on the Company’s consolidated financial statements over the next twelve months.

 

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10. DEFERRED CEMETERY REVENUES, NET

At September 30, 2012 and December 31, 2011, deferred cemetery revenues, net, consisted of the following:

 

     As of  
     September 30,
2012
    December 31,
2011
 
     (in thousands)  

Deferred cemetery revenue

   $ 333,439      $ 306,488   

Deferred merchandise trust revenue

     59,597        50,419   

Deferred merchandise trust unrealized gains (losses)

     4,715        (7,937

Deferred pre-acquisition margin

     133,141        135,043   

Deferred cost of goods sold

     (45,951     (42,335
  

 

 

   

 

 

 

Deferred cemetery revenues, net

   $ 484,941      $ 441,678   
  

 

 

   

 

 

 

Deferred selling and obtaining costs

   $ 73,904      $ 68,542   

Deferred selling and obtaining costs are carried as an asset on the unaudited condensed consolidated balance sheet in accordance with the Financial Services – Insurance topic of the ASC.

 

11. COMMITMENTS AND CONTINGENCIES

Legal

The Company is party to legal proceedings in the ordinary course of its business but does not expect the outcome of any proceedings, individually or in the aggregate, to have a material effect on the Company’s financial position, results of operations or liquidity.

Leases

At September 30, 2012, the Company was committed to operating lease payments for premises, automobiles and office equipment under various operating leases with initial terms ranging from one to ten years and options to renew at varying terms. Expenses under operating leases were $0.6 million and $1.9 million for the three and nine months ended September 30, 2012, respectively, and $0.6 million and $1.7 million for the three and nine months ended September 30 2011, respectively.

At September 30, 2012, operating leases will result in future payments in the following approximate amounts:

 

     (in thousands)  

2013

   $ 2,074   

2014

     1,363   

2015

     869   

2016

     801   

2017

     754   

Thereafter

     1,892   
  

 

 

 

Total

   $ 7,753   
  

 

 

 

 

12. PARTNERS’ CAPITAL

Unit-Based Compensation

The Company has issued to certain key employees and management unit-based compensation in the form of unit appreciation rights and phantom partnership units.

 

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Compensation expense recognized related to unit appreciation rights and restricted phantom unit awards for the three and nine months ended September 30, 2012 and 2011 are summarized in the table below:

 

     Three months ended
September 30,
     Nine months ended
September 30,
 
     2012      2011      2012      2011  
     (in thousands)      (in thousands)  

Unit appreciation rights

   $ 133       $ 119       $ 381       $ 358   

Restricted phantom units

     83         76         244         218   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total unit-based compensation expense

   $ 216       $ 195       $ 625       $ 576   
  

 

 

    

 

 

    

 

 

    

 

 

 

As of September 30, 2012, there was approximately $0.8 million in non-vested unit appreciation rights outstanding. These unit appreciation rights will be expensed through the first quarter of 2014.

Other Unit Issuances

On June 6, 2012 and July 31, 2012, the Company issued 13,720 units and 128,299 units, respectively, in connection with separate acquisitions. See Note 13. On June 21, 2012 and 2011, the Company issued 9,853 units in connection with an acquisition consummated in the second quarter of 2010.

 

13. ACQUISITIONS

First Quarter 2012 Acquisition

In second quarter of 2009, the Company entered into a long-term operating agreement (the “Operating Agreement”) with Kingwood Memorial Park Association (“Kingwood”) wherein the Company became the exclusive operator of the cemetery. At that time, the Operating Agreement did not qualify as an acquisition for accounting purposes. However, the existing merchandise and perpetual care trusts were consolidated as variable interest entities. In addition, merchandise and other liabilities assumed by the Company were also recorded as of the initial contract date. The consideration paid for this transaction, including cash and an assumed liability, exceeded the net assets recorded as of the initial contract date and an intangible asset was recorded for this amount.

In January of 2012, the Company entered into an amended and restated operating agreement (the “Amended Operating Agreement”), that supersedes the Operating Agreement. The Amended Operating Agreement has a term of 40 years and the Company remains the exclusive operator of the cemetery. As consideration for entering into the Amended Operating Agreement, the Company paid $1.7 million in cash and was relieved of a note payable to Kingwood. In addition, the prior trustees of Kingwood have resigned in favor of new trustees appointed by the Company. As a result of the changes in the Amended Operating Agreement, for accounting purposes, the Company has gained control of Kingwood, and acquisition accounting is now applicable.

