UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended ~~March 31, 2020~~September 30, 2021


☐	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: 001-39172

STONEMOR INC.

(Exact name of registrant as specified in its charter)

Delaware

80-0103152

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

~~3600 Horizon Boulevard~~3331 Street Road, Suite 200

~~Trevose,~~ Bensalem, Pennsylvania

~~19053~~19020

(Address of principal executive offices)

(Zip Code)

(Registrant’s telephone number, including area code): ~~(215)~~ (215) 826-2800

__________________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	STON	New York Stock Exchange

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☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes☒ No ☐

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


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☐

The number of shares of the registrant’s ~~outstanding~~ common stock outstanding at ~~May 13, 2020~~November 9, 2021 was ~~94,506,848.~~118,058,641.

FORM 10-Q OF STONEMOR ~~INC~~.INC.

TABLE OF CONTENTS



PART I	Financial Information

Item 1.	Financial Statements (Unaudited)	3

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4439

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5453

Item 4.	Controls and Procedures	54


PART II	Other Information

Item 1.	Legal Proceedings	5756

Item 1A.	Risk Factors	5756

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5859

Item 3.	Defaults upon Senior Securities	5859

Item 4.	Mine Safety Disclosures	5859

Item 5.	Other Information	5859

Item 6.	Exhibits	5960

	Signatures	61

Table of Contents

PART 1 – FINANCIAL INFORMATION

~~ITEM 1.~~

~~FINANCIAL STATEMENTS~~

ITEM 1. FINANCIAL STATEMENTS

STONEMOR INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except share and per share ~~data)~~amounts)


	March 31,			December 31,			September 30,			December 31,
	2020			2019			2021			2020
Assets
Current assets:
Cash and cash equivalents, excluding restricted cash	$	27,066		$	34,867		$	99,509		$	39,244
Restricted cash		20,400			21,900			16,415			20,846
Accounts receivable, net of allowance		55,516			55,794			60,066			57,869
Prepaid expenses		6,649			4,778			9,387			5,290
Assets held for sale		77,850			23,858			—			28,575
Other current assets		13,593			17,142			14,963			16,884
Total current assets		201,074			158,339			200,340			168,708

Long-term accounts receivable, net of allowance		71,474			75,549			76,051			75,301
Cemetery property		303,628			320,605			296,250			299,526
Property and equipment, net of accumulated depreciation		93,472			103,400			80,055			83,496
Merchandise trusts, restricted, at fair value		437,638			517,192			548,541			501,453
Perpetual care trusts, restricted, at fair value		284,832			343,619			335,076			312,228
Deferred selling and obtaining costs		113,611			114,944			122,488			116,900
Deferred tax assets		87			81			—			9
Intangible assets		55,942			56,246
Intangible assets, net								54,291			55,094
Other assets		26,661			29,393			23,819			22,248
Total assets	$	1,588,419		$	1,719,368		$	1,736,911		$	1,634,963

Liabilities and Owners' Equity
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities	$	49,941		$	55,134		$	45,311		$	51,718
Liabilities held for sale		52,437			20,668			—			23,406
Accrued interest		117			125			13,222			95
Current portion, long-term debt		2,139			374			1,769			317
Total current liabilities		104,634			76,301			60,302			75,536

Long-term debt, net of deferred financing costs		341,443			367,963			389,672			320,715
Deferred revenues		867,407			949,375			1,027,565			949,164
Deferred tax liabilities		35,847			34,613			17,823			29,652
Perpetual care trust corpus		284,832			343,619			335,076			312,228
Other long-term liabilities		47,368			49,987			42,219			40,081
Total liabilities		1,681,531			1,821,858			1,872,657			1,727,376
Commitments and contingencies

Owners' equity:
Common stock, par value $0.01 per share, 200,000,000 shares authorized, 94,477,102 and 94,447,356 shares issued and outstanding, respectively		944			944
Stockholders' equity:
Common stock, par value $0.01 per share, 200,000,000 shares authorized, 118,011,766 and 117,871,141 shares issued and outstanding, respectively								1,180			1,178
Paid-in capital in excess of par value		(103,059	)		(103,434	)		(83,709	)		(85,232	)
Retained earnings		9,003			—
Total owners' equity		(93,112	)		(102,490	)
Total liabilities and owners' equity	$	1,588,419		$	1,719,368
Accumulated deficit								(53,217	)		(8,359	)
Total stockholders' equity								(135,746	)		(92,413	)
Total liabilities and stockholders' equity							$	1,736,911		$	1,634,963

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

Table of Contents

STONEMOR INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands, except per share ~~and per unit data)~~amounts)


	Three Months Ended March 31,						Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2021			2020			2021			2020
Revenues:
Cemetery:
Interments	$	15,954		$	15,944		$	21,954		$	20,316		$	65,379		$	51,542
Merchandise		15,166			16,541			16,935			15,949			51,004			44,918
Services		15,560			15,967			17,240			16,078			52,219			47,656
Investment and other		11,386			9,458			14,685			9,677			41,320			29,564
Funeral home:
Merchandise		6,568			6,275			6,120			5,793			17,542			16,004
Services		6,611			7,284			5,361			4,900			16,125			14,732
Total revenues		71,245			71,469			82,295			72,713			243,589			204,416
Costs and Expenses:
Cost of goods sold		9,925			9,743			11,023			9,624			34,642			28,307
Cemetery expense		17,848			17,247			19,286			16,198			55,537			50,375
Selling expense		13,049			14,733			14,451			13,119			43,434			37,376
General and administrative expense		10,316			11,439			10,534			10,027			31,377			28,672
Corporate overhead		8,501			13,413			9,983			9,762			29,058			27,019
Depreciation and amortization		2,459			2,757			1,989			2,244			6,118			6,851
Funeral home expenses:
Merchandise		1,776			2,317			1,668			1,539			4,807			4,239
Services		5,397			5,553			4,874			4,775			14,012			13,594
Other		3,485			3,630			3,543			2,834			9,801			8,084
Total costs and expenses		72,756			80,832			77,351			70,122			228,786			204,517

Gain on sale of businesses		24,086			—
Loss on sale of business and other impairments								(70	)		—			(2,290	)		—
Other losses, net								(605	)		—			(536	)		—
Operating income (loss)		22,575			(9,363	)		4,269			2,591			11,977			(101	)
Interest expense		(12,284	)		(13,171	)		(9,256	)		(11,870	)		(29,706	)		(34,952	)
Income (loss) from operations before income taxes		10,291			(22,534	)
Loss on debt extinguishment								—			—			(40,128	)		—
Loss from continuing operations before income taxes								(4,987	)		(9,279	)		(57,857	)		(35,053	)
Income tax benefit								240			1,129			11,652			3,333
Net loss from continuing operations								(4,747	)		(8,150	)		(46,205	)		(31,720	)
Discontinued operations (Note 2):
(Loss) Income from operations of discontinued businesses								(102	)		293			1,347			28,952
Income tax expense		(1,288	)		—			—			—			—			—
Net income (loss)	$	9,003		$	(22,534	)
Net income (loss) per common share (basic)⁽¹⁾	$	0.10		$	(0.59	)
Net income (loss) per common share (diluted)⁽¹⁾	$	0.10		$	(0.59	)
Weighted average number of common shares outstanding - basic⁽²⁾		94,472			38,031
Weighted average number of common shares outstanding - diluted⁽²⁾		94,472			38,031
Net (loss) income from discontinued operations								(102	)		293			1,347			28,952
Net loss							$	(4,849	)	$	(7,857	)	$	(44,858	)	$	(2,768	)

Net loss from continuing operations per common share (basic)							$	(0.04	)	$	(0.07	)	$	(0.39	)	$	(0.31	)
Net (loss) income from discontinued operations per common share (basic)								(0.00	)		0.00			0.01			0.28
Net loss per common share (basic)							$	(0.04	)	$	(0.07	)	$	(0.38	)	$	(0.03	)

Net loss from continuing operations per common share (diluted)							$	(0.04	)	$	(0.07	)	$	(0.39	)	$	(0.31	)
Net (loss) income from discontinued operations per common share (diluted)								(0.00	)		0.00			0.01			0.28
Net loss per common share (diluted)							$	(0.04	)	$	(0.07	)	$	(0.38	)	$	(0.03	)
Weighted average number of common shares outstanding - basic								118,003			117,819			117,956			103,341
Weighted average number of common shares outstanding - diluted								118,003			117,819			117,956			103,341

~~(1)~~

For the three months ended March 31, 2020, represents net income divided by weighted average number of common shares outstanding and for the three months ended March 31, 2019, represents net loss divided by weighted average number of common limited partner units outstanding.

~~(2)~~

For the three months ended March 31, 2020, represents weighted average number of common shares outstanding and for the three months ended March 31, 2019, represents weighted average number of common limited partner units outstanding.

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

Table of Contents

STONEMOR INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

(in thousands, except ~~units and~~ shares)

Common Stock

Number of Common Shares

Par Value of Common Shares

Paid-in Capital in Excess of Par Value

Retained Earnings

Total

Three Months Ended March 31, 2020

December 31, 2019

94,447,356

$
944

$
(103,434
)

$
—

$
(102,490
)
Common stock awards under incentive plans

29,746

—

375

—

375

Net income

—

—

—

9,003

9,003

March 31, 2020

94,477,102

$
944

$
(103,059
)

$
9,003

$
(93,112
)


	Common Stock
	Number of Common Shares		Par Value of Common Shares		Paid-in Capital in Excess of Par Value			Accumulated Deficit			Total
Three Months Ended March 31, 2021
December 31, 2020		117,871,141	$	1,178	$	(85,232	)	$	(8,359	)	$	(92,413	)
Common stock awards under incentive plans		46,875		1		504			—			505
Net loss		—		—		—			(4,624	)		(4,624	)
March 31, 2021		117,918,016	$	1,179	$	(84,728	)	$	(12,983	)	$	(96,532	)

Three Months Ended June 30, 2021
March 31, 2021		117,918,016	$	1,179	$	(84,728	)	$	(12,983	)	$	(96,532	)
Common stock awards under incentive plans		46,875		1		507			—			508
Net loss		—		—		—			(35,385	)		(35,385	)
June 30, 2021		117,964,891	$	1,180	$	(84,221	)	$	(48,368	)	$	(131,409	)

Three Months Ended September 30, 2021
June 30, 2021		117,964,891	$	1,180	$	(84,221	)	$	(48,368	)	$	(131,409	)
Common stock awards under incentive plans		46,875		—		512			—			512
Net loss		—		—		—			(4,849	)		(4,849	)
September 30, 2021		118,011,766	$	1,180	$	(83,709	)	$	(53,217	)	$	(135,746	)


	Series A Preferred Stock					Common Stock
	Number of Series A Preferred Shares			Par Value of Series A Preferred Shares		Number of Common Shares		Par Value of Common Shares		Paid-in Capital in Excess of Par Value			Retained Earnings			Total
Three Months Ended March 31, 2020
December 31, 2019		—		$	—		94,447,356	$	944	$	(103,434	)	$	—		$	(102,490	)
Common stock awards under incentive plans		—			—		29,746		—		375			—			375
Net income		—			—		—		—		—			9,003			9,003
March 31, 2020		—		$	—		94,477,102	$	944	$	(103,059	)	$	9,003		$	(93,112	)

Three Months Ended June 30, 2020
March 31, 2020		—		$	—		94,477,102	$	944	$	(103,059	)	$	9,003		$	(93,112	)
Issuance of Series A Preferred Stock		176			—		—		—		8,800			—			8,800
Exchange of Series A Preferred Stock for Common Stock		(176	)		—		12,054,795		121		(121	)		—			—
Issuance of Common Stock		—			—		11,232,877		112		8,088			—			8,200
Common stock awards under incentive plans		—			—		29,746		—		317			—			317
Net loss		—			—		—		—		—			(3,914	)		(3,914	)
June 30, 2020		—		$	—		117,794,520	$	1,177	$	(85,975	)	$	5,089		$	(79,709	)

Three Months Ended September 30, 2020
June 30, 2020		—		$	—		117,794,520	$	1,177	$	(85,975	)	$	5,089		$	(79,709	)
Common stock awards under incentive plans		—			—		29,746		1		351			—			352
Net loss		—			—		—		—		—			(7,857	)		(7,857	)
September 30, 2020		—		$	—		117,824,266	$	1,178	$	(85,624	)	$	(2,768	)	$	(87,214	)

Partners’ Deficit

Outstanding
Common
Units

Common
Limited
Partners

General
Partner

Total

Three Months Ended March 31, 2019

December 31, 2018

37,958,645

$
(2,570
)

$
(4,008
)

$
(6,578
)
Common unit awards under incentive plans

301,826

277

—

277

Net loss

—

(22,300
)

(234
)

(22,534
)
March 31, 2019

38,260,471

$
(24,593
)

$
(4,242
)

$
(28,835
)

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

Table of Contents

STONEMOR INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)


	Three Months Ended March 31,						Nine Months Ended September 30,
	2020			2019			2021			2020
Cash Flows From Operating Activities:
Net income (loss)	$	9,003		$	(22,534	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Net loss							$	(44,858	)	$	(2,768	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Cost of lots sold		1,296			1,522			5,146			4,346
Depreciation and amortization		2,459			2,757			6,158			7,078
Provision for bad debt		1,144			2,042			5,074			4,529
Non-cash compensation expense		375			277			1,525			1,080
Loss on debt extinguishment								40,128			—
Non-cash interest expense		5,260			4,429			3,740			16,159
Gain on sale of businesses		(24,086	)		—
Loss (gain) on sale of businesses								1,525			(31,120	)
Other losses, net								536			2,169
Changes in assets and liabilities:
Payment of paid-in-kind interest								(18,440	)		—
Accounts receivable, net of allowance		(1,595	)		(1,965	)		(16,205	)		(16,180	)
Merchandise trust fund		(1,829	)		(5,990	)		(37,542	)		(12,284	)
Other assets		2,338			(4,382	)		(4,846	)		3,799
Deferred selling and obtaining costs	��	(1,178	)		17			(6,486	)		(4,974	)
Deferred revenues		6,434			8,584			77,518			39,238
Deferred taxes, net		1,228			—			(11,821	)		(3,490	)
Payables and other liabilities		(6,087	)		2,140			9,275			(3,797	)
Net cash used in operating activities		(5,238	)		(13,103	)
Net cash provided by operating activities								10,427			3,785
Cash Flows From Investing Activities:
Cash paid for capital expenditures		(2,073	)		(1,903	)		(5,675	)		(4,784	)
Proceeds from divestitures		28,190			—			6,462			48,336
Net cash provided by (used in) investing activities		26,117			(1,903	)
Net cash provided by investing activities								787			43,552
Cash Flows From Financing Activities:
Proceeds from issuance of Series A Preferred Stock								—			8,800
Proceeds from issuance of Common Stock								—			8,200
Proceeds from borrowings		2,639			24,562			406,235			3,672
Repayments of debt		(32,181	)		(253	)		(331,197	)		(54,782	)
Principal payment on finance leases		(425	)		(366	)		(1,097	)		(1,061	)
Early redemption premium								(18,478	)		—
Cost of financing activities		(213	)		(2,636	)		(10,843	)		(4,294	)
Net cash (used in) provided by financing activities		(30,180	)		21,307
Net (decrease) increase in cash, cash equivalents and restricted cash		(9,301	)		6,301
Shares repurchased related to share-based compensation								—			(35	)
Net cash provided by (used in) financing activities								44,620			(39,500	)
Net increase in cash, cash equivalents and restricted cash								55,834			7,837
Cash, cash equivalents and restricted cash—Beginning of period		56,767			18,147			60,090			56,767
Cash, cash equivalents and restricted cash—End of period	$	47,466		$	24,448		$	115,924		$	64,604
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	7,015		$	2,842		$	31,259		$	20,361
Cash paid during the period for income taxes		—			41			2,727			1,077
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	848		$	932		$	1,446		$	2,372
Operating cash flows from finance leases		116			116			253			328
Financing cash flows from finance leases		425			366			1,097			1,061
Non-cash investing and financing activities:
Acquisition of assets by financing	$	—		$	1,314
Net transfers within assets held for sale		80,822			—
Accrued paid-in-kind interest on Senior Secured Notes		3,615			—
Accrued paid-in-kind interest on 2024 Notes							$	—		$	10,572

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

Table of Contents

STONEMOR ~~INC~~.INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.	~~GENERAL~~

GENERAL

Effective as of December 31, 2019, pursuant to that certain Merger and Reorganization Agreement (as amended, the “Merger Agreement”) by and among StoneMor GP LLC (“StoneMor GP”), a Delaware limited liability company and the general partner of StoneMor Partners L.P. (the “Partnership”), the Partnership, StoneMor GP Holdings LLC, a Delaware limited liability company and formerly the sole member of GP (“GP Holdings”) and Hans Merger Sub, LLC, a Delaware limited liability company and wholly-owned subsidiary of GP (“Merger Sub”), GP converted from a Delaware limited liability company into a Delaware corporation named StoneMor Inc. (the “Company”) and Merger Sub was merged with and into the Partnership (the “Merger”). The Company is the successor registrant to the Partnership pursuant to Rule 405 under the Securities Act of 1933, as amended (the “Securities Act”) and Rule 12g-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

As used in this Quarterly Report on Form 10-Q (the “Quarterly Report”), unless the context otherwise requires, references to the terms the “Company,” “StoneMor,” “we,” “us,” and “our” refer to StoneMor Inc. and its consolidated ~~subsidiaries for all periods from and after the Merger and to StoneMor Partners L.P. and its consolidated subsidiaries for all periods prior to the Merger.~~subsidiaries.

Nature of Operations

The Company is a provider of funeral and cemetery products and services in the death care industry in the United States. As of ~~March 31, 2020,~~September 30, 2021, the Company operated ~~319~~301 cemeteries in 2724 states and Puerto Rico, of which ~~289~~271 were owned and 30 were operated under lease, management or operating agreements. ~~The~~As of September 30, 2021, the Company also owned and operated 8870 funeral homes, including 4133 located on the grounds of cemetery properties that the Company owned, in 1715 states and Puerto Rico.

The Company’s cemeteries provide cemetery property interment rights, such as burial lots, lawn and mausoleum crypts, and cremation niches. Cemetery merchandise is comprised of burial vaults, caskets, grave markers and memorials. Cemetery services include the installation of this merchandise and other service items. The Company sells these products and services both at the time of death, which is referred to as at-need, and prior to the time of death, which is referred to as pre-need.

The Company’s funeral home services include family consultation, the removal and preparation of remains, insurance products and the use of funeral home facilities for visitation and memorial services.

~~C-Corporation Conversion~~

On December 31, 2019, pursuant to the terms of the Merger Agreement, the Company completed the following series of reorganization transactions (which the Company sometimes refer to collectively as the “C-Corporation Conversion”):

~~GP Holdings contributed its entire equity interest in the Partnership to StoneMor GP and, in exchange, ultimately received an aggregate of 5,099,969 shares of the Company’s common stock;~~

StoneMor GP contributed the common units in the Partnership it received from GP Holdings to StoneMor LP Holdings, LLC (“LP Sub”), a Delaware limited liability company and wholly-owned subsidiary of StoneMor GP;

Merger Sub merged with and into the Partnership, with the Partnership surviving as a Delaware limited partnership, and pursuant to which each outstanding Series A Convertible Preferred Unit (defined within) and Common Unit (defined within) (other than the common units held by LP Sub) was converted into the right to receive one share of the Company’s common stock; and

~~StoneMor GP converted from a Delaware limited liability company to a Delaware corporation called StoneMor Inc.~~

As a result of the C-Corporation Conversion, the Company remains the general partner of the Partnership and LP Sub is the sole limited partner of the Partnership such that, directly or indirectly, the Company owns 100% of the interests in the Partnership.

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The C-Corporation Conversion represented a transaction between entities under common control and was accounted for similarly to pooling of interests in a business combination. The common stock of the Company issued to the holders of the common units and preferred units of the Partnership and to GP Holdings for its general partner interest in the Partnership was recognized by the Company at the carrying value of the equity interests in the Partnership. In addition, the Company became the successor and the Partnership the predecessor for the purposes of financial reporting.

Basis of Presentation and Principles of Consolidation

The accompanying condensed consolidated financial statements, which are unaudited, have been prepared in accordance with the requirements of the Quarterly Report on Form 10-Q and Generally Accepted Accounting Principles (“GAAP”) for interim reporting. They do not include all disclosures normally made in financial statements contained in Annual Reports on Form 10-K. In management’s opinion, all adjustments necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the periods disclosed have been made. The balance sheet at December 31, ~~2019~~2020 has been derived from the audited consolidated financial statement as of December 31, ~~2019,~~2020, as presented in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019,~~ 2020, which was filed with Securities and Exchange Commission ("SEC") on ~~April 7, 2020~~March 25, 2021 (the “Annual Report”). The interim unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and the related notes thereto presented in the Annual Report. The results of operations for the ~~three~~nine months ended ~~March 31, 2020~~September 30, 2021 may not necessarily be indicative of the results of operations for the full year ending December 31, ~~2020.~~2021.

The unaudited condensed consolidated financial statements include the accounts of each of the Company’s ~~100%~~100% owned 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 30 cemeteries under long-term leases, operating agreements and management agreements. The operations of 16 of these managed cemeteries have been ~~consolidated~~.consolidated.

The Company operates 14 cemeteries under long-term leases and other 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 the merchandise and perpetual care trusts associated with these cemeteries as variable interest entities, since the Company controls and receives the benefits and absorbs any losses from operating these trusts. Under the long-term leases, and other agreements associated with these properties, which are subject to certain termination provisions, the Company is the exclusive operator of these cemeteries and earns revenues related to sales of merchandise, services and interment rights and incurs expenses related to such sales, including the maintenance and upkeep of these cemeteries. Upon termination of these agreements, the Company will retain all of the benefits and related contractual obligations incurred from sales generated during the agreement period. The Company has also recognized the existing customer contract-related performance obligations that it assumed as part of these agreements.

