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Stonemor Partners LP · 10-Q · For 6/30/13

Filed On 8/7/13, 11:52am ET   ·   Accession Number 1193125-13-323518   ·   SEC File 1-32270

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  As Of                Filer                Filing    For/On/As Docs:Size              Issuer               Agent

 8/07/13  Stonemor Partners LP              10-Q        6/30/13  158:19M                                    RR Donnelley/FA

Quarterly Report   —   Form 10-Q
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                    HTML   1.19M 
 2: EX-31.1     Certification per Sarbanes-Oxley Act (Section 302)  HTML     47K 
 3: EX-31.2     Certification per Sarbanes-Oxley Act (Section 302)  HTML     48K 
 4: EX-32.1     Certification per Sarbanes-Oxley Act (Section 906)  HTML     44K 
 5: EX-32.2     Certification per Sarbanes-Oxley Act (Section 906)  HTML     44K 
82: EXCEL       XBRL IDEA Workbook -- Financial Report (.xls)        XLS   2.15M 
153: R1          Document and Entity Information                     HTML     64K  
95: R2          Condensed Consolidated Balance Sheet                HTML    146K 
89: R3          Condensed Consolidated Statement of Operations      HTML    144K 
20: R4          Condensed Consolidated Statement of Operations      HTML     46K 
                          (Parenthetical)                                        
93: R5          Condensed Consolidated Statement of Partners'       HTML     60K 
                          Capital                                                
60: R6          Condensed Consolidated Statement of Cash Flows      HTML    166K 
127: R7          Nature of Operations, Basis of Presentation And     HTML     52K  
                          Summary of Significant Accounting                      
                          Policies                                               
63: R8          Long-Term Accounts Receivable, Net of Allowance     HTML     61K 
70: R9          Cemetery Property                                   HTML     50K 
21: R10         Property and Equipment                              HTML     53K 
66: R11         Merchandise Trusts                                  HTML    186K 
126: R12         Perpetual Care Trusts                               HTML    171K  
118: R13         Goodwill and Intangible Assets                      HTML     76K  
90: R14         Long-Term Debt                                      HTML     72K 
146: R15         Income Taxes                                        HTML     52K  
124: R16         Deferred Cemetery Revenues, Net                     HTML     54K  
17: R17         Commitments and Contingencies                       HTML     52K 
27: R18         Partners' Capital                                   HTML     56K 
145: R19         Acquisitions                                        HTML    112K  
151: R20         Segment Information                                 HTML    278K  
155: R21         Fair Value Measurements                             HTML    148K  
149: R22         Subsequent Events                                   HTML     45K  
106: R23         Nature of Operations, Basis of Presentation And     HTML     62K  
                          Summary of Significant Accounting                      
                          Policies (Policies)                                    
22: R24         Long-Term Accounts Receivable, Net of Allowance     HTML     60K 
                          (Tables)                                               
58: R25         Property and Equipment (Tables)                     HTML     59K 
37: R26         Merchandise Trusts (Tables)                         HTML    307K 
36: R27         Goodwill and Intangible Assets (Tables)             HTML     74K 
72: R28         Long-Term Debt (Tables)                             HTML     63K 
105: R29         Deferred Cemetery Revenues, Net (Tables)            HTML     53K  
121: R30         Commitments and Contingencies (Tables)              HTML     48K  
45: R31         Partners' Capital (Tables)                          HTML     53K 
73: R32         Acquisitions (Tables)                               HTML     95K 
135: R33         Segment Information (Tables)                        HTML    269K  
40: R34         Fair Value Measurements (Tables)                    HTML    141K 
115: R35         Nature of Operations Basis of Presentation and      HTML     52K  
                          Summary of Significant Accounting                      
                          Policies - Additional Information                      
                          (Detail)                                               
116: R36         Long Term Accounts Receivable Net (Detail)          HTML     60K  
77: R37         Activity in Allowance for Contract Cancellations    HTML     53K 
                          (Detail)                                               
35: R38         Cemetery Property (Detail)                          HTML     48K 
112: R39         Major Classes of Property and Equipment (Detail)    HTML     57K  
43: R40         Property and Equipment - Additional Information     HTML     46K 
                          (Detail)                                               
71: R41         Merchandise Trusts - Additional Information         HTML     66K 
                          (Detail)                                               
123: R42         Cost and Market Value Associated with Assets Held   HTML     72K  
                          in Merchandise Trusts (Detail)                         
53: R43         Contractual Maturities of Debt Securities Held in   HTML     61K 
                          Merchandise Trusts (Detail)                            
107: R44         Aging of Unrealized Losses on Investments in Fixed  HTML     78K  
                          Maturities and Equity Securities Held in               
                          Merchandise Trusts (Detail)                            
88: R45         Reconciliation of Merchandise Trust Activities      HTML     63K 
                          (Detail)                                               
39: R46         Cost and Market Value Associated with Assets Held   HTML     69K 
                          in Perpetual Care Trusts (Detail)                      
131: R47         Contractual Maturities of Debt Securities Held in   HTML     62K  
                          Perpetual Care Trusts (Detail)                         
32: R48         Aging of Unrealized Losses on Investments in Fixed  HTML     73K 
                          Maturities and Equity Securities Held in               
                          Perpetual Care Trusts (Detail)                         
44: R49         Reconciliation of Perpetual Care Trust Activities   HTML     63K 
                          (Detail)                                               
87: R50         Perpetual Care Trusts - Additional Information      HTML     53K 
                          (Detail)                                               
99: R51         Goodwill by Reportable Segment (Detail)             HTML     51K 
129: R52         Major Classes of Intangible Assets (Detail)         HTML     55K  
18: R53         Outstanding Debt (Detail)                           HTML     59K 
110: R54         Outstanding Debt (Parenthetical) (Detail)           HTML     52K  
81: R55         Long Term Debt - Additional Information (Detail)    HTML    127K 
26: R56         Measurement of Maximum Consolidated Leverage Ratio  HTML     46K 
                          (Detail)                                               
34: R57         Income Taxes - Additional Information (Detail)      HTML     50K 
94: R58         Deferred Cemetery Revenues Net (Detail)             HTML     55K 
140: R59         Commitments and Contingencies - Additional          HTML     49K  
                          Information (Detail)                                   
158: R60         Operating Leases Future Payments (Detail)           HTML     63K  
157: R61         Compensation Expense Recognized Related to Unit     HTML     49K  
                          Appreciation Rights and Restricted                     
                          Phantom Unit Awards (Detail)                           
119: R62         Partners Capital - Additional Information (Detail)  HTML     62K  
52: R63         Acquisitions - Additional Information (Detail)      HTML    128K 
47: R64         Preliminary Assessment of Fair Value of Net Assets  HTML     88K 
                          Acquired of First Quarter Twenty                       
                          Thirteen Acquisition (Detail)                          
111: R65         Final Assessment of Fair Value of Net Assets        HTML     71K  
                          Acquired Elimination of Debt and Other                 
                          Assets and Purchase Price Recognition of               
                          Goodwill of First Quarter Twenty Twelve                
                          Acquisition (Detail)                                   
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                          Acquired Elimination of Debt and Other                 
                          Assets and Purchase Price Gain on                      
                          Bargain Purchase of Bronswood Cemetery                 
                          (Detail)                                               
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                          Acquired Elimination of Debt and Other                 
                          Assets and Purchase Price Gain on                      
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                          Second (Detail)                                        
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                          (Detail)                                               
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                          (Detail)                                               
50: R72         Subsequent Events - Additional Information          HTML     46K 
                          (Detail)                                               
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156: XML.R1      Document and Entity Information                      XML    152K  
68: XML.R2      Condensed Consolidated Balance Sheet                 XML    373K 
104: XML.R3      Condensed Consolidated Statement of Operations       XML    754K  
84: XML.R4      Condensed Consolidated Statement of Operations       XML     80K 
                          (Parenthetical)                                        
80: XML.R5      Condensed Consolidated Statement of Partners'        XML    230K 
                          Capital                                                
15: XML.R6      Condensed Consolidated Statement of Cash Flows       XML    477K 
97: XML.R7      Nature of Operations, Basis of Presentation And      XML     62K 
                          Summary of Significant Accounting                      
                          Policies                                               
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51: XML.R9      Cemetery Property                                    XML     63K 
76: XML.R10     Property and Equipment                               XML     65K 
64: XML.R11     Merchandise Trusts                                   XML    237K 
56: XML.R12     Perpetual Care Trusts                                XML    220K 
132: XML.R13     Goodwill and Intangible Assets                       XML     94K  
67: XML.R14     Long-Term Debt                                       XML     82K 
150: XML.R15     Income Taxes                                         XML     60K  
101: XML.R16     Deferred Cemetery Revenues, Net                      XML     67K  
98: XML.R17     Commitments and Contingencies                        XML     63K 
103: XML.R18     Partners' Capital                                    XML     68K  
42: XML.R19     Acquisitions                                         XML    130K 
92: XML.R20     Segment Information                                  XML    357K 
120: XML.R21     Fair Value Measurements                              XML    186K  
125: XML.R22     Subsequent Events                                    XML     55K  
134: XML.R23     Nature of Operations, Basis of Presentation And      XML     82K  
                          Summary of Significant Accounting                      
                          Policies (Policies)                                    
75: XML.R24     Long-Term Accounts Receivable, Net of Allowance      XML     79K 
                          (Tables)                                               
31: XML.R25     Property and Equipment (Tables)                      XML     92K 
143: XML.R26     Merchandise Trusts (Tables)                          XML    461K  
102: XML.R27     Goodwill and Intangible Assets (Tables)              XML     96K  
144: XML.R28     Long-Term Debt (Tables)                              XML     79K  
23: XML.R29     Deferred Cemetery Revenues, Net (Tables)             XML     65K 
117: XML.R30     Commitments and Contingencies (Tables)               XML     60K  
114: XML.R31     Partners' Capital (Tables)                           XML     66K  
30: XML.R32     Acquisitions (Tables)                                XML    192K 
147: XML.R33     Segment Information (Tables)                         XML    349K  
28: XML.R34     Fair Value Measurements (Tables)                     XML    180K 
152: XML.R35     Nature of Operations Basis of Presentation and       XML    262K  
                          Summary of Significant Accounting                      
                          Policies - Additional Information                      
                          (Detail)                                               
137: XML.R36     Long Term Accounts Receivable Net (Detail)           XML    117K  
130: XML.R37     Activity in Allowance for Contract Cancellations     XML    135K  
                          (Detail)                                               
133: XML.R38     Cemetery Property (Detail)                           XML    211K  
83: XML.R39     Major Classes of Property and Equipment (Detail)     XML    108K 
61: XML.R40     Property and Equipment - Additional Information      XML     91K 
                          (Detail)                                               
154: XML.R41     Merchandise Trusts - Additional Information          XML    323K  
                          (Detail)                                               
113: XML.R42     Cost and Market Value Associated with Assets Held    XML    725K  
                          in Merchandise Trusts (Detail)                         
142: XML.R43     Contractual Maturities of Debt Securities Held in    XML    255K  
                          Merchandise Trusts (Detail)                            
29: XML.R44     Aging of Unrealized Losses on Investments in Fixed   XML    673K 
                          Maturities and Equity Securities Held in               
                          Merchandise Trusts (Detail)                            
100: XML.R45     Reconciliation of Merchandise Trust Activities       XML    180K  
                          (Detail)                                               
57: XML.R46     Cost and Market Value Associated with Assets Held    XML    644K 
                          in Perpetual Care Trusts (Detail)                      
96: XML.R47     Contractual Maturities of Debt Securities Held in    XML    269K 
                          Perpetual Care Trusts (Detail)                         
86: XML.R48     Aging of Unrealized Losses on Investments in Fixed   XML    521K 
                          Maturities and Equity Securities Held in               
                          Perpetual Care Trusts (Detail)                         
46: XML.R49     Reconciliation of Perpetual Care Trust Activities    XML    180K 
                          (Detail)                                               
108: XML.R50     Perpetual Care Trusts - Additional Information       XML    161K  
                          (Detail)                                               
48: XML.R51     Goodwill by Reportable Segment (Detail)              XML    217K 
62: XML.R52     Major Classes of Intangible Assets (Detail)          XML    250K 
16: XML.R53     Outstanding Debt (Detail)                            XML    319K 
128: XML.R54     Outstanding Debt (Parenthetical) (Detail)            XML    200K  
139: XML.R55     Long Term Debt - Additional Information (Detail)     XML   1.48M  
38: XML.R56     Measurement of Maximum Consolidated Leverage Ratio   XML    144K 
                          (Detail)                                               
41: XML.R57     Income Taxes - Additional Information (Detail)       XML    126K 
19: XML.R58     Deferred Cemetery Revenues Net (Detail)              XML    207K 
141: XML.R59     Commitments and Contingencies - Additional           XML    182K  
                          Information (Detail)                                   
79: XML.R60     Operating Leases Future Payments (Detail)            XML    104K 
69: XML.R61     Compensation Expense Recognized Related to Unit      XML    194K 
                          Appreciation Rights and Restricted                     
                          Phantom Unit Awards (Detail)                           
65: XML.R62     Partners Capital - Additional Information (Detail)   XML    241K 
136: XML.R63     Acquisitions - Additional Information (Detail)       XML   1.56M  
109: XML.R64     Preliminary Assessment of Fair Value of Net Assets   XML    606K  
                          Acquired of First Quarter Twenty                       
                          Thirteen Acquisition (Detail)                          
33: XML.R65     Final Assessment of Fair Value of Net Assets         XML    318K 
                          Acquired Elimination of Debt and Other                 
                          Assets and Purchase Price Recognition of               
                          Goodwill of First Quarter Twenty Twelve                
                          Acquisition (Detail)                                   
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                          Acquired Elimination of Debt and Other                 
                          Assets and Purchase Price Gain on                      
                          Bargain Purchase of Bronswood Cemetery                 
                          (Detail)                                               
59: XML.R67     Final Assessment of Fair Value of Net Assets         XML    557K 
                          Acquired Elimination of Debt and Other                 
                          Assets and Purchase Price Gain on                      
                          Bargain Purchase of Lodi Funeral Home                  
                          Second (Detail)                                        
25: XML.R68     Consolidated Pro Forma Information (Detail)          XML    127K 
55: XML.R69     Segment Information - Additional Information         XML    101K 
                          (Detail)                                               
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10-Q   —   Quarterly Report
Document Table of Contents

Page (sequential) | (alphabetic) Top
 
11st Page   -   Filing Submission
"Table of Contents
"Financial Information
"Financial Statements (unaudited)
"Management's Discussion and Analysis of Financial Condition and Results of Operations
"Quantitative and Qualitative Disclosures About Market Risk
"Controls and Procedures
"Other Information
"Legal Proceedings
"Risk Factors
"Unregistered Sales of Equity Securities and Use of Proceeds
"Defaults Upon Senior Securities
"Mine Safety Disclosures
"Exhibits
"Signatures

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  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 June 30, 2013

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 July 31, 2013 was 21,350,236.

 

 

 


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

     28   

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

     52   

Item 4.

  

Controls and Procedures

     53   

Part II

  

Other Information

  

Item 1.

  

Legal Proceedings

     54   

Item 1A.

  

Risk Factors

     54   

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

     55   

Item 3.

  

Defaults Upon Senior Securities

     55   

Item 4.

  

Mine Safety Disclosures

     55   

Item 5.