 

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The table below reflects the Company’s preliminary assessment of the fair value of net assets acquired, the elimination of debt and other assets and the purchase price, which results in the recognition of goodwill recorded in the Company’s Cemetery Operations – Southeast segment. These amounts may be retrospectively adjusted as additional information is received.

 

     Preliminary
Assessment
 
     (in thousands)  

Net Assets Acquired:

  

Accounts receivable

   $ 66   

Cemetery property

     3,001   

Property and equipment

     102   
  

 

 

 

Total net assets acquired

     3,169   
  

 

 

 

Assets and Liabilities divested:

  

Note payable to Kingwood

     519   

Intangible asset representing underlying contract value

     (2,236
  

 

 

 

Fair value of net assets acquired and divested

     1,452   
  

 

 

 

Consideration paid

     1,652   
  

 

 

 

Goodwill from purchase

   $ 200   
  

 

 

 

Second Quarter 2012 Acquisitions

On April 10, 2012, certain subsidiaries of the Company (collectively the “Buyer”) entered into a Stock Purchase Agreement with several individuals (collectively the “Seller”) to purchase all of the stock of Bronswood Cemetery, Inc., an Illinois Corporation. Through the purchase, the Buyer acquired one cemetery in Illinois, including certain related assets, and assumed certain related liabilities. In consideration for the net assets acquired, the Buyer paid the Seller $0.9 million in cash.

The table below reflects the Company’s preliminary assessment of the fair value of net assets acquired, the purchase price and the gain on bargain purchase. These amounts may be retrospectively adjusted as additional information is received.

 

     Preliminary
Assessment
 
     (in thousands)  

Assets:

  

Accounts receivable

   $ 72   

Cemetery property

     842   

Property and equipment

     518   

Perpetual care trusts, restricted, at fair value

     2,780   

Non-compete agreements

     12   
  

 

 

 

Total assets

     4,224   
  

 

 

 

Liabilities:

  

Perpetual care trust corpus

     2,780   

Other liabilities

     24   

Deferred tax liability

     374   
  

 

 

 

Total liabilities

     3,178   
  

 

 

 

Fair value of net assets acquired

     1,046   
  

 

 

 

Consideration paid

     924   
  

 

 

 

Gain on bargain purchase

   $ 122   
  

 

 

 

In addition, on June 6, 2012, certain subsidiaries of the Company (collectively the “Buyer”) entered into a Purchase Agreement with several individuals and Lodi Funeral Home, Inc. (collectively the “Seller”) to purchase certain assets and assume certain liabilities of Lodi Funeral Home, Inc., a California corporation and all of the stock of Lodi All Faiths Cremation, a California corporation. Through the purchase, the Buyer acquired two funeral homes in California including certain related assets, and assumed certain related liabilities. As part of the agreement, the building and underlying real estate

 

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of Lodi Funeral Home, Inc. is being leased from the Seller. The lease agreement is a ten year agreement that contains one five year renewal term at the Buyer’s election. In addition, at the end of the original lease or renewal term, the Buyer can elect to purchase the property for fair value less 10% of any rental amounts previously paid under the lease agreement. The Buyer also has a right of first refusal related to any potential sale of the property occurring during the lease term.

In consideration for the net assets acquired, the Buyer paid the Seller $0.85 million in cash and issued 13,720 units, which equates to $0.35 million worth of units. The Buyer will also pay an aggregate amount of $0.6 million in equal quarterly installments commencing on January 2, 2013 in exchange for non-compete agreements with the Seller.

The table below reflects the Company’s preliminary assessment of the fair value of net assets acquired. The resulting goodwill is recorded in the Company’s Funeral Homes operating segment. These amounts may be retrospectively adjusted as additional information is received.

 

     Preliminary
Assessment
 
     (in thousands)  

Assets:

  

Property and equipment

   $ 48   

Merchandise trusts, restricted, at fair value

     105   

Underlying lease value

     64   

Non-compete agreements

     40   
  

 

 

 

Total assets

     257   
  

 

 

 

Liabilities:

  

Merchandise liabilities

     105   
  

 

 

 

Total liabilities

     105   
  

 

 

 

Fair value of net assets acquired

     152   
  

 

 

 

Consideration paid - cash

     850   

Consideration paid - units

     350   

Fair value of debt assumed for non-compete agreements

     544   
  

 

 

 

Total consideration paid

     1,744   
  

 

 

 

Goodwill from purchase

   $ 1,592   
  

 

 

 

Third Quarter 2012 Acquisitions

On July 2, 2012, certain subsidiaries of the Company (collectively the “Buyer) entered into an Asset Purchase and Sale Agreement (the “Farnstrom Agreement”) with Farnstrom Mortuary, LLC and Farnstrom Properties, LLC, both Oregon limited liability companies, Farnstrom Family, Inc. and Care Cremation Society, Inc., both Oregon corporations and two individuals (collectively the “Seller”). Pursuant to the Agreement, the Buyer acquired five funeral homes in Oregon, including certain related assets, and assumed certain related liabilities. In consideration for the net assets acquired, the Buyer paid the Seller $2.3 million in cash. The Buyer will also pay an aggregate amount of $0.3 million in equal quarterly installments commencing on July 2, 2012 in exchange for non-compete agreements with the Seller.