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Axar Letter

On September 27, 2021, the Company announced that it had received a letter (the “Letter”) dated September 22, 2021 from Axar Capital Management, LP ("Axar") in which Axar expressed an interest in pursuing discussions concerning strategic alternatives that may be beneficial to the Company and its various stakeholders. Axar has engaged Schulte Roth & Zabel LLP as its legal advisor and stated in the Letter that it would engage a financial advisor at the appropriate time. According to the Letter, Axar expects that any such discussions would be conducted with a special committee of the Board, assisted by financial and legal advisors it engages. The Letter also stated that any transaction involving Axar arising from such discussions would be conditioned upon, among other things, approval of the special committee and the Board, the negotiation and execution of mutually satisfactory definitive agreements and customary terms. The Letter also stated that any transaction structured as a take-private transaction would be subject to a closing condition that the approval of holders of a majority of the outstanding shares not owned by Axar or its affiliates be obtained. On September 26, 2021, the Board authorized its Conflicts Committee, which is comprised of independent directors Stephen J. Negrotti, Kevin Patrick and Patricia Wellenbach, to engage in the discussions contemplated by the Letter, including the authority to engage in discussions concerning and to negotiate the terms and provisions of any strategic alternative the Conflicts Committee determines to be appropriate in connection with such discussions. Under its charter, the Conflicts Committee has the authority to reject, approve or recommend that the Board approve any transaction that is a related party transaction, which would include any transaction to which Axar is a party. The Conflicts Committee has retained independent legal and financial advisors to assist in such discussions.

Refinancing

On May 11, 2021, the Company issued $400.0 million aggregate principal amount of 8.500% Senior Secured Notes due 2029 (the “2029 Notes”). The gross proceeds from the sale of the 2029 Notes was $389.9 million, less advisor fees, legal fees, mortgage costs and other closing expenses. The 2029 Notes were issued pursuant to an indenture (the “2029 Indenture”), dated as of May 11, 2021, by and among the Company, the guarantors named therein and Wilmington Trust, National Association, as trustee and collateral agent. Substantially concurrently with the closing of the offering of the 2029 Notes, StoneMor Partners L.P. (the “Partnership”) and Cornerstone Family Services of West Virginia Subsidiary, Inc. (collectively, the “2024 Issuers”) deposited from the net cash proceeds from the offering of the 2029 Notes an amount sufficient to fund the full redemption of the outstanding 9.875%/11.500% Senior Secured PIK Toggle Notes due 2024 (the “2024 Notes”) with Wilmington Trust, National Association (the “2024 Trustee”) as trustee under the Indenture, dated as of June 27, 2019 (as amended, the “2024 Indenture”), among the 2024 Issuers, the guarantors party thereto and the 2024 Trustee governing the 2024 Notes. Upon deposit of such funds with the 2024 Trustee, the 2024 Indenture was satisfied and discharged in accordance with its terms. As a result of the satisfaction and discharge of the 2024 Indenture, the 2024 Issuers and the guarantors of the 2024 Notes, including the Company, have been released from their obligations with respect to the 2024 Indenture and the 2024 Notes, except with respect to those provisions of the 2024 Indenture that, by their terms, survive the satisfaction and discharge of the 2024 Indenture. Refer to Note 8 Long-Term Debt for more detailed information.

COVID-19 ~~and Business Interruption~~Pandemic

~~The~~In December 2019, an outbreak of ~~COVID-19, which has~~a novel strain of coronavirus (“COVID-19”) spread worldwide posing public health risks that reached pandemic proportions (“(the “COVID-19 Pandemic”). The COVID-19 ~~Pandemic”),~~Pandemic poses a significant threat to the health and economic wellbeing of the Company’s employees, customers and vendors. The Company’s operations ~~have been~~are deemed essential by the state and local governments in which it operates, with the exception of Puerto Rico, and the Company ~~is actively~~has been working with federal, state and local government officials to ensure that it continues to satisfy their requirements for offering the Company’s essential services.

The Company’s top priority is the health and safety of its employees and the families it serves. Since the start of the outbreak in the U.S., the Company’s senior management team has taken actions to protect its employees and the families it serves, and to support its field locations as they adapt and adjust to the circumstances resulting from the COVID-19 Pandemic. The operation of all of the Company’s facilities is critically dependent on the ~~Company’s~~ employees who staff these locations. To ensure the wellbeing of the Company’s employees and their families, the Company ~~has~~ provided ~~every employee~~all of ~~the Company~~its employees with detailed health and safety literature on COVID-19, such as the industry-specific guidelines from the Centers for Disease Control and Prevention (the “CDC”)~~’s industry-specific guidelines~~ for working with the deceased who were ~~and~~or may have been infected with COVID-19. In addition, the Company’s procurement and safety teams have consistently secured and distributed supplies to ensure that the Company’s locations have appropriate personal protective equipment (“PPE”) and cleaning supplies to provide its essential services, as well as updated and developed new safety-oriented guidelines to support daily field ~~operations~~operations. These guidelines include reducing the number of staff present for a service and ~~continue to provide personal protection equipment to those~~ restricting the number of attendees. The Company also implemented additional safety and precautionary measures as it concerns the businesses’ day-to-day interaction with the families and communities it serves. The Company’s corporate office

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employees ~~whose positions necessitate them, and the Company has implemented work~~began working from home ~~policies at the Company’s corporate office~~in March 2020 consistent with ~~the CDC’s~~CDC guidance to reduce the risks of exposure to COVID-19 while still supporting the ~~families that we serve.~~field operations. The Company has not experienced any significant disruptions to its business as a result of the work from home policies in its corporate office. The Company monitors the CDC guidance on a regular basis, continually reviews and updates its processes and procedures and provides updates to its employees as needed to comply with regulatory guidelines.

The Company’s marketing and sales team quickly responded to the sales challenges presented by the COVID-19 Pandemic by implementing virtual meeting options using a variety of web-based tools to ensure that the ~~Company’s sales personnel~~Company can continue to connect with and meet ~~the~~its customers’ needs ~~of the Company’s customers~~ in a safe, effective and productive manner. Some of the Company’s locations ~~are providing~~provide live video streaming of their funeral and burial services to its customers or ~~providing~~provide other alternatives that respect social distancing, so that family and friends can connect during their time of grief.

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Like most businesses world-wide, the COVID-19 Pandemic has impacted the Company financially. ~~Over~~At the ~~last two weeks~~start of the ~~quarter,~~COVID-19 Pandemic in early 2020, the Company saw its pre-need sales and at-need sales activity decline as Americans practiced social distancing and crowd size restrictions were put in place. In addition, the Company’s pre-need customers with installment contracts could default on their installment contracts due to lost work or other financial stresses arising from the COVID-19 Pandemic. WhileHowever, since May 2020, the Company ~~expects its~~experienced at-need sales growth, and since late 2020, it has experienced pre-need sales ~~to be challenged during the COVID-19 Pandemic, the~~growth. The Company believes the implementation of its virtual meeting tools is one of several key steps ~~to mitigate~~that has mitigated this disruption. ~~In addition,~~Throughout the ~~Company expects that throughout this disruption its~~COVID-19 Pandemic, the Company’s cemeteries and funeral homes ~~will remain~~have largely remained open and available to serve its families in all the locations in which it operates to the extent permitted by local authorities and the Company expects that this will continue. The Company has leveraged the relationships it has made with the ~~exception~~families it has served during its response to the COVID-19 Pandemic, which has directly resulted in new sales leads and increased pre-need sales activity. In addition, as community restrictions have eased and the COVID-19 vaccine became more available, the Company has experienced record growth in its pre-need cemetery sales. However, the Company had experienced limited location closures due to COVID-19 cases, required quarantines and cleanings. During the year ended December 31, 2020, the Company incurred costs of ~~Puerto Rico.~~approximately $1.0 million related to the implementation of prescribed safety protocols related to the COVID-19 Pandemic.

The Company expects the COVID-19 Pandemic ~~to continue to~~could have an adverse effect on its future results of operations and cash flows ~~however~~depending on COVID-19 variants and increased case counts. However, the Company cannot presently predict ~~with certainty,~~ the likely scope and severity of that impact. The Company may incur additional costs related to the implementation of prescribed safety protocols related to the COVID-19 Pandemic. In the event there are confirmed diagnoses of COVID-19 within a significant number of ~~the Company’s~~its facilities, the Company may incur additional costs related to the closing and subsequent cleaning of these facilities and the ability to adequately staff the impacted sites. ~~As a result of~~In addition, the ~~implications of~~Company’s pre-need customers with installment contracts could default on their installment contracts due to lost work or other financial stresses arising from the COVID-19 ~~the Company assessed long-lived assets for impairment and concluded no assets were impaired as of March 31, 2020.~~Pandemic.

Sources and Uses of Liquidity

The Company’s primary sources of liquidity are cash generated from operations, ~~and~~ proceeds from asset ~~sales.~~sales and the remaining proceeds from the sale of the 2029 Notes. The Company’s primary cash requirements, in addition to normal operating expenses, are for capital expenditures, net contributions to the merchandise and perpetual care trust funds and debt service. ~~In general, as part of its operating strategy, the Company expects to fund:~~

~~working capital deficits through available cash, cash generated from operations, proceeds from asset sales and proceeds from equity offerings;~~

expansion capital expenditures, net contributions to the merchandise and perpetual care trust funds and debt service obligations through available cash, cash generated from operations or proceeds from asset sales. Amounts contributed to the merchandise trust funds will be withdrawn at the time of the delivery of the product or service sold to which the contribution related (see ~~"Summary~~“Summary of Significant Accounting ~~Policies"~~Policies” section below regarding revenue recognition), which will reduce the amount of additional borrowings or asset sales ~~needed; and~~

~~any maintenance capital expenditures through available cash and cash flows from operating activities.~~

While the Company relies heavily on its available cash and cash flows from operating activities to execute its operational strategy and meet its financial commitments and other short-term financial needs, the Company cannot be certain that sufficient capital will be generated through operations or be available to the Company to the extent required and on acceptable terms. The Company has experienced negative financial trends, including use of cash in operating activities, which, when considered in the aggregate, could raise substantial doubt about the Company’s ability to continue as a going concern. These negative financial trends include:

the Company has continued to generate negative cash flow from operating activities through March 31, 2020, due to an increased competitive environment and increases in professional fees and compliance costs; and

a decline in billings coupled with the increase in professional, compliance and consulting expenses that tightened the Company's liquidity position and increased reliance on long-term financial obligations.

~~During 2019 and 2020, the Company implemented (and will continue to implement) various actions to improve profitability and cash flows to fund operations. A summary of these actions is as follows:~~

sold an aggregate of 52,083,333 Preferred Units for an aggregate purchase price of $57.5 million and completed a private placement of $385.0 million of the Senior Secured Notes in June 2019. The net proceeds of both transactions were used to fully repay the then-outstanding senior notes due in June 2021 and retire the Company’s revolving credit facility that was due in May 2020;

~~manage recurring operating expenses, seek to limit non-recurring operating expenses and implement cost reduction initiatives to minimize the impact of the COVID-19 Pandemic on the Company; and~~

~~identify and complete sales of select assets to provide supplemental liquidity.~~

~~See Note 18~~ ~~Subsequent Events~~ ~~for a discussion of additional actions taken by the Company subsequent to March 31, 2020.~~

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In addition, there is no certainty that the Company's actual operating performance and cash flows will not be substantially different from forecasted results and no certainty the Company will not need amendments to the Indenture in the future or that any such amendments will be available on terms acceptable to the Company or at all. Factors that could impact the significant assumptions used by the Company in assessing its ability to satisfy its financial covenants include the following:

~~operating performance not meeting reasonably expected forecasts, including the effects of the COVID-19 Pandemic on the Company’s operations;~~

~~failing to generate profitable sales;~~

~~investments in the Company's trust funds experiencing significant declines due to factors outside its control;~~

~~being unable to compete successfully with other cemeteries and funeral homes in the Company's markets;~~

~~the number of deaths in the Company's markets declining; and~~

~~an adverse change in the mix of funeral and cemetery revenues between burials and cremations.~~

If the Company's planned, implemented and not yet implemented actions are not successful in generating sustainable cash savings for the Company, or the Company fails to improve its operating performance and cash flows or the Company is not able to comply with the covenants under the Indenture, the Company may be forced to limit its business activities, limit its ability to implement further modifications to its operations or limit the effectiveness of some actions that are included in its forecasts, amend its Indenture and/or seek other sources of capital, and the Company may be unable to continue as a going concern. Additionally, a failure to generate additional liquidity could negatively impact the Company's access to inventory or services that are important to the operation of the Company's business. Any of these events may have a material adverse effect on the Company's results of operations and financial condition, and limit the Company’s ability to continue as a going concern.

needed. Based on the Company's forecasted operating performance, ~~planned actions to improve~~ the ~~Company’s profitability and cash flows, the execution~~issuance of the ~~Supplemental Indenture~~2029 Notes and the ~~Axar Commitment (see Note 18~~ ~~Subsequent Events~~ ~~for explanation of defined terms and additional information) and the consummation~~redemption of the transactions contemplated thereby, including receipt of not less than $17.0 million in proceeds from the contemplated rights offering, together with plans to file its financial statements on a timely basis consistent with the debt covenants and commitment to filing its periodic reports on a timely basis consistent with the debt covenants,2024 Notes, the Company ~~does not believe it is probable~~believes that it will ~~breach the covenants under the Indenture or~~ be ~~unable~~able to continue as a going concern for the next twelve-month period. As such, the unaudited condensed consolidated financial statements for the three months ended March 31, 2020 were prepared on the basis of a going concern, which contemplates that the Company will be able to realize assets and discharge liabilities in the normal course of business. Accordingly, they do not give effect to adjustments, if any, that would be necessary should the Company be required to liquidate its assets.

Summary of Significant Accounting Policies

Refer to Note 1 General to the Company’s audited consolidated financial statements included in Item 8 of its Annual Report for the complete summary of significant accounting policies.

Use of Estimates

The preparation of the Company’s unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions as described in its Annual Report. These estimates and assumptions may affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. As a result, actual results could differ from those estimates.

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Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less from the time they are acquired to be cash equivalents. Cash and Cash Equivalents was ~~$27.1~~$99.5 million and ~~$34.9~~$39.2 million as of ~~March 31, 2020~~September 30, 2021 and December 31, ~~2019,~~2020, respectively.

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Restricted Cash

Cash that is restricted from withdrawal or use under the terms of certain contractual agreements is recorded as restricted cash. Restricted cash was ~~$20.4~~$16.4 million and ~~$21.9~~$20.8 million as of ~~March 31, 2020~~September 30, 2021 and December 31, ~~2019,~~2020, respectively, which primarily related to cash collateralization of the Company’s letters of credit and surety ~~bonds, and at December 31, 2019 also included a $5.0 million refundable deposit received in connection with the sale of one of the Company’s properties.~~bonds.

Revenue

~~Revenue~~

The Company's revenues are derived from contracts with customers through sale and delivery of death care products and services. Primary sources of revenue are derived from (1) cemetery and funeral home operations generated both at-need and pre-need, which are classified on the unaudited condensed consolidated statements of operations as Interments, Merchandise and Services, (2) investment income, which includes income earned on assets maintained in perpetual care and merchandise trusts related to pre-need sales of cemetery and funeral home merchandise and services that are required to be maintained in the trust by state law and (3) interest earned on pre-need installment contracts. Investment income is presented within Investment and other for Cemetery revenue and Services for Funeral home revenue. Revenue is measured based on the consideration specified in a contract with a customer and is net of any sales incentives and amounts collected on behalf of third parties. Pre-need contracts are price guaranteed, providing for future merchandise and services at prices prevailing when the agreements are signed.

Investment income is earned on certain payments received from customers on pre-need contracts, which are required by law to be deposited into the merchandise and service trusts. Amounts are withdrawn from the merchandise trusts when the Company fulfills the performance obligations. Earnings on these trust funds, which are specifically identifiable for each performance obligation, are also included in total transaction price. Pre-need contracts are generally subject to financing arrangements on an installment basis, with a contractual term not to exceed 60 ~~months.~~months. Interest income is recognized utilizing the effective interest method. For those contracts that do not bear a market rate of interest, the Company imputes such interest based upon the prime rate at the time of origination plus 375 basis points in order to segregate the principal and interest component of the total contract value. The Company has elected to not adjust the transaction price for the effects of a significant financing component for contracts that have payment terms under one year.

At the time of a non-cancellable pre-need sale, the Company records an account receivable in an amount equal to the total contract value less unearned finance income and any cash deposit paid. The revenue from both the sales and interest income from trusted funds are deferred until the merchandise is delivered or the services are performed. For a sale in a cancellable state, an account receivable is only recorded to the extent control has transferred to the customer for interment rights, merchandise or services for which the Company has not collected cash. The amounts collected from customers in states in which pre-need contracts are cancellable may be subject to refund provisions. The Company estimates the fair value of its refund obligation under such contracts on a quarterly basis and records such obligations within other long-term liabilities line item on its consolidated balance sheets.

In accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”), the Company recognizes revenue in the amount to which the Company expect to be entitled to when it satisfies a performance obligation by transferring control over a product or service to a customer. The Company only recognizes amounts due from a customer for unfulfilled performance obligations on a cancellable pre-need contract to the extent that control has transferred to the customer for interments, merchandise or services for which the Company has not collected cash. The Company defers the recognition of any nonrefundable up-front fees and incremental direct selling costs associated with its sales contracts with a customer (i.e., commissions and bonuses) until the underlying goods or services have been delivered to the customer if the amortization period associated with the deferred nonrefundable up-front fees and incremental direct selling is greater than a year; otherwise, these nonrefundable up-front fees and incremental direct selling costs are expensed immediately. Incremental direct selling costs are recognized by specific identification. The Company calculates the deferred selling costs asset by dividing total deferred selling and obtaining expenses by total deferrable revenues and multiplying such percentage by the periodic change in gross deferred revenues. Such costs are recognized when the associated performance obligation is fulfilled based upon the net change in deferred revenues. All other selling costs are expensed as incurred.

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In addition, the Company maintains a reserve representing the fair value of the refund obligation that may arise due to state law provisions that include a guarantee of customer funds collected on unfulfilled performance obligations and maintained in trust to the extent that the funds are refundable upon a customer’s exercise of any cancellation rights.

Sales taxes assessed by governmental authorities are excluded from revenue. Any shipping and handling costs that are incurred after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of goods sold.

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Nature of Goods and Services

The following is a description of the principal activities within the Company’s ~~two~~2 reportable segments from which the Company generates its revenue.

Cemetery Operations

The Company generates revenues in its Cemetery Operations segment principally from (1) providing rights to inter remains in a specific cemetery property inventory space such as burial lots and constructed mausoleum crypts (“Interments”), (2) sales of cemetery merchandise which includes markers (i.e., method of identifying a deceased person in a burial space, crypt or niche), base (i.e., the substrate upon which a marker is placed), vault (i.e., a container installed in the burial lot in which the casket is placed), caskets, cremation niches and other cemetery related items and (3) service revenues, including opening and closing, a service of digging and refilling burial spaces to install the burial vault and place the casket into the vault, cremation services and fees for installation of cemetery merchandise. Products and services may be sold separately or in packages. For packages, the Company accounts for individual products and services separately as they are distinct (i.e., the product or service is separately identifiable from other items in the package and the customer can benefit from it on its own or with other resources that are readily available to the customer). The consideration (including any discounts) is allocated among separate products and services in a package based on their relative stand-alone selling prices. The stand-alone selling price is determined by management based upon local market conditions and reasonable ranges for both merchandise and services which is the best estimate of the stand-alone price. For items that are not sold separately (e.g., second interment rights), the Company estimates stand-alone selling prices using the best estimate of market value, using inputs such as average selling price and list price broken down by each geographic location. Additionally, the Company considers typical sales promotions that could have impacted the stand-alone selling price estimates.

Interments revenue is recognized when control transfers, which is when the property is available for use by the customer. For pre-construction mausoleum contracts, the Company only recognizes revenue once the property is constructed and the customer has obtained substantially all of the remaining benefits of the property.

Merchandise revenue and deferred investment earnings on merchandise trusts are recognized when a customer obtains control of the product. This usually occurs when the customer takes possession of the product (title has transferred to the customer and the merchandise is either installed or stored, at the direction of the customer, at the vendor’s warehouse or a third-party warehouse at no additional cost to the Company). The amount of revenue recognized is adjusted for expected refunds, which are estimated based on applicable law, general business practices and historical experience observed specific to the respective performance obligation. The estimate of the refund obligation is reevaluated on a quarterly basis. In addition, the Company is entitled to retain, in certain jurisdictions, a portion of collected customer payments when a customer cancels a pre-need contract; these amounts are also recognized in revenue at the time the contract is cancelled.

Service revenue is recognized when the services are performed, and the performance obligation is thereby satisfied.

The cost of goods sold related to merchandise and services reflects the actual cost of purchasing products and performing services and the value of cemetery property depleted through the recognized sales of interment rights. The costs related to the sales of lots and crypts are determined systematically using a specific identification method under which the total value of the underlying cemetery property and the lots available to be sold at the location are used to determine the cost per lot.

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Funeral Home Operations

The Company generates revenues in its Funeral Home Operations segment principally from (1) sales of funeral home merchandise which includes caskets and other funeral related items and (2) service revenues, which includes services such as family consultation, the removal of and preparation of remains and the use of funeral home facilities for visitation and services of remembrance. The Funeral Home Operations segment also include revenues related to the sale of term and whole life insurance on an agency basis, in which the Company earns a commission from the sales of these policies. Insurance commission revenue is reported within service revenues. Products and services may be sold separately or in packages. For packages, the Company accounts for individual products and services separately as they are distinct (i.e., the product or service is separately identifiable from other items in the package and the customer can benefit from it on its own or with other resources that are readily available to the customer). The consideration (including any discounts) is allocated among separate products and services based on their relative stand-alone selling prices. The relative stand-alone selling price is determined by management's best estimate of the stand-alone price based upon the list price at each location. The revenue generated by the Company through its Funeral Home Operations segment is principally derived from at-need sales.

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Merchandise revenue is recognized when a customer obtains control of the product. This usually occurs when the customer takes possession of the product (title has transferred to the customer and the merchandise is either installed or stored, at the direction of the customer, at the vendor’s warehouse or a third-party warehouse). The amount of revenue recognized is adjusted for expected refunds, which are estimated based on applicable law, general business practices and historical experience observed specific to the respective performance obligations. The estimate of the refund obligation is reevaluated on a quarterly basis.

Service revenue is recognized when the services are performed and the performance obligation is thereby satisfied.

Costs related to the delivery or performance of merchandise and services are charged to expense when merchandise is delivered or services are performed.

Deferred Revenues

Revenues from the sale of services and merchandise as well as any investment income from the merchandise trusts is deferred until such time that the services are performed or the merchandise is delivered. In addition, for amounts deferred on new contracts and investment income and unrealized gains on our merchandise trusts, deferred revenues include deferred revenues from pre-need sales that were entered into by entities prior to the Company’s acquisition of those entities or the assets of those entities. The Company provides for a profit margin for these deferred revenues to account for the projected future costs of delivering products and providing services on pre-need contracts that the Company acquired through acquisition. These revenues and their associated costs are recognized when the related merchandise is delivered or services are performed and are presented on a gross basis on the unaudited condensed consolidated statements of operations.