  

Other Information

     55   

Item 6.

  

Exhibits

     56   
  

Signatures

     58   


Table of Contents

Part I – Financial Information

Item 1. Financial Statements

StoneMor Partners L.P.

Condensed Consolidated Balance Sheet

(in thousands)

(unaudited)

 

     June 30,     December 31,  
     2013     2012  

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 14,075      $ 7,946   

Accounts receivable, net of allowance

     54,396        51,895   

Prepaid expenses

     5,565        3,832   

Other current assets

     18,679        17,418   
  

 

 

   

 

 

 

Total current assets

     92,715        81,091   

Long-term accounts receivable, net of allowance

     77,297        71,521   

Cemetery property

     312,506        309,980   

Property and equipment, net of accumulated depreciation

     84,793        79,740   

Merchandise trusts, restricted, at fair value

     414,382        375,973   

Perpetual care trusts, restricted, at fair value

     302,773        282,313   

Deferred financing costs, net of accumulated amortization

     8,865        9,238   

Deferred selling and obtaining costs

     82,501        76,317   

Deferred tax assets

     381        381   

Goodwill

     47,570        42,392   

Other assets

     11,849        14,779   
  

 

 

   

 

 

 

Total assets

   $ 1,435,632      $ 1,343,725   
  

 

 

   

 

 

 

Liabilities and partners’ capital

    

Current liabilities:

    

Accounts payable and accrued liabilities

   $ 32,992      $ 28,973   

Accrued interest

     1,625        1,833   

Current portion, long-term debt

     6,936        2,175   
  

 

 

   

 

 

 

Total current liabilities

     41,553        32,981   

Other long-term liabilities

     1,616        1,835   

Long-term debt

     266,290        252,774   

Deferred cemetery revenues, net

     544,322        497,861   

Deferred tax liabilities

     12,554        14,910   

Merchandise liability

     127,875        125,869   

Perpetual care trust corpus

     302,773        282,313   
  

 

 

   

 

 

 

Total liabilities

     1,296,983        1,208,543   
  

 

 

   

 

 

 

Commitments and contingencies

    

Partners’ capital

    

General partner

     (893     386   

Common partners

     139,542        134,796   
  

 

 

   

 

 

 

Total partners’ capital

     138,649        135,182   
  

 

 

   

 

 

 

Total liabilities and partners’ capital

   $ 1,435,632      $ 1,343,725   
  

 

 

   

 

 

 

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

 

1


Table of Contents

StoneMor Partners L.P.

Condensed Consolidated Statement of Operations

(in thousands, except per unit data)

(unaudited)

 

     Three months ended     Six months ended  
     June 30,     June 30,  
     2013     2012     2013     2012  

Revenues:

        

Cemetery

        

Merchandise

   $ 28,669      $ 30,337      $ 55,321      $ 57,481   

Services

     11,072        11,265        22,371        23,347   

Investment and other

     12,005        12,051        22,248        23,475   

Funeral home

        

Merchandise

     4,517        3,569        9,470        7,587   

Services

     6,159        4,286        12,624        9,205   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     62,422        61,508        122,034        121,095   
  

 

 

   

 

 

   

 

 

   

 

 

 

Costs and Expenses:

        

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

        

Perpetual care

     1,500        1,415        2,781        2,782   

Merchandise

     6,212        5,821        11,221        10,874   

Cemetery expense

     15,408        14,775        28,193        27,567   

Selling expense

     12,218        13,123        23,442        24,910   

General and administrative expense

     7,898        7,195        15,480        14,388   

Corporate overhead (including $360 and $210 in unit-based compensation for the three months ended June 30, 2013 and 2012, and $690 and $409 for the six months ended June 30, 2013 and 2012, respectively)

     5,672        7,756        13,660        14,359   

Depreciation and amortization

     2,451        2,230        4,781        4,560   

Funeral home expense

        

Merchandise

     1,703        1,107        3,225        2,530   

Services

     4,768        3,302        9,325        6,707   

Other

     2,893        2,206        5,550        4,134   

Acquisition related costs, net of recoveries

     (625     782        658        1,113   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost and expenses

     60,098        59,712        118,316        113,924   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit

     2,324        1,796        3,718        7,171   

Gain (loss) on termination of operating agreement

     —          (83     —          1,737   

Gain on settlement agreement, net

     11,349        —          12,261        —     

Gain on acquisition

     —          122        —          122   

Loss on early extinguishment of debt

     21,595        —          21,595        —     

Gain on sale of other assets

     155        —          155        —     

Interest expense

     5,132        4,870        10,595        9,836   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss before income taxes

     (12,899     (3,035     (16,056     (806

Income tax expense (benefit)

        

State

     165        97        221        242   

Federal

     (1,255     (963     (2,268     (909
  

 

 

   

 

 

   

 

 

   

 

 

 

Total income tax benefit

     (1,090     (866     (2,047     (667
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (11,809   $ (2,169   $ (14,009   $ (139
  

 

 

   

 

 

   

 

 

   

 

 

 

General partner’s interest in net loss for the period

   $ (218   $ (43   $ (258   $ (3

Limited partners’ interest in net loss for the period

   $ (11,591   $ (2,126   $ (13,751   $ (136

Net loss per limited partner unit (basic and diluted)

   $ (.54   $ (.11   $ (.67   $ (.01

Weighted average number of limited partners’ units outstanding (basic and diluted)

     21,345        19,375        20,541        19,372   

Distributions declared per unit

   $ .595      $ .585      $ 1.185      $ 1.170   

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

 

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Table of Contents

StoneMor Partners L.P.

Condensed Consolidated Statement of

Partners’ Capital

(in thousands)

(unaudited)

 

     Partners’ Capital  
     Common     General        
     Unit Holders     Partner     Total  

Balance, December 31, 2012

   $ 134,796      $ 386      $ 135,182   

Proceeds from public offering

     38,377        —          38,377   

Issuance of common units

     3,718        —          3,718   

Compensation related to units awards

     648        —          648   

Net loss

     (13,751     (258     (14,009

Cash distribution

     (24,246     (1,021     (25,267
  

 

 

   

 

 

   

 

 

 

Balance, June 30, 2013

   $ 139,542      $ (893   $ 138,649   
  

 

 

   

 

 

   

 

 

 

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

 

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Table of Contents

StoneMor Partners L.P.

Condensed Consolidated Statement of Cash Flows

(in thousands)

(unaudited)

 

     For the six months ended June 30,  
     2013     2012  

Operating activities:

    

Net loss

   $ (14,009   $ (139

Adjustments to reconcile net loss to net cash provided by operating activities:

    

Cost of lots sold

     4,194        3,979   

Depreciation and amortization

     4,781        4,560   

Unit-based compensation

     690        409   

Accretion of debt discounts

     1,011        723   

Gain on termination of operating agreement

     —          (1,737

Gain on acquisition

     —          (122

Gain on sale of other assets

     (155     —     

Loss on early extinguishment of debt

     21,595        —     

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

    

Accounts receivable

     (7,199     (8,180

Allowance for doubtful accounts

     (83     3,293   

Merchandise trust fund

     (22,611     (1,917

Prepaid expenses

     (1,733     (1,169

Other current assets

     (1,261     (860

Other assets

     3,972        139   

Accounts payable and accrued and other liabilities

     3,677        348   

Deferred selling and obtaining costs

     (6,184     (3,380

Deferred cemetery revenue

     33,766        23,699   

Deferred taxes (net)

     (2,356     (1,000

Merchandise liability

     (1,612     (4,451
  

 

 

   

 

 

 

Net cash provided by operating activities

     16,483        14,195   
  

 

 

   

 

 

 

Investing activities:

    

Cash paid for cemetery property

     (2,252     (3,600

Purchase of subsidiaries

     (9,100     (3,426

Cash paid for property and equipment

     (3,920     (1,835

Proceeds from sales of other assets

     155        —     
  

 

 

   

 

 

 

Net cash used in investing activities

     (15,117     (8,861
  

 

 

   

 

 

 

Financing activities:

    

Cash distribution

     (25,267     (23,563

Additional borrowings on long-term debt

     217,106        29,200   

Repayments of long-term debt

     (205,800     (13,422

Proceeds from public offering

     38,377        —     

Fees paid related to early extinguishment of debt

     (14,920     —     

Cost of financing activities

     (4,733     (1,820
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     4,763        (9,605
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     6,129        (4,271

Cash and cash equivalents - Beginning of period

     7,946        12,058   
  

 

 

   

 

 

 

Cash and cash equivalents - End of period

   $ 14,075      $ 7,787   
  

 

 

   

 

 

 

Supplemental disclosure of cash flow information:

    

Cash paid during the period for interest

   $ 9,754      $ 9,048   

Cash paid during the period for income taxes

   $ 3,132      $ 3,655   

Non-cash investing and financing activities:

    

Acquisition of assets by financing

   $ 92      $ 53   

Issuance of limited partner units for cemetery acquisition

   $ 3,718      $ 603   

Acquisition of asset by assumption of directly related liability

   $ 3,924      $ 544   

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

 

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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 June 30, 2013, the Partnership owned 258 and operated 276 cemeteries in 27 states and Puerto Rico and owned and operated 92 funeral homes in 18 states and Puerto Rico.

Basis of Presentation

The unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). All interim financial data is unaudited. However, in the opinion of management, the interim financial data as of June 30, 2013 and for the three and six months ended June 30, 2013 and 2012 includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim periods. The results of operations for interim periods are not necessarily indicative of the results of operations to be expected for a full year. The December 31, 2012 condensed consolidated balance sheet data was derived from audited financial statements included in the Company’s 2012 Annual Report on Form 10-K (“2012 Form 10-K”), but does not include all disclosures required by GAAP, which are presented in the Company’s 2012 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  
     June 30,     December 31,  
     2013     2012  
     (in thousands)  

Customer receivables

   $ 172,320      $ 159,726   

Unearned finance income

     (19,929     (18,377

Allowance for contract cancellations

     (20,698     (17,933
  

 

 

   

 

 

 
     131,693        123,416   

Less: current portion, net of allowance

     54,396        51,895   
  

 

 

   

 

 

 

Long-term portion, net of allowance

   $ 77,297      $ 71,521   
  

 

 

   

 

 

 

Activity in the allowance for contract cancellations is as follows:

 

     For the six months ended June 30,  
     2013     2012  
     (in thousands)  

Balance - Beginning of period

   $ 17,933      $ 17,582   

Provision for cancellations

     10,651        9,791   

Charge-offs - net

     (7,886     (7,356
  

 

 

   

 

 

 

Balance - End of period

   $ 20,698      $ 20,017   
  

 

 

   

 

 

 

 

3. CEMETERY PROPERTY

Cemetery property consists of the following:

 

     As of  
     June 30,      December 31,  
     2013      2012  
     (in thousands)  

Developed land

   $ 70,241       $ 71,318   

Undeveloped land

     162,746         162,275   

Mausoleum crypts and lawn crypts

     69,721         69,525   

Other land

     9,798         6,862   
  

 

 

    

 

 

 

Total

   $ 312,506       $ 309,980   
  

 

 

    

 

 

 

 

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Table of Contents
4. PROPERTY AND EQUIPMENT

Major classes of property and equipment follow:

 

     As of  
     June 30,     December 31,  
     2013     2012  
     (in thousands)  

Building and improvements

   $ 88,278      $ 82,056   

Furniture and equipment

     44,336        42,353   
  

 

 

   

 

 

 
     132,614        124,409   

Less: accumulated depreciation

     (47,821     (44,669
  

 

 

   

 

 

 

Property and equipment - net

   $ 84,793      $ 79,740   
  

 

 

   

 

 

 

Depreciation expense was $1.8 million and $3.5 million for the three and six months ended June 30, 2013, respectively, as compared to $1.7 million and $3.5 million during the same periods last year.

 

5. MERCHANDISE TRUSTS

At June 30, 2013, 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 $7.7 million and $7.6 million of investments held in trust by the West Virginia Funeral Directors Association at June 30, 2013 and December 31, 2012, respectively, in its merchandise trust assets. As required by law, the Company deposits a portion of certain funeral merchandise sales in West Virginia into a trust that is held by the West Virginia Funeral Directors Association. These trusts are recorded at their account value, which approximates their fair value.

 

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Table of Contents

The cost and market value associated with the assets held in merchandise trusts at June 30, 2013 and December 31, 2012 were as follows:

 

As of June 30, 2013

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

Short-term investments

   $ 50,280       $ 6       $ —        $ 50,286   

Fixed maturities:

          

U.S. Government and federal agency

     —           —           —          —     

U.S. State and local government agency

     —           —           —          —     

Corporate debt securities

     9,067         78         (184     8,961   

Other debt securities

     7,810         —           (7     7,803   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total fixed maturities

     16,877         78         (191     16,764   
  

 

 

    

 

 

    

 

 

   

 

 

 

Mutual funds - debt securities

     110,875         20         (7,606     103,289   

Mutual funds - equity securities

     139,974         12,583         (809     151,748   

Equity securities

     73,537         6,990         (1,309     79,218   

Other invested assets

     4,849         492         —          5,341   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total managed investments

   $ 396,392       $ 20,169       $ (9,915   $ 406,646   
  

 

 

    

 

 

    

 

 

   

 

 

 

West Virginia Trust Receivable

     7,736         —           —          7,736   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 404,128       $ 20,169       $   (9,915   $ 414,382   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

As of December 31, 2012

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

Short-term investments

   $ 27,890       $ —         $ —        $ 27,890   

Fixed maturities:

          

U.S. Government and federal agency

     —           —           —          —     

U.S. State and local government agency

     —           —           —          —     

Corporate debt securities

     8,590         165         (41     8,714   

Other debt securities

     4,320         —           (3     4,317   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total fixed maturities

     12,910         165         (44     13,031   
  

 

 

    

 

 

    

 

 

   

 

 

 

Mutual funds - debt securities

     105,388         3,425         (892     107,921   

Mutual funds - equity securities

     145,538         6,229         (6,697     145,070   

Equity securities

     68,714         3,448         (4,755     67,407   

Other invested assets

     7,376         165         (444     7,097   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total managed investments

   $ 367,816       $ 13,432       $ (12,832   $ 368,416   
  

 

 

    

 

 

    

 

 

   

 

 

 

West Virginia Trust Receivable

     7,557         —           —          7,557   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 375,373       $ 13,432       $ (12,832   $ 375,973   
  

 

 

    

 

 

    

 

 

   

 

 

 

The contractual maturities of debt securities as of June 30, 2013 are as follows:

 

As of June 30, 2013

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

U.S. Government and federal agency

   $ —         $ —         $ —         $ —     

U.S. State and local government agency

     —           —           —           —     

Corporate debt securities

     —           4,131         4,830         —     

Other debt securities

     6,518         1,285         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total fixed maturities

   $ 6,518       $ 5,416       $ 4,830       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

An aging of unrealized losses on the Company’s investments in fixed maturities and equity securities at June 30, 2013 and December 31, 2012 is presented below:

 

     Less than 12 months      12 Months or more      Total  
     Fair      Unrealized      Fair      Unrealized      Fair      Unrealized  

As of June 30, 2013

   Value      Losses      Value      Losses      Value      Losses  
     (in thousands)  

Fixed maturities:

                 