 

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The table below reflects the Company’s preliminary assessment of the fair value of net assets acquired. The resulting goodwill is recorded in the Company’s Funeral Homes operating segment. These amounts may be retrospectively adjusted as additional information is received.

 

     Preliminary
Assessment
 
     (in thousands)  

Assets:

  

Property and equipment

   $ 1,296   

Non-compete agreements

     170   
  

 

 

 

Total assets

     1,466   
  

 

 

 

Total liabilities

     —     
  

 

 

 

Fair value of net assets acquired

     1,466   
  

 

 

 

Consideration paid - cash

     2,300   

Fair value of debt assumed for non-compete agreements

     274   
  

 

 

 

Total consideration paid

     2,574   
  

 

 

 

Goodwill from purchase

   $ 1,108   
  

 

 

 

In addition, on July 31, 2012, certain subsidiaries of the Company (collectively the “Buyer”) entered into an Asset Purchase and Sale Agreement (the “Lohman Agreement”) with Certain Florida corporations, limited liability companies and four individuals (collectively the “Seller”). Pursuant to the Agreement, the Buyer acquired nine funeral homes and four cemeteries in Florida, including certain related assets, and assumed certain related liabilities.

In consideration for the net assets acquired, the Buyer paid the Seller $20.0 million in cash and issued 128,299 units, which equates to $3.5 million worth of units. The Buyer will also pay an aggregate amount of $1.5 million in five equal annual installments commencing on August 1, 2013 in exchange for a consulting and non-compete agreement with the Seller.

 

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The table below reflects the Company’s preliminary assessment of the fair value of net assets acquired. The resulting goodwill is recorded in both the Company’s Cemetery Operations – Southeast segment and Funeral Homes operating segment. These amounts may be retrospectively adjusted as additional information is received.

 

     Preliminary
Assessment
 
     (in thousands)  

Assets:

  

Accounts receivable

   $ 1,005   

Cemetery property

     6,100   

Property and equipment

     5,864   

Merchandise trusts, restricted , at fair value

     11,884   

Perpetual care trusts, restricted, at fair value

     2,232   

Other assets

     122   

Non-compete agreements

     1,373   
  

 

 

 

Total assets

     28,580   
  

 

 

 

Liabilities:

  

Deferred margin

     3,746   

Merchandise liabilities

     3,458   

Perpetual care trust corpus

     2,232   
  

 

 

 

Total liabilities

     9,436   
  

 

 

 

Fair value of net assets acquired

     19,144   
  

 

 

 

Consideration paid - cash

     20,000   

Consideration paid - units

     3,500   

Fair value of debt assumed for non-compete agreements

     1,230   
  

 

 

 

Total consideration paid

     24,730   
  

 

 

 

Goodwill from purchase

   $ 5,586   
  

 

 

 

First, Second and Third Quarter 2011 Acquisitions

On January 5, 2011, the Operating Company, StoneMor North Carolina LLC, a North Carolina limited liability company and StoneMor North Carolina Subsidiary LLC, a North Carolina limited liability company, each a wholly-owned subsidiary of the Company (collectively the “Buyer”), entered into an Asset Purchase and Sale Agreement (the “1st Quarter Purchase Agreement”) with Heritage Family Services, Inc., a North Carolina corporation and an individual (collectively the “Seller”). Pursuant to the 1st Quarter Purchase Agreement, the Buyer acquired three cemeteries in North Carolina, including certain related assets, and assumed certain related liabilities. In consideration for the net assets acquired, the Buyer paid the Seller $1.7 million in cash.