Accounts Receivable, Net of Allowance

The Company sells pre-need cemetery contracts whereby the customer enters into arrangements for future pre-need merchandise and services. These sales are usually made using interest-bearing installment contracts not to exceed 60 ~~months.~~months. The interest income is recorded as revenue when the interest amount is considered realizable and collectible, which typically coincides with cash payment. Interest income is not recognized until payments are collected in accordance with the contract. At the time of a pre-need sale, the Company records an account receivable in an amount equal to the total contract value less unearned finance income, unfulfilled performance obligations on cancellable contracts and any cash deposit paid. The Company recognizes an allowance for doubtful accounts by applying a cancellation rate to amounts included in accounts receivable, which is recorded as a reduction in accounts receivable and a corresponding offset to deferred revenues. The cancellation rate is based on a five year average rate by each specific location. Management evaluates customer receivables for impairment based upon historical experience, including the age of the receivables and customers’ payment histories.

Leases

~~Leases~~

The Company leases a variety of assets throughout its organization, such as office space, funeral homes, warehouses and equipment. The Company has both operating and finance leases. The Company’s operating leases primarily include office space, funeral homes and equipment. The Company’s finance leases primarily consist of vehicles and certain IT equipment. The Company determines whether an arrangement is or contains a lease at the inception of the arrangement based on the facts and circumstances in each contract. Leases with an initial term of 12 months or less are not recorded on the balance sheet, and the

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Company recognizes lease expense for these leases on a straight-line basis over the lease term. For lease agreements with an initial term in excess of 12 months, the Company records the lease liability and Right of Use (“ROU”) asset at commencement date based upon the present value of the sum of the remaining minimum rental payments, which exclude executory costs. Certain adjustments to the ROU asset may be required for items such as initial direct costs paid or incentives received.

Certain leases provide the Company with the option to renew for additional periods,, with renewal terms that can extend the lease term for periods ranging from 1 to 30 ~~years.~~ years.Where leases contain escalation clauses, rent abatements and/or concessions, the Company applies them in the determination of lease expense. The exercise of lease renewal options is at the Company’s sole discretion, and the Company is only including the renewal option in the lease term when the Company can be reasonably certain that the Company will exercise the additional options.

As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The Company evaluates the term of the lease, type of asset and its weighted average cost of capital to determine its incremental borrowing rate used to measure the ROU asset and lease ~~liability~~.liability.

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The Company calculates operating lease expense ratably over the lease term plus any reasonably assured renewal periods. The Company considers reasonably assured renewal options, fixed escalation provisions and residual value guarantees in its calculation. Leasehold improvements are amortized over the shorter of the lease term or asset life, which may include renewal periods where the renewal is reasonably assured, and are included in the determination of straight-line rent expense. The depreciable life of assets and leasehold improvements are generally limited by the expected lease term.

The Company’s leases also typically have lease and non-lease components, which are generally accounted for separately and not included in the measurement of the ROU asset and lease liability.

Income Taxes

The Company is subject to U.S. federal income taxes and certain state income and franchise taxes in the states in which it operates. 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 tax carryforwards, if applicable. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which 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 earnings in the period that includes the enactment date.

The Company records a valuation allowance to reflect the estimated amount of deferred tax assets for which realization is uncertain. Management reviews the valuation allowance at the end of each quarter and makes adjustments if it is determined that it is more likely than not that the tax benefits will be realized.

Income tax expense during interim periods is based on the Company's forecasted annual effective tax rate plus any discrete items on an estimated basis, which are recorded in the period in which they occur. Discrete items include, but are not limited to, such events as changes in estimates due to finalization of income tax returns, tax audit settlements, tax effects of exercised or vested stock-based awards and increases or decreases in valuation allowances on deferred tax assets.

For the three months ended September 30, 2021 and 2020, the Company had an income tax benefit of $0.2 million and $1.1 million, respectively, and for the nine months ended September 30, 2021 and 2020, the Company had an income tax benefit of $11.7 million and $3.3 million, respectively. The Company's effective tax rate before discrete items was 4.7% and 12.6% for the three months ended September 30, 2021 and 2020, respectively, and 20.6% and 54.6% for the nine months ended September 30, 2021 and 2020, respectively.

Stock-Based Compensation

The Company has a long-term incentive plan under which it is authorized to grant stock-based compensation awards, such as restricted stock or restricted units to be settled in common stock and non-qualified stock options (“stock options”). The Company recognizes compensation expense in an amount equal to the fair value of the stock-based awards on the date of grant over the requisite service period. The fair value of restricted stock awards and restricted stock unit awards is determined based on the number of restricted stock or restricted stock units granted and the closing price of the Company’s common stock on the date of grant. The fair value of stock options is determined by applying the Black-Scholes model to the grant-date market value of the

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underlying common stock of the Company. The Company has elected to recognize forfeiture credits for these stock-based compensation awards as they are incurred, as this method best reflects actual stock-based compensation expense.

Tax deductions on the stock-based compensation awards are not realized until the ~~stock-based compensation~~related income is recognized, which is generally when the awards are vested or exercised. The Company recognizes deferred tax assets for stock-based compensation awards that will result in future deductions on its income tax returns, based on the amount of stock-based compensation recognized at the statutory tax rate in the jurisdiction in which the Company will receive a tax deduction. If the tax deduction for a stock-based compensation award is greater than the cumulative GAAP compensation expense for that stock-based compensation award upon realization of a tax deduction, an excess tax benefit will be recognized and recorded as a favorable impact on the effective tax rate. If the tax deduction for a stock-based compensation award is less than the cumulative GAAP compensation expense for that stock-based compensation award upon realization of the tax deduction, a tax shortfall will be recognized and recorded as an unfavorable impact on the effective tax rate. Any excess tax benefits or shortfalls will be recorded discretely in the period in which they occur. The cash flows resulting from any excess tax benefit will be classified as financing cash flows in the Company’s consolidated statements of cash flows.

The Company provides its employees with the election to settle the income tax obligations arising from the vesting of their restricted stock-based compensation awards by the Company withholding stock equal to such income tax obligations. ~~Stock~~However, employees who are subject to Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are required to have stock withheld to satisfy such income tax obligations unless the Company’s Compensation, Nominating and Governance Committee provides that the employee must pay cash in lieu of having stock withheld. Shares of stock acquired from employees in connection with the settlement of the employees’ income tax obligations on these stock-based compensation awards are accounted for as treasury shares that are subsequently retired. Restricted stock awards, restricted stock units and stock options are not considered issued and outstanding for purposes of earnings per share calculations until ~~vested.~~vested or exercised.

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Net Income (Loss) per Common Share (Basic and Diluted)

Basic net income (loss) per common share is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per common share is calculated by dividing net income (loss) attributable to common shares by the sum of the weighted-average number of outstanding common shares and the dilutive effect of share-based awards, as calculated by the treasury stock or if converted methods, as applicable. These awards consist of common shares that are contingently issuable upon the satisfaction of certain vesting conditions for stock awards granted under the Company’s long-term incentive plan.

The following table sets forth the reconciliation ~~from~~of the Company’s weighted-average number of outstanding common shares ~~as of March 31,~~for the three and nine months ended September 30, 2021 and 2020 ~~and common limited partner units as of March 31, 2019~~ used to compute basic net income (loss) attributable to common shares ~~and common limited partners per unit, respectively,~~ to those used to compute diluted net ~~loss~~income (loss) per common share ~~and per common limited partners unit, respectively,~~ (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Weighted average number of outstanding common shares—basic		118,003		117,819		117,956		103,341
Plus effect of dilutive incentive awards(1):
Restricted shares		—		—		—		—
Stock options		—		—		—		—
Weighted average number of outstanding common shares—diluted		118,003		117,819		117,956		103,341

Three Months Ended March 31,

2020

2019

Weighted average number of outstanding common shares—basic⁽¹⁾

94,472

38,031

Plus effect of dilutive incentive awards⁽²⁾:

Restricted shares

—

—

Stock options

—

—

Weighted average number of outstanding common shares—diluted⁽¹⁾

��
94,472

38,031

(1)

⁽¹⁾

~~For the three months ended March 31, 2020, represents common shares (basic~~For the three months ended September 30, 2021 and ~~diluted), and for the three months ended March 31, 2019, represents limited partner units (basic and diluted).~~

⁽²⁾

~~For the three months ended March 31,~~ 2020, the diluted weighted-average number of outstanding common shares does not include 1,656,496 common stock options and 468,750 restricted common shares, as their effects would have been anti-dilutive. For the three months ended March 31, 2019, the diluted weighted-average number of outstanding common limited partner units does not include 977,166 units, as their effects would have been anti-dilutive. In addition, for the three months ended March 31, 2019, anti-dilutive units excludes 46,734 units that were contingently issuable for which the contingency had not been met.

~~Recently Adopted Accounting Standards~~

~~Variable Interest Entities~~

~~In October 2018, FASB issued ASU No. 2018-17,~~ ~~Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities~~ (“ASU 2018-17”). The core principle of ASU 2018-17 is that indirect interests held through related parties in common control arrangements should be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. ASU 2018-17 is effective for fiscal years beginning after December 15, 2019. The Company adopted the requirements of this amendment upon its effective date of January 1, 2020 retrospectively. The adoption of this standard did not impact the Company’s consolidated financial statements or related disclosures upon adoption, because the Company did not, and currently does not include 452,040 and 4,343,201 shares issuable upon the exercise of outstanding options, respectively, and 885,291 and 375,000 restricted common shares, respectively, as their effects would have ~~any indirect interests through related parties under~~been anti-dilutive. For the nine months ended September 30, 2021 and 2020, the diluted weighted-average number of outstanding common ~~control for which it receives decision-making fees.~~

~~Fair Value Measurement~~

~~In August 2018, FASB issued ASU No. 2018-13,~~ ~~Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement~~ ~~(“ASU 2018-13”). This standard removed, modified and added disclosure requirements from ASC 820,~~ ~~Fair Value Measurements~~. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019. The adoption of this standard is not expected to have a significant impact on the Company’s consolidated financial statements as of and for the year ended December 31, 2020, as this standard primarily addresses disclosure requirements for Level 3 fair value measurements. Currently, the Companyshares does not include 474,325 and 3,667,425 shares issuable upon the exercise of outstanding options, respectively, and 694,903 and 375,000 restricted common shares, respectively, as their effects would have ~~any fair value instruments that would be classified as Level 3 on the fair value hierarchy.~~been anti-dilutive.

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~~Internal-Use Software~~

~~In August 2018, FASB issued ASU No. 2018-15,~~ ~~Intangibles - Goodwill and Other - Internal-Use Software: Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract~~. The amendments in this standard aligned the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). ASU No. 2018-15 is effective for annual periods beginning after December 15, 2019. The Company adopted the requirements of this amendment on a prospective basis upon its effective date of January 1, 2020. The Company is applying the requirements of this amendment to the implementation costs incurred in connection with its new procurement software.

Recently Issued Accounting Standard Updates - Not Yet Effective

Credit Losses

In June 2016, FASB issued ASU No. 2016-13, Credit Losses (Topic 326) ("ASU 2016-13"). The core principle of ASU 2016-13 is that all assets measured at amortized cost basis should be presented at the net amount expected to be collected using historical experience, current conditions and reasonable and supportable forecasts as a basis for credit loss estimates, instead of the probable initial recognition threshold used under current GAAP. In November 2018, FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses (“ASU 2018-09”), which clarified that receivables arising from operating leases are not within the scope of Accounting Standards Codification (“ASC”) 326-20, Financial Instruments-Credit Losses-Measured at Amortized Cost, and should be accounted for in accordance with ASC 842, Leases. In April 2019, FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments (“ASU 2019-04”), which includes clarifications to the amendments issued in ASU 2016-13. In May 2019, FASB issued ASU No. 2019-05, Financial Instruments-Credit Losses (Topic 326), which provides entities that have certain instruments within the scope of ASC 326-20 with an option to irrevocably elect the fair value option in ASC 825, Financial Instruments, upon adoption of ASU 2016-13. In November 2019, FASB issued ASU No. 2019-10, Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) (“ASU 2019-10”), which modifies the effective dates for ASU 2016-13, ASU 2017-12 and ASU 2016-02 to reflect the FASB’s new policy of staggering effective dates between larger public companies and all other companies. With the issuance of ASU 2019-10, the Company’s effective date for adopting all amendments related to the new credit loss standard has been extended to January 1, ~~2023~~.2023. In November 2019, FASB issued ASU No. 2019-11, Codification Improvements to Topic 326, Financial Instruments-Credit Losses (“ASU 2019-11”), which includes clarifications to and addresses specific stakeholders’ issues concerning the amendments issued in ASU 2016-13. In February 2020, FASB issued ASU No, 2020-02, Financial Instruments-Credit Losses (Topic 326) and Leases (Topic 842) and in March 2020 issued ASU No. 2020-03, Codification Improvements to Financial Instruments, both of which also provide updates and clarification. The Company plans to adopt the requirements of these amendments upon their effective date of January 1, 2023, using the modified-retrospective method and is evaluating the potential impact of the adoption on its financial position, results of operations and related disclosures.

~~Taxes~~

~~In December 2019, FASB issued ASU No. 2019-12,~~ ~~Income Taxes (Topic 340)~~ (“ASU 2019-12”), with the intent to simplify the accounting for income taxes. ASU 2019-12 removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. ASU 2019-12 also adds guidance to reduce complexity in certain tax accounting areas, including recognizing deferred taxes for tax goodwill and allocating taxes to members of a consolidated group. ASU 2019-12 is effective for annual periods beginning after December 15, 2021. The Company plans to adopt the requirements of this amendment upon its effective date of January 1, 2022 retrospectively, except where required to be adopted prospectively, and is evaluating the potential impact of the adoption on its financial position, results of operations and related disclosures.

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Reference Rate Reform

In March 2020, FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). In order to ease the potential burden in accounting for reference rate reform, ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform, if certain criteria are met. ASU 2020-04 applies only to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued. The amendment iswas effective ~~immediately~~beginning on March 12, 2020 and may be applied prospectively through December 31, 2022. In January 2021, FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope, to clarify the scope of the guidance. The Company ~~is currently evaluating the impact of~~does not have hedging relationships or contracts that reference LIBOR or another reference rate ~~reform~~expected to be discontinued, and it does not expect to utilize the optional expedients and exceptions provided by ASU 2020-04.

ACQUISITIONS AND DIVESTITURES

On March 23, 2021, the Company signed a definitive agreement to acquire 4 cemeteries located within its east coast geographic footprint for a total purchase price of $5.4 million, subject to customary working capital adjustments. The transaction is expected to close in the fourth quarter of 2021, subject to customary due diligence and regulatory approval.

In the fourth quarter of 2019, the Company launched an asset sale program designed to divest assets at attractive multiples, reduce debt levels and improve cash flow and liquidity. The following divestitures have resulted from this ~~amendment on its contracts.~~program.

2.	~~DIVESTITURES~~

On January 3, 2020, the Company sold substantially all of the assets of Oakmont Memorial Park, Oakmont Funeral Home, Redwood Chapel, Inspiration Chapel and Oakmont Crematory located in California pursuant to the terms of an asset sale agreement (the “Oakmont Agreement”) with Carriage Funeral Holdings, Inc. for an aggregate cash purchase price of ~~$33.0~~$33.0 million (the “Oakmont Sale”). The divested assets consisted of ~~one~~1 cemetery, ~~one~~1 funeral home and certain related assets. The Oakmont Sale resulted in a gain of ~~$24.4~~$24.4 million for the Company, which is included in the accompanying condensed consolidated statement of operations for the ~~three~~nine months ended ~~March 31,~~September 30, 2020. Net proceeds from the sale were used to redeem an aggregate ~~$30.3~~$30.3 million principal amount of the ~~Senior Secured~~2024 Notes.

~~In March~~15

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On April 7, 2020, the Company ~~entered into an asset sale agreement for~~completed the sale of substantially all of the assets of the cemetery, funeral establishment and crematory commonly known as Olivet Memorial Park, Olivet Funeral and Cremation Services and Olivet Memorial Park & Crematory pursuant to the terms of an asset sale agreement (the “Olivet Agreement”) with Cypress Lawn Cemetery Association for ~~a net~~an aggregate cash purchase price of ~~$24.3~~$25.0 million, subject to certain adjustments (the “Olivet Sale”)~~. Refer to Note 18~~ ~~Subsequent Events~~ ~~for details on the closing of this sale in April 2020~~, and the ~~related redemption~~assumption of certain liabilities, including $17.1 million in land purchase obligations. The Olivet Sale resulted in a gain of $7.2 million for the Company, which is included in the accompanying condensed consolidated statements of operations for the nine months ended September 30, 2020. The Company used net proceeds of $20.5 million to redeem additional ~~principal portions of~~2024 Notes as required by the ~~Senior Secured Notes.~~ ~~In addition, in March~~2024 Indenture.

On November 3, 2020, the Company ~~entered into~~completed the sale of substantially all of the Company’s remaining California properties, consisting of 5 cemeteries, 6 funeral establishments and 4 crematories (the “Remaining California Assets”) pursuant to the terms of an asset sale agreement (the “California Agreement”) with certain entities owned by John Yeatman and Guy Saxton ~~to sell substantially all of the Company’s remaining California properties, consisting of five cemeteries, six funeral establishments and four crematories (the “Remaining California Assets”)~~ for a cash purchase price of ~~$7.1~~$7.1 million, subject to certain closing adjustments (the “Remaining California Sale” and together with the Olivet Sale, the “Total California Sale”). TheThe Company ~~anticipates using the first $3.2 million of~~used net proceeds of $5.7 million to redeem $5.6 million in principal amount of additional 2024 Notes as required by the 2024 Indenture.

On April 2, 2021, the Company completed the sale of substantially all of the Company’s assets in Oregon and Washington, consisting of 9 cemeteries, 10 funeral establishments and 4 crematories (the “Clearstone Assets”) pursuant to the terms of an asset sale agreement entered into on November 6, 2020 (the “Clearstone Agreement”) with Clearstone Memorial Partners, LLC for a net cash purchase price of $6.2 million, subject to certain adjustments (the “Clearstone Sale”). The Company redeemed $6.7 million in principal amount of additional 2024 Notes as required by the 2024 Indenture.

The Clearstone Agreement to sell the Clearstone Assets, together with the other divestitures completed in 2020 described above, represented a strategic exit from the west coast. Therefore, the results of operations of the Clearstone Assets, and of the businesses sold in 2020 for the period before their respective sales, have been presented as discontinued operations on the accompanying consolidated statements of operations for the nine months ended September 30, 2021 and the ~~remaining 80%~~three and nine months ended September 30, 2020. Additionally, all of the ~~net proceeds from~~assets and liabilities associated with the ~~Remaining California Sale to redeem additional principal portions of~~Clearstone Assets have been classified as held for sale on the ~~outstanding Senior Secured Notes.~~accompanying consolidated balance sheet at December 31, 2020.

~~Table of Contents~~

The following table summarizes the results of discontinued operations for the three and nine months ended September 30, 2021 and 2020 (in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Cemetery revenues	$	—		$	2,057		$	1,142		$	7,395
Funeral home revenues		—			2,086			1,146			6,997
Cost of goods sold		—			(353	)		(191	)		(1,157	)
Cemetery expense		—			(505	)		(233	)		(2,083	)
Selling expense		—			(539	)		(231	)		(1,940	)
General and administrative expense		—			(464	)		(151	)		(1,930	)
Depreciation and amortization		—			(41	)		(40	)		(227	)
Funeral home expenses		—			(1,621	)		(694	)		(5,430	)
Interest expense		—			(327	)		(166	)		(1,624	)
Income from discontinued operations before income taxes		—			293			582			1
Net (loss) gain on sale of businesses		(102	)		—			765			28,951
Income tax expense		—			—			—			—
Net (loss) income from discontinued operations	$	(102	)	$	293		$	1,347		$	28,952

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The following table summarizes the major classes of assets and liabilities that have been classified as ~~Assets~~ held for sale on the Company’s unaudited condensed consolidated balance ~~sheets:~~

March 31,

December 31,

2020

2019

Total California

Other

Total

Oakmont

Other

Total

Assets

Current assets:

Accounts receivable, net of allowance

$
1,576

$
—

$
1,576

$
580

$
—

$
580

Prepaid expenses

—

—

—

34

—

34

Other current assets

163

—

163

35

—

35

Total current assets held for sale

1,739

—

1,739

649

—

649

Long-term accounts receivable, net of allowance

5,102

—

5,102

3,194

—

3,194

Cemetery property

15,439

350

15,789

5,811

350

6,161

Property and equipment, net of accumulated depreciation

8,888

—

8,888

2,762

150

2,912

Merchandise trusts, restricted, at fair value

20,127

—

20,127

6,673

—

6,673

Perpetual care trusts, restricted, at fair value

21,917

—

21,917

2,470

—

2,470

Deferred selling and obtaining costs

2,361

—

2,361

1,388

—

1,388

Other assets

1,927

—

1,927

411

—

411

Total assets held for sale

$
77,500

$
350

$
77,850

$
23,358

$
500

$
23,858

Liabilities

Current liabilities:

Accounts payable and accrued liabilities

$
234

$
—

$
234

$
102

$
—

$
102

Current portion, long-term debt

—

—

—

36

—

36

Other current liabilities

—

—

—

5,000

—

5,000

Total current liabilities held for sale

234

—

234

5,138

—

5,138

Deferred revenues

28,841

—

28,841

12,856

—

12,856

Perpetual care trust corpus

21,917

—

21,917

2,470

—

2,470

Other long-term liabilities

1,445

—

1,445

204

—

204

Total liabilities held for sale

52,437

—

52,437

20,668

—

20,668

Net assets held for sale

$
25,063

$
350

$
25,413

$
2,690

$
500

$
3,190

sheets at December 31, 2020:

3.~~EXIT AND DISPOSAL ACTIVITIES~~


	December 31, 2020
	Clearstone		Other		Total
Assets
Current assets:
Accounts receivable, net of allowance	$	230	$	—	$	230
Prepaid expenses and other current assets		104		—		104
Total current assets held for sale		334		—		334

Long-term accounts receivable, net of allowance		193		—		193
Cemetery property		3,492		350		3,842
Property and equipment, net of accumulated depreciation		2,529		—		2,529
Merchandise trusts, restricted, at fair value		14,831		—		14,831
Perpetual care trusts, restricted, at fair value		4,518		—		4,518
Deferred selling and obtaining costs		1,865		—		1,865
Other assets		463		—		463
Total assets held for sale	$	28,225	$	350	$	28,575

Liabilities
Current liabilities:
Accounts payable and accrued liabilities	$	51	$	—	$	51
Other current liabilities		—		—		—
Total current liabilities held for sale		51		—		51

Deferred revenues		18,456		—		18,456
Perpetual care trust corpus		4,518		—		4,518
Other long-term liabilities		381		—		381
Total liabilities held for sale	$	23,406	$	—	$	23,406

In January 2019, the Company announced a profit improvement initiative as part of its ongoing organizational review. This profit improvement initiative was intended to further integrate, streamline and optimize the Company’s operations. As part of this profit improvement initiative, during 2019 the Company undertook certain cost reduction initiatives, which included a reduction of approximately 200 positions of its workforce within its field operations and corporate functions in its headquarters located in Trevose, Pennsylvania. The following table ~~summarizes~~presents the ~~activity~~depreciation and amortization, capital expenditures, sale proceeds and significant operating noncash items of the discontinued operations for the nine months ended September 30, 2021 and 2020 (in thousands):


	Nine Months Ended September 30,
	2021		2020
Cash flows from discontinued operating activities:
Depreciation and amortization	$	40	$	227
Gain on sales of discontinued operations businesses		765		28,951

Cash flows from discontinued investing activities:
Capital expenditures	$	10	$	40
Proceeds from sales of discontinued businesses		5,898		48,336

On May 24, 2021, the Company completed the sale of 3 cemetery properties located in ~~the severance liability recognized~~Missouri for ~~this reduction~~a total purchase price of $720,000 (the “Missouri Sale”), resulting in ~~workforce~~a loss on sale of $1.7 million, which is included in the accompanying condensed consolidated ~~balance sheets as~~statements of ~~March 31, 2020, by reportable segment (in thousands):~~operations for the nine months ended September 30, 2021.