U.S. Government and federal agency

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

U.S. State and local government agency

     —           —           —           —           —           —     

Corporate debt securities

     5,599         176         309         8         5,908         184   

Other debt securities

     3,984         7         —           —           3,984         7   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total fixed maturities

     9,583         183         309         8         9,892         191   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Mutual funds - debt securites

     93,810         6,637         7,575         969         101,385         7,606   

Mutual funds - equity securites

     57,015         457         4,228         352         61,243         809   

Equity securities

     8,838         524         5,956         785         14,794         1,309   

Other invested assets

     —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 169,246       $ 7,801       $ 18,068       $ 2,114       $ 187,314       $   9,915   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     Less than 12 months      12 Months or more      Total  
     Fair      Unrealized      Fair      Unrealized      Fair      Unrealized  

As of December 31, 2012

   Value      Losses      Value      Losses      Value      Losses  
     (in thousands)  

Fixed maturities:

                 

U.S. Government and federal agency

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

U.S. State and local government agency

     —           —           —           —           —           —     

Corporate debt securities

     2,140         20         297         21         2,437         41   

Other debt securities

     4,317         3         —           —           4,317         3   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total fixed maturities

     6,457         23         297         21         6,754         44   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Mutual funds - debt securites

     6,388         463         4,198         429         10,586         892   

Mutual funds - equity securites

     48,255         5,500         19,655         1,197         67,910         6,697   

Equity securities

     17,932         1,527         15,538         3,228         33,470         4,755   

Other invested assets

     2,558         444         —           —           2,558         444   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $   81,590       $ 7,957       $ 39,688       $ 4,875       $ 121,278       $ 12,832   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

A reconciliation of the Company’s merchandise trust activities for the six months ended June 30, 2013 is presented below:

 

Fair

Value @
12/31/2012

    Contributions     Distributions     Interest/
Dividends
    Capital
Gain
Distributions
    Realized
Gain/
Loss
    Taxes     Fees     Unrealized
Change in
Fair Value
    Fair
Value @
6/30/2013
 
(in thousands)  
$ 375,973        37,602        (20,454     8,361        —          7,324        (2,722     (1,356     9,654      $ 414,382   

The Company made net contributions into the trusts of approximately $17.1 million during the six months ended June 30, 2013. During the six months ended June 30, 2013, purchases and sales of securities available for sale included in trust investments were approximately $313.4 million and $324.2 million, respectively. Contributions include $4.9 million of assets that were acquired through acquisitions during the six months ended June 30, 2013.

 

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Table of Contents

Other-Than-Temporary Impairments of Trust Assets

During the six months ended June 30, 2013, the Company determined that there were 4 securities with an aggregate cost basis of approximately $1.4 million and an aggregate fair value of approximately $0.7 million, resulting in an impairment of $0.7 million, wherein such impairment was considered to be other-than-temporary. During the three and six months ended June 30, 2012, the Company determined that there were six securities with an aggregate cost basis of approximately $1.6 million and an aggregate fair value of approximately $0.8 million, resulting in an impairment of $0.8 million, wherein such impairment was considered to be other-than-temporary. Accordingly, the Company adjusted the cost basis of these assets to their current value and offset this change against deferred revenue. This reduction in deferred revenue will be reflected in earnings in future periods as the underlying merchandise is delivered or the underlying service is performed.

During the three months ended June 30, 2013, the Company determined that there were no other than temporary impairments to the investment portfolio in the merchandise trusts.

 

6. PERPETUAL CARE TRUSTS

At June 30, 2013, 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 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.

 

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Table of Contents

The cost and market value associated with the assets held in perpetual care trusts at June 30, 2013 and December 31, 2012 were as follows:

 

As of June 30, 2013

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

Short-term investments

   $ 12,662       $ —         $ —        $ 12,662   

Fixed maturities:

          

U.S. Government and federal agency

     408         95         —          503   

U.S. State and local government agency

     —           —           —          —     

Corporate debt securities

     24,188         212         (464     23,936   

Other debt securities

     371         —           —          371   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total fixed maturities

     24,967         307         (464     24,810   
  

 

 

    

 

 

    

 

 

   

 

 

 

Mutual funds - debt securities

     117,429         211         (3,407     114,233   

Mutual funds - equity securities

     94,098         20,907         —          115,005   

Equity securities

     25,637         10,465         (39     36,063   

Other invested assets

     —           —           —          —     
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 274,793       $ 31,890       $ (3,910   $ 302,773   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

As of December 31, 2012

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

Short-term investments

   $ 21,419       $ —         $ —        $ 21,419   

Fixed maturities:

          

U.S. Government and federal agency

     408         104         —          512   

U.S. State and local government agency

     —           —           —          —     

Corporate debt securities

     22,690         702         (101     23,291   

Other debt securities

     371         —           —          371   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total fixed maturities

     23,469         806         (101     24,174   
  

 

 

    

 

 

    

 

 

   

 

 

 

Mutual funds - debt securities

     103,909         3,429         (150     107,188   

Mutual funds - equity securities

     94,239         5,222         (249     99,212   

Equity securities

     23,797         6,563         (455     29,905   

Other invested assets

     113         302         —          415   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 266,946       $ 16,322       $    (955   $ 282,313   
  

 

 

    

 

 

    

 

 

   

 

 

 

The contractual maturities of debt securities as of June 30, 2013 are as follows:

 

As of June 30, 2013

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

U.S. Government and federal agency

   $ 382       $ 121       $ —         $ —     

U.S. State and local government agency

     —           —           —           —     

Corporate debt securities

     154         10,792         12,990         —     

Other debt securities

     371         —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total fixed maturities

   $ 907       $ 10,913       $ 12,990       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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An aging of unrealized losses on the Company’s investments in fixed maturities and equity securities at June 30, 2013 and December 31, 2012 held in perpetual care trusts is presented below:

 

     Less than 12 months      12 Months or more      Total  

As of June 30, 2013

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

Fixed maturities:

                 

U.S. Government and federal agency

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

U.S. State and local government agency

     —           —           —           —           —           —     

Corporate debt securities

     13,959         441         897         23         14,856         464   

Other debt securities

     —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total fixed maturities

     13,959         441         897         23         14,856         464   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Mutual funds - debt securities

     94,480         3,003         16,002         404         110,482         3,407   

Mutual funds - equity securities

     —           —           —           —           —           —     

Equity securities

     1,098         39         —           —           1,098         39   

Other invested assets

     —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 109,537       $ 3,483       $ 16,899       $ 427       $ 126,436       $ 3,910   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     Less than 12 months      12 Months or more      Total  

As of December 31, 2012

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

Fixed maturities:

                 

U.S. Government and federal agency

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

U.S. State and local government agency

     —           —           —           —           —           —     

Corporate debt securities

     4,630         48         711         53         5,341         101   

Other debt securities

     —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total fixed maturities

     4,630         48         711         53         5,341         101   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Mutual funds - debt securities

     859         35         870         115         1,729         150   

Mutual funds - equity securities

     34,805         249         —           —           34,805         249   

Equity securities

     4,269         238         545         217         4,814         455   

Other invested assets

     —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $   44,563       $    570       $   2,126       $ 385       $   46,689       $    955   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

A reconciliation of the Company’s perpetual care trust activities for the six months ended June 30, 2013 is presented below:

 

Fair
Value @
12/31/2012
     Contributions      Distributions     Interest/
Dividends
     Capital
Gain
Distributions
     Realized
Gain/
Loss
     Taxes     Fees     Unrealized
Change in
Fair Value
     Fair
Value @
6/30/2013
 
(in thousands)  
$ 282,313         5,166         (6,118     7,345         —           3,191         (637     (1,100     12,613       $ 302,773   

The Company made net distributions from the trusts of approximately $1.0 million during the six months ended June 30, 2013. During the six months ended June 30, 2013, purchases and sales of securities available for sale included in trust investments were approximately $83.0 million and $84.2 million, respectively.

Other-Than-Temporary Impairments of Trust Assets

During the three and six months ended June 30, 2013 and 2012, the Company determined that there were no other than temporary impairments to the investment portfolio in the perpetual care trusts.

 

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7. GOODWILL AND INTANGIBLE ASSETS

Goodwill

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

A rollforward of goodwill by reportable segment is as follows:

 

     Cemeteries      Funeral         
     Southeast      Northeast      West      Homes      Total  
     (in thousands)  

Balance as of December 31, 2012

   $ 6,174       $ —         $ 11,948       $ 24,270       $ 42,392   

Goodwill acquired from acquisitions during the six months ended June 30, 2013

     —           —           —           5,178         5,178   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Balance as of June 30, 2013

   $ 6,174       $ —         $ 11,948       $ 29,448       $ 47,570   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other Acquired Intangible Assets

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

 

    

As of

June 30, 2013

    Net     

As of

December 31, 2012

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

Amortized intangible assets:

               

Underlying contract value

   $ 6,239       $ (624   $ 5,615       $ 6,239       $ (555   $ 5,684   

Non-compete agreements

     7,950         (3,332     4,618         6,023         (2,553     3,470   

Other intangible assets

     269         (89     180         269         (81     188   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total intangible assets

   $ 14,458       $ (4,045   $ 10,413       $ 12,531       $ (3,189   $ 9,342   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

The increase in non-compete agreements was the result of an acquisition consummated in the first quarter of 2013. The fair value was determined by comparing the discounted cash flows of the acquired business with and without competition as of the date of acquisition. See Note 13 for further details.

 

8. LONG-TERM DEBT

The Company had the following outstanding debt:

 

     As of  
     June 30,
2013
     December 31,
2012
 
     (in thousands)  

7.875% Senior Notes, due 2021

   $ 175,000       $ —     

10.25% Senior Notes, due 2017

     —           150,000   

Revolving Credit Facility, due January 2017

     91,002         101,700   

Notes payable - acquisition debt

     4,244         1,465   

Notes payable - acquisition non-competes

     4,695         3,830   

Insurance and vehicle financing

     2,889         1,298   
  

 

 

    

 

 

 

Total

     277,830         258,293   

Less current portion

     6,936         2,175   

Less unamortized bond and note payable discounts

     4,604         3,344   
  

 

 

    

 

 

 

Long-term portion

   $ 266,290       $ 252,774   
  

 

 

    

 

 

 

 

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This note includes a summary of material terms of the Company’s senior notes and credit facility. For a more detailed description of the Company’s long-term debt agreements, see the Company’s 2012 Form 10-K. The increase in notes payable acquisition debt and acquisition non-competes was the result of an acquisition consummated in the first quarter of 2013. See Note 13 for further details.

7.875% Senior Notes due 2021

On May 28, 2013, the Company issued $175.0 million aggregate principal amount of 7.875% Senior Notes due 2021 (the “Senior Notes”). The Company pays 7.875% interest per annum on the principal amount of the Senior Notes, payable in cash semi-annually in arrears on June 1 and December 1 of each year, commencing on December 1, 2013. The net proceeds from the offering were used to retire 10.25% Senior Notes due 2017 and the remaining proceeds were used for general corporate purposes. The Senior Notes were issued at 97.832% of par resulting in gross proceeds of $171.2 million with an original issue discount of approximately $3.8 million. The Company incurred debt issuance costs and fees of approximately $4.2 million. These costs and fees are deferred and will be amortized over the life of these notes. Based on trades made at the end of the quarter, the Company has estimated the fair value of its Senior Notes to be below par and trading at a discount of 0.9%, which would imply a fair value of $173.4 million at June 30, 2013. As of June 30, 2013, the Company was in compliance with all applicable covenants of the Senior Notes.

10.25% Senior Notes due 2017

Prior to their retirement in the second quarter of 2013, the Company had outstanding a $150.0 million aggregate principal amount of 10.25% Senior Notes due 2017 (the “Prior Senior Notes”), with an original issue discount of approximately $4.0 million. The Company paid 10.25% interest per annum on the principal amount of the Prior Senior Notes, payable in cash semi-annually in arrears on June 1 and December 1 of each year. The Prior Senior Notes were due to mature on December 1, 2017. In the second quarter of 2013, the Company retired the notes using the proceeds from the Senior Notes offering described above. The Company made a tender offer to repurchase the Prior Senior Notes and paid $14.9 million to retire the Prior Senior Notes inclusive of the tender premium and accrued interest from the date of repurchase through December 1, 2013, the first redemption date for the Prior Senior Notes. In addition the Company incurred expenses of $6.7 million related to the refinancing event inclusive of $2.6 million of unamortized original issue discount and $4.1 million of unamortized capitalized debt issue costs related to the Prior Senior Notes.

Credit Facility

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

On February 19, 2013, the Company entered into the First Amendment to the Credit Agreement, which increased the total availability under the Revolving Credit Facility (the “Credit Facility”) by $10.0 million to $140.0 million (the “Credit Facility”) of which $91.0 million was outstanding at June 30, 2013. The Credit Facility may be used to finance working capital requirements, Permitted Acquisitions and Capital Expenditures. The maturity date of the Credit Facility is January 19, 2017.

On May 8, 2013, the Company entered into the Second Amendment to the Credit Agreement, which allowed the Company to incur additional indebtedness to be evidenced by the 2021 Senior Notes, to enter into the related indenture and to use the proceeds of the Senior Notes offering, in part, to fund the retirement of the Prior Senior Notes.

On June 18, 2013, the Company entered into the Third Amendment to the Credit Agreement. The Third Amendment amended certain financial covenants under the Credit Agreement as follows:

 

  (i) for any most recently completed four fiscal quarters, consolidated EBITDA shall not be less than the sum of $57,822,000 plus 80% of the aggregate of all consolidated EBITDA for each Permitted Acquisition completed after March 31, 2013; and

 

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  (ii) for the periods set forth below, Maximum Consolidated Leverage Ratio shall not be greater than as set forth below, subject to the Borrowers’ option to temporarily increase the Consolidated Leverage Ratio in connection with a Significant Permitted Acquisition Transaction as described below:

 

Measurement Period Ending

   Maximum Consolidated Leverage Ratio

June 30, 2013 through December 31, 2013

   4.000 to 1.0

March 31, 2014

   3.875 to 1.0

June 30, 2014 and thereafter

   3.750 to 1.0

The Third Amendment also increased the ranges of the Applicable Rates to 3.00%, 4.00%, and .800% for Base Rate loans, Eurodollar Rate Loans and Letter of Credit Fees, and Commitment Fees, respectively, when the Consolidated Leverage Ratio is greater than or equal to 3.75 to 1.0.

The Third Amendment also increased the amount of aggregate consideration that the Company may pay for a Permitted Acquisition after March 31, 2014, without Required Lender approval, to $10.0 million on an individual basis and $50.0 million when aggregated with the total Aggregate Consideration paid by or on behalf of the Company for all other Permitted Acquisitions which closed within the immediately preceding 365 days.

The Third Amendment added a defined term for Significant Permitted Acquisition Transaction to describe a Permitted Acquisition in which the Aggregate Consideration exceeds $35.0 million when aggregated with the total Aggregate Consideration for all other Permitted Acquisitions which closed within the immediately preceding 180 days. In the case of a Significant Permitted Acquisition Transaction, the Third Amendment permits the Borrowers, subject to certain limitations, to temporarily increase the Consolidated Leverage Ratio to 4.00 to 1.0 for one or more the four immediately succeeding covenant measurement periods.

In addition, the Third Amendment includes certain conforming changes to reflect the issuance of the Senior Notes.