On June 22, 2011, the Operating Company, StoneMor Missouri LLC, a Missouri limited liability company and StoneMor Missouri Subsidiary LLC, a Missouri limited liability company, each a wholly-owned subsidiary of the Company (collectively the “Buyer”), entered into an Asset Purchase and Sale Agreement (the “2nd Quarter Purchase Agreement”) with SCI International, LLC, a Delaware limited liability company and Keystone America, Inc., a Delaware corporation (collectively the “Seller” or “SCI Missouri”). Pursuant to the 2nd Quarter Purchase Agreement, the Buyer acquired three cemeteries and four funeral homes in Missouri, including certain related assets, and assumed certain related liabilities. In consideration for the net assets acquired, the Buyer paid the Seller $2.15 million in cash.

On August 1, 2011, the Operating Company and CFS West Virginia, an affiliate of the Operating Company, (collectively the “Buyer”) entered into a Stock Purchase Agreement with three individuals (collectively the “Seller”) to purchase all of the stock of Prince George Cemetery Corporation, a Virginia corporation. Through the purchase of Prince George Cemetery Corporation, the Buyer acquired one cemetery in Virginia. In consideration for the stock acquired, the Buyer paid the Seller approximately $1.9 million in cash. The Buyer will also pay $0.3 million in cash in even quarterly installments over a five year period in exchange for non-compete agreements with the Seller.

 

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The table below reflects the Company’s final assessment of the fair value of net assets acquired, the purchase price and the resulting goodwill from these acquisitions. For a detailed breakout of the purchase price for these acquisitions on an individual basis, see our 2011 Form 10-K.

 

     Final
Assessment
 

Assets:

  

Accounts receivable

   $ 211   

Cemetery property

     4,833   

Merchandise trusts, restricted, at fair value

     4,069   

Perpetual care trusts, restricted, at fair value

     2,438   

Property and equipment

     2,303   

Other assets

     260   
  

 

 

 

Total assets

     14,114   
  

 

 

 

Liabilities:

  

Deferred margin

     2,457   

Merchandise liabilities

     2,719   

Perpetual care trust corpus

     2,438   

Deferred tax liability

     1,287   
  

 

 

 

Total liabilities

     8,901   
  

 

 

 

Fair value of net assets acquired

     5,213   
  

 

 

 

Consideration paid

     5,700   

Fair value of debt assumed for non-compete agreements

     280   
  

 

 

 

Total consideration paid

     5,980   
  

 

 

 

Goodwill from purchase

   $ 767   
  

 

 

 

In addition to the aforementioned 2011 acquisitions, on August 17, 2011, the Operating Company, StoneMor Puerto Rico LLC, a Puerto Rico limited liability company and StoneMor Puerto Rico Subsidiary LLC, a Puerto Rico limited liability company, each a wholly-owned subsidiary of the Company (collectively the “Buyer”), entered into a Stock Purchase Agreement with Alderwoods Group, LLC, a Delaware limited liability company (the “Seller” or “SCI Puerto Rico”) to purchase all of the stock of SCI Puerto Rico Funeral and Cemetery Services, Inc., a Puerto Rico corporation. Through the purchase of SCI Puerto Rico Funeral and Cemetery Services, Inc., the Buyer acquired five cemeteries and four funeral homes in Puerto Rico. In consideration for the stock acquired, the Buyer paid the Seller $4.6 million in cash.

 

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The table below reflects the Company’s final assessment of the fair value of net assets acquired, the purchase price and the resulting goodwill from the purchase and displays the adjustments made to the revised values reported at December 31, 2011. The Company obtained additional information in the third quarter of 2012 and has retrospectively adjusted these values as noted below.

 

     Revised
Assessment
     Adjustments     Final
Assessment
 
     (in thousands)  

Assets:

       

Accounts receivable

   $ 4,575       $ 25      $ 4,600   

Cemetery property

     4,666         —          4,666   

Perpetual care trusts, restricted, at fair value

     981         —          981   

Property and equipment

     4,124         —          4,124   
  

 

 

    

 

 

   

 

 

 

Total assets

     14,346         25        14,371   
  

 

 

    

 

 

   

 

 

 

Liabilities:

       

Deferred margin

     5,217         (200     5,017   

Merchandise liabilities

     4,799         (167     4,632   

Deferred tax liability

     766         —          766   

Perpetual care trust corpus

     981         —          981   
  

 

 

    

 

 

   

 

 

 

Total liabilities

     11,763         (367     11,396   
  

 

 

    

 

 

   

 

 

 

Fair value of net assets acquired

     2,583         392        2,975   
  

 

 

    

 

 

   

 

 

 

Consideration paid

     4,600         —          4,600   
  

 

 

    

 

 

   

 

 

 

Goodwill from purchase

   $ 2,017       $ (392   $ 1,625   
  

 

 

    

 

 

   

 

 

 