Cemetery Operations

Funeral Home Operations

Corporate

Consolidated

Balance at December 31, 2019

$
86

$
—

$
64

$
150

Accruals

—

—

—

—

Cash payments

(86
)

—

(64
)

(150
)
Balance at March 31, 2020

$
—

$
—

$
—

$
—

~~The Company does not expect to incur any additional charges related to this reduction in workforce. Refer to Note 18~~ ~~Subsequent Events~~ ~~for details on a cost reduction initiative implemented in April 2020.~~

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4.	3. ACCOUNTS RECEIVABLE, NET OF ALLOWANCE

Long-term accounts receivable, net, consisted of the following at the dates indicated (in thousands):


	September 30, 2021			December 31, 2020
Customer receivables	$	156,828		$	154,903
Unearned finance income		(14,964	)		(16,022	)
Allowance for doubtful accounts		(5,747	)		(5,711	)
Accounts receivable, net of allowance		136,117			133,170
Less: Current portion, net of allowance		60,066			57,869
Long-term portion, net of allowance	$	76,051		$	75,301

March 31, 2020

December 31, 2019

Customer receivables

$
147,673

$
153,530

Unearned finance income

(15,345
)

(16,303
)
Allowance for doubtful accounts

(5,338
)

(5,884
)
Accounts receivable, net of allowance

126,990

131,343

Less: Current portion, net of allowance

55,516

55,794

Long-term portion, net of allowance

$
71,474

$
75,549

Activity in the allowance for doubtful accounts was as follows (in thousands):


	March 31, 2020			December 31, 2019			September 30, 2021			December 31, 2020
Balance, beginning of period	$	5,884		$	4,941		$	5,892		$	5,884
Provision for doubtful accounts		1,144			7,559			5,074			6,275
Charge-offs, net		(1,690	)		(6,616	)		(5,219	)		(6,267	)
Amounts related to assets held for sale								—			(181	)
Balance, end of period	$	5,338		$	5,884		$	5,747		$	5,711

Management evaluates customer receivables for impairment based upon its historical experience, including the age of the receivables and the customers’ payment histories.

5.	4. CEMETERY PROPERTY

Cemetery property consisted of the following at the dates indicated (in thousands):


	September 30, 2021		December 31, 2020
Cemetery land	$	229,958	$	232,548
Mausoleum crypts and lawn crypts		66,292		66,978
Cemetery property	$	296,250	$	299,526

March 31, 2020

December 31, 2019

Cemetery land

$
235,568

$
249,260

Mausoleum crypts and lawn crypts

68,060

71,345

Cemetery property

$
303,628

$
320,605

PROPERTY AND EQUIPMENT

6.	~~PROPERTY AND EQUIPMENT~~

Property and equipment consisted of the following at the dates indicated (in thousands):


	March 31, 2020			December 31, 2019			September 30, 2021			December 31, 2020
Buildings and improvements	$	118,796		$	125,382		$	113,554		$	112,345
Furniture and equipment		55,965			57,674			53,109			53,199
Funeral home land		11,285			14,185			11,005			11,005
Property and equipment, gross		186,046			197,241			177,668			176,549
Less: Accumulated depreciation		(92,574	)		(93,841	)		(97,613	)		(93,053	)
Property and equipment, net of accumulated depreciation	$	93,472		$	103,400		$	80,055		$	83,496

~~Table~~At September 30, 2021, property and equipment, net included $0.3 million of ~~Contents~~assets held for sale.

Depreciation expense was ~~$2.2~~$1.7 million and ~~$2.4~~$2.0 million for the three months ended ~~March 31,~~September 30, 2021 and 2020, respectively, and ~~2019~~,$5.3 million and $6.0 million for the nine months ended September 30, 2021 and 2020, respectively.

Table of Contents

7.	~~MERCHANDISE TRUSTS~~

MERCHANDISE TRUSTS

At ~~March 31, 2020~~September 30, 2021 and December 31, ~~2019,~~2020, the Company’s merchandise trusts consisted of investments in debt and equity marketable securities and cash equivalents, both directly and through mutual and investment funds. All of these investments are carried at fair value. All of these investments are subject to the fair value hierarchy and considered either Level 1 or Level 2 assets pursuant to the three-level hierarchy described in Note 14 13 Fair Value of Financial Instruments. There were no Level 3 assets. When the Company receives a payment from a pre-need customer, the Company deposits the amount required by law into the merchandise trusts that may be subject to cancellation on demand by the pre-need customer. The Company’s merchandise trusts related to states in which pre-need customers may cancel contracts with the Company comprises ~~52.6%~~47.9% of the total merchandise trust as of ~~March 31, 2020.~~September 30, 2021. The merchandise trusts are variable interest entities (“VIE”) of which the Company is deemed the primary beneficiary. The assets held in the merchandise trusts are required to be used to purchase the merchandise and provide the services to which they relate. If the value of these assets falls below the cost of purchasing such merchandise and providing such services, the Company may be required to fund this shortfall.

The Company included ~~$8.6~~$10.3 million and ~~$9.7~~$10.0 million of investments held in trust as required by law by the West Virginia Funeral Directors Association at ~~March 31, 2020~~September 30, 2021 and December 31, ~~2019,~~2020, respectively, in its merchandise trust assets. These trusts are recognized at their account value, which approximates fair value.

A reconciliation of the Company’s merchandise trust activities for the ~~three~~nine months ended ~~March 31,~~September 30, 2021 and 2020 ~~and 2019~~ is presented below (in thousands):


	Three months ended March 31,						Nine months ended September 30,
	2020			2019			2021			2020
Balance—beginning of period	$	517,192		$	488,248		$	516,284		$	517,192
Contributions		10,697			13,883			47,107			37,178
Distributions		(14,029	)		(13,639	)		(71,041	)		(49,950	)
Interest and dividends		5,704			7,325			31,539			22,329
Capital gain distributions		68			99			12,008			292
Realized gains and losses, net		218			(281	)		14,511			(1,229	)
Other than temporary impairment		—			(2,314	)		(136	)		(1,655	)
Taxes		118			4			(303	)		(306	)
Fees		(3,022	)		(873	)		(4,825	)		(5,261	)
Unrealized change in fair value		(59,181	)		22,613			3,397			(22,271	)
Total		457,765			515,065			548,541			496,319
Less: Assets held for sale		(20,127	)		—			—			(11,799	)
Balance—end of period	$	437,638		$	515,065		$	548,541		$	484,520

During the ~~three~~nine months ended ~~March 31,~~September 30, 2021 and 2020, ~~and 2019,~~ purchases of available for sale securities were approximately ~~$13.2~~$62.3 million and ~~$21.3~~$99.8 million, respectively. During the ~~three~~nine months ended ~~March 31,~~September 30, 2021 and 2020, ~~and 2019,~~ sales, maturities and paydowns of available for sale securities were approximately ~~$11.1~~$37.8 million and ~~$9.1~~$318.1 million, respectively. Cash flows from pre-need contracts are presented as operating cash flows in the Company’s unaudited condensed consolidated statements of cash flows.

2019

Table of Contents

The cost and market value associated with the assets held in the merchandise trusts as of ~~March 31, 2020~~September 30, 2021 and December 31, ~~2019~~2020 were as follows (in thousands):


September 30, 2021	Fair Value Hierarchy Level	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Short-term investments	1	$	40,665	$	—	$	—		$	40,665
Fixed maturities:
U.S. governmental securities	2		1		—		—			1
Corporate debt securities	2		2,711		890		—			3,601
Other debt securities	2		—		—		—			—
Total fixed maturities			2,712		890		—			3,602
Mutual funds—debt securities	1		6,096		148		—			6,244
Mutual funds—equity securities	1		1,021		293		—			1,314
Other investment funds(1)			427,072		33,902		(4,752	)		456,222
Equity securities	1		23,155		4,840		(1,587	)		26,408
Other invested assets	2		3,733		88		—			3,821
Total investments			504,454		40,161		(6,339	)		538,276
West Virginia Trust Receivable			10,568		—		(303	)		10,265
Total		$	515,022	$	40,161	$	(6,642	)	$	548,541

March 31, 2020

Fair Value
Hierarchy
Level

Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

Short-term investments

1

$
120,171

$
—

$
—

$
120,171

Fixed maturities:

U.S. governmental securities

2

474

23

(82
)

415

Corporate debt securities

2

6,293

4

(234
)

6,063

Total fixed maturities

6,767

27

(316
)

6,478

Mutual funds—debt securities

1

30,138

160

(2,464
)

27,834

Mutual funds—equity securities

1

46,279

1,577

(25,236
)

22,620

Other investment funds⁽¹⁾

235,150

10,916

(15,626
)

230,440

Equity securities

1

56,668

1,001

(20,331
)

37,338

Other invested assets

2

4,387

—

(94
)

4,293

Total investments

499,560

13,681

(64,067
)

449,174

West Virginia Trust Receivable

9,506

—

(915
)

8,591

Total

$
509,066

$
13,681

$
(64,982
)

$
457,765

Less: Assets held for sale

(21,778
)

(425
)

2,076

(20,127
)
Total

$
487,288

$
13,256

$
(62,906
)

$
437,638

(1)

Other investment funds are measured at fair value using the net asset value per share practical expedient and have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the balance sheet. This asset class is composed of fixed income funds and equity funds, which have redemption periods ranging from 1 to 30 days, and private credit funds, which have lockup periods of zero to fifteen years with 3 potential one year extensions at the discretion of the funds’ general partners. As of September 30, 2021, there were $110.8 million in unfunded investment commitments to the private credit funds, which are callable at any time.


December 31, 2020	Fair Value Hierarchy Level	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Short-term investments	1	$	41,039	$	12	$	—		$	41,051
Fixed maturities:
U.S. governmental securities	2		1		—		—			1
Corporate debt securities	2		2,818		638		—			3,456
Other debt securities	2		23,165		1,578		(1,332	)		23,411
Total fixed maturities			25,984		2,216		(1,332	)		26,868
Mutual funds—debt securities	1		6,097		306		—			6,403
Mutual funds—equity securities	1		26,356		43		(154	)		26,245
Other investment funds(1)			337,565		32,461		(8,812	)		361,214
Equity securities	1		35,055		5,544		(19	)		40,580
Other invested assets	2		3,875		79		—			3,954
Total investments			475,971		40,661		(10,317	)		506,315
West Virginia Trust Receivable			10,190		—		(221	)		9,969
Total		$	486,161	$	40,661	$	(10,538	)		516,284
Less: Assets held for sale										(14,831	)
Total									$	501,453

⁽¹⁾

Other investment funds are measured at fair value using the net asset value per share practical expedient and have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the balance sheet. This asset class is composed of fixed income funds and equity funds, which have redemption periods ranging from 1 to 30 days, and private credit funds, which have lockup periods of one to six years with three potential one year extensions at the discretion of the funds’ general partners. As of March 31, 2020, there were $49.3 million in unfunded investment commitments to the private credit funds, which are callable at any time.

(1)

Other investment funds are measured at fair value using the net asset value per share practical expedient and have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the balance sheet. This asset class is composed of fixed income funds and equity funds, which have redemption periods ranging from 1 to 30 days, and private credit funds, which have lockup periods of zero to five years with 3 potential one year extensions at the discretion of the funds’ general partners. As of December 31, 2020, there were $47.8 million in unfunded investment commitments to the private credit funds, which are callable at any time.

December 31, 2019

Fair Value
Hierarchy
Level

Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

Short-term investments

1

$
144,610

$
—

$
—

$
144,610

Fixed maturities:

U.S. governmental securities

2

456

6

(65
)

397

Corporate debt securities

2

783

14

(133
)

664

Total fixed maturities

1,239

20

(198
)

1,061

Mutual funds—debt securities

1

67,801

1,857

(6
)

69,652

Mutual funds—equity securities

1

46,609

1,744

—

48,353

Other investment funds⁽¹⁾

213,024

6,366

(2,953
)

216,437

Equity securities

1

24,386

1,327

(4
)

25,709

Other invested assets

2

8,360

32

—

8,392

Total investments

506,029

11,346

(3,161
)

514,214

West Virginia Trust Receivable

9,651

—

—

9,651

Total

$
515,680

$
11,346

$
(3,161
)

$
523,865

Less: Assets held for sale

(6,369
)

(304
)

—

(6,673
)
Total

$
509,311

$
11,042

$
(3,161
)

$
517,192

⁽¹⁾

Other investment funds are measured at fair value using the net asset value per share practical expedient and have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the balance sheet. This asset class is composed of fixed income funds and equity funds, which have redemption periods ranging from 1 to 30 days, and private credit funds, which have lockup periods of one to six years with three potential one year extensions at the discretion of the funds’ general partners. As of December 31, 2019, there were $57.3 million in unfunded investment commitments to the private credit funds, which are callable at any time.

2120

Table of Contents

The contractual maturities of debt securities as of ~~March 31, 2020~~September 30, 2021 and December 31, ~~2019~~2020 were as follows (in thousands):

March 31, 2020	Less than 1 year		1 year through 5 years		6 years through 10 years		More than 10 years

September 30, 2021									Less than 1 year		1 year through 5 years		6 years through 10 years		More than 10 years
U.S. governmental securities	$	112	$	81	$	208	$	13	$	—	$	1	$	—	$	—
Corporate debt securities		87		3,970		2,007		—		—		3,601		—		—
Other debt securities										—		—		—		—
Total fixed maturities	$	199	$	4,051	$	2,215	$	13	$	—	$	3,602	$	—	$	—


December 31, 2020	Less than 1 year		1 year through 5 years		6 years through 10 years		More than 10 years
U.S. governmental securities	$	—	$	1	$	—	$	—
Corporate debt securities		—		3,456		—		—
Other debt securities		18,392		5,019		—		—
Total fixed maturities	$	18,392	$	8,476	$	—	$	—

December 31, 2019

Less than
1 year

1 year
through
5 years

6 years
through
10 years

More than
10 years

U.S. governmental securities

$
112

$
78

$
193

$
13

Corporate debt securities

101

546

16

—

Total fixed maturities

$
213

$
624

$
209

$
13

Temporary Declines in Fair Value

The Company evaluates declines in fair value below cost for each asset held in the merchandise trusts on a quarterly basis.

An aging of unrealized losses on the Company’s investments in debt and equity securities within the merchandise trusts as of ~~March 31, 2020~~September 30, 2021 and December 31, ~~2019~~2020 is presented below (in thousands):

	Less than 12 months				12 months or more				Total
March 31, 2020	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
													Less than 12 months				12 months or more				Total
September 30, 2021													Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Fixed maturities:
U.S. governmental securities	$	—	$	—	$	302	$	82	$	302	$	82	$	—	$	—	$	297	$	—	$	297	$	—
Corporate debt securities		5,847		110		457		124		6,304		234		—		—		620		—		620		—
Other debt securities														—		—		—		—		—		—
Total fixed maturities		5,847		110		759		206		6,606		316		—		—		917		—		917		—
Mutual funds—debt securities		19,756		2,064		—		400		19,756		2,464		7		—		—		—		7		—
Mutual funds—equity securities		18,857		23,880		—		1,356		18,857		25,236		—		—		—		—		—		—
Other investment funds		59,261		15,626		—		—		59,261		15,626		39,305		4,752		—		—		39,305		4,752
Equity securities		24,853		20,331		—		—		24,853		20,331		5,100		1,587		—		—		5,100		1,587
Other invested assets		—		—		905		94		905		94
Total	$	128,574	$	62,011	$	1,664	$	2,056	$	130,238	$	64,067	$	44,412	$	6,339	$	917	$	—	$	45,329	$	6,339


	Less than 12 months				12 months or more				Total
December 31, 2020	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Fixed maturities:
U.S. governmental securities	$	—	$	—	$	—	$	—	$	—	$	—
Corporate debt securities		—		—		—		—		—		—
Other debt securities		18,392		1,332		—		—		18,392		1,332
Total fixed maturities		18,392		1,332		—		—		18,392		1,332
Mutual funds—debt securities		—		—		—		—		—		—
Mutual funds—equity securities		128		154		—		—		128		154
Other investment funds		75,799		8,812		—		—		75,799		8,812
Equity securities		82		19		—		—		82		19
Total	$	94,401	$	10,317	$	—	$	—	$	94,401	$	10,317

Less than 12 months

12 months or more

Total

December 31, 2019

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fixed maturities:

U.S. governmental securities

$
90

$
1

$
397

$
64

$
487

$
65

Corporate debt securities

198

29

424

104

622

133

Total fixed maturities

288

30

821

168

1,109

198

Mutual funds—debt securities

241

6

—

—

241

6

Mutual funds—equity securities

—

—

—

—

—

—

Other investment funds

54,782

2,953

—

—

54,782

2,953

Equity securities

3

4

—

—

3

4

Other invested assets

—

—

—

—

—

—

Total

$
55,314

$
2,993

$
821

$
168

$
56,135

$
3,161

For all securities in an unrealized loss position, the Company evaluated the severity of the impairment and length of time that a security has been in a loss position and concluded the decline in fair value below the asset’s cost was temporary in nature. In addition, the Company is not aware of any circumstances that would prevent the future market value recovery for these securities.

2221

Table of Contents

Other-Than-Temporary Impairment of Trust Assets

The Company assesses its merchandise trust assets for other-than-temporary declines in fair value on a quarterly basis. During the ~~three~~nine months ended ~~March 31, 2020,~~September 30, 2021, the Company determined, based on its review, that there were no6 securities with an aggregate cost basis of approximately $0.3 million and an aggregate fair value of approximately $0.2 million, resulting in an impairment of $0.1 million, with such impairment considered to be other than temporary ~~impairments~~due to credit indicators. During the ~~investment portfolio in the merchandise trusts. It is reasonably possible that continued declines could change the Company’s conclusion regarding whether or not merchandise trust assets are other-than-temporary impaired. During~~ ~~the three~~nine months ended ~~March 31, 2019,~~ September 30, 2020, the Company determined, based on its review, that there were 892 securities with an aggregate ~~cost~~costs basis of approximately ~~$91.9~~$16.8 million and an aggregate fair value of approximately ~~$89.6~~$15.1 million, resulting in an impairment of ~~$2.3~~$1.7 million, with such impairment considered to be ~~other-than-temporary~~other than temporary due to credit indicators.Accordingly, the Company adjusted the cost basis of these assets to their current value and offset these changes against deferred merchandise trust revenue. These adjustments to deferred revenue will be reflected within the Company’s unaudited condensed consolidated statements of operations in future periods as the underlying merchandise is delivered or the underlying service is performed.

8.	~~PERPETUAL CARE TRUSTS~~

PERPETUAL CARE TRUSTS

At ~~March 31, 2020~~September 30, 2021 and December 31, ~~2019,~~2020, the Company’s perpetual care trusts consisted of investments in debt and equity marketable securities and cash equivalents, both directly as well as through mutual and investment funds.

All of these investments are carried at fair value. All of the investments subject to the fair value hierarchy are considered either Level 1 or Level 2 assets pursuant to the three-level hierarchy described in Note 14 13 Fair Value of Financial Instruments. There were no Level 3 assets. The perpetual care trusts are VIEs for which the Company is the primary beneficiary.

A reconciliation of the Company’s perpetual care trust activities for the ~~three~~nine months ended ~~March 31,~~September 30, 2021 and 2020 ~~and 2019~~ is presented below (in thousands):


	Three months ended March 31,						Nine months ended September 30,
	2020			2019			2021			2020
Balance—beginning of period	$	343,619		$	330,562		$	316,746		$	343,619
Contributions		1,952			1,983			6,669			6,568
Distributions		(6,294	)		(4,403	)		(32,587	)		(32,147	)
Interest and dividends		6,624			5,148			28,844			16,071
Capital gain distributions		99			114			6,125			447
Realized gains and losses, net		163			977			7,265			(1,416	)
Other than temporary impairment		—			(713	)		(55	)		(930	)
Taxes		(37	)		4			(1,178	)		(610	)
Fees		(913	)		(704	)		(3,695	)		(1,817	)
Unrealized change in fair value		(38,464	)		11,857			6,942			(22,109	)
Total		306,749			344,825			335,076			307,676
Less: Assets held for sale		(21,917	)		—			—			(6,938	)
Balance—end of period	$	284,832		$	344,825		$	335,076		$	300,738

During the ~~three~~nine months ended ~~March 31,~~September 30, 2021 and 2020, ~~and 2019,~~ purchases of available for sale securities were approximately ~~$5.4 million and $35.3 million, respectively.~~$27.1 million. During the ~~three~~nine months ended ~~March 31,~~September 30, 2021 and 2020, ~~and 2019,~~ sales, maturities and paydowns of available for sale securities were approximately ~~$4.4~~$12.2 million and ~~$31.9~~$108.9 million, respectively. Cash flows from perpetual care trust related contracts are presented as operating cash flows in Company’s unaudited condensed consolidated statements of cash flows.