At June 30, 2013, amounts outstanding under the Credit Facility bore interest at rates between 3.5% and 4.0%. Amounts borrowed may be either Base Rate Loans or Eurodollar Rate Loans and amounts repaid or prepaid during the term may be reborrowed. Depending on the type of loan, borrowings bear interest at the Base Rate or Eurodollar Rate, plus applicable margins ranging from 1.25% to 3.00% and 2.25% to 4.00%, respectively, depending on the 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 Credit Facility approximate their fair value.

The Credit Agreement requires the Company to pay an unused Commitment Fee, which is calculated based on the amount by which the commitments under the Credit Agreement exceed the usage of such commitments. The Commitment Fee Rate ranges from 0.375% to 0.800% depending on the 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 June 30, 2013, the Company was in compliance with all applicable financial covenants.

 

9. INCOME TAXES

As of June 30, 2013, the Company’s taxable corporate subsidiaries had federal net operating loss carryforwards of approximately $163.6 million, which will begin to expire in 2019 and $201.8 million in state net operating losses, a portion of which expires annually.

The Partnership is not a taxable entity for federal and state income tax purposes; rather, the 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.

 

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Table of Contents

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

The provision for income taxes for the three and six months ended June 30, 2013 and 2012 is based upon the estimated annual effective tax rates expected to be applicable to the Company for 2013 and 2012, respectively. The 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 Internal Revenue Service (“IRS”) audited the Company’s federal income tax return for the year ended December 31, 2010. The scope of this audit included an audit of the Company’s qualifying income. In order to be treated as a partnership for federal income tax purposes, at least 90% of the Company’s gross income must be qualifying income. The IRS concluded its audit and notified the Company on April 11, 2013 that it was not proposing any adjustments to the return as filed.

The Company is not currently under examination by any federal or state jurisdictions. The federal statute of limitations and certain state statutes of limitations are open from 2009 forward. Management believes that the accrual for tax liabilities is adequate for all open years. This assessment relies on estimates and assumptions and may involve a series of complex judgments about future events. On the basis of present information, it is the opinion of the 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.

 

10. DEFERRED CEMETERY REVENUES, NET

At June 30, 2013 and December 31, 2012, deferred cemetery revenues, net, consisted of the following:

 

     As of  
     June 30,
2013
    December 31,
2012
 
     (in thousands)  

Deferred cemetery revenue

   $ 376,027      $ 346,621   

Deferred merchandise trust revenue

     76,100        65,728   

Deferred merchandise trust unrealized gains (losses)

     10,254        600   

Deferred pre-acquisition margin

     132,987        132,221   

Deferred cost of goods sold

     (51,046     (47,309
  

 

 

   

 

 

 

Deferred cemetery revenues, net

   $ 544,322      $ 497,861   
  

 

 

   

 

 

 

Deferred selling and obtaining costs

   $ 82,501      $ 76,317   

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

 

11. COMMITMENTS AND CONTINGENCIES

Legal

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

Leases

At June 30, 2013, the Company was committed to operating lease payments for premises, automobiles and office equipment under various operating leases with initial terms ranging from one to ten years and options to renew at varying terms. Expenses under operating leases were $0.6 million and $1.3 million for the three and six months ended June 30, 2013, respectively, and $0.7 million and $1.3 million for the three and six months ended June 30, 2012, respectively.

 

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At June 30, 2013, operating leases will result in future payments in the following approximate amounts from January 1, 2014 and beyond:

 

     (in thousands)  

2014

   $ 1,504   

2015

     952   

2016

     844   

2017

     796   

2018

     778   

Thereafter

     1,751   
  

 

 

 

Total

   $ 6,625   
  

 

 

 

 

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.

Compensation expense recognized related to unit appreciation rights and restricted phantom unit awards for the three and six months ended June 30, 2013 and 2012 are summarized in the table below:

 

     Three months ended
June 30,
     Six months ended
June 30,
 
     2013      2012      2013      2012  
     (in thousands)      (in thousands)  

Unit appreciation rights

   $ 140       $ 129       $ 279       $ 248   

Restricted phantom units

     220         81         411         161   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total unit-based compensation expense

   $ 360       $ 210       $ 690       $ 409   
  

 

 

    

 

 

    

 

 

    

 

 

 

As of June 30, 2013, there was approximately $0.4 million in non-vested unit appreciation rights outstanding. These unit appreciation rights will be expensed through the first half of 2017.

The diluted weighted average number of limited partners’ units outstanding presented on the unaudited condensed consolidated statement of operations does not include 335,547 units and 325,083 units for the three and six months ended June 30, 2013, respectively, as their effects would be anti-dilutive.

Other Unit Issuances

On February 19, 2013, the Company issued 159,635 units in connection with an acquisition. See Note 13. On June 21, 2013 and 2012, the Company issued 4,923 units and 9,853 units, respectively, in connection with an acquisition consummated in the second quarter of 2010. On June 6, 2012, the Company issued 13,720 units in connection with an acquisition. See Note 13.

On March 26, 2013, the Company completed a follow-on public offering of 1,610,000 common units at a price of $25.35 per unit. Net proceeds of the offering, after deducting underwriting discounts and offering expenses, were approximately $38.4 million. The proceeds from the offering were used to pay off debt on the Credit Facility.

 

13. ACQUISITIONS

First Quarter 2013 Acquisition

On February 19, 2013, StoneMor Florida Subsidiary LLC, a subsidiary of the Company, (the “Buyer) entered into an Asset Purchase and Sale Agreement (the “Seawinds Agreement”) with several Florida limited liability companies and one individual (collectively the “Seller”). Pursuant to the Agreement, the Buyer acquired six funeral homes in Florida, including certain related assets, and assumed certain related liabilities.

 

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In consideration for the net assets acquired, the Buyer paid the Seller $9.1 million in cash and issued 159,635 common units, which equates to approximately $3.6 million worth of common units under the terms of the Seawinds Agreement. The Buyer also issued an unsecured promissory note in the amount of $3.0 million that is payable on February 19, 2014 and bears interest at 5.0%. In addition, the Buyer will also pay an aggregate amount of $1.2 million in six equal annual installments commencing on February 19, 2014 in exchange for a non-compete agreement with the Seller. The non-compete agreement will be amortized over the 6 year term of the agreement.

The table below reflects the 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:

  

Accounts receivable

   $ 995   

Property and equipment

     8,315   

Merchandise trusts, restricted, at fair value

     4,853   

Non-compete agreements

     1,927   
  

 

 

 

Total assets

     16,090   
  

 

 

 

Liabilities:

  

Deferred margin

     2,419   

Merchandise liabilities

     2,233   
  

 

 

 

Total liabilities

     4,652   
  

 

 

 

Fair value of net assets acquired

     11,438   
  

 

 

 

Consideration paid - cash

     9,100   

Consideration paid - units

     3,592   

Fair value of note payable

     3,000   

Fair value of debt assumed for non-compete agreements

     924   
  

 

 

 

Total consideration paid

     16,616   
  

 

 

 

Goodwill from purchase

   $ 5,178   
  

 

 

 

First Quarter 2012 Acquisition

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

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

 

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The table below reflects the Company’s final assessment of the fair value of net assets acquired, the elimination of debt and other assets, and the purchase price, which results in the recognition of goodwill recorded in the Company’s Cemetery Operations – Southeast segment.

 

     Final
Assessment
 
     (in thousands)  

Net assets acquired:

  

Accounts receivable

   $ 66   

Cemetery property

     3,001   

Property and equipment

     102   
  

 

 

 

Total net assets acquired

     3,169   
  

 

 

 

Assets and liabilities divested:

  

Note payable to Kingwood

     519   

Intangible asset representing underlying contract value

     (2,236
  

 

 

 

Fair value of net assets acquired and divested

     1,452   
  

 

 

 

Consideration paid

     1,652   
  

 

 

 

Goodwill from purchase

   $ 200   
  

 

 

 

Second Quarter 2012 Acquisitions

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

The table below reflects the Company’s final assessment of the fair value of net assets acquired, the purchase price and the resulting gain on bargain purchase.

 

     Final
Assessment
 
     (in thousands)  

Assets:

  

Accounts receivable

   $ 72   

Cemetery property

     842   

Property and equipment

     518   

Perpetual care trusts, restricted, at fair value

     2,780   

Non-compete agreements

     12   
  

 

 

 

Total assets

     4,224   
  

 

 

 

Liabilities:

  

Perpetual care trust corpus

     2,780   

Other liabilities

     24   

Deferred tax liability

     374   
  

 

 

 

Total liabilities

     3,178   
  

 

 

 

Fair value of net assets acquired

     1,046   
  

 

 

 

Consideration paid

     924   
  

 

 

 

Gain on bargain purchase

   $ 122   
  

 

 

 

 

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In addition, on June 6, 2012, certain subsidiaries of the Company (collectively the “Buyer”) entered into a Purchase Agreement with several individuals and Lodi Funeral Home, Inc. (collectively the “Seller”) to purchase certain assets and assume certain liabilities of Lodi Funeral Home, Inc., a California corporation and all of the stock of Lodi All Faiths Cremation, a California corporation. Through the purchase, the Buyer acquired two funeral homes in California including certain related assets, and assumed certain related liabilities. As part of the agreement, the building and underlying real estate of Lodi Funeral Home, Inc. is being leased from the Seller. The lease agreement is a ten year agreement that contains one five year renewal term at the 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 final assessment of the fair value of net assets acquired. The resulting goodwill is recorded in the Company’s Funeral Homes operating segment.

 

     Final
Assessment
 
     (in thousands)  

Assets:

  

Property and equipment

   $ 48   

Merchandise trusts, restricted, at fair value

     105   

Underlying lease value

     64   

Non-compete agreements

     40   
  

 

 

 

Total assets

     257   
  

 

 

 

Liabilities:

  

Merchandise liabilities

     105   
  

 

 

 

Total liabilities

     105   
  

 

 

 

Fair value of net assets acquired

     152   
  

 

 

 

Consideration paid - cash

     850   

Consideration paid - units

     350   

Fair value of debt assumed for non-compete agreements

     544   
  

 

 

 

Total consideration paid

     1,744   
  

 

 

 

Goodwill from purchase

   $ 1,592   
  

 

 

 

If the acquisitions from 2013 and 2012 had been consummated on January 1, 2012, on a pro forma basis, for the three and six months ended June 30, 2013 and 2012, consolidated revenues, consolidated net income (loss), and net income (loss) per limited partner unit (basic and diluted) would have been as follows:

 

     Three months ended
June 30,
    Six months ended
June 30,
 
     2013     2012     2013     2012  
     (in thousands)     (in thousands)  

Revenue

   $ 62,422      $ 62,779      $ 122,609      $ 123,981   

Net income (loss)

     (11,809     (1,948     (13,888     353   

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

   $ (.54   $ (.10   $ (.66   $ .02   

These pro forma results are unaudited and have been prepared for comparative purposes only and include certain adjustments such as increased interest on the acquisition of debt. They do not purport to be indicative of the results of operations which actually would have resulted had the combination been in effect on January 1, 2012 or of future results of operations of the locations. The Company’s first quarter 2012 acquisition relates to the Amended Operating Agreement as noted above. Therefore, the results of operations for this property have been included in the Company’s results since 2009.

 

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Since their respective dates of acquisition, the properties acquired in 2013 have contributed $1.1 million and $1.5 million of revenue and $0.4 million and $0.5 million of operating profit for the three and six months ended June 30, 2013. The properties acquired in the first half 2012 have contributed $0.9 million and $1.6 million of revenue and $0.3 million and $0.4 million of operating profit for the three and six months ended June 30, 2013.

First Quarter 2012 Contract Termination

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

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

The Company received payments of approximately $2.0 million from the Archdiocese as a result of the termination. Consequently, the Company recognized a gain of $1.7 million during the six months ended June 30, 2012, which is the amount by which the payments from the Archdiocese exceeded the value of the net assets transferred to the Archdiocese.

First and Second Quarter 2013 Settlement

During the six months ended June 30, 2013 the Company recovered $18.4 million, net of legal fees, costs, and contractual obligations related to the settlement of claims from locations that the Company acquired in 2010 and 2011. Of this amount $6.5 million was contributed directly to the related perpetual care and merchandise trusts on the Company’s behalf. $3.4 million of these direct payments represent a gain on settlement agreement on the unaudited condensed consolidated statement of operations due to an increase in the merchandise trusts not previously accrued for in purchase accounting.

The Company received $11.9 million in cash proceeds from the settlement. Of this amount, $1.7 million and $1.3 million are for the reimbursement of legal fees and are recorded as recoveries to corporate overhead and acquisition related costs, respectively. The remaining proceeds were recorded as a gain on settlement agreement on the unaudited condensed consolidated statement of operations. The total gain on settlement for the six months ended June 30, 2013 was $12.3 million. Of the amounts noted above, $1.3 million, inclusive of a gain on settlement agreement of $0.9 million and $0.4 million of recovery of legal fees, was recognized during the first quarter of 2013.

 

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 its regionally based cemetery operating segments. Cremation rates in the West region are substantially higher than they are in the Southeast region. Rates in the Northeast region tend to be somewhere between the two. Statistics indicate that customers who select cremation services have certain attributes that differ from customers who select other methods of interment. The disaggregation of cemetery operations into the three distinct regional segments is primarily due to these differences in customer attributes along with the previously mentioned management structure and senior management analysis methodologies.