If the acquisitions from 2012 had been consummated on January 1, 2011, on a pro forma basis, for the three and nine months ended September 30, 2011, consolidated revenues would have been $62.5 million and $176.2 million, respectively, consolidated net income (loss) would have been $0.3 million and $(5.1) million, respectively and net income (loss) per limited partner unit (basic and diluted) would have been $0.01 and $(0.27), respectively. Further, on a pro forma basis, for the three and nine months ended September 30, 2012, consolidated revenues would have been $62.7 million and $187.7 million, respectively, consolidated net income would have been $1.1 million and $1.9 million, respectively and net income per limited partner unit (basic and diluted) would have been $0.06 and $0.10, respectively. These pro forma results are unaudited and have been prepared for comparative purposes only and include certain adjustments such as increased interest on the acquisition of debt. They do not purport to be indicative of the results of operations which actually would have resulted had the combination been in effect on January 1, 2011 or of future results of operations of the locations. Since their respective dates of acquisition, our properties acquired in 2012 have contributed $1.7 million and $2.1 million of revenue and $0.4 million and $0.5 million of operating profit for the three and nine months ended September 30, 2012, respectively.

The results of operations and pro forma results related to the acquisitions made in 2011 are not material to the unaudited condensed consolidated financial statements taken as a whole.

The Company has made retrospective adjustments to its fourth quarter 2011 acquisition in Tennessee. See Note 7 for further details.

First Quarter 2012 Contract Termination

During the third quarter of 2010, certain subsidiaries of the Company entered into a long-term operating agreement (the “Operating Agreement”) with the Archdiocese of Detroit (the “Archdiocese”) wherein the Company became the exclusive operator of certain cemeteries in Michigan owned by the Archdiocese. The Operating Agreement did not qualify as an acquisition for accounting purposes. However, the existing merchandise trust had been consolidated as a variable interest entity as the Company controlled and directly benefited from the operations of the merchandise trust. In addition, liabilities assumed were also recorded as of the contract date. As no consideration was paid in this transaction, the Company had recorded a deferred gain of approximately $3.1 million within deferred cemetery revenues, net, which represented the excess of the value of the merchandise trust over the liabilities assumed.

Effective March 31, 2012, the Company and the Archdiocese agreed to terminate the Operating Agreement. As of the termination date, the Company no longer operated these properties. All activity occurring after March 31, 2012 is the responsibility of the Archdiocese and the Company has no remaining obligation to fulfill any merchandise liabilities or responsibility to perform any obligations of the properties.

 

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In the first and second quarters of 2012, the Company received payments of approximately $2.0 million from the Archdiocese as a result of the termination. Consequently, the Company recognized a gain of $1.7 million during the nine months ended September 30, 2012, which is the amount by which the payments from the Archdiocese exceeded the value of the net assets transferred to the Archdiocese.

 

14. SEGMENT INFORMATION

The Company is organized into five distinct reportable segments which are classified as Cemetery Operations – Southeast, Cemetery Operations – Northeast, Cemetery Operations – West, Funeral Homes, and Corporate.

The Company has chosen this level of organization of reportable segments due to the fact that a) each reportable segment has unique characteristics that set it apart from other segments; b) the Company has organized its management personnel at these operational levels; and c) it is the level at which the Company’s chief decision makers and other senior management evaluate performance.

The cemetery operations segments sell interment rights, caskets, burial vaults, cremation niches, markers and other cemetery related merchandise. The nature of the Company’s customers differs in each of our regionally based cemetery operating segments. Cremation rates in the West region are substantially higher than they are in the Southeast region. Rates in the Northeast region tend to be somewhere between the two. Statistics indicate that customers who select cremation services have certain attributes that differ from customers who select other methods of interment. The disaggregation of cemetery operations into the three distinct regional segments is primarily due to these differences in customer attributes along with the previously mentioned management structure and senior management analysis methodologies.

The Company’s Funeral Homes segment offers a range of funeral-related services such as family consultation, the removal of and preparation of remains and the use of funeral home facilities for visitation. These services are distinctly different than the cemetery merchandise and services sold and provided by the cemetery operations segments.

The Company’s Corporate segment includes various home office selling and administrative expenses that are not allocable to the other operating segments.