2322

Table of Contents

The cost and market value associated with the assets held in the perpetual care trusts as of ~~March 31, 2020~~September 30, 2021 and December 31, ~~2019~~2020 were as follows (in thousands):


September 30, 2021	Fair Value Hierarchy Level	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Short-term investments	1	$	22,981	$	—	$	—		$	22,981
Fixed maturities:
U.S. governmental securities	2		14		2		—			16
Corporate debt securities	2		363		108		(1	)		470
Other debt securities	2		—		—		—			—
Total fixed maturities			377		110		(1	)		486
Mutual funds—debt securities	1		2,306		37		(14	)		2,329
Mutual funds—equity securities	1		3,902		1,261		(31	)		5,132
Other investment funds(1)			274,979		23,113		(7,064	)		291,028
Equity securities	1		10,273		2,915		(79	)		13,109
Other invested assets	2		9		2		—			11
Total investments		$	314,827	$	27,438	$	(7,189	)	$	335,076

March 31, 2020

Fair Value
Hierarchy
Level

Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

Short-term investments

1

$
32,403

$
—

$
—

$
32,403

Fixed maturities:

U.S. governmental securities

2

1,072

90

(58
)

1,104

Corporate debt securities

2

2,751

19

(177
)

2,593

Total fixed maturities

3,823

109

(235
)

3,697

Mutual funds—debt securities

1

17,631

58

(1,178
)

16,511

Mutual funds—equity securities

1

16,964

605

(6,724
)

10,845

Other investment funds⁽¹⁾

230,401

12,474

(16,219
)

226,656

Equity securities

1

35,467

51

(18,272
)

17,246

Other invested assets

2

(609
)

—

—

(609
)
Total investments

$
336,080

$
13,297

$
(42,628
)

$
306,749

Less: Assets held for sale

(24,002
)

(101
)

2,186

(21,917
)
Total

$
312,078

$
13,196

$
(40,442
)

$
284,832

(1)

Other investment funds are measured at fair value using the net asset value per share practical expedient and have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the balance sheet. This asset class is composed of fixed income funds and equity funds, which have a redemption period ranging from 1 to 30 days, and private credit funds, which have lockup periods ranging from zero to fifteen years with 3 potential one year extensions at the discretion of the funds’ general partners. As of September 30, 2021, there were $72.5 million in unfunded investment commitments to the private credit funds, which are callable at any time.


December 31, 2020	Fair Value Hierarchy Level	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Short-term investments	1	$	21,217	$	—	$	—		$	21,217
Fixed maturities:
U.S. governmental securities	2		48		4		—			52
Corporate debt securities	2		505		92		(44	)		553
Other debt securities	2		433		—		(28	)		405
Total fixed maturities			986		96		(72	)		1,010
Mutual funds—debt securities	1		2,386		62		(9	)		2,439
Mutual funds—equity securities	1		9,240		1,244		(7	)		10,477
Other investment funds(1)			247,845		21,952		(10,813	)		258,984
Equity securities	1		21,748		873		(19	)		22,602
Other invested assets	2		16		1		—			17
Total investments		$	303,438	$	24,228	$	(10,920	)		316,746
Less: Assets held for sale										(4,518	)
Total									$	312,228

⁽¹⁾

Other investment funds are measured at fair value using the net asset value per share practical expedient and have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the balance sheet. This asset class is composed of fixed income funds and equity funds, which have a redemption period ranging from 1 to 30 days, and private credit funds, which have lockup periods ranging from one to seven years with three potential one year extensions at the discretion of the funds’ general partners. As of March 31, 2020 there were $56.4 million in unfunded investment commitments to the private credit funds, which are callable at any time.

(1)

Other investment funds are measured at fair value using the net asset value per share practical expedient and have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the balance sheet. This asset class is composed of fixed income funds and equity funds, which have a redemption period ranging from 1 to 30 days, and private credit funds, which have lockup periods ranging from zero to six years with 3 potential one year extensions at the discretion of the funds’ general partners. As of December 31, 2020, there were $41.1 million in unfunded investment commitments to the private credit funds, which are callable at any time.

December 31, 2019

Fair Value
Hierarchy
Level

Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

Short-term investments

1

$
50,358

$
—

$
—

$
50,358

Fixed maturities:

U.S. governmental securities

2

1,069

32

(52
)

1,049

Corporate debt securities

2

2,020

22

(142
)

1,900

Total fixed maturities

3,089

54

(194
)

2,949

Mutual funds—debt securities

1

49,963

1,439

(38
)

51,364

Mutual funds—equity securities

1

16,698

1,617

(66
)

18,249

Other investment funds⁽¹⁾

186,355

10,526

(5,472
)

191,409

Equity securities

1

30,423

1,333

(12
)

31,744

Other invested assets

2

16

—

—

16

Total investments

$
336,902

$
14,969

$
(5,782
)

$
346,089

Less: Assets held for sale

(2,416
)

(54
)

—

(2,470
)
Total

$
334,486

$
14,915

$
(5,782
)

$
343,619

⁽¹⁾

Other investment funds are measured at fair value using the net asset value per share practical expedient and have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the balance sheet. This asset class is composed of fixed income funds and equity funds, which have a redemption period ranging from 1 to 30 days, and private credit funds, which have lockup periods ranging from one to seven years with three potential one year extensions at the discretion of the funds’ general partners. As of December 31, 2019 there were $62.4 million in unfunded investment commitments to the private credit funds, which are callable at any time.

Table of Contents

The contractual maturities of debt securities as of ~~March 31, 2020~~September 30, 2021 and December 31, ~~2019,~~2020 were as follows (in thousands):

March 31, 2020	Less than 1 year		1 year through 5 years		6 years through 10 years		More than 10 years

September 30, 2021									Less than 1 year		1 year through 5 years		6 years through 10 years		More than 10 years
U.S. governmental securities	$	85	$	168	$	780	$	70	$	—	$	1	$	—	$	15
Corporate debt securities		214		2,018		362		—		—		470		—		—
Other debt securities										—		—		—		—
Total fixed maturities	$	299	$	2,186	$	1,142	$	70	$	—	$	471	$	—	$	15


December 31, 2020	Less than 1 year		1 year through 5 years		6 years through 10 years		More than 10 years
U.S. governmental securities	$	25	$	6	$	—	$	21
Corporate debt securities		—		553		—		—
Other debt securities		405		—		—		—
Total fixed maturities	$	430	$	559	$	—	$	21

December 31, 2019

Less than
1 year

1 year through
5 years

6 years through
10 years

More than
10 years

U.S. governmental securities

$
60

$
192

$
684

$
114

Corporate debt securities

294

1,522

84

-

Total fixed maturities

$
354

$
1,714

$
768

$
114

Temporary Declines in Fair Value

The Company evaluates declines in fair value below cost of each individual asset held in the perpetual care trusts on a quarterly basis.

An aging of unrealized losses on the Company’s investments in debt and equity securities within the perpetual care trusts as of ~~March 31, 2020~~September 30, 2021 and December 31, ~~2019~~2020 is presented below (in thousands):

	Less than 12 months				12 months or more				Total
March 31, 2020	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
													Less than 12 months				12 months or more				Total
September 30, 2021													Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Fixed maturities:
U.S. governmental securities	$	—	$	—	$	1,002	$	58	$	1,002	$	58	$	—	$	—	$	990	$	—	$	990	$	—
Corporate debt securities		1,759		70		1,829		107		3,588		177		—		—		1,959		1		1,959		1
Other debt securities														—		—		—		—		—		—
Total fixed maturities		1,759		70		2,831		165		4,590		235		—		—		2,949		1		2,949		1
Mutual funds—debt securities		12,800		1,016		19		162		12,819		1,178		1,294		13		82		1		1,376		14
Mutual funds—equity securities		7,476		6,517		7		207		7,483		6,724		373		28		1		3		374		31
Other investment funds		58,418		16,219		—		—		58,418		16,219		43,262		7,064		—		—		43,262		7,064
Equity securities		17,006		18,259		5		13		17,011		18,272		807		79		—		—		807		79
Other invested assets		—		—		9		—		9		—
Total	$	97,459	$	42,081	$	2,871	$	547	$	100,330	$	42,628	$	45,736	$	7,184	$	3,032	$	5	$	48,768	$	7,189


	Less than 12 months				12 months or more				Total
December 31, 2020	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Fixed maturities:
U.S. governmental securities	$	—	$	—	$	990	$	—	$	990	$	—
Corporate debt securities		—		—		1,959		44		1,959		44
Other debt securities		405		28		—		—		405		28
Total fixed maturities		405		28		2,949		44		3,354		72
Mutual funds—debt securities		600		9		—		—		600		9
Mutual funds—equity securities		288		7		—		—		288		7
Other investment funds		74,885		10,813		—		—		74,885		10,813
Equity securities		45		4		19		15		64		19
Total	$	76,223	$	10,861	$	2,968	$	59	$	79,191	$	10,920

Less than 12 months

12 months or more

Total

December 31, 2019

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fixed maturities:

U.S. governmental securities

$
291

$
4

$
942

$
48

$
1,233

$
52

Corporate debt securities

463

46

1,887

96

2,350

142

Total fixed maturities

754

50

2,829

144

3,583

194

Mutual funds—debt securities

2,856

38

—

—

2,856

38

Mutual funds—equity securities

566

66

—

—

566

66

Other investment funds

53,426

5,472

—

—

53,426

5,472

Equity securities

121

12

—

—

121

12

Total

$
57,723

$
5,638

$
2,829

$
144

$
60,552

$
5,782

Table of Contents

~~Table of Contents~~

Other-Than-Temporary Impairment of Trust Assets

The Company assesses its perpetual care trust assets for other-than-temporary declines in fair value on a quarterly basis. During the ~~three~~nine months ended ~~March 31, 2020,~~ September 30, 2021, the Company determined, based on its review, that there were no other-than-temporary impairments to the investment portfolio in the perpetual care trusts. It is reasonably possible that continued declines could change the Company’s conclusion regarding whether or not perpetual care trust assets are other-than-temporary impaired. During the three months ended March 31, 2019, ~~the Company determined that there were 66~~6 securities with an aggregate cost basis of approximately ~~$29.2~~$84,000 and an aggregate fair value of approximately $30,000, resulting in an impairment of $54,000, with such impairment considered to be other than temporary due to credit indicators. During the nine months ended September 30, 2020, the Company determined, based on its review, that there were 2securities with an aggregate cost basis of approximately $9.4 million and an aggregate fair value of approximately ~~$28.5~~ $8.5 million, resulting in an impairment of ~~$0.7~~$0.9 million, with such impairment considered to be ~~other-than-temporary~~other than temporary due to credit indicators. Accordingly, the Company adjusted the cost basis of these assets to their current value with the offset going against the liability for perpetual care trust corpus.

9.	8. LONG-TERM DEBT

Total debt consisted of the following at the dates indicated (in thousands):

	March 31, 2020			December 31, 2019
9.875%/11.500% Senior Secured PIK Toggle Notes, due June 2024	$	353,648		$	380,619
							September 30, 2021			December 31, 2020
8.500% Senior Secured Notes due 2029							$	400,000		$	—
9.875%/11.500% Senior Secured PIK Toggle Notes due June 2024								—			335,328
Insurance and vehicle financing		2,282			574			1,769			361
Less deferred financing costs, net of accumulated amortization		(12,348	)		(12,856	)		(10,328	)		(14,657	)
Total debt		343,582			368,337			391,441			321,032
Less current maturities		(2,139	)		(374	)		(1,769	)		(317	)
Total long-term debt	$	341,443		$	367,963		$	389,672		$	320,715

2029 Notes

~~Senior Secured Notes~~

On June 27, 2019, StoneMor Partners L.P. (the “Partnership”), Cornerstone Family Services of West Virginia Subsidiary, Inc. (“CFS West Virginia”) and, collectively with the Partnership, the “Issuers”), certain direct and indirect subsidiaries of the Partnership (the “Guarantors”), the initial purchasers party thereto (the “Initial Purchasers”) and Wilmington Trust, National Association, as trustee (in such capacity, the “Trustee”) and as collateral agent (in such capacity, the “Collateral Agent”) entered into an indenture (the “Original Indenture”) with respect to the 9.875%/11.500% Senior Secured PIK Toggle Notes due 2024.

~~On December 31, 2019,~~May 11, 2021, the Company ~~the subsidiary guarantors party thereto, the Issuers and the Trustee entered into the First Supplemental Indenture (the “First~~ ~~Supplemental~~ Indenture”) and on January 30, 2020, the Company, LP Sub, the Issuers and the Trustee entered into the Second Supplemental Indenture (the “Second Supplemental Indenture” and, collectively with the Original Indenture and the First Supplemental Indenture, the “Indenture”).

~~Pursuant to the terms of the Indenture, the Initial Purchasers purchased Senior Secured Notes in the~~issued $400.0 million aggregate principal amount of ~~$385.0 million in a private placement exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”) pursuant to Section 4(a)(2) thereof.~~8.500% Senior Secured Notes due 2029. The gross proceeds from the sale of the ~~Senior Secured~~2029 Notes was ~~$371.5~~$389.9 million, less advisor fees, ~~(including a placement agent fee of approximately $7.0 million),~~ legal fees, mortgage costs and other closing expenses. The 2029 Notes were issued pursuant to the 2029 Indenture, dated as of May 11, 2021, by and among the Company, the guarantors named therein and Wilmington Trust, National Association, as trustee and collateral agent (“Wilmington”). Capitalized terms that are used in this description of the 2029 Notes but not defined herein shall have the meaning assigned to such terms in the 2029 Indenture.

Proceeds from the sale of the 2029 Notes were used to fund the redemption in full of approximately $338.1 million aggregate principal amount of the 2024 Notes together with an approximately $18.5 million prepayment premium and pay fees and expenses ~~as well as~~incurred in connection with the offering. Any remaining proceeds will be used for general corporate purposes, which may include acquisitions. Upon deposit of the funds to redeem the 2024 Notes with the 2024 Trustee, the 2024 Indenture was satisfied and discharged in accordance with its terms. As a result of the satisfaction and discharge of the 2024 Indenture, the 2024 Issuers and the 2024 Guarantors, including the Company, have been released from their obligations with respect to the 2024 Indenture and the 2024 Notes, except with respect to those provisions of the 2024 Indenture that, by their terms, survive the satisfaction and discharge of the 2024 Indenture.

Interest; Maturity; Issue Price

Interest on the 2029 Notes accrues at a rate of 8.5% per year, payable in cash ~~funds for collateralization~~semiannually, in arrears, on May 15 and November 15 of ~~existing letters~~each year, beginning on November 15, 2021. The Notes mature on May 15, 2029. Subject to the covenants contained in the 2029 Indenture, the Company may, without the consent of ~~credit and credit card needs~~the holders of the 2029 Notes, issue additional notes under the ~~former credit facility.~~2029 Indenture (“Additional Notes”) having the same terms in all respects as the 2029 Notes, which shall be treated with the 2029 Notes as a single class under the 2029 Indenture. The issue price of the 2029 Notes was 100%.

Table of Contents

Redemption

The ~~Issuers can elect~~2029 Notes are redeemable at the Company’s option, in whole or in part, on and after May 15, 2024 at the redemption prices (expressed as percentages of principal amount) set forth below, plus any accrued and unpaid interest, if any, to, ~~pay interest~~but excluding, the redemption date.


On or after May 15, 2024 and prior to May 15, 2025		104.250%
On or after May 15, 2025 and prior to May 15, 2026		102.125%
On or after May 15, 2026		100.000%

In addition, prior to May 15, 2024, the Company may utilize the net proceeds of one or more equity offerings to redeem up to 40% of the aggregate principal amount of the 2029 Notes originally issued under the 2029 Indenture, including any Additional Notes, at ~~either~~ a ~~fixed rate~~redemption price of ~~9.875% per annum in cash or, at their option through January 30, 2022, a fixed rate~~108.500% of ~~7.50% per annum in cash plus a fixed rate of 4.00% per annum payable in kind by increasing~~ the principal amount of the ~~Senior Secured~~2029 Notes redeemed, plus any accrued and unpaid interest, if any, to, but excluding, the redemption date, provided that at least 50% of the aggregate principal amount of the 2029 Notes (including Additional Notes) originally issued under the 2029 Indenture remain outstanding following such redemption.

During each of the 12-month periods ending May 10, 2022, May 10, 2023 and May 10, 2024, respectively, the Company may redeem up to 10% of the aggregate principal amount of the 2029 Notes (including Additional Notes) originally issued under the 2029 Indenture at a redemption price equal to 103% of the principal amount of the 2029 Notes redeemed plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

Prior to May 15, 2024, the 2029 Notes are redeemable at the Company’s option, in whole or ~~by issuing additional Senior Secured Notes. The Senior Secured~~in part, at a redemption price equal to 100% of the principal amount of the 2029 Notes ~~will require cash~~being redeemed plus an “applicable premium” (as defined in the 2029 Indenture) along with accrued and unpaid interest, ~~payments at 9.875% for all interest periods after January 30, 2022.~~ ~~The~~ if any, to, but excluding, the redemption date.

Upon the occurrence of a “change of control” (as defined in the 2029 Indenture), if the Company has not previously exercised its right to redeem all of the ~~right and expects~~outstanding 2029 Notes pursuant to ~~pay quarterly interest~~the optional redemption provisions as described above, the Company must offer to repurchase the 2029 Notes at a ~~fixed rate~~redemption price equal to 101% of ~~7.50% per annum~~the principal amount of the 2029 Notes, plus accrued and unpaid interest, if any, to, but excluding, the date of repurchase.

Upon certain asset sales where the excess proceeds from all applicable asset sales exceed $10 million since the issue date of the 2029 Notes, the Company may be required in certain circumstances to make an offer to purchase 2029 Notes with the excess proceeds from such an asset sale in excess of such $10 million threshold at a price in cash ~~plus a fixed rate of 4.00% per annum payable in kind through January 30, 2022~~. ~~Interest is payable quarterly in arrears on the 30th day of each March, June, September and December, commencing September 30, 2019. The Senior Secured Notes mature on June 30, 2024.~~

~~The Senior Secured Notes are senior secured obligations~~equal to 100% of the ~~Issuers.~~ principal amount thereof, together with accrued and unpaid interest, if any, to, but excluding, the date of purchase.

Guarantees and Collateral

The ~~Issuers’ joint and several~~Company’s obligations under the ~~Senior Secured~~2029 Notes and the 2029 Indenture are jointly and severally guaranteed (the “Note Guarantees”) by each of the Company’s existing and future direct and indirect domestic subsidiaries, with certain exceptions, and will be guaranteed by each of the Company’s foreign subsidiaries that guarantees any future credit facility (each applicable foreign and domestic subsidiary, a “2029 Guarantor” and collectively, the “2029 Guarantors”). In connection with the Note Guarantees, the Company, ~~and each subsidiary of~~ the Company (other than the Issuers except at to each other’s obligations under the Senior Secured Notes) that the Company has caused or will cause to become a Guarantor pursuant to the terms of the Indenture. In addition, the Issuers, the2029 Guarantors and ~~the Collateral Agent~~Wilmington entered into a ~~Collateral~~Security Agreement, dated May 11, 2021 (the ~~“Collateral~~“Security Agreement”). Pursuant to the 2029 Indenture and the ~~Collateral~~Security Agreement, the ~~Issuers’~~Company’s obligations under the 2029 Indenture and the ~~Senior Secured~~2029 Notes ~~and the~~

~~Table of Contents~~

~~Guarantors’ Note Guarantees~~ are secured by a ~~first priority~~ lien and security interest (subject to permitted liens and security interests) in substantially all of the ~~assets of the Issuers~~Company’s and the ~~Guarantors (other than the Company), whether now owned or hereafter acquired,~~2029 Guarantors’ existing and future property and assets, excluding certain assets which include, among others: (a) trust and other fiduciary accounts and amounts required to be deposited or held therein, (b) assets that may not be pledged as a matter of law or without governmental approvals, until such time such assets may be pledged without legal prohibition and ~~(b) unless encumbered by a mortgage existing on the date of the Indenture,~~(c) owned and leased real property that (i) may not be pledged as a matter of law or without the prior approval of any governmental ~~approvals,~~authority or third person, (ii) is not operated or intended to be operated as a cemetery, crematory or funeral home or (iii) ishas a fair market value of less than $3.0 million.

Table of Contents

The 2029 Notes are the ~~subject~~Company’s senior secured obligations and the guarantees are the 2029 Guarantors’ senior secured obligations. The obligations of ~~specified immaterial leases.~~

~~The Issuers may redeem~~ the ~~Senior Secured Notes at their option,~~Company and each 2029 Guarantor will:



rank equal in ~~whole or~~right of payment with all of the Company and each 2029 Guarantor’s existing and future senior indebtedness, including any borrowings under any future credit facility;



rank senior in ~~part, at any time for a redemption price equal~~right of payment to all of the Company’s and each 2029 Guarantor’s existing and future subordinated indebtedness;



be effectively senior to all of the Company’s and each 2029 Guarantor’s unsecured senior indebtedness to the ~~principal balance thereof, accrued and unpaid interest thereon and, if applicable, a premium (the “Applicable Premium”) calculated as follows:~~

~~If redeemed before June 27, 2021, the sum of 4%~~extent of the ~~principal amount so redeemed plus the excess of (i) the interest that would have accrued on the principal amount~~value of the ~~redeemed Senior Secured~~collateral securing the 2029 Notes ~~from~~and the ~~redemption date through June 27, 2021 assuming an interest rate of 11.500% per annum over (ii)~~Note Guarantees;



be contractually subordinated to the ~~interest that would have accrued on~~Company’s and each 2029 Guarantor’s obligations under any future credit facility permitted by the ~~principal amount~~2029 Indenture to the extent of the ~~redeemed Senior Secured Notes from~~value of the ~~redemption date through June 27, 2021 at an interest rate equal~~collateral securing such credit facility and subject to the ~~then-applicable rate on United States Treasury securities for the period most nearly equaling that time period plus 0.50%;~~

terms of any future intercreditor agreement; and



~~If redeemed on or after June 27, 2021~~structurally subordinated to all indebtedness and ~~before June 27, 2022, 4%~~other obligations of the ~~principal amount so redeemed;~~

~~If redeemed on or after June 27, 2022~~Company’s existing and ~~before June 27, 2023, 2% of~~future subsidiaries that do not guarantee the ~~principal amount so redeemed; and~~

~~If redeemed on or after June 27, 2023, no premium will be payable.~~

2029 Notes.

Covenants

The Issuers are obligated to redeem the Senior Secured Notes with the net cash proceeds of certain dispositions described in the Indenture, tax refunds, insurance or condemnation proceeds and certain other extraordinary receipts. The redemption price for such redemptions is the principal balance of the Senior Secured Notes being redeemed, all accrued and unpaid interest thereon plus, with respect to redemptions from asset dispositions with net proceeds in excess of $55.0 million, an Applicable Premium of 2% of the principal amount so redeemed. As of March 31, 2020, the Issuers redeemed approximately $32.2 million of the Senior Secured Notes with the net cash proceeds from dispositions.