 

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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 is as follows:

As of and for the three months ended June 30, 2013:

 

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

Revenues

                  

Sales

   $ 24,767       $ 9,724       $ 12,284       $ —         $ —        $ (14,479   $ 32,296   

Service and other

     8,474         5,754         6,611         —           —          (1,389     19,450   

Funeral home

     —           —           —           11,983         —          (1,307     10,676   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total revenues

     33,241         15,478         18,895         11,983         —          (17,175     62,422   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Costs and expenses

                  

Cost of sales

     5,399         2,658         2,088         —           —          (2,433     7,712   

Cemetery

     6,987         3,885         4,536         —           —          —          15,408   

Selling

     7,932         3,435         3,669         —           461        (3,279     12,218   

General and administrative

     4,216         1,608         2,074         —           —          —          7,898   

Corporate overhead

     —           —           —           —           5,672        —          5,672   

Depreciation and amortization

     584         233         525         749         360        —          2,451   

Funeral home

     —           —           —           9,498         —          (134     9,364   

Acquisition related costs, net of recoveries

     —           —           —           —           (625     —          (625
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total costs and expenses

     25,118         11,819         12,892         10,247         5,868        (5,846     60,098   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Operating profit

   $ 8,123       $ 3,659       $ 6,003       $ 1,736       $ (5,868   $ (11,329   $ 2,324   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total assets

   $ 546,851       $ 310,187       $ 419,902       $ 130,832       $ 27,860      $ —        $ 1,435,632   

Amortization of cemetery property

   $ 1,179       $ 737       $ 314       $ —         $ —        $ (304   $ 1,926   

Long lived asset additions

   $ 1,416       $ 382       $ 746       $ 271       $ 717      $ —        $ 3,532   

Goodwill

   $ 6,174       $ —         $ 11,948       $ 29,448       $ —        $ —        $ 47,570   

 

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As of and for the six months ended June 30, 2013:

 

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

Revenues

                  

Sales

   $ 46,637       $ 18,701       $ 22,044       $ —         $ —        $ (25,102   $ 62,280   

Service and other

     19,580         12,305         15,741         —           —          (9,966     37,660   

Funeral home

     —           —           —           24,810         —          (2,716     22,094   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total revenues

     66,217         31,006         37,785         24,810         —          (37,784     122,034   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Costs and expenses

                  

Cost of sales

     9,774         4,526         3,598         —           —          (3,896     14,002   

Cemetery

     12,959         7,118         8,116         —           —          —          28,193   

Selling

     15,144         6,593         6,762         —           833        (5,890     23,442   

General and administrative

     8,202         3,192         4,086         —           —          —          15,480   

Corporate overhead

     —           —           —           —           13,660        —          13,660   

Depreciation and amortization

     1,112         455         1,065         1,409         740        —          4,781   

Funeral home

     —           —           —           18,421         —          (321     18,100   

Acquisition related costs, net of recoveries

     —           —           —           —           658        —          658   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total costs and expenses

     47,191         21,884         23,627         19,830         15,891        (10,107     118,316   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Operating profit

   $ 19,026       $ 9,122       $ 14,158       $ 4,980       $ (15,891   $ (27,677   $ 3,718   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total assets

   $ 546,851       $ 310,187       $ 419,902       $ 130,832       $ 27,860      $ —        $ 1,435,632   

Amortization of cemetery property

   $ 2,030       $ 1,358       $ 561       $ —         $ —        $ (338   $ 3,611   

Long lived asset additions

   $ 2,326       $ 1,259       $ 1,258       $ 8,925       $ 748      $ —        $ 14,516   

Goodwill

   $ 6,174       $ —         $ 11,948       $ 29,448       $ —        $ —        $ 47,570   

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

 

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

Revenues

                  

Sales

   $ 23,812       $ 9,545       $ 10,292       $ —         $ —        $ (9,535   $ 34,114   

Service and other

     9,255         7,138         7,373         —           —          (4,227     19,539   

Funeral home

     —           —           —           8,189         —          (334     7,855   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total revenues

     33,067         16,683         17,665         8,189         —          (14,096     61,508   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Costs and expenses

                  

Cost of sales

     4,972         2,028         1,739         —           49        (1,552     7,236   

Cemetery

     6,746         3,814         4,215         —           —          —          14,775   

Selling

     7,691         3,322         3,395         —           370        (1,655     13,123   

General and administrative

     3,813         1,487         1,883         —           12        —          7,195   

Corporate overhead

     —           —           —           —           7,756        —          7,756   

Depreciation and amortization

     510         215         547         518         440        —          2,230   

Funeral home

     —           —           —           6,688         —          (73     6,615   

Acquisition related costs, net of recoveries

     —           —           —           —           782        —          782   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total costs and expenses

     23,732         10,866         11,779         7,206         9,409        (3,280     59,712   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Operating profit

   $ 9,335       $ 5,817       $ 5,886       $ 983       $ (9,409   $ (10,816   $ 1,796   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total assets

   $ 490,736       $ 291,245       $ 384,949       $ 79,938       $ 26,195      $ —        $ 1,273,063   

Amortization of cemetery property

   $ 1,022       $ 853       $ 275       $ —         $ —        $ (21   $ 2,129   

Long lived asset additions

   $ 802       $ 825       $ 2,630       $ 401       $ 194      $ —        $ 4,852   

Goodwill

   $ 5,934       $ —         $ 11,948       $ 16,056       $ —        $ —        $ 33,938   

 

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Table of Contents

As of and for the six months ended June 30, 2012:

 

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

Revenues

                  

Sales

   $ 44,692       $ 18,003       $ 20,324       $ —         $ —        $ (17,882   $ 65,137   

Service and other

     18,783         13,713         14,894         —           —          (8,224     39,166   

Funeral home

     —           —           —           17,462         —          (670     16,792   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total revenues

     63,475         31,716         35,218         17,462         —          (26,776     121,095   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Costs and expenses

                  

Cost of sales

     9,263         3,701         3,403         —           52        (2,763     13,656   

Cemetery

     12,451         6,879         8,237         —           —          —          27,567   

Selling

     14,716         6,458         6,607         —           831        (3,702     24,910   

General and administrative

     7,436         3,013         3,923         —           16        —          14,388   

Corporate overhead

     —           —           —           —           14,359        —          14,359   

Depreciation and amortization

     1,046         440         1,114         1,138         822        —          4,560   

Funeral home

     —           —           —           13,487         —          (116     13,371   

Acquisition related costs, net of recoveries

     —           —           —           —           1,113        —          1,113   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total costs and expenses

     44,912         20,491         23,284         14,625         17,193        (6,581     113,924   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Operating profit

   $ 18,563       $ 11,225       $ 11,934       $ 2,837       $ (17,193   $ (20,195   $ 7,171   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total assets

   $ 490,736       $ 291,245       $ 384,949       $ 79,938       $ 26,195      $ —        $ 1,273,063   

Amortization of cemetery property

   $ 2,001       $ 1,413       $ 569       $ —         $ —        $ (3   $ 3,980   

Long lived asset additions

   $ 4,765       $ 1,374       $ 3,100       $ 460       $ 606      $ —        $ 10,305   

Goodwill

   $ 5,934       $ —         $ 11,948       $ 16,056       $ —        $ —        $ 33,938   

Results of individual business units are presented based on our management accounting practices and management structure. There is no comprehensive, authoritative body of guidance for management accounting equivalent to GAAP; therefore, the financial results of individual business units are not necessarily comparable with similar information for any other company. The management accounting process uses assumptions and allocations to measure performance of the business units. Methodologies are refined from time to time as management accounting practices are enhanced and businesses change. Revenues and associated expenses are not deferred in accordance with SAB No. 104; therefore, the deferral of these revenues and expenses is provided in the adjustment column to reconcile the 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 consolidated balance sheet, whereas the Company’s management accounting practices exclude these items.

 

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15. FAIR VALUE MEASUREMENTS

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

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

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

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

On the Company’s unaudited condensed consolidated balance sheet, current assets, long-term accounts receivable and current liabilities are recorded at amounts that approximate fair value.

 

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The following table allocates the Company’s assets measured at fair value as of June 30, 2013 and December 31, 2012.

As of June 30, 2013

Merchandise Trust

 

Description

   Level 1      Level 2      Total  
     (in thousands)  

Assets

        

Short-term investments

   $ 50,286       $ —         $ 50,286   

Fixed maturities:

        

U.S. government and federal agency

     —           —           —     

U.S. state and local government agency

     —           —           —     

Corporate debt securities

     —           8,961         8,961   

Other debt securities

     —           7,803         7,803   
  

 

 

    

 

 

    

 

 

 

Total fixed maturity investments

     —           16,764         16,764   
  

 

 

    

 

 

    

 

 

 

Mutual funds - debt securities

     103,289         —           103,289   

Mutual funds - equity securities - real estate sector

     53,575         —           53,575   

Mutual funds - equity securities - energy sector

     —           —           —     

Mutual funds - equity securities - MLP’s

     37,966         —           37,966   

Mutual funds - equity securities - other

     60,207         —           60,207   

Equity securities:

        

Preferred REIT’s

     65         —           65   

Master limited partnerships

     46,951         —           46,951   

Global equity securities

     32,202         —           32,202   

Other invested assets

     —           5,341         5,341   
  

 

 

    

 

 

    

 

 

 

Total

   $ 384,541       $ 22,105       $ 406,646   
  

 

 

    

 

 

    

 

 

 

Perpetual Care Trust

 

Description

   Level 1      Level 2      Total  
     (in thousands)  

Assets

        

Short-term investments

   $ 12,662       $ —         $ 12,662   

Fixed maturities:

        

U.S. government and federal agency

     503         —           503   

U.S. state and local government agency

     —           —           —     

Corporate debt securities

     —           23,936         23,936   

Other debt securities

     —           371         371   
  

 

 

    

 

 

    

 

 

 

Total fixed maturity investments

     503         24,307         24,810   
  

 

 

    

 

 

    

 

 

 

Mutual funds - debt securities

     114,233         —           114,233   

Mutual funds - equity securities - real estate sector

     44,443         —           44,443   

Mutual funds - equity securities - energy sector

     15,707         —           15,707   

Mutual funds - equity securities - MLP’s

     45,721         —           45,721   

Mutual funds - equity securities - other

     9,134         —           9,134   

Equity securities:

        

Preferred REIT’s

     38         —           38   

Master limited partnerships

     35,234         —           35,234   

Global equity securities

     791         —           791   

Other invested assets

     —           —           —     
  

 

 

    

 

 

    

 

 

 

Total

   $ 278,466       $ 24,307       $ 302,773   
  

 

 

    

 

 

    

 

 

 

 

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As of December 31, 2012

Merchandise Trust

 

Description

   Level 1      Level 2      Total  
     (in thousands)  

Assets

        

Short-term investments

   $ 27,890       $ —         $ 27,890   

Fixed maturities:

        

U.S. government and federal agency

     —           —           —     

U.S. state and local government agency

     —           —           —     

Corporate debt securities

     —           8,714         8,714   

Other debt securities

     —           4,317         4,317   
  

 

 

    

 

 

    

 

 

 

Total fixed maturity investments

     —           13,031         13,031   
  

 

 

    

 

 

    

 

 

 

Mutual funds - debt securities

     107,921         —           107,921   

Mutual funds - equity securities - real estate sector

     51,986         —           51,986   

Mutual funds - equity securities - energy sector

     5,666         —           5,666   

Mutual funds - equity securities - MLP’s

     29,336         —           29,336   

Mutual funds - equity securities - other

     58,082         —           58,082   

Equity securities:

        

Preferred REIT’s

     563         —           563   

Master limited partnerships

     42,410         —           42,410   

Global equity securities

     24,434         —           24,434   

Other invested assets

     —           7,097         7,097   
  

 

 

    

 

 

    

 

 

 

Total

   $ 348,288       $ 20,128       $ 368,416   
  

 

 

    

 

 

    

 

 

 

Perpetual Care Trust

 

Description

   Level 1      Level 2      Total  
     (in thousands)  

Assets

        

Short-term investments

   $ 21,419       $ —         $ 21,419   

Fixed maturities:

        

U.S. government and federal agency

     512         —           512   

U.S. state and local government agency

     —           —           —     

Corporate debt securities

     —           23,291         23,291   

Other debt securities

     —           371         371   
  

 

 

    

 

 

    

 

 

 

Total fixed maturity investments

     512         23,662         24,174   
  

 

 

    

 

 

    

 

 

 

Mutual funds - debt securities

     107,188         —           107,188   

Mutual funds - equity securities - real estate sector

     42,365         —           42,365   

Mutual funds - equity securities - energy sector

     13,061         —           13,061   

Mutual funds - equity securities - MLP’s

     34,805         —           34,805   

Mutual funds - equity securities - other

     8,981         —           8,981   

Equity securities:

        

Preferred REIT’s

     486         —           486   

Master limited partnerships

     28,693         —           28,693   

Global equity securities

     726         —           726   

Other invested assets

     —           415         415   
  

 

 

    

 

 

    

 

 

 

Total

   $ 258,236       $ 24,077       $ 282,313   
  

 

 

    

 

 

    

 

 

 

Level 2 securities primarily consist of corporate and other fixed income debt securities. The Company obtains pricing information for these securities from an independent pricing vendor. The pricing vendor uses various pricing models for each asset class that are consistent with what other market participants would use. The inputs and assumptions to the pricing

 

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vendor’s model are derived from market observable sources including benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers, and other market-related data. Since many fixed income securities do not trade on a daily basis, the pricing vendor uses available information as applicable such as benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing. Thus, certain securities may not be priced using quoted prices, but rather determined from market observable information. These investments are included in Level 2. The Company reviews the information provided by the pricing vendor on a regular basis. In addition, the pricing vendor has an established process in place for the identification and resolution of potentially erroneous prices.

There were no level 3 assets.

 

16. SUBSEQUENT EVENTS

On August 1, 2013, the Company entered into an Asset Purchase and Sale Agreement to acquire 1 cemetery in Virginia, including certain related assets, and assumed certain related liabilities. In consideration for the net assets acquired, the Company paid $5.0 million in cash. A preliminary allocation of the purchase price and fair value of net assets acquired has not been provided as more time is needed to accurately compile this information.

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The words “we,” “us,” “our,” “StoneMor,” the “Partnership,” the “Company” and similar words, when used in a historical context prior to the closing of the initial public offering of StoneMor Partners L.P. on September 20, 2004, refer to Cornerstone Family Services, Inc. (“Cornerstone”), (and, after its conversion, CFSI LLC), and its subsidiaries and thereafter refer to StoneMor Partners L.P. and its subsidiaries.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q (including the notes thereto).

Forward-Looking Statements

Certain statements contained in this Quarterly Report on Form 10-Q, including, but not limited to, information regarding the status and progress of our operating activities, the plans and objectives of our management, assumptions regarding our future performance and plans, and any financial guidance provided, as well as certain information in our other filings with the SEC and elsewhere are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “project,” “expect,” “predict” and similar expressions identify these forward-looking statements. These forward-looking statements are made subject to certain risks and uncertainties that could cause actual results to differ materially from those stated or implied, including, but not limited to, the following: uncertainties associated with future revenue and revenue growth; the effect of the current economic downturn; the impact of our significant leverage on our operating plans; our ability to service our debt and pay distributions; the decline in the fair value of certain equity and debt securities held in our trusts; our ability to attract, train and retain an adequate number of sales people; uncertainties associated with the volume and timing of pre-need sales of cemetery services and products; increased use of cremation; changes in the death rate; changes in the political or regulatory environments, including potential changes in tax accounting and trusting policies; our ability to successfully implement a strategic plan relating to achieving operating improvements, strong cash flows and further deleveraging; our ability to successfully compete in the cemetery and funeral home industry; uncertainties associated with the integration or anticipated benefits of our recent acquisitions or any future acquisitions; our ability to complete and fund additional acquisitions; litigation or legal proceedings that could expose us to significant liabilities and damage our reputation ;our ability to maintain effective disclosure controls and procedures and internal control over financial reporting; the effects of cyber security attacks due to our significant reliance on information technology; uncertainties relating to the financial condition of third-party insurance companies that fund our pre-need funeral contracts; and various other uncertainties associated with the death care industry and our operations in particular.

When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012 (“2012 Form 10-K”), this Quarterly Report on Form 10-Q and our other reports filed with the SEC. Except as required under applicable law, we assume no obligation to update or revise any forward-looking statements made herein or any other forward-looking statements made by us, whether as a result of new information, future events or otherwise.

 

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Organization

We were organized on April 2, 2004 to own and operate the cemetery and funeral home business conducted by Cornerstone and its subsidiaries. On September 20, 2004, in connection with our initial public offering of common units representing limited partner interests, Cornerstone contributed to us substantially all of its assets, liabilities and businesses, and then converted into CFSI LLC, a limited liability company. Cornerstone had been founded in 1999 by members of our management team and a private equity investment firm in order to acquire a group of 123 cemetery properties and 4 funeral homes. Since that time, Cornerstone, succeeded by us, has acquired additional cemeteries and funeral homes, entered into long term cemetery operating agreements, built funeral homes, and sold cemeteries and funeral homes, resulting in the operation of 276 cemeteries and 92 funeral homes as of June 30, 2013.

Capitalization

On September 20, 2004, we completed our initial public offering. Since that time, we have completed additional follow-on public offerings and debt offerings. On March 26, 2013, we completed our most recent follow-on public offering of 1,610,000 common units at a price of $25.35 per unit. Net proceeds of the offering, after deducting underwriting discounts and offering expenses, were approximately $38.4 million. The proceeds from the offering were used to pay down debt on the Credit Facility.