Segment information as of and for the three and nine months ended September 30, 2012 and 2011 is as follows:

 

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As of and for the three months ended September 30, 2012:

 

     Cemeteries      Funeral
Homes
     Corporate     Adjustment     Total  
     Southeast      Northeast      West            
     (in thousands)  

Revenues

                  

Sales

   $ 24,723       $ 8,087       $ 9,420       $ —         $ —        $ (8,107   $ 34,123   

Service and other

     9,084         6,108         8,045         —           —          (3,989     19,248   

Funeral home

     —           —           —           9,603         —          (777     8,826   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total revenues

     33,807         14,195         17,465         9,603         —          (12,873     62,197   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Costs and expenses

                  

Cost of sales

     5,208         2,156         1,628         —           52        (1,398     7,646   

Cemetery

     6,635         3,574         4,042         —           1        —          14,252   

Selling

     7,356         2,762         2,875         —           163        (1,866     11,290   

General and administrative

     3,694         1,486         1,828         —           7        —          7,015   

Corporate overhead

     —           —           —           —           6,546        —          6,546   

Depreciation and amortization

     513         220         551         529         386        —          2,199   

Funeral home

     —           —           —           7,161         —          (65     7,096   

Acquisition related costs

     —           —           —           —           1,085        —          1,085   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total costs and expenses

     23,406         10,198         10,924         7,690         8,240        (3,329     57,129   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Operating profit

   $ 10,401       $ 3,997       $ 6,541       $ 1,913       $ (8,240   $ (9,544   $ 5,068   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total assets

   $ 512,446       $ 297,736       $ 393,685       $ 104,914       $ 21,156      $ —        $ 1,329,937   

Amortization of cemetery property

   $ 1,396       $ 526       $ 275       $ —         $ —        $ 108      $ 2,305   

Long lived asset additions

   $ 6,641       $ 1,133       $ 684       $ 8,023       $ 64      $ —        $ 16,545   

Goodwill

   $ 6,194       $ —         $ 11,948       $ 22,251       $ —        $ —        $ 40,393   

As of and for the nine months ended September 30, 2012:

 

     Cemeteries      Funeral
Homes
     Corporate     Adjustment     Total  
     Southeast      Northeast      West            
     (in thousands)  

Revenues

                  

Sales

   $ 69,415       $ 26,090       $ 29,743       $ —         $ —        $ (25,988   $ 99,260   

Service and other

     27,867         19,820         22,940         —           —          (12,213     58,414   

Funeral home

     —           —           —           27,065         —          (1,447     25,618   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total revenues

     97,282         45,910         52,683         27,065         —          (39,648     183,292   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Costs and expenses

                  

Cost of sales

     14,471         5,857         5,031         —           104        (4,161     21,302   

Cemetery

     19,085         10,453         12,280         —           1        —          41,819   

Selling

     22,072         9,220         9,482         —           995        (5,569     36,200   

General and administrative

     11,130         4,499         5,751         —           23        —          21,403   

Corporate overhead

     —           —           —           —           20,905        —          20,905   

Depreciation and amortization

     1,559         660         1,666         1,667         1,207        —          6,759   

Funeral home

     —           —           —           20,648         —          (181     20,467   

Acquisition related costs

     —           —           —           —           2,198        —          2,198   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total costs and expenses

     68,317         30,689         34,210         22,315         25,433        (9,911     171,053   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Operating profit

   $ 28,965       $ 15,221       $ 18,473       $ 4,750       $ (25,433   $ (29,737   $ 12,239   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total assets

   $ 512,446       $ 297,736       $ 393,685       $ 104,914       $ 21,156      $ —        $ 1,329,937   

Amortization of cemetery property

   $ 3,397       $ 1,939       $ 844       $ —         $ —        $ 105      $ 6,285   

Long lived asset additions

   $ 11,435       $ 2,490       $ 3,889       $ 8,361       $ 670      $ —        $ 26,845   

Goodwill

   $ 6,194       $ —         $ 11,948       $ 22,251       $ —        $ —        $ 40,393   

 

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As of and for the three months ended September 30, 2011:

 

     Cemeteries      Funeral
Homes
                    
     Southeast      Northeast      West         Corporate     Adjustment     Total  
     (in thousands)  

Revenues

                  

Sales

   $ 19,480       $ 7,744       $ 11,939       $ —         $ —        $ (5,000   $ 34,163   

Service and other

     7,354         6,007         7,136         —           —          (1,834     18,663   

Funeral home

     —           —           —           7,705         —          (206     7,499   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total revenues

     26,834         13,751         19,075         7,705         —          (7,040     60,325   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Costs and expenses

                  

Cost of sales

     4,056         1,965         2,127         —           —          (988     7,160   

Cemetery

     6,009         3,770         5,533         —           —          —          15,312   

Selling

     6,686         2,693         3,621         —           130        (938     12,192   

General and administrative

     3,279         1,535         2,297         —           —          —          7,111   