The Issuers are also obligated to use 75% of any Excess Cash Flow, less any amount paid in any voluntary redemption of the Senior Secured Notes during the applicable period or subsequent thereto and prior to the applicable redemption date, to redeem the Senior Secured Notes at a redemption price equal to the principal balance thereof and all accrued and unpaid interest thereon.

~~All interest payable in connection with the redemption of any the Senior Secured Notes is payable in cash.~~

~~The~~2029 Indenture requires the ~~Issuers~~Company and the 2029 Guarantors, as applicable, to comply with various affirmative covenants regarding, among other matters, delivery to ~~the Trustee~~Wilmington of financial statements and certain other information or reports filed with the ~~SEC~~Securities and ~~the maintenance and investment of trust funds and trust accounts into which certain sales proceeds are required by law to be deposited.~~Exchange Commission.

The 2029 Indenture ~~includes financial covenants pursuant to which the Issuers will not permit:~~

the ratio of the sum of the Operating Cash Flow Amount plus Cash Interest Expense to Cash Interest Expense, or the Consolidated Interest Coverage Ratio, for the nine months ended March 31, 2020 and the twelve months ending as of each date from June 30, 2020 onwards, as set forth below, to be less than:

~~March 31, 2020~~		~~0.40x~~
~~June 30, 2020~~		~~0.75x~~
~~September 30, 2020~~		~~1.00x~~
~~December 31, 2020~~		~~1.15x~~
~~March 31, 2021~~		~~1.25x~~
~~June 30, 2021~~		~~1.30x~~
~~September 30, 2021~~		~~1.35x~~
~~December 31, 2021~~		~~1.45x~~
~~March 31, 2022 and each quarter end thereafter~~		~~1.50x~~

~~Table of Contents~~

•

the aggregate amount of Capital Expenditures for the prior four fiscal quarters as of the last day of any fiscal quarter beginning with the fiscal quarter ended September 30, 2019 to be more than $20.0 million;

~~the average daily balance of Unrestricted Cash and unrestricted Permitted Investments of~~requires the Company and ~~its subsidiaries as of~~ the ~~end of any day for any 10-business day period to be less than $12.5 million during the quarter ended March 31, 2020 and any subsequent quarter through maturity; or~~

the ratio of the (a) the sum of Unrestricted Cash, accounts receivable and merchandise trust account balances to (b) the aggregate principal or face amount of Consolidated Funded Indebtedness, or Asset Coverage Test, for the applicable measurement period as of the last day of any fiscal quarter to be less than 1.60:1.00.

~~The Indenture requires the Issuers and the~~2029 Guarantors, as applicable, to comply with certain ~~other~~ covenants including, but not limited to, covenants that, subject to certain exceptions, limit the ~~Issuers’~~Company’s and ~~the~~2029 Guarantors’ ability to: (i) incur additional ~~indebtedness;~~indebtedness or issue disqualified capital stock; (ii) ~~grant liens;~~pay dividends, redeem subordinated debt or make other restricted payments; (iii) ~~engage in certain sale/leaseback, merger, consolidation or asset sale transactions; (iv)~~ make certain investments; (iv) create or incur certain liens; (v) ~~pay dividends~~issue stock of subsidiaries; (vi) enter into certain transactions with affiliates; (vii) merge, consolidate or transfer substantially all of its respective assets; (viii) agree to dividend or other payment restrictions affecting the Restricted Subsidiaries; (ix) change the business it conducts; (x) withdraw any monies or other assets from, or make ~~distributions; (vi) engage in affiliate transactions~~any investments of, its trust funds; and ~~(vii) amend its organizational documents.~~(xi) transfer or sell assets, including capital stock of a Restricted Subsidiary.

Events of Default

The 2029 Indenture ~~provides for certain~~contains customary events of default, ~~the occurrence and continuation of~~ which could, subject to certain conditions, cause ~~all amounts owing under~~ the ~~Senior Secured~~2029 Notes to become immediately due and payable, including, but not limited to ~~the following:~~

~~failure~~defaults by the ~~Issuers to pay~~Company in the payment of the principal of any ~~interest on any Senior Secured Note~~2029 Notes when itthe same becomes due and payable ~~that remains uncured for five business days;~~

~~failure~~at maturity, upon acceleration or redemption, or otherwise (other than pursuant to an offer to purchase by the ~~Issuers to pay~~Company) or in the ~~principal~~payment of interest on any ~~of the Senior Secured~~2029 Notes when itthe same becomes due and payable, ~~whether at~~and the ~~due date thereof, at a date fixed for redemption, by acceleration or otherwise;~~

~~failure by the Issuers to comply with the agreement and covenants relating to maintenance of its legal existence, providing notice of any~~ default ~~or event of default or use of proceeds from the sale of the Senior Secured Notes or any of the negative covenants in the Indenture;~~

~~failure by the Issuers to comply with any other agreement or covenant contained in the Indenture, the Collateral Agreement or any other Note Document that remains uncured~~continues for a period of ~~15 days after~~30 days; failure to comply with certain repurchase obligations in the ~~earlier~~2029 Indenture and certain other covenants the 2029 Indenture relating to mergers, consolidation or sales of ~~written~~assets; failure to comply with certain other covenants in the 2029 Indenture beyond the applicable cure period following notice ~~and request for cure from~~by Wilmington or the ~~Trustee or~~ holders of at least ~~25% of the~~30% in aggregate principal amount of the ~~Senior Secured Notes;~~

~~the acceleration of or the~~2029 Notes then outstanding; failure to pay atdebt within any applicable grace period after the final maturity ~~indebtedness (other than~~or acceleration of such debt by the ~~Senior Secured Notes) in a principal amount exceeding $5.0 million;~~

~~the occurrence~~holders thereof because of a ~~Change in Control;~~

~~certain bankruptcy or insolvency proceedings involving an Issuer or any subsidiary; and~~

~~failure by~~default, if the Company or any subsidiary to maintain one or more licenses, permits or similar approvals for the conduct of its business where the sum of the revenue associated therewith represents the lesser of (i) 15% of the Company and its subsidiaries’ consolidated revenue and (ii) $30.0 million, and such breach is not cured within 30 days.

~~At the option of holders holding a majority of the outstanding principal~~total amount of ~~the Senior Secured Notes (and automatically upon any default for~~such debt unpaid or accelerated exceeds $20.0 million; failure to pay ~~principal~~final judgments entered by a court or courts of ~~the Senior Secured Notes when due~~competent jurisdiction aggregating $20.0 million or more (excluding amounts covered by insurance), which judgments are not paid, discharged or stayed, for a period of 60 days; and ~~payable or~~ certain events of bankruptcy or ~~insolvency proceedings involving an Issuer), the interest rate on the Senior Secured Notes will increase to 13.50% per annum, payable in cash.~~insolvency.

As of ~~March 31, 2020,~~September 30, 2021, the Company was in compliance with the covenants of the 2029 Indenture.

~~Table of Contents~~Deferred Financing Costs

~~On April 1, 2020,~~In connection with the Issuers and the Trustee entered into the Third Supplemental Indenture to the Indenture (the “Supplemental Indenture”), pursuant to which certain financial covenants and the premium payable upon voluntaryfull redemption of the ~~Senior Secured~~2024 Notes, the Company wrote off unamortized deferred financing fees of $13.1 million and original issue discount of $8.5 million, which are included in Loss on debt extinguishment in the ~~Indenture were amended. For further details, see Note 18~~ ~~Subsequent Events~~.accompanying condensed consolidated statements of operations for the nine months ended September 30, 2021.

~~Deferred Financing Costs~~27

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For the three months ended ~~March 31,~~September 30, 2021 and 2020, ~~and 2019,~~ the Company recognized ~~$0.7~~$0.3 million and ~~$1.5~~$1.0 million, respectively, of amortization of deferred financing fees on its various debt facilities.

~~10.~~

~~OWNERS’ EQUITY~~

~~Capital Stock~~

~~Effective as of~~ For the ~~C-Corporation Conversion,~~nine months ended September 30, 2021 and 2020, the Company ~~was~~recognized $2.0 million and $1.8 million, respectively, of amortization of deferred financing fees on its various debt facilities.

STOCKHOLDERS’ EQUITY

Capital Stock

The Company is authorized to issue two classes of capital stock: common stock, ~~$0.01~~$0.01 par value per share (“Common Stock”) and preferred stock, ~~$0.01~~$0.01 par value per share (“Preferred Stock”).

At ~~March 31, 2020, 94,477,102~~September 30, 2021, 118,011,766 shares of Common Stock were issued and outstanding and no0 shares of Preferred Stock were issued or outstanding. At ~~March 31, 2020,~~September 30, 2021, there were ~~105,522,898~~81,988,234 shares of Common Stock available for issuance, including ~~1,133,542~~842,139 shares available for issuance as stock-based incentive compensation under the Company’s ~~long-term incentive plan (the~~Amended and Restated 2019 Long-Term Incentive Plan (as amended, the “Plan”), and 10,000,000 shares of Preferred Stock available for issuance.

~~For further details on events affecting the Company’s capital stock subsequent to March 31, 2020, see Note 18~~ ~~Subsequent Events~~.

Stock-based Compensation

The Plan permits the granting of awards covering a total of ~~8,500,000~~9,875,000 common units of the Company. A “unit” under the Plan is defined as a common unit of the Company and such other securities as may be substituted or resubstituted for common units of the Company, including but not limited to shares of the Company’s ~~common stock.~~Common Stock. The Plan is intended to promote the interests of the Company by providing to employees, consultants and directors of the Company incentive compensation awards to encourage superior performance and enhance the Company’s ability to attract and retain the services of individuals who are essential for its growth and profitability and to encourage them to devote their best efforts to advancing the Company’s business.

~~For further details on changes to the Plan subsequent to March 31, 2020, see Note 18~~ ~~Subsequent Events~~.

~~Non-qualified~~ Stock Options

~~On December 18, 2019,~~During the ~~Compensation Committee approved the granting of options to employees of~~three and nine months ended September 30, 2021, the Company including certain members of senior management to purchase an aggregate of 5.5 million common shares at an exercise price of $1.20 per share. The option awards vest in three equal annual installments on each December 18 (or first business day thereafter) commencing on December 18, 2020, provided that the recipient remains employed by the Company. The Company measured the option awards at their grant-date fair value utilizing the Black-Scholes model and will recognize stock compensation expense on a straight-line basis over the weighted-average service period, which is expected to be three years. The option awards expire no later than 10 years from the date of grant.

~~A rollforward of~~did 0t grant any stock options ~~as of March 31, 2020 is as follows:~~

Number of Stock Options

Weighted Average Grant Date Fair Value

Weighted Average Exercise Price

Total outstanding at December 31, 2019

5,500,000

$
0.34

$
1.20

Options granted

—

—

—

Options exercisable

—

—

—

Options exercised

—

—

—

Options forfeited

(225,000
)

0.34

1.20

Options expired

—

—

—

Total outstanding at March 31, 2020

5,275,000

$
0.34

$
1.20

~~Table of Contents~~and 0 options were exercised, forfeited or expired.

For the three months ended ~~March 31,~~September 30, 2021 and 2020, non-cash ~~stock~~ compensation expense related to stock options was ~~$0.2~~$0.2 million. For the nine months ended September 30, 2021 and 2020, non-cash compensation expense related to stock options was $0.5 million. As of ~~March 31, 2020,~~September 30, 2021, total unrecognized compensation cost related to unvested stock options was ~~$1.6 million, which the Company expects to recognize over the remaining weighted-average period of 2.7 years.~~

~~Assumptions used in calculating the fair value of the stock options granted are summarized below:~~

2019 Options Granted

Valuation assumptions:

Expected dividend yield

None

Expected volatility

23.41
%
Expected term (years)

6.0

Risk-free interest rate

1.78
%
Weighted average:

Exercise price per stock option

$
1.20

Market price per share

$
1.23

Weighted average fair value per stock option

$
0.34

~~Phantom Unit and Restricted Unit Awards~~

~~A rollforward of phantom unit and restricted unit awards as of March 31, 2020 is as follows:~~

Number of Phantom Unit and Restricted Unit Awards

Weighted Average Grant Date Fair Value

Total non-vested at December 31, 2019

559,218

$
3.67

Units issued

18,518

1.08

Units vested

(46,875
)

3.88

Units forfeited

—

—

Total non-vested at March 31, 2020

530,861

$
3.56

For the three months ended March 31, 2020 and 2019, the Company recognized $0.2 million and $0.3 million, respectively, of non-cash stock compensation expense related to phantom unit and restricted unit awards into earnings. As of March 31, 2020, total unamortized compensation cost related to unvested restricted stock awards was $1.6$1.0 million, which the Company expects to recognize over the remaining weighted-average period of ~~2.25 years~~.1.5 years.

Restricted Stock and Restricted Phantom Stock

~~11.~~

~~DEFERRED REVENUES AND COSTS~~

A rollforward of restricted stock and phantom stock awards as of September 30, 2021 is as follows:


	Number of Restricted Stock and Phantom Stock Awards			Weighted Average Grant Date Fair Value ($)
Total non-vested at December 31, 2020		1,277,907		$	2.17
Granted		38,224			2.35
Vested		(140,625	)		3.88
Total non-vested at September 30, 2021		1,175,506		$	1.97

For the three months ended September 30, 2021 and 2020, the Company recognized $0.3 million and $0.2 million, respectively, of non-cash compensation expense related to restricted stock and phantom stock awards into earnings. For the nine months ended September 30, 2021 and 2020, the Company recognized $1.0 million and $0.6 million, respectively, of non-cash compensation expense related to restricted stock and phantom stock awards into earnings. As of September 30, 2021, total unamortized compensation cost related to unvested restricted stock awards was $1.5 million, which the Company expects to recognize over the remaining weighted-average period of 1.7 years.

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10.

DEFERRED REVENUES AND COSTS

The Company defers revenues and all direct costs associated with the sale of pre-need cemetery merchandise and services until the merchandise is delivered or the services are performed. The Company recognizes deferred merchandise and service revenues as customer contract liabilities within long-term liabilities on its consolidated balance sheets. The Company recognizes deferred direct costs associated with pre-need cemetery merchandise and service revenues as deferred selling and obtaining costs within long-term assets on its consolidated balance sheets. The Company also defers the costs to obtain new pre-need cemetery and new prearranged funeral business as well as the investment earnings on the prearranged services and merchandise trusts. Such costs are recognized when the associated performance obligation is fulfilled based upon the net change in the customer contract liabilities. All other selling costs are expensed as incurred. Additionally, the Company has elected the practical expedient of not recognizing incremental costs to obtain a contract as incurred, as the associated amortization period is typically one year or less.

Deferred revenues and related costs consisted of the following (in thousands):


	March 31, 2020			December 31, 2019		September 30, 2021		December 31, 2020

Deferred contract revenues	$	819,147		$	837,190	$	866,845	$	832,373
Deferred merchandise trust revenue		97,910			104,304		150,815		87,218
Deferred merchandise trust unrealized gains (losses)		(49,650	)		7,881		9,905		29,573
Deferred revenues	$	867,407		$	949,375	$	1,027,565	$	949,164
Deferred selling and obtaining costs	$	113,611		$	114,944	$	122,488	$	116,900

For the ~~three~~nine months ended ~~March 31,~~September 30, 2021 and 2020, ~~and March 31, 2019,~~ the Company recognized ~~$19.9~~$56.3 million and ~~$22.6~~$34.7 million, respectively, of the customer contract liabilities balance that existed at December 31, 2020 and 2019, ~~and 2018~~respectively, as revenue.

~~Table of Contents~~

The components of the customer contract liabilities, net in the Company’s consolidated balance sheets at ~~March 31, 2020~~September 30, 2021 and December 31, ~~2019~~2020 were as follows (in thousands):

	March 31, 2020			December 31, 2019
							September 30, 2021			December 31, 2020
Customer contract liabilities, gross	$	889,868		$	974,927		$	1,054,062		$	973,444
Amounts due from customers for unfulfilled performance obligations on cancellable pre-need contracts		(22,461	)		(25,552	)		(26,497	)		(24,280	)
Customer contract liabilities, net	$	867,407		$	949,375		$	1,027,565		$	949,164

The Company expects to service approximately ~~55%~~55% of its deferred revenue in the first 4-5 years and approximately ~~80%~~80% of its deferred revenue within 18 years. The Company cannot estimate the period when it expects its remaining performance obligations will be recognized, because certain performance obligations will only be satisfied at the time of death.

~~12.~~

11.

COMMITMENTS AND CONTINGENCIES

Legal

~~Legal~~

The ~~Partnership remains~~Company is subject to state law ~~derivative~~ claims that certain of ~~the Partnership’s~~its officers and directors breached their fiduciary ~~duty to~~duties, as well as a claim under federal law that certain of the ~~Partnership and its unitholders.~~Company’s prior proxy disclosures were misleading. The Company could also become subject to additional claims and legal proceedings relating to the factual allegations made in these actions. While management cannot reasonably estimate the potential exposure in these matters at this time, if we do not prevail in any such proceedings, we could be required to pay substantial damages or settlement costs, subject to certain insurance coverages. Management has determined that, based on the status of the claims and legal proceedings ~~against the Company,~~described below, the amount of the potential losses cannot be reasonably estimated at this time. These actions are summarized below.



Bunim v. Miller, et al., No. 2:17-cv-519-ER, pending in the United States District Court for the Eastern District of Pennsylvania, and filed on February 6, 2017. The plaintiff in this case brought, derivatively on behalf of the Partnership, claims that the officers and directors of StoneMor GP LLC, a Delaware limited liability company and general partner of the Partnership (“StoneMor GP”), aided and abetted in breaches of StoneMor GP’s purported fiduciary duties by, among other things and in general, allegedly making misrepresentations through the use of non-GAAP accounting standards in the Partnership’s public filings, by allegedly failing to clearly disclose the use of proceeds from debt and equity offerings, and by allegedly approving unsustainable distributions. The plaintiff also claims that these actions and misrepresentations give rise to causes of action for gross mismanagement, unjust enrichment, and (in connection with a

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purportedly misleading proxy statement filed in 2014) violations of Section 14(a) of the ~~Securities~~ Exchange ~~Act of 1934.~~Act. The derivative plaintiff seeks an award of damages, attorneys’ fees and costs in favor of the Partnership as nominal plaintiff, as well as general compliance and governance changes. This case has been stayed, by the agreement of the parties, provided that either party may terminate the stay on 30 days’ notice.



~~Muth~~Fried v. Axelrod, et al., C.A. No. 2020-1065-SG, pending in the Chancery Court of the State of Delaware and filed on December 16, 2020. The plaintiff in this case brought an action he seeks to have certified as a class action that asserts claims against Axar, Andrew M. Axelrod and the other individuals who were directors at the time of the transactions in question and against the Company as a nominal defendant. The complaint includes direct claims against all individual defendants and derivative claims against the individual defendants other than Mr. Axelrod for breach of fiduciary duty in approving certain transactions in connection with the Company’s sale of preferred and common stock to Axar and certain accounts managed by Axar (the “Axar Stock Purchase”). The complaint also includes derivative claims against Axar for breach of fiduciary duty and unjust enrichment in connection with those same transactions as well as direct claims against both Axar and Mr. Axelrod for breach of fiduciary duty with respect to those transactions. Finally, the complaint includes a derivative claim against all individual defendants for breach of fiduciary duty in connection with the approval of a related-party investment disclosed by the Company. The plaintiff seeks rescission of the transactions contemplated by the Axar Stock Purchase and the related-party investment and/or an award of damages as well as attorneys’ fees and costs. On January 6, 2021, a motion to dismiss the complaint was filed on behalf of the Company and the individual defendants other than Mr. Axelrod and on January 11, 2021, a motion to dismiss the complaint was filed on behalf of Axar and Mr. Axelrod. On April 2, 2021, the plaintiff filed a First Amended Complaint, which included additional factual background regarding the plaintiff’s claims and alleged demand futility, but did not add additional defendants, claims or relief sought. The defendants filed a motion to dismiss the First Amended Complaint on April 16, 2021. Thereafter, the plaintiff and defendants filed a joint stipulation to stay the Fried litigation pending the resolution of a separate pending action described below, which the court granted on April 28, 2021.



Titterton v. StoneMor ~~G.P. LLC, et al.~~Inc., ~~December Term, 2016,~~C.A. No. ~~1196 and Binder v. StoneMor G.P. LLC, et al., January Term, 2017, No. 4872, both~~: 2021-0259-PAF, pending in the Court of ~~Common Pleas for Philadelphia County, Pennsylvania,~~Chancery of the State of Delaware and filed on ~~December 20, 2016 and February 3, 2017, respectively. In these cases, the plaintiffs~~March 25, 2021. The plaintiff in this case brought ~~derivatively on behalf~~an action seeking expedited relief under Section 220 of the ~~Partnership, claims that the officers~~Delaware General Corporation Law. The plaintiff had previously made a demand for inspection of certain books and ~~directors of StoneMor GP aided and abetted in breaches~~records of the ~~StoneMor GP’s purported fiduciary duties by, among other things and in general,~~Company allegedly ~~making misrepresentations through the use of non-GAAP accounting standards in the Partnership’s public filings and by failing~~related to ~~clearly disclose the use of proceeds from debt and equity offerings, as well as approving unsustainable distributions.~~potential corporate misconduct. The plaintiffs also claim that these actions and misrepresentations give rise to a cause of action for unjust enrichment. The derivative plaintiffs seek an award of damages, attorneys’ fees and costs in favor of the Partnership as nominal plaintiff, as well as alterationsCompany responded to the ~~procedures for electing members to the board of the Partnership’s general partner, and other compliance and governance changes. These cases have been consolidated and stayed,~~request by ~~the agreement of the parties, pending final resolution of the motion to dismiss filed in a separate case, which has now been dismissed. In February 2020, the court dismissed these cases~~rejecting plaintiff’s demand as deficient under Delaware law for failure to ~~prosecute. The plaintiffs have until the termination~~state a proper purpose and being overbroad, but nonetheless provided certain of the ~~judicial emergency orders entered by~~requested materials. After the ~~Pennsylvania Supreme~~plaintiff made a further demand for inspection in March 2021, the Company again rejected the demand as deficient under Delaware law for failure to state a proper purpose and being overbroad. The plaintiff then brought this action seeking an order to compel additional books and records and reimbursement of attorney’s fees. On April 19, 2021, the Company filed its answer to the complaint. Trial was held on July 21, 2021, after which the Court ~~and Philadelphia Court of Common Pleas, suspending certain court deadlines, to petition~~issued an order permitting the ~~court to restore~~requested inspection, in part, but denied the ~~cases.~~

plaintiff’s request for attorneys’ fees. The Company has produced the requested materials.