On May 28, 2013, we completed an offering of $175.0 million aggregate principal amount of 7.875% Senior Notes due 2021. The net proceeds from the debt offering were used to pay the tender offer consideration and redeem our outstanding 10.25% Senior Notes due 2017, in aggregate, and the remaining proceeds were used for general corporate purposes.

Overview

Cemetery Operations

We are currently the second largest owner and operator of cemeteries in the United States. As of June 30, 2013, we operated 276 cemeteries in 27 states and Puerto Rico. We own 258 of these cemeteries, and we operate the remaining 18 under management or operating agreements with the nonprofit cemetery corporations that own the cemeteries. As a result of the agreements, other control arrangements and applicable accounting rules, we have treated 16 of these cemeteries as acquisitions for accounting purposes.

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

We sell cemetery products and services both at the time of death, which we refer to as at-need, and prior to the time of death, which we refer to as pre-need. Revenues from cemetery operations accounted for approximately 82.9% and 81.9% of our total revenues during the three and six months ended June 30, 2013 as compared to 87.2% and 86.1% during the same periods last year.

Our results of operations for our Cemetery Operations are determined primarily by the volume of sales of products and services and the timing of product delivery and performance of services. We derive our cemetery revenues primarily from:

 

   

at-need sales of cemetery interment rights, merchandise and services, which we recognize as revenue when we have delivered the related merchandise or performed the service;

 

   

pre-need sales of cemetery interment rights, which we generally recognize as revenues when we have collected 10% of the sales price from the customer;

 

   

pre-need sales of cemetery merchandise, which we recognize as revenues when we satisfy the criteria specified below for delivery of the merchandise to the customer;

 

   

pre-need sales of cemetery services which we recognize as revenues when we perform the services for the customer;

 

   

investment income from assets held in our merchandise trusts, which we recognize as revenues when we deliver the underlying merchandise or perform the underlying services and recognize the associated sales revenue as discussed above;

 

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investment income from perpetual care trusts, excluding realized gains and losses on the sale of trust assets, which we recognize as revenues as the income is earned in the trust; and

 

   

other items, such as interest income on pre-need installment contracts and sales of land.

The criteria for recognizing revenue related to the sale of cemetery merchandise is that such merchandise is “delivered” to our customer, which generally means that:

 

   

the merchandise is complete and ready for installation; or

 

   

the merchandise is either installed or stored at an off-site location, at no additional cost to us, and specifically identified with a particular customer; and

 

   

the risks and rewards of ownership have passed to the customer.

We generally satisfy these delivery criteria by purchasing the merchandise and either installing it on our cemetery property or storing it, at the customer’s request, in third-party warehouses, at no additional cost to us, until the time of need. With respect to burial vaults, we install the vaults rather than storing them to satisfy the delivery criteria. When merchandise is stored for a customer, we may issue a certificate of ownership to the customer to evidence the transfer to the customer of the risks and rewards of ownership.

Pre-need Sales

As previously noted, we do not recognize revenue on pre-need sales of merchandise and services until we have delivered the merchandise or performed the services. Accordingly, deferred revenues from pre-need sales and related merchandise trust earnings are reflected as a liability on our unaudited condensed consolidated balance sheet in deferred cemetery revenues, net.

Total deferred cemetery revenues, net, also includes deferred revenues from pre-need sales that were entered into by entities we acquired prior to the time we acquired them. This includes both those entities that we acquired at the time of the formation of Cornerstone and other subsequent acquisitions. Our profit margin on pre-need sales entered into by entities we subsequently acquired is generally less than our profit margin on other pre-need sales because, in accordance with industry practice at the time these acquired pre-need sales were made, none of the selling expenses were recognized at the time of sale. As a result, we are required to recognize all of the expenses (including deferred selling expenses) associated with these acquired pre-need sales when we recognize the revenues from that sale.

Pre-need products and services are typically sold on an installment basis. Subject to state law, these contracts are normally subject to “cooling-off” periods, generally between three and thirty days, during which the customer may elect to cancel the contract and receive a full refund of amounts paid. Also, subject to applicable state law, we are generally permitted to retain the amounts already paid on contracts, including any amounts that were required to be deposited into trust, on contracts cancelled after the “cooling-off” period. Historical post “cooling-off” period cancellations total approximately 10% of our pre-need sales (based on contract dollar amounts). If the products and services purchased under a pre-need contract are needed for interment before payment has been made in full, generally the balance due must be immediately paid in full.

Contracts related to pre-need installment sales are usually for a period not to exceed 60 months, with payments of principal and interest required. Pre-need sales contracts normally contain provisions for both principal and interest. For those contracts that do not bear a market rate of interest, we impute such interest based upon the prime rate plus 150 basis points, which resulted in a rate of 4.75% for the three and six months ended June 30, 2013 and 2012.

We normally offer prepayment incentives to customers whose pre-need contracts are longer than 36 months and bear interest. If those customers pay their contracts in full in less than 12 months, we rebate the interest that we have collected from them. Even though this rebate policy reduces the amount of interest income we receive on our accounts receivable, the net effect is an increase in our immediate cash flow.

In certain cases, pre-need contracts will be cancelled before they are fully paid. In these circumstances, we are generally permitted to retain amounts already paid to us, including any amounts that were required to be deposited into trust. In certain other cases, the products and services purchased under a pre-need contract are needed for interment before payment has been made in full. In these cases, we are generally entitled to be immediately paid in full for any amounts still outstanding.

At-need Sales

Revenue on at-need merchandise sales is deferred until the time that such merchandise is delivered. The lag between the contract origination and delivery is normally minimal. At-need sales of products and services are generally required to be paid for in full at the time of sale. At that time, we will deposit amounts, as legally required, into our perpetual care trusts. We are not required to deposit any amounts from our at-need sales into merchandise trusts.

 

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Expenses

We analyze and categorize our operating expenses as follows:

1. Cost of goods sold and selling expenses

Cost of goods sold reflects the actual cost of purchasing products and performing services. Sales of cemetery lots and interment rights, whether at-need or pre-need, typically have a lower cost of goods sold than other merchandise that we sell.

Selling expenses consist of salesperson and sales management payroll costs, including selling commissions, bonuses and employee benefits. We self-insure medical expenses of our employees up to certain individual and aggregate limits over which we have stop-loss insurance coverage. Our self-insurance policy may result in variability in our future operating expenses. Selling expenses also include other costs of obtaining product and service sales, such as advertising, marketing, postage and telephone.

Direct costs associated with pre-need sales of cemetery merchandise and services, such as sales commissions and cost of goods sold, are reflected in the unaudited condensed consolidated balance sheet in deferred selling and obtaining costs and deferred cemetery revenues, net, respectively, and are expensed as the merchandise is delivered or the services are performed. Indirect costs, such as marketing and advertising costs, are expensed in the period in which they are incurred.

2. Cemetery Expenses

Cemetery expenses represent the cost to maintain and repair our cemetery properties and consist primarily of labor and equipment, utilities, real estate taxes and other maintenance items. Repairs necessary to maintain our cemeteries are expensed as they are incurred. Other maintenance costs required over the long term to maintain the operating capacity of our cemeteries, such as to build roads and install sprinkler systems, are capitalized.

3. General and administrative expenses

General and administrative expenses, which do not include corporate overhead, primarily include personnel costs, insurance and other costs necessary to maintain our cemetery offices.

4. Depreciation and amortization

We depreciate our property and equipment on a straight-line basis over their estimated useful lives.

5. Acquisition related costs

Acquisition related costs, which include legal fees and other third party costs incurred in acquisition related activities, are expensed as incurred.

Funeral Home Operations

As of June 30, 2013, we owned and operated 92 funeral homes. These properties are located in 18 states and Puerto Rico. Forty-one of our funeral homes are located on the grounds of cemeteries that we own.

We derive revenues at our funeral homes from the sale of funeral home merchandise, including caskets and related funeral merchandise, and services, including removal and preparation of remains, the use of our facilities for visitation, worship and performance of funeral services and transportation services. We sell these services and merchandise almost exclusively at the time of need utilizing salaried licensed funeral directors. Funeral home revenues accounted for approximately 17.1% and 18.1% of our total revenues during the three and six months ended June 30, 2013 as compared to 12.8% and 13.9% during the same periods last year.

Pursuant to state law, a portion of proceeds received from pre-need funeral service contracts is put into trust while amounts used to defray the initial administrative costs are not. All investment earnings generated by the assets in the trust (including realized gains and losses) are deferred until the associated merchandise is delivered or the services are performed. The balance of the amounts in these trusts is included within the merchandise trusts above.

 

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We generally include revenues from pre-need casket sales in the results of our cemetery operations. However, some states require that caskets be sold by funeral homes, and revenues from casket sales in those states are included in our funeral home results.

Our funeral home operating expenses consist primarily of compensation to our funeral directors, day to day costs of managing the business and the cost of caskets.

Corporate

We incur fixed costs for corporate overhead primarily for centralized functions, such as payroll, accounting, collections and professional fees. We also incur expenses relating to reporting requirements under U.S. federal securities laws and certain other additional expenses of being a public company.

2013 Developments

Significant business developments for the six months ended June 30, 2013 include the following:

 

   

Our federal income tax return for the year ended 2010 was audited by the Internal Revenue Service (“IRS”). The scope of this audit included an audit of our qualifying income. In order to be treated as a partnership for federal income tax purposes, at least 90% of our gross income must be qualifying income. The IRS concluded its audit and notified us on April 11, 2013 that it was not proposing any adjustments to our return as filed.

 

   

On February 19, 2013, we entered into the First Amendment to the Third Amended and Restated Credit Agreement which increased the total availability under the Credit Facility by $10.0 million to a total of $140.0 million. See Liquidity and Capital Resources for further discussion.

 

   

On February 19, 2013, we entered into an Asset Purchase and Sale Agreement to purchase certain assets and assume certain liabilities of six funeral homes in Florida. In consideration for the net assets acquired, we paid $9.1 million in cash, issued $3.6 million in common units, issued an unsecured promissory note in the amount of $3.0 million that is payable on February 19, 2014 and we will pay an additional aggregate amount of $1.2 million in six equal annual installments commencing on February 19, 2014 in exchange for a non-compete agreement.

 

   

On March 26, 2013, we completed our most recent follow-on public offering of 1,610,000 common units at a price of $25.35 per unit. Net proceeds of the offering, after deducting underwriting discounts and offering expenses, were approximately $38.4 million. The proceeds were used to pay off debt on our Credit Facility.

 

   

On May 28, 2013, we completed an offering of $175.0 million aggregate principal amount of 7.875% Senior Notes due 2021 at 97.832% of par. The net proceeds from the debt offering were used to pay the tender offer consideration and redeem our outstanding 10.25% Senior Notes due 2017, in aggregate, and the remaining proceeds were used for general corporate purposes.

 

   

On June 18, 2013, we entered into the Third Amendment to the Third Amended and Restated Credit Agreement, which increased our Consolidated Leverage Ratio to 4.00 to 1.0 through December 31, 2013, 3.875 at March 31, 2014, and 3.750 thereafter. The amendment also increased the ranges of the rates to 3.00%, 4.00%, and .800% for base rate loans, Eurodollar rate loans and letter of credit fees, and commitment fees, respectively, when the Consolidated Leverage Ratio is greater than or equal to 3.75 to 1.0. See Liquidity and Capital Resources for further discussion.

We entered into a settlement agreement in the second quarter of 2013, which was a legal settlement related to our second quarter 2010 acquisition of cemeteries and funeral homes in Indiana, Michigan and Ohio and our fourth quarter 2011 acquisition of cemeteries and funeral homes in Tennessee, pursuant to which in the aggregate (i) $6.5 million was placed into pre-need cemetery and funeral trust/escrows and endowment care trusts, and (ii) $8.9 million, net of attorneys’ fees, expenses, and contractual obligations, was returned to us as partial repayment of funds advanced to trusts/escrows in Indiana, Michigan and Ohio at the time of the acquisitions.

Current Market Conditions and Economic Developments

The financial markets experienced fluctuations during 2012 but generally improved compared to 2011. This improvement continued as markets trended higher during the first half of 2013. As of June 30, 2013, the market value of the assets in our merchandise trusts exceeded their amortized cost by 2.5%, which is an improvement from December 31, 2012

 

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when the market value of the assets exceeded their amortized cost by 0.2%. As of June 30, 2013, the market value of the assets in our perpetual care trusts exceeded their amortized cost by 10.2% which is an improvement from December 31, 2012 when the market value of the assets exceeded their amortized cost by 5.8%.

As of June 30, 2013, the majority of our long-term debt consisted of $175.0 million in Senior Notes due in 2021 and $91.0 million of borrowings on our Credit Facility which expires in 2017. As of June 30, 2013, we had an unused line of $49.0 million under our Credit Agreement. Further, on March 26, 2013, we raised capital via a follow-on public offering of our common units, representing a limited partnership interest in us.

The value of pre-need and at-need contracts written has continued to grow and the aggregate values of contracts written were $71.3 million and $135.2 million for the three and six months ended June 30, 2013 as compared to $66.1 million and $127.1 million during the same periods last year.

Impact on Our Ability to Meet Our Debt Covenants

Current market conditions have not negatively impacted our ability to meet our significant debt covenants. These covenants specifically relate to a certain measure of Consolidated EBITDA and certain coverage and leverage ratios as defined in the Credit Agreement described below.

Consolidated EBITDA is primarily related to the current period value of contracts written, investment income from the merchandise and perpetual care trusts, and current expenses incurred. The revenue recognition rules that we must follow for GAAP purposes are not considered.

We have two primary debt covenants that are dependent upon our financial results, the consolidated leverage ratio and the consolidated debt service coverage ratio. The consolidated leverage ratio relates to the ratio of Consolidated Funded Indebtedness to Consolidated EBITDA. Our consolidated leverage ratio was 3.97 at June 30, 2013 compared to a maximum allowed ratio of 4.00. The consolidated debt service coverage ratio relates to the ratio of Consolidated EBITDA to Consolidated Debt Service. Our consolidated debt service coverage ratio was 3.22 at June 30, 2013 compared to a minimum allowed ratio of 2.50.

Segment Reporting and Related Information

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

We chose this level of organization and disaggregation of reportable segments because a) each reportable segment has unique characteristics that set it apart from each other; b) we have organized our management personnel at these operational levels; and c) this is the level at which our chief decision makers and other senior management evaluate performance.

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

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

Our Corporate segment includes various home office expenses, miscellaneous selling, cemetery and general administrative expenses that are not allocable to other operating segments, certain depreciation and amortization expenses and acquisition related costs.

Critical Accounting Policies and Estimates

The unaudited condensed consolidated financial statements are prepared in conformity with GAAP. The preparation of these financial statements required us to make estimates, judgments and assumptions that affected the reported amounts of assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the

 

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reporting periods (see Note 1 to the unaudited condensed consolidated financial statements). Our critical accounting policies are those that are both important to the portrayal of our financial condition and results of operations and require management’s most difficult, subjective and complex judgment. These critical accounting policies are discussed in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of our 2012 Form 10-K. There have been no significant changes to our critical accounting policies since the filing of our 2012 Form 10-K.