Corporate overhead

     —           —           —           —           5,628        —          5,628   

Depreciation and amortization

     425         219         444         391         407        —          1,886   

Funeral home

     —           —           —           5,868         —          —          5,868   

Acquisition related costs

     —           —           —           —           1,189        —          1,189   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total costs and expenses

     20,455         10,182         14,022         6,259         7,354        (1,926     56,346   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Operating profit

   $ 6,379       $ 3,569       $ 5,053       $ 1,446       $ (7,354   $ (5,114   $ 3,979   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total assets

   $ 438,032       $ 275,081       $ 365,985       $ 54,895       $ 35,865      $ —        $ 1,169,858   

Amortization of cemetery property

   $ 839       $ 442       $ 441       $ —         $ —        $ (268   $ 1,454   

Long lived asset additions

   $ 7,013       $ 436       $ 1,841       $ 5,133       $ 236      $ —        $ 14,659   

Goodwill

   $ 2,700       $ —         $ 11,949       $ 5,897       $ —        $ —        $ 20,546   

As of and for the nine months ended September 30, 2011:

 

     Cemeteries      Funeral
Homes
                    
     Southeast      Northeast      West         Corporate     Adjustment     Total  
     (in thousands)  

Revenues

                  

Sales

   $ 59,448       $ 24,277       $ 34,960       $ —         $ 5      $ (25,203   $ 93,487   

Service and other

     23,533         17,586         22,207         —           —          (9,344     53,982   

Funeral home

     —           —           —           22,749         —          (555     22,194   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total revenues

     82,981         41,863         57,167         22,749         5        (35,102     169,663   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Costs and expenses

                  

Cost of sales

     12,128         5,281         5,743         —           —          (3,783     19,369   

Cemetery

     17,036         10,739         15,085         —           —          —          42,860   

Selling

     20,292         8,464         10,336         —           807        (5,976     33,923   

General and administrative

     9,547         4,555         6,469         —           (2     —          20,569   

Corporate overhead

     —           —           —           —           17,572        —          17,572   

Depreciation and amortization

     1,183         663         1,686         1,118         1,724        —          6,374   

Funeral home

     —           —           —           16,875         —          —          16,875   

Acquisition related costs

     —           —           —           —           3,147        —          3,147   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total costs and expenses

     60,186         29,702         39,319         17,993         23,248        (9,759     160,689   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Operating profit

   $ 22,795       $ 12,161       $ 17,848       $ 4,756       $ (23,243   $ (25,343   $ 8,974   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total assets

   $ 438,032       $ 275,081       $ 365,985       $ 54,895       $ 35,865      $ —        $ 1,169,858   

Amortization of cemetery property

   $ 2,592       $ 1,582       $ 835       $ —         $ —        $ (597   $ 4,412   

Long lived asset additions

   $ 10,900       $ 1,239       $ 5,062       $ 7,269       $ 540      $ —        $ 25,010   

Goodwill

   $ 2,700       $ —         $ 11,949       $ 5,897       $ —        $ —        $ 20,546   

 

26


Table of Contents

Results of individual business units are presented based on our management accounting practices and management structure. There is no comprehensive, authoritative body of guidance for management accounting equivalent to accounting principles generally accepted in the United States of America; therefore, the financial results of individual business units are not necessarily comparable with similar information for any other company. The management accounting process uses assumptions and allocations to measure performance of the business units. Methodologies are refined from time to time as management accounting practices are enhanced and businesses change. Revenues and associated expenses are not deferred in accordance with SAB No. 104 therefore, the deferral of these revenues and expenses is provided in the adjustment column to reconcile the Company’s managerial financial statements to those prepared in accordance with GAAP. Pre-need sales revenues included within the sales category consist primarily of the sale of burial lots, burial vaults, mausoleum crypts, grave markers and memorials, and caskets. Management accounting practices included in the Southeast, Northeast, and Western Regions reflect these pre-need sales when contracts are signed by the customer and accepted by the Company. Pre-need sales reflected in the consolidated financial statements, prepared in accordance with GAAP, recognize revenues for the sale of burial lots and mausoleum crypts when the product is constructed and at least 10% of the sales price is collected. With respect to the other products, the consolidated financial statements prepared under GAAP recognize sales revenues when the criteria for delivery under SAB No. 104 are met. These criteria include, among other things, purchase of the product, delivery and installation of the product in the ground, and transfer of title to the customer. In each case, costs are accrued in connection with the recognition of revenues; therefore, the consolidated financial statements reflect Deferred Cemetery Revenue, Net and Deferred Selling and Obtaining Costs on the balance sheet, whereas the Company’s management accounting practices exclude these items.