~~Table of Contents~~

The Company is party to other 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 adverse effect on its financial position, results of operations or cash flows. The Company carries insurance with coverage and coverage limits that it believes to be customary in the cemetery and funeral home industry. Although there can be no assurance that such insurance will be sufficient to protect the Company against all contingencies, Management believes that the insurance protection is reasonable in view of the nature and scope of the Company’s operations.

~~Other~~Moon Landscaping, Inc.


2021	$	50,107
2022	$	51,109
2023	$	52,131
2024	$	53,174
Total	$	206,521

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Each party has the right to terminate the MSAs at any time on six months’ prior written notice, provided that if we terminate the MSAs without cause, we will be obligated to pay Moon an equipment credit fee in the amount of $1.0 million for each year remaining in the term, prorated for the portion of the year in which any such termination occurs. The MSAs also contain representations, covenants and indemnity provisions that are customary for agreements of this nature.

The Company also has the right under the MSAs to take back the responsibility for grounds and maintenance services at the locations outsourced to Moon. Due to certain liquidity constraints and performance issues experienced by Moon, the Company has exercised this right with respect to 81 locations effective July 1, 2021, 22 locations effective August 1, 2021 and an additional 111 locations effective August 9, 2021, representing in the aggregate approximately 61% of the locations the Company had originally outsourced to Moon. The Company is continuing to evaluate Moon’s performance under the MSAs.

In connection with these changes, the Company is now using its own equipment to service these locations and rehired the employees Moon had hired from the Company upon execution of the MSAs. These employees will continue to provide certain grounds services for the Company at these locations using the equipment previously leased to Moon. The Company is outsourcing substantially all of the landscaping and other maintenance services previously provided by Moon at these locations to other vendors who had previously been subcontractors to Moon. The Company does not anticipate that these changes will have any material impact on the cost of providing the services compared to the amounts paid to Moon under the MSAs.

From time to time, on the behalf of Moon, the Company incurred a higher level of expenses relating to services covered by the MSAs, including location materials and supplies, uniforms, repair of marker damage, customer refunds and payments to third party landscapers and repair shops. These additional payments, which were in addition to the payments specified in the MSAs, were recorded as cemetery operating expenses in the relevant periods and as of September 30, 2021 aggregated $6.0 million. The Company has the ability to seek reimbursement from Moon for these additional payments as outlined in the MSAs.

On August 12, 2021, Moon and certain of its affiliates filed a petition under Chapter 11 of Title 11 of the United States Code in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). On October 7, 2021, Moon and the Company entered into a summary of terms (the “Term Sheet”) pursuant to which (a) Moon would file a motion with the Bankruptcy Court to assume the MSAs, (b) the aggregate amounts due to the Company from Moon under the MSAs for periods prior to the initial bankruptcy filing (the “Pre-Petition Cure Amount”) was at least $5.1 million, (c) the aggregate amount due to the Company from Moon under the MSAs for periods after such filing were at least $572,605 (the “Post-Petition Cure Amount”), (d) payment of the Pre-Petition Cure Amount would be deferred until a later date, but not later than the effective date of any approved reorganization plan, (e) the Company was permitted to set off $42,500 from each bi-weekly payment to Moon under the MSAs as payment against the Post-Petition Cure Amount, with any unpaid balance being paid when the Pre-Petition Cure Amount was paid, (f) upon Bankruptcy Court approval of Moon’s motion to assume the MSAs, the Company would exercise its right to modify the MSAs by taking back responsibility for ground and maintenance services at an additional 53 locations but would otherwise agree not to further exercise such right for a period of 60 days after such approval absent certain breaches by Moon. On October 14, 2021, Moon filed a motion with the Bankruptcy Court seeking approval to assume the MSAs subject to the terms and conditions of the Term Sheet. After a hearing before the Bankruptcy Court on November 4, 2021, the Bankruptcy Court granted Moon’s motion to assume the MSAs, which would normally include an obligation to repay in full both the Pre-Petition Cure Amount and the Post-Petition Cure Amount as a priority claim in the bankruptcy case. However, in its order, the Bankruptcy Court reserved decision on whether the Pre-Petition Cure Amount would be entitled to such priority treatment notwithstanding the assumption of the MSAs, and all interested parties, including the Company, reserved their respective rights with respect to that decision.

Management believes the impact on the Company of Moon's bankruptcy filing has been partially mitigated because the Company has taken back the responsibilities under the MSAs for the 214 locations noted above and will take back such responsibilities with respect to an additional 53 locations by early December 2021. However, given the uncertainty associated with the bankruptcy proceedings and the locations for which Moon will continue to be responsible under the MSAs, it is possible that the Company may continue to experience performance issues and other disruptions in operations at those locations, particularly if it becomes necessary for the Company to assume the responsibility for servicing those locations in the near future on relatively short notice. In addition, the Company expects that it will continue to incur additional expenses relating to services covered by the MSAs. If Moon is unable to obtain appropriate financing or reach an agreement to sell its assets and is unable to have a plan of reorganization confirmed by the Bankruptcy Court, the Company would likely not be able to obtain reimbursement of the Pre-Petition Cure Amount or the Post-Petition Cure Amount.

To date, the disruptions resulting from Moon’s bankruptcy filing have not had, and the Company does not expect that any additional disruptions it may experience in the future will have, a material adverse effect on the Company’s overall business given the number of locations for which it is now and will soon be responsible and the Company’s previous relationships, which were established before the transfer of responsibilities to Moon. The Company continues to closely monitor the overall situation.

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Archdiocese of Philadelphia

In May 2014, the Company entered into lease and management agreements with the Archdiocese of Philadelphia, itpursuant to which the Company has committed to pay aggregate fixed rent of ~~$36.0~~$36.0 million in the following amounts:


Lease Years 1-5 (May 28, 2014-May 31, 2019)		~~None~~NaN
Lease Years 6-20 (June 1, 2019-May 31, 2034)		$1,000,000 per Lease Year
Lease Years 21-25 (June 1, 2034-May 31, 2039)		$1,200,000 per Lease Year
Lease Years 26-35 (June 1, 2039-May 31, 2049)		$1,500,000 per Lease Year
Lease Years 36-60 (June 1, 2049-May 31, 2074)		~~None~~NaN

The fixed rent for lease years six through 11, an aggregate of ~~$6.0~~$6.0 million, is deferred. If prior to May 31, 2025, the Archdiocese terminates the agreements in accordance with their terms during lease year 11 or the Company terminates the agreements as a result of a default by the Archdiocese, the Company is entitled to retain the deferred fixed rent. If the agreements are not terminated, the deferred fixed rent will become due and payable on or before June 30, 2025.

~~13.~~

~~LEASES~~

12.

LEASES

The Company leases a variety of assets throughout its organization, such as office space, funeral homes, warehouses and equipment. In addition the Company has a sale-leaseback related to one of its warehouses. Leases with an initial term of 12 months or less are not recorded on the Company’s consolidated balance sheets, and the Company recognizes lease expense for these leases on a straight-line basis over the lease term. For lease agreements with an initial term of more than 12 months, the Company measures the lease liability at the present value of the sum of the remaining minimum rental payments, which exclude executory costs.

Certain leases provide the Company with the option to renew for additional periods,, with renewal terms that can extend the lease term for periods ranging from 1 to 30 ~~years.~~ years. The exercise of lease renewal options is at the Company’s sole discretion, and the Company is only including the renewal option in the lease term when the Company can be reasonably certain that it will exercise the renewal options. The Company does have residual value guarantees on the finance leases for its vehicles, but no residual guarantees on any of its operating leases.

Certain of the Company’s leases have variable payments with annual escalations based on the proportion by which the consumer price index (“CPI”) for all urban consumers increased over the CPI index for the prior comparative year.

The Company has the following balances recorded on its consolidated balance sheets related to leases:


	September 30, 2021		December 31, 2020
Assets:
Operating	$	6,169	$	5,171
Finance		3,527		4,296
Total ROU assets(1)	$	9,696	$	9,467
Liabilities:
Current
Operating	$	1,094	$	1,182
Finance		1,857		1,416
Long-term
Operating		5,190		3,441
Finance		1,287		2,592
Total lease liabilities(2)	$	9,428	$	8,631

March 31, 2020

December 31, 2019

Assets:

Operating

$
8,793

$
10,570

Finance

5,095

5,685

Total ROU assets⁽¹⁾

$
13,888

$
16,255

Liabilities:

Current

Operating

$
1,825

$
2,022

Finance

1,200

1,200

Long-term

Operating

9,833

11,495

Finance

3,927

4,302

Total lease liabilities⁽²⁾

$
16,785

$
19,019

(1)

The Company’s ROU operating assets and finance assets are presented within Other assets and Property and equipment, net of accumulated depreciation, respectively, in its consolidated balance sheets.

⁽¹⁾

~~The Company’s ROU operating assets and finance assets are presented within Other assets and Property and equipment, net of accumulated depreciation,~~(2)

The Company’s current lease liabilities and long-term are presented within Accounts payable and accrued liabilities and Other long-term liabilities, respectively, in its consolidated balance sheets.

⁽²⁾	~~The Company’s current lease liabilities and long-term are presented within Accounts payable and accrued liabilities and Other long-term liabilities, respectively, in its consolidated balance sheets.~~

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As most of the ~~Company~~’sCompany’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate, based on the information available at commencement date, in determining the present value of lease payments. The Company used the incremental borrowing rate on January 1, 2019 for operating leases that commenced prior to that ~~date~~.date. The weighted average borrowing rates for operating and finance leases were ~~9.9%~~10.0% and ~~8.5%~~8.7%, respectively, as of ~~March 31, 2020~~.September 30, 2021.

The components of lease expense were as follows:


		Nine months ended September 30,
		2021		2020
Lease cost	Classification
Operating lease costs(1)	General and administrative expense	$	1,553	$	2,366
Finance lease costs
Amortization of leased assets	Depreciation and Amortization		862		874
Interest on lease liabilities	Interest expense		253		328
Short-term lease costs(2)	General and administrative expense		—		—
Net lease costs		$	2,668	$	3,568

(1)

The Company includes its variable lease costs under operating lease costs as these variable lease costs are immaterial.

(2)

The Company does not have any short-term leases with lease terms greater than one month.

Three months ended March 31,

2020

2019

Lease cost
Classification

Operating lease costs⁽¹⁾
General and administrative expense
$
801

$
920

Finance lease costs

Amortization of leased assets
Depreciation and Amortization

329

320

Interest on lease liabilities
Interest expense

116

116

Variable lease costs
General and administrative expense

—

—

Short-term lease costs⁽²⁾
General and administrative expense

—

—

Net lease costs

$
1,246

$
1,356

⁽¹⁾	~~The Company includes its variable lease costs under operating lease costs as these variable lease costs are immaterial.~~

⁽²⁾	~~The Company does not have any short-term leases with lease terms greater than one month.~~

Maturities of the Company’s lease labilities as of ~~March 31, 2020~~September 30, 2021 were as follows:


Year ending December 31,	Operating			Finance			Operating			Finance
2020	$	2,207		$	1,267
2021		2,512			1,838		$	459		$	402
2022		2,178			2,027			1,614			2,144
2023		1,900			708			1,420			719
2024		1,768			105			1,210			145
2025								1,111			84
Thereafter		5,854			—			2,584			39
Total	$	16,419		$	5,945		$	8,398		$	3,533
Less: Interest		(4,762	)		(817	)		(2,114	)		(390	)
Present value of lease liabilities	$	11,657		$	5,128		$	6,284		$	3,143

Maturities of the Company’s lease labilities as of December 31, ~~2019~~2020 were as follows:


Year ending December 31,	Operating			Finance			Operating			Finance
2019	$	3,283		$	1,759
2020		2,783			1,838		$	1,615		$	1,791
2021		2,455			2,026			1,186			1,939
2022		2,190			708			881			643
2023		2,046			106			702			107
2024								595			33
Thereafter		6,348			—			1,092			—
Total	$	19,105		$	6,437		$	6,071		$	4,513
Less: Interest		(5,588	)		(935	)		(1,448	)		(505	)
Present value of lease liabilities	$	13,517		$	5,502		$	4,623		$	4,008

Operating and finance lease payments include ~~$2.5~~$1.3 million related to options to extend lease terms that are reasonably certain of being exercised and ~~$2.0~~$1.5 million related to residual value guarantees. The weighted average remaining lease term for operating and finance leases was ~~7.0~~5.9 years and ~~2.6~~1.7 years, respectively, as of ~~March 31, 2020~~.September 30, 2021.

As of ~~March 31, 2020,~~September 30, 2021, the Company had ~~one~~no additional operating ~~lease~~leases that had not yet commenced, ~~which was valued at $0.1 million, but~~and did not have any lease transactions with its related ~~parties.~~parties. In addition, as of ~~March 31, 2020,~~September 30, 2021, the Company ~~has~~had not entered into any new sale-leaseback arrangements.

Table of Contents

~~14.~~

~~FAIR VALUE OF FINANCIAL INSTRUMENTS~~

13.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Management has established a hierarchy to classify the inputs used to measure the Company’s financial instruments at fair value, pursuant to which the Company is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs represent market data obtained from independent sources; whereas, unobservable inputs reflect the Company’s own market assumptions, which are used if observable inputs are not reasonably available without undue cost and effort. The hierarchy defines three levels of inputs that may be used to measure fair value:



Level 1 – Unadjusted quoted market prices in active markets for identical, unrestricted assets or liabilities that the reporting entity has the ability to access at the measurement date.



Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset and liability or can be corroborated with observable market data for substantially the same contractual term of the asset or liability.



Level 3 – Unobservable inputs based on the entity’s own assumptions about the assumptions market participants would use in the pricing of the asset or liability and are consequently not based on market activity but rather through particular valuation techniques.

The carrying value of the Company’s current assets and current liabilities on its consolidated balance sheets approximated or equaled their estimated fair values due to their short-term nature or imputed interest rates.

Recurring Fair Value Measurement

At ~~March 31, 2020~~September 30, 2021 and December 31, ~~2019,~~2020, the two financial instruments measured by the Company at fair value on a recurring basis were its merchandise and perpetual care trusts, which consist of investments in debt and equity marketable securities and cash equivalents that are carried at fair value and are classified as either Level 1 or Level 2 (see Note 7 6Merchandise Trusts and Note 8 7 Perpetual Care Trusts).

Where quoted prices are available in an active market, securities are classified as Level 1 investments pursuant to the fair value measurement hierarchy. Where quoted market prices are not available for the specific security, fair values are estimated by using either quoted prices of securities with similar characteristics or an income approach fair value model with observable inputs that include a combination of interest rates, yield curves, credit risks, prepayment speeds, rating, and tax-exempt status. These securities are classified as Level 2 investments pursuant to the fair value measurements hierarchy. Certain investments in the merchandise and perpetual care trusts are excluded from the fair value leveling hierarchy in accordance with GAAP. These funds are measured at fair value using the net asset value per share practical expedient and have not been categorized in the fair value hierarchy.

Non-Recurring Fair Value Measurement

The Company may be required to measure certain assets and liabilities at fair value, such as its indefinite-lived assets and long-lived assets, on a nonrecurring basis in accordance with GAAP from time to time. These adjustments to fair value usually result from impairment charges.

Other Financial Instruments

The Company’s other financial instruments at ~~March 31, 2020 and December 31, 2019~~September 30, 2021 consisted of its ~~Senior Secured~~2029 Notes and at December 31, 2020 consisted of its 2024 Notes (see Note 98 Long-Term Debt). At ~~March 31, 2020 and December 31, 2019,~~September 30, 2021, the estimated fair value of the ~~Company’s Senior Secured~~Company's 2029 Notes was ~~$353.3~~$414.4 million, ~~and $383.2 million, respectively,~~ based on trades made on that date, compared with the carrying amount of ~~$365.1 million and $392.8 million, respectively.~~

~~15.~~

~~SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION~~

~~The Company’s Senior Secured Notes are guaranteed by~~$400.0 million. At December 31, 2020, the estimated fair value of the Company’s ~~100% owned subsidiaries, other than the co-issuers (except as to each other’s obligations thereunder), as described in Note 9~~ ~~Long-Term Debt. The guarantees are full, unconditional, joint and several. The Partnership and CFS West Virginia are the co-issuers of the Senior Secured Notes.~~

~~In accordance~~2024 Notes was $350.2 million, based on trades made on that date, compared with the ~~disclosures made in Note 1~~ ~~General, StoneMor Inc. is the “Parent” for~~ ~~the audited consolidated balance sheet presented as~~carrying amount of ~~December 31, 2019 and the unaudited condensed consolidated financial statements presented as of and for~~$344.8 million.

Table of Contents

~~the three months ended March 31, 2020, while the Partnership is the “Parent” for~~ the unaudited condensed consolidated financial statements presented for the three months ended March 31, 2019. The Company’s audited consolidated balance sheet as of December 31, 2019 and its unaudited condensed consolidated financial statements as of March 31, 2020 and for the three months ended March 31, 2020 and 2019 include the accounts of cemeteries operated under long-term leases, operating agreements and management agreements. For the purposes of this note, these entities are deemed non-guarantor subsidiaries, as they are not 100% owned by the Company. The Company’s consolidated financial statements also contain merchandise and perpetual care trusts that are also non-guarantor subsidiaries for the purposes of this note.

The financial information presented below reflects the Company’s standalone accounts, the standalone accounts of the co-issuers, the combined accounts of the guarantor subsidiaries, the combined accounts of the non-guarantor subsidiaries, the consolidating adjustments and eliminations and the Company’s consolidated accounts as of March 31, 2020 and December 31, 2019 and for the three months ended March 31, 2020 and 2019. For the purpose of the following financial information, the Company’s investments in its subsidiaries and the guarantor subsidiaries’ investments in their respective subsidiaries are presented in accordance with the equity method of accounting (in thousands):

~~UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEETS~~

March 31, 2020

Parent

Partnership

CFS West Virginia

Guarantor
Subsidiaries

Non-
Guarantor
Subsidiaries

Eliminations

Consolidated

Assets

Current assets:

Cash and cash equivalents, excluding restricted cash

$
—

$
—

$
—

$
25,621

$
1,445

$
—

$
27,066

Restricted cash

—

—

—

20,400

—

—

20,400

Assets held for sale

—

—

—

77,850

—

—

77,850

Other current assets

—

—

3,565

60,619

11,574

—

75,758

Total current assets

—

—

3,565

184,490

13,019

—

201,074

Long-term accounts receivable

—

—

2,345

59,074

10,055

—

71,474

Cemetery and funeral home property and
   equipment

—

—

531

364,534

32,035

—

397,100

Merchandise trusts

—

—

—

—

437,638

—

437,638

Perpetual care trusts

—

—

—

—

284,832

—

284,832

Deferred selling and obtaining costs

—

—

5,704

89,682

18,225

—

113,611

Intangible assets

—

—

—

98

55,844

—

55,942

Other assets

—

—

—

24,141

2,607

—

26,748

Investments in and amounts due from
  affiliates eliminated upon consolidation

—

279,834

—

576,588

—

(856,422
)

—

Total assets

$
—

$
279,834

$
12,145

$
1,298,607

$
854,255

$
(856,422
)

$
1,588,419

Liabilities and Owners' Equity

Current liabilities

—

—

180

102,968

1,486

—

104,634

Long-term debt, net of deferred financing costs

—

279,834

61,470

139

—

—

341,443

Deferred revenues

—

—

31,431

727,227

108,749

—

867,407

Perpetual care trust corpus

—

—

—

—

284,832

—

284,832

Other long-term liabilities

—

—

—

66,670

16,545

—

83,215

Investments in and amounts due to
  affiliates eliminated upon consolidation

93,112

93,112

177,069

341,304

494,246

(1,198,843
)

—

Total liabilities

93,112

372,946

270,150

1,238,308

905,858

(1,198,843
)

1,681,531

Owners' equity

(93,112
)

(93,112
)

(258,005
)

60,299

(51,603
)

342,421

(93,112
)
Total liabilities and owners' equity

$
—

$
279,834

$
12,145

$
1,298,607

$
854,255

$
(856,422
)

$
1,588,419

14.