Results of Operations – Segments

We account for and analyze the results of operations for our segments on a basis of accounting that is different from GAAP. We reconcile these non-GAAP accounting results of operations to GAAP based amounts at the consolidated level. This reconciliation is included in Note 14 to the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

The method of accounting we utilize to analyze our overall results of operations, including segment results, provides for a production based view of our business. Under the production based view, we recognize revenues at their contract value at the point in time in which the contract is written, less a historic cancellation reserve. All related costs are expensed in the period the contract is recognized as revenue. In contrast, GAAP requires that we defer all revenues, and the direct costs associated with these revenues, until we meet certain delivery and performance requirements. The nature of our business is such that there is no meaningful relationship between the time that elapses from the date a contract is executed and the date the underlying merchandise is delivered or the service, delivery and performance requirements are met. Further, certain factors affecting this time period, such as weather and supplier issues, are out of our control. As a result, during a period of growth, operating profits as defined by GAAP will tend to lag behind operating profits on a production based view because of the required deferral of revenues. Our performance based view ignores these delays and presents results based upon the underlying value of contracts written. We believe this is the most reliable indicator of our performance for a given period as the value of contracts written less a historical cancellation reserve reflects the economic value added during a given period of time. Accordingly, the ensuing segment discussion is on a basis of accounting that differs from generally accepted accounting principles. See Note 1 to the consolidated financial statements included in the 2012 Form 10-K for a more detailed discussion of our accounting policies under GAAP.

Three Months Ended June 30, 2013 Compared to Three Months Ended June 30, 2012

Cemetery Segments

Cemetery Operations – Southeast

In the third quarter of 2012 we made four acquisitions in our Cemetery Operations – Southeast segment. Therefore, the results of operations for these properties have no impact on the three months ended June 30, 2012, but are included in the three months ended June 30, 2013. These acquisitions are contributing all of the revenue growth in this segment and absent these properties, our revenues for the three months ended June 30, 2013 would have declined approximately 2% compared to the same period last year. These acquisitions are also contributing approximately one-half of the increase in costs and expenses.

The table below compares the results of operations for our Cemetery Operations – Southeast for the three months ended June 30, 2013 to the same period last year:

 

     Three months ended June 30,  
     2013      2012      Change ($)     Change (%)  
     (in thousands)  
     (non-GAAP)  

Total revenues

   $ 33,241       $ 33,067       $ 174        0.5

Total costs and expenses

     25,118         23,732         1,386        5.8
  

 

 

    

 

 

    

 

 

   

 

 

 

Operating profit

   $ 8,123       $ 9,335       $ (1,212     -13.0
  

 

 

    

 

 

    

 

 

   

 

 

 

Revenues

The increase in revenues was primarily related to an overall increase in the value of contracts written, with increases of $0.3 million in the value of pre-need contracts, $0.7 million in the value of at-need contracts, and $0.1 million in interest

 

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income. This total increase was offset by a decrease of $0.9 million in income from our trusts. Our investment results can vary from period to period based on a number of factors including realized income and the timing of the recognition of gains within the trusts.

Total costs and expenses

The net increase in costs and expenses was primarily related to:

 

   

A $0.4 million increase in cost of goods sold attributable to the corresponding increase in the value of contracts written.

 

   

A $0.2 million increase in selling expenses primarily attributable to an increase in commission related expenses.

 

   

A $0.3 million increase in cemetery expenses primarily due to increases of $0.1 million in each of the following: labor costs, repair and maintenance costs, and utility and fuel costs.

 

   

A $0.4 million increase in general and administrative expense primarily due to an increase of $0.1 million in insurance costs, with the remaining increase due to general office costs.

 

   

A $0.1 million increase in depreciation expense resulting from increases in property and equipment.

Cemetery Operations – Northeast

The table below compares the results of operations for our Cemetery Operations – Northeast for the three months ended June 30, 2013 to the same period last year:

 

     Three months ended June 30,  
     2013      2012      Change ($)     Change (%)  
     (in thousands)  
     (non-GAAP)  

Total revenues

   $ 15,478       $ 16,683       $ (1,205     -7.2

Total costs and expenses

     11,819         10,866         953        8.8
  

 

 

    

 

 

    

 

 

   

 

 

 

Operating profit

   $ 3,659       $ 5,817       $ (2,158     -37.1
  

 

 

    

 

 

    

 

 

   

 

 

 

Revenues

The decrease in revenues was primarily caused by decreases in at-need revenues of $0.7 million and income from our trusts of $1.3 million, partially offset by an increase of $0.9 million in the value of pre-need contracts written. Our investment results can vary from period to period based on a number of factors including realized income and the timing of the recognition of gains within the trusts.

Total costs and expenses

The increase in costs and expenses was primarily related to:

 

 

A $0.6 million increase in cost of goods sold attributable to the increase in the value of contracts written.

 

 

A $0.1 million increase in selling expenses primarily due to increases in advertising costs.

 

 

A $0.1 million increase in cemetery expenses primarily attributable to $0.1 million increases in both labor and vehicle costs, partially offset by a $0.1 million decrease in repair and maintenance costs.

 

 

A $0.1 million increase in general and administrative expenses primarily due to a $0.1 million increase in insurance costs.

Cemetery Operations – West

In the second quarter of 2012 we made one acquisition in our Cemetery Operations – West segment. Therefore, the results of operations for the acquired property have less of an impact on the three months ended June 30, 2012 as compared to the three months ended June 30, 2013, and account for less than one-third of the increases in revenues and costs and expenses.

 

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The table below compares the results of operations for our Cemetery Operations – West for the three months ended June 30, 2013 to the same period last year:

 

     Three months ended June 30,  
     2013      2012      Change ($)      Change (%)  
     (in thousands)  
     (non-GAAP)  

Total revenues

   $ 18,895       $ 17,665       $ 1,230         7.0

Total costs and expenses

     12,892         11,779         1,113         9.4
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating profit

   $ 6,003       $ 5,886       $ 117         2.0
  

 

 

    

 

 

    

 

 

    

 

 

 

Revenues

The increase in revenues was primarily related to an overall increase in the value of contracts written, with an increase of $1.9 million in the value of pre-need contracts and $0.2 million in the value of at-need contracts, offset by a decrease of $1.0 million in income from our trusts. Our investment results can vary from period to period based on a number of factors including realized income and the timing of the recognition of gains within the trusts.

Total costs and expenses

The increase in costs and expenses was primarily related to:

 

 

A $0.3 million increase in cost of goods sold attributable to the corresponding increase in the value of contracts written.

 

 

A $0.3 million increase in selling expense primarily attributable to an increase in commission and labor related expenses.

 

 

A $0.3 million increase in cemetery expenses primarily due to $0.2 million and $0.1 million increases in real estate taxes and repairs and maintenance costs, respectively.

 

 

A $0.2 million increase in general and administrative expenses primarily due to increases in insurance and other general office costs.

Funeral Home Segment

In 2012 and 2013 we acquired twenty three funeral homes. Of these acquisitions, 2 occurred during the second quarter of 2012, 14 occurred during the third quarter of 2012, 1 occurred during the fourth quarter of 2012 and 6 occurred during the first quarter of 2013. Therefore, the results of operations for these properties have a lesser or no impact on the three months ended June 30, 2012, but are included in the three months ended June 30, 2013. These additions are primarily responsible for the increase to revenues and costs and expenses for this segment.

 

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The table below compares the results of operations for our Funeral Home segment for the three months ended June 30, 2013 to the same period last year:

 

     Three months ended June 30,  
     2013      2012      Change ($)      Change (%)  
     (in thousands)  
     (non-GAAP)  

Total revenues

   $ 11,983       $ 8,189       $ 3,794         46.3

Total costs and expenses

     10,247         7,206         3,041         42.2
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating profit

   $ 1,736       $ 983       $ 753         76.6
  

 

 

    

 

 

    

 

 

    

 

 

 

Revenues

The increase in revenues was primarily attributable to a $2.0 million increase in pre-need revenues, a $1.4 million increase in at-need revenues and a $0.4 million increase in other revenues.

Total costs and expenses

The increase in costs and expenses was primarily attributable to increases of $1.5 million in personnel expenses, $0.6 million in merchandise costs, $0.1 million in advertising, $0.3 million in facility related costs and $0.2 million in depreciation expense, with the remainder attributable to various increases in general and administrative and other expense categories.

Corporate Segment

The table below compares expenses incurred by the Corporate segment for the three months ended June 30, 2013 to the same period last year:

 

     Three months ended June 30,  
     2013     2012      Change ($)     Change (%)  
     (in thousands)  
     (non-GAAP)  

Selling, cemetery and general and administrative expenses

   $ 461      $ 431       $ 30        7.0

Depreciation and amortization

     360        440         (80     -18.2

Acquisition related costs, net of recoveries

     (625     782         (1,407     -179.9

Corporate expenses

         

Corporate personnel expenses

     3,150        3,049         101        3.3

Other corporate expenses

     2,522        4,707         (2,185     -46.4
  

 

 

   

 

 

    

 

 

   

 

 

 

Total corporate overhead

     5,672        7,756         (2,084     -26.9
  

 

 

   

 

 

    

 

 

   

 

 

 

Total corporate expenses

   $ 5,868      $ 9,409       $ (3,541     -37.6
  

 

 

   

 

 

    

 

 

   

 

 

 

Acquisition related costs will vary from period to period depending on the amount of acquisition activity that takes place. The decrease is primarily driven by a $1.3 million recovery of acquisition costs from a legal settlement received during the period. The decrease in total corporate overhead was primarily attributable to a decrease in professional fees including a recovery of legal fees of $1.7 million from a legal settlement.

Reconciliation of Segment Results of Operations to Consolidated Results of Operations

As discussed in the segment sections of this Management’s Discussion and Analysis of Financial Condition and Results of Operations, cemetery revenues and their associated costs as reported at the segment level are not deferred until such time that we satisfy the delivery criteria for revenue recognition.

 

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Periodic consolidated revenues recorded in accordance with GAAP reflect the amount of total merchandise and services which were delivered during the period. Accordingly, period over period changes to revenues can be impacted by:

 

 

Changes in the value of contracts written and other revenues generated during a period that are delivered in their period of origin and are recognized as revenue and not deferred as of the end of their period of origination.

 

 

Changes in merchandise and services that are delivered during a period that had been originated during a prior period.

The table below analyzes results of operations and the changes therein for the three months ended June 30, 2013 as compared to the same period last year. The table is structured so that our readers can determine whether changes were based upon changes in the level of merchandise and services and other revenues generated during each period and/ or changes in the timing of when merchandise and services were delivered:

 

     Three months ended     Three months ended               
     June 30, 2013     June 30, 2012               
     (in thousands)     (in thousands)               
     Segment                 Segment                   Change in     Change in  
     Results     GAAP     GAAP     Results      GAAP     GAAP      GAAP results     GAAP results  
     (non-GAAP)     Adjustments     Results     (non-GAAP)      Adjustments     Results      ($)     (%)  

Revenues

                  

Pre-need cemetery revenues

   $ 36,796      $ (12,961   $ 23,835      $ 33,773       $ (8,631   $ 25,142       $ (1,307     -5.2

At-need cemetery revenues

     20,595        (1,570     19,025        20,428         (850     19,578         (553     -2.8

Investment income from trusts

     7,403        (1,405     5,998        10,542         (4,526     6,016         (18     -0.3

Interest income

     1,860        —          1,860        1,799         —          1,799         61        3.4

Funeral home revenues

     11,983        (1,307     10,676        8,189         (334     7,855         2,821        35.9

Other cemetery revenues

     960        68        1,028        873         245        1,118         (90     -8.1
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total revenues

     79,597        (17,175     62,422        75,604         (14,096     61,508         914        1.5
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Costs and expenses

                  

Cost of goods sold

     10,145        (2,433     7,712        8,788         (1,552     7,236         476        6.6

Cemetery expense

     15,408        —          15,408        14,775         —          14,775         633        4.3

Selling expense

     15,497        (3,279     12,218        14,778         (1,655     13,123         (905     -6.9

General and administrative expense

     7,898        —          7,898        7,195         —          7,195         703        9.8

Corporate overhead

     5,672        —          5,672        7,756         —          7,756         (2,084     -26.9

Depreciation and amortization

     2,451        —          2,451        2,230         —          2,230         221        9.9

Funeral home expense

     9,498        (134     9,364        6,688         (73     6,615         2,749        41.6

Acquisition related costs, net of recoveries

     (625     —          (625     782         —          782         (1,407     -179.9
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total costs and expenses

     65,944        (5,846     60,098        62,992         (3,280     59,712         386        0.6
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Operating profit

   $ 13,653      $ (11,329   $ 2,324      $ 12,612       $ (10,816   $ 1,796       $ 528        29.4
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Revenues

Pre-need cemetery revenues were $23.8 million for the three months ended June 30, 2013, a decrease of $1.3 million, or 5.2%, as compared to $25.1 million during the same period last year. The decrease was primarily caused by an increase of $4.3 million in deferred revenue, which was offset by an increase of $3.0 million in the value of cemetery contracts written.

At-need cemetery revenues were $19.0 million for the three months ended June 30, 2013, a decrease of $0.6 million, or 2.8%, as compared to $19.6 million during the same period last year. The decrease was primarily caused by an increase of $0.7 million in deferred revenue, which was offset by an increase of $0.1 million in the value of cemetery contracts written.

Investment income from trusts was $6.0 million for the three months ended June 30, 2013 and 2012. On a segment basis, we had a decrease of $3.1 million related to a decrease in realized gains on our investments, which was offset by $3.1 million related to funds on which we met the requirements to allow us to recognize them as revenue.

Interest income on accounts receivable was $1.9 million for the three months ended June 30, 2013, an increase of $0.1 million, or 3.4%, as compared to $1.8 million during the same period last year.

Revenues for the Funeral Home segment were $10.7 million for the three months ended June 30, 2013, an increase of $2.8 million, or 35.9%, as compared to $7.9 million during the same period last year. The increase was primarily caused by an increase of $3.8 million in the value of contracts written which was offset by an increase of $1.0 million in deferred revenue. The increase in the value of contracts written was primarily attributable to our acquisition of twenty one funeral homes subsequent to the second quarter of 2012.

Other cemetery revenues were $1.0 million for the three months ended June 30, 2013, a decrease of $0.1 million, or 8.1%, as compared to $1.1 million during the same period last year.

 

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Costs and Expenses

Cost of goods sold were $7.7 million for the three months ended June 30, 2013, an increase of $0.5 million, or 6.6%, as compared to $7.2 million during the same period last year. The ratio of cost of goods sold to pre-need and at-need cemetery revenues was 18.0% during the three months ended June 30, 2013 as compared to 16.2% during the same period last year. The change in the ratio primarily relates to changes in product mix.