 

15. FAIR VALUE MEASUREMENTS

The Fair Value Measurements and Disclosures topic of the ASC defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. This topic also establishes a fair value hierarchy that gives the highest priority to observable inputs and the lowest priority to unobservable inputs. The three levels of the fair value hierarchy defined by this topic are described below.

Level 1: Quoted market prices available in active markets for identical assets or liabilities. The Company includes short-term investments, consisting primarily of money market funds, U.S. Government debt securities and publicly traded equity securities and mutual funds in its level 1 investments.

Level 2: Quoted prices in active markets for similar assets; quoted prices in non-active markets for identical or similar assets; inputs other than quoted prices that are observable. The Company includes U.S. state and municipal, corporate and other fixed income debt securities in its level 2 investments.

Level 3: Any and all pricing inputs that are generally unobservable and not corroborated by market data.

 

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Table of Contents

The following table allocates the Company’s assets measured at fair value as of September 30, 2012 and December 31, 2011.

As of September 30, 2012

Merchandise Trust

 

Description

   Level 1      Level 2      Total  
     (in thousands)  

Assets

        

Short-term investments

   $ 48,722       $ —         $ 48,722   

Fixed maturities:

        

U.S. government and federal agency

     —           —           —     

U.S. state and local government agency

     —           23         23   

Corporate debt securities

     —           8,741         8,741   

Other debt securities

     —           4,313         4,313   
  

 

 

    

 

 

    

 

 

 

Total fixed maturity investments

     —           13,077         13,077   
  

 

 

    

 

 

    

 

 

 

Mutual funds - debt securities

     100,085         —           100,085   

Mutual funds - equity securities - real estate sector

     43,432         —           43,432   

Mutual funds - equity securities - energy sector

     5,767         —           5,767   

Mutual funds - equity securities - MLP’s

     28,476         —           28,476   

Mutual funds - equity securities - other

     53,697         —           53,697   

Equity securities

        

Preferred REIT’s

     1,638         —           1,638   

Master limited partnerships

     41,378         —           41,378   

Global equity securities

     22,483         —           22,483   

Other invested assets

     —           6,587         6,587   
  

 

 

    

 

 

    

 

 

 

Total

   $ 345,678       $ 19,664       $ 365,342   
  

 

 

    

 

 

    

 

 

 

Perpetual Care Trust

 

Description

   Level 1      Level 2      Total  
     (in thousands)  

Assets

        

Short-term investments

   $ 20,912       $ —         $ 20,912   

Fixed maturities:

        

U.S. government and federal agency

     513         —           513   

U.S. state and local government agency

     —           147         147   

Corporate debt securities

     —           23,898         23,898   

Other debt securities

     —           371         371   
  

 

 

    

 

 

    

 

 

 

Total fixed maturity investments

     513         24,416         24,929   
  

 

 

    

 

 

    

 

 

 

Mutual funds - debt securities

     107,933         —           107,933   

Mutual funds - equity securities - real estate sector

     39,083         —           39,083   

Mutual funds - equity securities - energy sector

     12,911         —           12,911   

Mutual funds - equity securities - MLP’s

     36,583         —           36,583   

Mutual funds - equity securities - other

     9,149         —           9,149   

Equity securities

        

Preferred REIT’s

     953         —           953   

Master limited partnerships

     29,453         —           29,453   

Global equity securities

     745         —           745   

Other invested assets

     —           —           —     
  

 

 

    

 

 

    

 

 

 

Total

   $ 258,235       $ 24,416       $ 282,651   
  

 

 

    

 

 

    

 

 

 

 

28


Table of Contents

As of December 31, 2011

Merchandise Trust

 

Description

   Level 1      Level 2      Total  
     (in thousands)  

Assets

        

Short-term investments

   $ 38,312       $ —         $ 38,312   

Fixed maturities:

        

U.S. government and federal agency

     —           —           —     

U.S. state and local government agency

     —           23         23   

Corporate debt securities

     —           9,765         9,765   

Other debt securities

     —           1,100         1,100   
  

 

 

    

 

 

    

 

 

 

Total fixed maturity investments

     —           10,888         10,888   
  

 

 

    

 

 

    

 

 

 

Mutual funds - debt securities

     67,421         —           67,421   

Mutual funds - equity securities - real estate sector

     22,847         —           22,847   

Mutual funds - equity securities - energy sector

     28,057         —           28,057   

Mutual funds - equi