Acquisition (Notes)

9 Months Ended

Sep. 30, 2014

Acquisition, textuals [Abstract]

Business Combination Disclosure

Acquisition

Stewart

On December 23, 2013, pursuant to a tender offer, we acquired Stewart Enterprises, Inc. (Stewart) for $13.25 per share in cash, resulting in a purchase price of $1.5 billion, which includes the assumption of $331.5 million of Stewart’s debt.

The primary reasons for the merger and the principal factors that contributed to the recognition of goodwill in this acquisition were:

• the acquisition of Stewart enhances our network footprint, enabling us to serve a number of new, complementary areas;

• combining the two companies’ operations provides synergies and related cost savings through the elimination of duplicate home office functions and economies of scale; and

• the acquisition of Stewart’s preneed backlog of deferred revenues enhances our long-term stability.

The following table summarizes the adjusted fair values of the assets acquired and liabilities assumed as of December 23, 2013:

	(In thousands)
Accounts receivable	$	11,892
Other current assets	186,871
Cemetery property	303,775
Property and equipment, net	340,697
Preneed funeral and cemetery receivables and trust investments	648,482
Finite-lived intangible assets	71,938
Indefinite-lived intangible assets	79,400
Acquired assets held for sale	524,293
Deferred charges and other assets	265,098
Goodwill	545,843
Total assets acquired	2,978,289
Current liabilities	218,920
Long-term debt	270,668
Deferred preneed funeral and cemetery revenues and deferred receipts held in trusts	734,765
Assumed liabilities held for sale	243,955
Deferred income taxes	56,946
Other liabilities	287,562
Total liabilities assumed	1,812,816
Noncontrolling interest	118
Net assets acquired	$	1,165,355

We have not finalized our assessment of the fair values as there has been insufficient time between the acquisition date and the issuance of these financial statements to complete our review and final determination of fair value. During the nine months of 2014, we made the following adjustments to our estimates of the fair value of assets and liabilities and revised the consolidated balance sheet for the year-ended December 31, 2013 included in this filing to reflect these adjustments:

	(In thousands)
Decrease in the fair value of accounts receivable and other current assets	$	(13,774	)
Increase in the fair value of cemetery property	19,000
Decrease in the fair value of preneed funeral and cemetery receivables and trust investments	(6,528		)
Decrease in the fair value of finite-lived intangible assets	(34,340		)
Increase in the fair value of acquired assets held for sale	90,045
Decrease in the fair value of deferred charges and other assets	(13,222		)
Decrease in the fair value of deferred preneed funeral and cemetery revenues and deferred receipts held in trust	48,093
Change in the fair value of acquired assets and liabilities held for sale	(90,318		)
Decrease in the fair value of deferred income taxes	43,223
Other	(9,444		)
Total adjustment to goodwill	$	32,735

Goodwill, land, and certain identifiable intangible assets recorded in the acquisition are not subject to amortization; however, the goodwill and intangible assets will be tested periodically for impairment as required by the Intangible Assets Topic of the ASC. Of the $545.8 million in goodwill recognized, $245.6 million was allocated to our cemetery segment and $300.2 million was allocated to our funeral segment. As a result of the carryover of Stewart’s tax basis, $2.3 million of this goodwill is deductible for tax purposes. The identified intangible assets comprise the following:

	Useful life
	Minimum	Maximum	Fair Value
	(Years)		(In thousands)
Preneed customer relationships related to insurance policies	10	20	$	28,500
Other preneed customer relationships	10	14	16,764
Selling and management agreements	20	40	5,900
Covenants-not-to-compete	5	15	5,480
Operating leases	26	34	6,144
Tradenames	5	5	9,150
Tradenames		Indefinite	77,900
Licenses and permits		Indefinite	1,500
Total intangible assets			$	151,338

The condensed statement of operations for the three and nine months ended September 30, 2014 includes the results of operations of Stewart. For the three and nine months ended September 30, 2013, the following unaudited pro forma information presents information as if the merger occurred on January 1, 2013:

	Three Months Ended		Nine Months Ended
	September 30, 2013		September 30, 2013
	(In thousands)
Revenue	$	697,723	$	2,166,050
Net income	$	25,691	$	126,241

SCI Direct

During 2013, we acquired an additional 20% of the outstanding shares of The Neptune Society, Inc. increasing our ownership from 70% to 90%. On January 1, 2014 The Neptune Society, Inc. changed its legal name to SCI Direct, Inc. During 2014, the Company acquired the remaining 10% of the outstanding shares of SCI Direct (formerly The Neptune Society, Inc.). SCI Direct is our direct cremation business and manages operations under various brand names, including Neptune Society, National Cremation Service, Trident Society, and Cremation Society of Virginia. This activity expands our footprint into a sector of the market that will continue to grow and that we do not currently target through our traditional funeral service and cemetery network.