Cemetery expenses were $15.4 million during the three months ended June 30, 2013, an increase of $0.6 million, or 4.3%, compared to $14.8 million during the same period last year. Within this category, there were increases of $0.1 million in labor costs, $0.1 million in repair and maintenance, $0.2 million in real estate taxes and $0.2 million in utility costs. Cemetery expenses relate to the current costs of managing and maintaining our cemetery properties. These costs are expensed as incurred and are not deferred. Accordingly, from a margin standpoint, the most effective gauge of measuring cemetery expenses is as a ratio of segment level pre-need and at-need cemetery revenues. Changes in this ratio give an indication of our ability to manage and control our operating costs relative to our overall cemetery operations. An increase in the ratio indicates that expense increases related to the operation and maintenance of our cemetery properties exceeded increases in the value of contracts written, while a decrease in the ratio indicates that expense growth did not exceed increases in the value of contracts written. In the short-term, this ratio can be positively or negatively impacted by our acquisitions, including such factors as how long it takes us to fully implement our pre-need sales programs and whether there are any unanticipated costs. Over the long-term, we would expect this ratio to slightly decline as many of the expenses in this category are fixed in nature. The ratio of cemetery expenses to segment level pre-need and at-need cemetery revenues was 26.8% during the three months ended June 30, 2013 as compared to 27.3% during the same period last year.

Selling expenses were $12.2 million during the three months ended June 30, 2013, a decrease of $0.9 million, or 6.9%, as compared to $13.1 million during the same period last year. The expense decrease was caused by an increase of $1.6 million in deferred selling expenses, offset by increases of $0.4 million in commission related expenses and $0.1 million in travel expenses, with the remaining increases in other general selling expenses. The ratio of selling expenses to cemetery revenues was 28.5% during the three months ended June 30, 2013 as compared to 29.3% during the same period last year. This ratio gives some indication of how effectively the money we invest in selling efforts is translating into sales. However, the majority of our selling expenses are directly related to sales commissions and bonuses, which would be directly related to changes in the value of pre-need and at-need contracts written. As a result, we would expect this ratio to remain fairly consistent.

General and administrative expenses were $7.9 million during the three months ended June 30, 2013, an increase of $0.7 million, or 9.8%, compared to $7.2 million during the same period last year. The majority of the increase was due to increases of $0.3 million in insurance and $0.3 million in labor costs. General and administrative expenses are expensed as incurred and are not deferred. Accordingly, from a margin standpoint, the most effective gauge of measuring general and administrative expenses is as a ratio of segment level pre-need and at-need cemetery revenues. Changes in this ratio give an indication of our ability to manage and control our general and administrative costs relative to our overall cemetery operations. An increase in the ratio indicates that general and administrative percentage expense increases related to our cemetery properties exceeded percent increases in the value of contracts written, while a decrease in the ratio indicates that expense growth on a percentage basis did not exceed percentage increases in the value of contracts written. In the short-term, this ratio can be positively or negatively impacted by our acquisitions, including such factors as how long it takes us to fully implement our pre-need sales programs and whether there are any unanticipated costs. Over the long-term, we would expect this ratio to slightly decrease as many of the expenses in this category are fixed in nature. The ratio of general and administrative expenses to segment level pre-need and at-need cemetery revenues was 13.8% during the three months ended June 30, 2013 as compared to 13.3% during the same period last year.

Total corporate overhead was $5.7 million for the three months ended June 30, 2013, a decrease of $2.1 million, or 26.9% compared to $7.8 million during the same period last year. The decrease was primarily attributable to a decrease in professional fees primarily related to a recovery of legal fees of $1.7 million from a legal settlement.

Depreciation and amortization was $2.5 million during the three months ended June 30, 2013, an increase of $0.3 million, or 9.9%, as compared to $2.2 million during the same period last year. The increase was primarily due to additional depreciation and amortization from our recent acquisitions.

Funeral home expenses were $9.4 million for the three months ended June 30, 2013, an increase of $2.8 million, or 41.6%, compared to $6.6 million during the same period last year. The increase was primarily driven by our most recent acquisitions and was mostly attributable to segment level increases of $1.5 million in personnel expenses, $0.6 million in merchandise costs, $0.1 million in advertising, and $0.3 million in facility related costs, with the remainder attributable to various increases in general and administrative and other expense categories.

Due to a legal settlement during the period, acquisition related costs resulted in a net recovery of $0.6 million for the three months ended June 30, 2013, a decrease of $1.4 million, or 179.9%, as compared to an expense of $0.8 million during the same period last year. These costs will vary from period to period depending on the amount of acquisition activity that takes place.

 

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Non-segment Allocated Results

Certain income statement amounts are not allocated to segment operations. These amounts are those line items that can be found on our income statement below operating profit and above net loss.

The table below summarizes these items and the changes between the three months ended June 30, 2013 and 2012:

 

     Three months ended June 30,  
     2013     2012     Change ($)     Change (%)  
     (in thousands)  

Gain (loss) on termination of operating agreement

   $ —        $ (83   $ 83        -100.0

Gain on settlement agreement, net

     11,349        —          11,349        100.0

Gain on acquisition

     —          122        (122     -100.0

Loss on early extinguishment of debt

     21,595        —          21,595        100.0

Gain on sale of other assets

     155        —          155        100.0

Interest expense

     5,132        4,870        262        5.4

Income tax benefit

   $ (1,090   $ (866   $ (224     25.9

During the three months ended June 30, 2012, as new information became available, we recorded an adjustment to reduce the gain previously recognized on the termination of an operating agreement that occurred in the first quarter of 2012. Refer to Note 13 of our unaudited condensed consolidated financial statements in Item 1 of Form 10-Q for a more detailed discussion.

During the second quarter of 2013 certain proceeds received from a legal settlement were recorded as a gain on settlement agreement on the unaudited condensed consolidated statement of operations, resulting in a total gain on settlement of $11.3 million.

The gain on acquisition recorded during the three months ended June 30, 2012 relates to one of our second quarter 2012 acquisitions.

The early extinguishment of debt charge of $21.6 million relates to the tender premium of $14.9 million we paid in connection with the early repayment of $150.0 million of our 10.25% Senior Notes due 2017 and the write-off of $6.7 million of unamortized fees and discounts related to those notes.

Interest expense has increased during the three months ended June 30, 2013 as compared to the same period last year. This increase is primarily caused by increased borrowings on our Credit Facility. Average amounts outstanding under our Credit Facility were $86.3 million and $61.5 million during the three months ended June 30, 2013 and 2012, respectively.

We had an income tax benefit of $1.1 million for the three months ended June 30, 2013, as compared to 0.9 million during the same period last year. Our effective tax rate differs from our statutory tax rate primarily because our legal entity structure includes different tax filing entities, including a significant number of partnerships that are not subject to paying tax.

Six Months Ended June 30, 2013 Compared to Six Months Ended June 30, 2012

Cemetery Operations – Southeast

In the third quarter of 2012 we made four acquisitions in our Cemetery Operations – Southeast segment. Therefore, the results of operations for these properties have no impact on the six months ended June 30, 2012, but are included in the six months ended June 30, 2013. These additions are contributing approximately two-thirds of the increases in revenues and costs and expenses for this segment.

 

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The table below compares the results of operations for our Cemetery Operations – Southeast for the six months ended June 30, 2013 to the same period last year:

 

     Six months ended June 30,  
     2013      2012      Change ($)      Change (%)  
     (in thousands)  
     (non-GAAP)  

Total revenues

   $ 66,217       $ 63,475       $ 2,742         4.3

Total costs and expenses

     47,191         44,912         2,279         5.1
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating profit

   $ 19,026       $ 18,563       $ 463         2.5
  

 

 

    

 

 

    

 

 

    

 

 

 

Revenues

The increase in revenues was related to an overall increase in the value of contracts written, with increases of $1.3 million in the value of at-need contracts and $1.0 million in the value of pre-need contracts. We also had an increase of $0.3 million in income from our trusts.

Total costs and expenses

The increase in costs and expenses was primarily related to:

 

   

A $0.5 million increase in cost of goods sold attributable to the corresponding increase in the value of contracts written.

 

   

A $0.4 million increase in selling expenses primarily attributable to increases in commission related expenses.

 

   

A $0.5 million increase in cemetery expenses primarily due to increases of $0.2 million in both labor costs and repair and maintenance costs and an increase of $0.1 million in utility and fuel costs.

 

   

An $0.8 million increase in general and administrative expense due to increases of $0.2 million in personnel expenses, $0.1 million in professional fees and $0.1 million in insurance, with the remaining increase due to general office costs.

 

   

A $0.1 million increase in depreciation expense resulting from increases in property and equipment.

Cemetery Operations – Northeast

The table below compares the results of operations for our Cemetery Operations – Northeast for the six months ended June 30, 2013 to the same period last year:

 

     Six months ended June 30,  
     2013      2012      Change ($)     Change (%)  
     (in thousands)  
     (non-GAAP)  

Total revenues

   $ 31,006       $ 31,716       $ (710     -2.2

Total costs and expenses

     21,884         20,491         1,393        6.8
  

 

 

    

 

 

    

 

 

   

 

 

 

Operating profit

   $ 9,122       $ 11,225       $ (2,103     -18.7
  

 

 

    

 

 

    

 

 

   

 

 

 

Revenues

The decrease in revenues can be disaggregated into an increase of $1.4 million in the value of pre-need contracts, offset wholly by decreases of $0.5 million in the value of at-need contracts written, $1.5 million in income from our trusts and $0.1 million of interest income. Our investment results can vary from period to period based on a number of factors including realized income and the timing of the recognition of gains within the trusts.

Total costs and expenses

The increase in costs and expenses was primarily related to:

 

 

An $0.8 million increase in cost of goods sold attributable to the increase in the value of contracts written.

 

 

A $0.1 million increase in selling expenses primarily due to increases in advertising costs.

 

 

A $0.2 million increase in cemetery expenses primarily attributable to increases in labor costs.

 

 

A $0.2 million increase in general and administrative expenses primarily due to $0.1 million increases in both insurance costs and personnel costs.

 

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Cemetery Operations – West

Effective March 31, 2012, we terminated our operating agreement with the Archdiocese of Detroit. Therefore, the results of operations for these properties are only included in the six months ended June 30, 2012 up to that point and have no impact on the six months ended June 30, 2013. The removal of these properties from our results of operations resulted in a $1.8 million decrease in revenues and a $1.6 million decrease in costs and expenses period over period.

Further, in the second quarter of 2012 we made one acquisition in our Cemetery Operations – West segment. Therefore, the results of operations for the acquired property have less of an impact on the six months ended June 30, 2012 as compared to the six months ended June 30, 2013, accounting for approximately one-third of the increase in revenues and slightly more than the entire increase in costs and expenses.

The table below compares the results of operations for our Cemetery Operations – West for the six months ended June 30, 2013 to the same period last year:

 

     Six months ended June 30,  
     2013      2012      Change ($)      Change (%)  
     (in thousands)  
     (non-GAAP)  

Total revenues

   $ 37,785       $ 35,218       $ 2,567         7.3

Total costs and expenses

     23,627         23,284         343         1.5
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating profit

   $ 14,158       $ 11,934       $ 2,224         18.6
  

 

 

    

 

 

    

 

 

    

 

 

 

Revenues

The increase in revenues was driven by additional revenue from the aforementioned acquisition and an increase in the value of contracts written, offset partially by the aforementioned contract termination. There was an increase of $1.7 million in the value of pre-need contracts written and an increase of $1.2 million in income from our trusts, offset by a decrease of $0.3 million in the value of at-need contracts written. Our investment results can vary from period to period based on a number of factors including realized income and the timing of the recognition of gains within the trusts.

Total costs and expenses

The increase in costs and expenses was primarily related to:

 

 

A $0.2 million increase in cost of goods sold attributable to the corresponding increase in the value of contracts written.

 

 

A $0.1 million increase in selling expenses primarily due to increases in commission and personnel related costs.

 

 

A $0.1 million decrease in cemetery expenses primarily due to a decrease of $0.6 million in labor costs, offset by an increase of $0.3 million in repairs and maintenance and an increase of $0.2 in real estate tax costs.

 

 

A $0.2 million increase in general and administrative expenses primarily due to an increase in general office costs.

 

 

A $0.1 million decrease in depreciation.

Funeral Home Segment

In 2012 and 2013 we acquired twenty three funeral homes. Of these acquisitions, 2 occurred during the second quarter of 2012, 14 occurred during the third quarter of 2012, 1 occurred during the fourth quarter of 2012 and 6 occurred during the first quarter of 2013. Therefore, the results of operations for these properties have a lesser or no impact on the six months ended June 30, 2012, but are included in the six months ended June 30, 2013. These additions are primarily responsible for the increase to revenues and costs and expenses for this segment.

 

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The table below compares the results of operations for our Funeral Home segment for the six months ended June 30, 2013 to the same period last year:

 

     Six months ended June 30,  
     2013      2012      Change ($)      Change (%)  
     (in thousands)  
     (non-GAAP)  

Total revenues

   $ 24,810       $ 17,462       $ 7,348         42.1

Total costs and expenses

     19,830         14,625         5,205         35.6
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating profit

   $ 4,980       $ 2,837       $ 2,143         75.5
  

 

 

    

 

 

    

 

 

    

 

 

 

Revenues

The increase in revenues was primarily attributable to a $2.7 million increase in at-need revenues, a $4.0 million increase in pre-need revenues and a $0.6 million increase in other revenues.

Total costs and expenses

The increase in costs and expenses was primarily attributable to increases of $2.6 million in personnel expenses, $0.5 million in facility costs, $0.8 million in merchandise costs, $0.4 million in advertising and $0.3 million in depreciation, with the remainder attributable to increases in other general expense categories.

Corporate Segment

The table below compares expenses incurred by the Corporate segment for the six months ended June 30, 2013 to the same period last year:

 

     Six months ended June 30,  
     2013      2012      Change ($)     Change (%)  
     (in thousands)  
     (non-GAAP)  

Selling, cemetery and general and administrative expenses

   $ 833       $ 899       $ (66     -7.3

Depreciation and amortization

     740         822         (82     -10.0

Acquisition related costs, net of recoveries

     658         1,113         (455     -40.9

Corporate expenses

          

Corporate personnel expenses

     7,454         6,197         1,257        20.3

Other corporate expenses

     6,206         8,162         (1,956     -24.0
  

 

 

    

 

 

    

 

 

   

 

 

 

Total corporate overhead

     13,660         14,359         (699     -4.9
  

 

 

    

 

 

    

 

 

   

 

 

 

Total corporate expenses

   $ 15,891       $ 17,193       $ (1,302     -7.6
  

 

 

    

 

 

    

 

 

   

 

 

 

Acquisition related costs will vary from period to period depending on the amount of acquisition activity that takes place. The decrease in total corporate overhead was primarily attributable to a decrease in professional fees primarily related to a recovery of legal fees of $1.7 million from a legal settlement and a decrease in advertising costs of $0.3 million, offset by a $1.3 million increase in personnel expenses.

Reconciliation of Segment Results of Operations to Consolidated Results of Operations

As discussed in the segment sections of this Management’s Discussion and Analysis of Financial Condition and Results of Operations, cemetery revenues and their associated costs as reported at the segment level are not deferred until such time that we satisfy the delivery criteria for revenue recognition.

 

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The table below analyzes results of operations and the changes therein for the six months ended June 30, 2013 as compared to the same period last year. The table is structured so that our readers can determine whether changes were based upon changes in the level of merchandise and services and other revenues generated during each period and/ or changes in the timing of when merchandise and services were delivered:

 

     Six months ended      Six months ended               
     June 30, 2013      June 30, 2012               
     (in thousands)      (in thousands)               
     Segment                   Segment                   Change in     Change in  
     Results      GAAP     GAAP      Results      GAAP     GAAP      GAAP results     GAAP results  
     (non-GAAP)      Adjustments     Results      (non-GAAP)      Adjustments     Results      ($)     (%)  

Revenues