SEGMENT INFORMATION

~~Table of Contents~~

~~UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEETS (Continued)~~

December 31, 2019

Parent

Partnership

CFS West Virginia

Guarantor
Subsidiaries

Non-
Guarantor
Subsidiaries

Eliminations

Consolidated

Assets

Current assets:

Cash and cash equivalents, excluding restricted cash

$
—

$
—

$
—

$
33,553

$
1,314

$
—

$
34,867

Restricted cash

—

—

—

21,900

—

—

21,900

Assets held for sale

—

—

—

23,858

—

—

23,858

Other current assets

—

—

3,497

62,686

11,531

—

77,714

Total current assets

—

—

3,497

141,997

12,845

—

158,339

Long-term accounts receivable

—

—

2,557

63,124

9,868

—

75,549

Cemetery and funeral home property and
   equipment

—

—

609

391,626

31,770

—

424,005

Merchandise trusts

—

—

—

—

517,192

—

517,192

Perpetual care trusts

—

—

—

—

343,619

—

343,619

Deferred selling and obtaining costs

—

��

5,654

91,243

18,047

—

114,944

Intangible assets

—

—

—

136

56,110

—

56,246

Other assets

—

—

—

26,907

2,567

—

29,474

Investments in and amounts due from
  affiliates eliminated upon consolidation

—

301,531

—

648,359

—

(949,890
)

—

Total assets

$
—

$
301,531

$
12,317

$
1,363,392

$
992,018

$
(949,890
)

$
1,719,368

Liabilities and Owners' Equity

Current liabilities

$
—

$
—

$
161

$
74,674

$
1,466

$
—

$
76,301

Long-term debt, net of deferred financing costs

—

301,531

66,239

193

—

—

367,963

Deferred revenues

—

—

33,349

802,528

113,498

—

949,375

Perpetual care trust corpus

—

—

—

—

343,619

—

343,619

Liabilities held for sale, net of current portion

Other long-term liabilities

—

—

—

68,227

16,373

—

84,600

Investments in and amounts due to
  affiliates eliminated upon consolidation

102,490

102,490

183,611

367,770

567,666

(1,324,027
)

—

Total liabilities

102,490

404,021

283,360

1,313,392

1,042,622

(1,324,027
)

1,821,858

Owners' equity

(102,490
)

(102,490
)

(271,043
)

50,000

(50,604
)

374,137

(102,490
)
Total liabilities and owners' equity

$
—

$
301,531

$
12,317

$
1,363,392

$
992,018

$
(949,890
)

$
1,719,368

~~Table of Contents~~

~~UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS~~

Three Months Ended March 31, 2020

Parent

Partnership

CFS West Virginia

Guarantor
Subsidiaries

Non-
Guarantor
Subsidiaries

Eliminations

Consolidated

Total revenues

$
—

$
—

$
1,194

$
59,698

$
13,069

$
(2,716
)

$
71,245

Total costs and expenses

—

—

(3,169
)

(58,984
)

(13,319
)

2,716

(72,756
)
Gain on sale of businesses

—

—

—

24,086

—

—

24,086

Net income from equity investment
  in subsidiaries

9,003

17,701

12,585

—

—

(39,289
)

—

Interest expense

—

(8,698
)

(1,911
)

(1,382
)

(293
)

—

(12,284
)
Income (loss) from operations
   before income taxes

9,003

9,003

8,699

23,418

(543
)

(39,289
)

10,291

Income tax expense

—

—

—

(1,288
)

—

—

(1,288
)
Net income (loss)

$
9,003

$
9,003

$
8,699

$
22,130

$
(543
)

$
(39,289
)

$
9,003

Three Months Ended March 31, 2019

Parent

Subsidiary
Issuer

Guarantor
Subsidiaries

Non-
Guarantor
Subsidiaries

Eliminations

Consolidated

Total revenues

$
—

$
1,564

$
59,752

$
11,132

$
(979
)

$
71,469

Total costs and expenses

—

(4,520
)

(65,935
)

(11,356
)

979

(80,832
)
Net loss from equity investment in
   subsidiaries

(21,176
)

(18,925
)

—

—

40,101

—

Interest expense

(1,358
)

(2,087
)

(9,456
)

(270
)

—

(13,171
)
Income (loss) from operations
   before income taxes

(22,534
)

(23,968
)

(15,639
)

(494
)

40,101

(22,534
)
Income tax expense

—

—

—

—

—

—

Net income (loss)

$
(22,534
)

$
(23,968
)

$
(15,639
)

$
(494
)

$
40,101

$
(22,534
)

~~Table of Contents~~

~~UNAUDITED CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS~~

Three Months Ended March 31, 2020

Parent

Partnership

CFS West Virginia

Guarantor
Subsidiaries

Non-
Guarantor
Subsidiaries

Eliminations

Consolidated

Net cash used in (provided by) operating activities

$
—

$
—

$
12

$
4,465

$
893

$
(10,608
)

$
(5,238
)
Cash Flows From Investing Activities:

Cash paid for acquisitions and capital
   expenditures, net of proceeds from
   divestitures and asset sales

—

—

—

26,796

(679
)

—

26,117

Payments to affiliates

—

—

—

—

—

—

—

Net cash provided by investing activities

—

—

—

26,796

(679
)

—

26,117

Cash Flows From Financing Activities:

Cash distributions

—

—

—

—

—

—

—

Payments from affiliates

—

—

—

(10,608
)

—

10,608

—

Net borrowings and repayments of debt

—

—

(12
)

(29,872
)

(83
)

—

(29,967
)
Other financing activities

—

—

—

(213
)

—

—

(213
)
Net cash used in financing activities

—

—

(12
)

(40,693
)

(83
)

10,608

(30,180
)
Net (decrease) increase in cash and cash equivalents and restricted cash

—

—

—

(9,432
)

131

—

(9,301
)
Cash and cash equivalents and restricted
    cash—Beginning of period

—

—

—

55,453

1,314

—

56,767

Cash and cash equivalents and restricted
    cash—End of period

$
—

$
—

$
—

$
46,021

$
1,445

$
—

$
47,466

Three Months Ended March 31, 2019

Parent

Subsidiary
Issuer

Guarantor
Subsidiaries

Non-
Guarantor
Subsidiaries

Eliminations

Consolidated

Net cash used in (provided by) operating activities

$
—

$
119

$
(9,509
)

$
(268
)

$
(3,445
)

$
(13,103
)
Cash Flows From Investing Activities:

Cash paid for acquisitions and capital
   expenditures, net of proceeds from
   divestitures and asset sales

—

(106
)

(1,717
)

(80
)

—

(1,903
)
Net cash used investing activities

—

(106
)

(1,717
)

(80
)

—

(1,903
)
Cash Flows From Financing Activities:

Cash distributions

—

—

—

—

—

—

Payments to affiliates

—

—

(3,445
)

—

3,445

—

Net borrowings and repayments of debt

—

(13
)

24,030

(74
)

—

23,943

Other financing activities

—

—

(2,636
)

—

—

(2,636
)
Net cash (used in) provided by financing activities

—

(13
)

17,949

(74
)

3,445

21,307

Net increase (decrease) in cash and cash equivalents and restricted cash

—

—

6,723

(422
)

—

6,301

Cash and cash equivalents and restricted cash
    —Beginning of period

—

—

16,298

1,849

—

18,147

Cash and cash equivalents and restricted cash
    —End of period

$
—

$
—

$
23,021

$
1,427

$
—

$
24,448

~~Table of Contents~~

~~16.~~

~~SEGMENT INFORMATION~~

Management operates the Company in ~~two~~2 reportable operating segments: Cemetery Operations and Funeral Home Operations. These operating segments reflect the way the Company manages its operations and makes business decisions. Management evaluates the performance of these operating segments based on interments performed, interment rights sold, pre-need cemetery and at-need cemetery contracts written, revenue and segment profit (loss). As a percentage of revenue and assets, the Company’s major operations consist of its cemetery operations.

The following tables present financial information with respect to the Company’s segments (in thousands). Corporate costs represent those not directly associated with an operating segment, such as corporate overhead, interest expense and income taxes. Corporate assets primarily consist of cash and cash equivalents and restricted cash.


	Three Months Ended March 31,						Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2021			2020			2021			2020
STATEMENT OF OPERATIONS DATA:
Cemetery Operations:
Revenues	$	58,066		$	57,910		$	70,814		$	62,020		$	209,922		$	173,680
Operating costs and expenses		(51,138	)		(53,162	)		(55,294	)		(48,968	)		(164,990	)		(144,730	)
Depreciation and amortization		(1,704	)		(1,962	)		(1,471	)		(1,556	)		(4,552	)		(4,815	)
Segment operating profit	$	5,224		$	2,786		$	14,049		$	11,496		$	40,380		$	24,135
Funeral Home Operations:
Revenues	$	13,179		$	13,559		$	11,481		$	10,693		$	33,667		$	30,736
Operating costs and expenses		(10,658	)		(11,500	)		(10,085	)		(9,148	)		(28,620	)		(25,917	)
Depreciation and amortization		(539	)		(588	)		(419	)		(453	)		(1,273	)		(1,359	)
Segment operating profit	$	1,982		$	1,471		$	977		$	1,092		$	3,774		$	3,460
Reconciliation of segment operating profit to net income (loss):
Reconciliation of segment operating profit to net loss from continuing operations:
Cemetery Operations	$	5,224		$	2,786		$	14,049		$	11,496		$	40,380		$	24,135
Funeral Home Operations		1,982			1,471			977			1,092			3,774			3,460
Total segment profit		7,206			4,257			15,026			12,588			44,154			27,595
Corporate overhead		(8,501	)		(13,413	)		(9,983	)		(9,762	)		(29,058	)		(27,019	)
Corporate depreciation and amortization		(216	)		(207	)		(99	)		(235	)		(293	)		(677	)
Gain on sale of businesses		24,086			—
Loss on sale of business and other impairments								(70	)		—			(2,290	)		—
Other losses, net								(605	)		—			(536	)		—
Interest expense		(12,284	)		(13,171	)		(9,256	)		(11,870	)		(29,706	)		(34,952	)
Income tax expense		(1,288	)		—
Net income (loss)	$	9,003		$	(22,534	)
Loss on debt extinguishment								—			—			(40,128	)		—
Income tax benefit								240			1,129			11,652			3,333
Net loss from continuing operations							$	(4,747	)	$	(8,150	)	$	(46,205	)	$	(31,720	)

CASH FLOW DATA:
Capital expenditures:
Cemetery Operations	$	1,188		$	890		$	2,135		$	806		$	5,193		$	3,351
Funeral Home Operations		10			976			71			78			167			95
Corporate		875			37			108			109			315			1,338
Total capital expenditures	$	2,073		$	1,903		$	2,314		$	993		$	5,675		$	4,784


	September 30, 2021		December 31, 2020
BALANCE SHEET DATA:
Assets:
Cemetery Operations	$	1,488,041	$	1,445,217
Funeral Home Operations		126,473		130,687
Corporate		122,397		59,059
Total assets	$	1,736,911	$	1,634,963
Assets held for sale:
Cemetery Operations	$	—	$	23,500
Funeral Home Operations		—		5,075
Total assets held for sale	$	—	$	28,575

Table of Contents

March 31, 2020

December 31, 2019

BALANCE SHEET DATA:

Assets:

Cemetery Operations

$
1,394,901

$
1,504,463

Funeral Home Operations

136,726

148,310

Corporate

56,792

66,595

Total assets

$
1,588,419

$
1,719,368

Assets held for sale:

Cemetery Operations

$
65,360

$
20,819

Funeral Home Operations

12,490

3,039

Total assets held for sale

$
77,850

$
23,858

Disposed assets:

Cemetery Operations

$
20,445

$
—

Funeral Home Operations

3,032

110

Total disposed assets

$
23,477

$
110

~~17.~~

15.

SUPPLEMENTAL CONSOLIDATED CASH FLOW INFORMATION

The tables presented below provide supplemental information to the unaudited condensed consolidated statements of cash flows regarding contract origination and maturity activity included in the pertinent captions on the Company’s unaudited condensed consolidated statements of cash flows (in thousands):


	Three months ended March 31,						Nine months ended September 30,
	2020			2019			2021			2020
Accounts Receivable
Pre-need/at-need contract originations (sales on credit)	$	(25,457	)	$	(27,587	)	$	(100,915	)	$	(88,719	)
Cash receipts from sales on credit (post-origination)		23,862			25,622			84,710			72,539
Changes in accounts receivable, net of allowance	$	(1,595	)	$	(1,965	)	$	(16,205	)	$	(16,180	)
Customer Contract Liabilities
Deferrals:
Cash receipts from customer deposits at origination, net of refunds	$	35,586		$	34,205		$	136,668		$	115,824
Withdrawals of realized income from merchandise trusts during the period		2,684			2,124			10,460			7,406
Pre-need/at-need contract originations (sales on credit)		25,457			27,587			100,915			88,719
Undistributed merchandise trust investment earnings, net		(1,595	)		3,610			28,787			5,377
Recognition:
Merchandise trust investment income, net withdrawn as of end of period		(2,107	)		(2,255	)		(9,593	)		(6,629	)
Recognized maturities of customer contracts collected as of end of period		(45,989	)		(46,131	)		(168,553	)		(151,016	)
Recognized maturities of customer contracts uncollected as of end of period		(7,602	)		(10,556	)		(21,166	)		(20,443	)
Changes in customer contract liabilities	$	6,434		$	8,584		$	77,518		$	39,238

~~18.SUBSEQUENT EVENTS~~

~~Amendments to Indenture and Capital Raise~~

On April 1, 2020, the Partnership and CFS West Virginia (collectively, the “Issuers”) and Wilmington Trust, National Association, as trustee, entered into the Third Supplemental Indenture (the “Supplemental Indenture”) to the Indenture. Pursuant to the terms of the Supplemental Indenture, the following financial covenants were amended:

The Interest Coverage Ratio measurements at March 31, June 30 and September 30, 2020 were eliminated and replaced with a Minimum Operating Cash Flow covenant of $(25.0 million), $(35.0 million) and $(35.0 million), respectively;

16.

RELATED PARTIES

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•

~~The required Interest Coverage Ratios at December 31, 2020, March 31, 2021 and June 30, 2021 were reduced to 0.00x, 0.75x and 1.10x, respectively, from 1.15x, 1.25x and 1.30x; and~~

~~The Asset Coverage tests at March 31, June 30, September 30 and December 31, 2020 were reduced to 1.40x from 1.60x.~~

In addition, the premium payable upon voluntary redemption of the Senior Secured Notes on or after June 27, 2021 and before June 27, 2022 was increased from 4.0% to 5.0% and the premium payable upon any such voluntary redemption on or after June 27, 2022 and before June 27, 2023 was increased from 2.0% to 3.0%.

The Issuers also agreed in the Supplemental Indenture to use their best efforts to cause the Company to effectuate a rights offering on the terms described below as promptly as practicable with an expiration date no later than July 24, 2020 and to receive proceeds of not less than $8.2 million therefrom (in addition to the $8.8 million capital raise described below).

Concurrently with the execution of the Supplemental Indenture, the Company entered into a letter agreement (the “Axar Commitment”) with Axar pursuant to which Axar committed to (a) purchase shares of our Series A Preferred Stock with an aggregate purchase price of $8.8 million on April 3, 2020, (b) exercise its basic rights in the rights offering by tendering the shares of Series A Preferred Stock so purchased for shares of Common Stock and (c) purchasing any shares offered in the rights offering for which other stockholders do not exercise their rights, up to a maximum of an additional $8.2 million of such shares. The Company did not pay Axar any commitment, backstop or other fees in connection with the Axar Commitment.

On April 3, 2020, as contemplated by the Axar Commitment, the Company and Axar CL SPV LLC, Star V Partners LLC and Blackwell Partners LLC –Series E. (the “2020 Purchasers”) entered into a Series A Preferred Stock Purchase Agreement (the “2020 Preferred Purchase Agreement”) pursuant to which the Company sold 176 shares of its Series A Preferred Stock, par value $0.01 per share (the “Preferred Shares”), for a cash price of $50,000 per share, an aggregate of $8.8 million. The Company offered and sold the Preferred Shares in reliance upon the exemption from the registration requirements of the Securities Act pursuant to Section 4(a)(2) thereof. The Company relied on this exemption from registration based in part on representations made by the 2020 Purchasers in the 2020 Preferred Purchase Agreement.

Under the terms of the Supplemental Indenture and the Axar Commitment, the Company agreed to undertake an offering to holders of its Common Stock of transferable rights to purchase their pro rata share of shares of Common Stock with an aggregate exercise price of at least $17.0 million at a price of $0.73 per share. The rights offering period, during which the rights will be transferable, will be no less than 20 calendar days and no more than 45 calendar days. The Company agreed to use its best efforts to complete the rights offering with an expiration date no later than July 24, 2020.

~~Strategic Partnership Agreement~~

On April 2, 2020, the Company entered into two multi-year Master Services Agreements (the “MSAs”) with Moon Landscaping, Inc. and its affiliate, Rickert Landscaping, Inc. (collectively “Moon”). Under the terms of the MSAs, Moon will provide all grounds and maintenance services at most of the funeral homes, cemeteries and other properties the Company owns or manages including, but not limited to, landscaping, openings and closings, burials, installations, routine maintenance and janitorial services. Moon will hire all of the Company’s grounds and maintenance employees at the serviced locations and will perform all functions currently handled by those employees. The Company expects the implementation of the MSAs to take place on a clustered basis over the next three to four months, with full implementation expected no later than July 31, 2020.

The Company agreed to pay a total of approximately $241.0 million over the term of the contract, which runs through December 31, 2024, based upon an initial annual cost of $49.0 million and annual increases of 2%. The first year cost will be prorated based upon exact implementation and roll-out schedule for each location. As part of the MSAs, the Company agreed to lease its landscaping and maintenance equipment to Moon for the duration of the agreements and to transfer title to any such equipment we own at the end of the term to Moon, in each case without any additional payment by Moon. As of December 31, 2019, the net book value of the equipment the Company will be leasing to Moon was approximately $7.4 million.

Each party has the right to terminate the MSAs at any time on six months’ prior written notice, provided that if the Company terminate the MSAs without cause, it will be obligated to pay Moon an equipment credit fee in the amount of $1.0 million for each year remaining in the term, prorated for the portion of the year in which any such termination occurs. The MSAs also contain representations, covenants and indemnity provisions that are customary for agreements of this nature.

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~~Divestitures~~

On April 7, 2020, the Company completed the Olivet Sale for a net cash purchase price of $24.3 million, subject to certain adjustments, and the assumption of certain liabilities, including $17.1 million in land purchase obligations. The Company used net proceeds of $20.5 million to redeem additional Senior Secured Notes as required by the Indenture.

~~Cost Reduction Initiatives Related to COVID-19~~

In an effort to minimize the impact of the COVID-19 Pandemic on the Company’s results of operations, the Company implemented certain cost reduction initiatives in April 2020, which included a reduction of 21 positions within its corporate functions at its headquarters located in Trevose, Pennsylvania.

~~Amendment of Plan~~

~~On May 5,~~January 2020, the Company’s ~~Board approved~~trusts completed the ~~second amendment (the “Amendment”) to the Plan, which increased the number~~purchase of shares of the Company’s common stock reserved for delivery under the Plan by 1,375,000 shares, provided that such additional shares may not be delivered pursuant to awards under the Plan unless and until the increase is approved by the stockholders of the Company, and any awards under the Plan with respect to such additional shares will be expressly conditioned upon receipt of such approval. The Company plans to submit the Plan, as so amended, to its stockholders for their approval at the 2020 annual meeting of stockholders.

~~NYSE Delisting Notification~~

On April 14, 2020, the Company received notice from the New York Stock Exchange (the “NYSE”) stating that upon its review of the Company’s financial condition, the NYSE has concluded that the Company is not in compliance with the NYSE’s continued listing requirements (the “NYSE Notification”), since as of April 13, 2020, the 30-trading day average closing price of the Company’s Common Stock had fallen below $1.00 per share over a ~~consecutive~~ $30 trading-day period, which is the minimum average share price for continued listing on the NYSE under Rule 802.01C of the NYSE Listed Company Manual (the “NYSE Listed Manual”). As of April 13, 2020, the Company’s 30 trading-day average closing share price of its security was $0.97.

The Company has a period of six months following the receipt of the NYSE Notification to regain compliance with the minimum share price requirement, which period has been tolled from April 21, 2020 through June 30, 2020. In order to regain compliance, on the last trading day of any calendar month during the cure period, the Common Stock must have (i) a closing price of at least $1.00 per share and (ii) an average closing price of at least $1.00 per share over the 30-trading day period ending on the last trading day of such month. In addition, the Company must notify the NYSE, within 10 business days of receipt of the NYSE Notification, of its intent to cure this deficiency or be subject to suspension and delisting procedures. In the event that at the expiration of the six–month cure period, both a $1.00 share price and a $1.00 average share price over the preceding 30 trading days are not attained, the NYSE will commence suspension and delisting procedures. Alternatively, however, the Company can also demonstrate an accelerated cure based on a $1.00 share price on both the last trading day of any calendar month within the six-month cure period and the average share price over the 30 trading days preceding the end of that month. In response, the Company’s Board of Directors is reviewing all available alternatives to return to compliance with the NYSE continued listing standards.

~~19.RELATED PARTIES~~

~~In December 2019, the Company purchased a $30~~ million participation in a ~~$70~~new $70 million ~~new~~ debt facility issued by Payless Holdings LLC (“Payless”). Funds and accounts affiliated with Axar also invested ~~$20~~$20 million in this facility. The investment was initially proposed by the ~~Company’s~~ Chairman of the Board, Mr. ~~Axelrod,~~Axelrod. The investment was reviewed and ~~subsequently~~ approved byin December 2019 in accordance with the ~~Board. The~~Partnership’s governance policies in place at that time. At the time of the investment, the funds and accounts affiliated with Axar ~~funds controlled by Mr. Axelrod own~~owned approximately ~~30%~~30% of the equity of Payless, and Mr. Axelrod serves on Payless’ board of directors. The Company’s investment in Payless represented approximately 4%4% of the total fair market value of ~~all of~~ the Company’s ~~trusts as of March 31, 2020 and December, 31, 2019.~~trust assets when the investment was made.

~~As of March 31, 2020,~~ Axar beneficially ~~owned 52.4%~~owns 75.1% of the Company’s outstanding ~~common stock,~~Common Stock, which ~~constituted~~constitutes a majority of the Company’s outstanding ~~common stock.~~Common Stock. As a result, the Company is a “controlled company” within the meaning of NYSE corporate governance standards. For discussion of certain risks and uncertainties attributable to the Company being a controlled company, see Part I, Item 1A. Risk Factors of the Company’s Annual ~~Report, and for~~Report. For discussion on the security

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ownership of certain beneficial owners, directors and executives of the Company, see Part III, Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters of the Annual Report.

On ~~April~~February 1, ~~2020 and April 3, 2020,~~2021, Cornerstone Trust Management Services LLC (“Cornerstone”), a wholly-owned subsidiary of the Company, entered into a Subadvisor Agreement (the “Agreement”) with Axar. The sole member of Axar’s general partner is Andrew M. Axelrod, who serves as the Chairman of the Company’s Board of Directors. In connection with the execution of the Agreement, Mr. Axelrod resigned as a member of the Trust and Compliance Committee (the “Trust Committee”) of the Company’s Board of Directors (the “Board”).

Pursuant to the charter of the Trust Committee, the retention of Axar as a subadvisor and the Agreement were first reviewed and approved by the Trust Committee, subject to the condition that the retention of Axar and the Agreement also be approved by a Board committee comprised exclusively of independent directors. Given the Axar ~~Commitment~~relationship, the Board appointed a special committee to review the retention of Axar and the ~~2020 Preferred Purchase~~ Agreement, ~~respectively, with~~which subsequently also approved the retention of Axar and ~~funds or accounts under~~the terms of the Agreement. Both the Trust Committee and the special committee concluded that Axar had the appropriate experience and performance record that would assist Cornerstone in performing its ~~management, respectively. For further details, see Note 18~~ ~~Subsequent Events~~ ~~of this Report.~~investment advisory obligations for the Company, that

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the retention of Axar would provide back-office operational efficiencies to Cornerstone and that the financial terms were at least as favorable to Cornerstone as the terms that would be available from other unaffiliated subadvisors, if not more favorable.

Under the terms of the Agreement, Axar agreed to provide the following services with respect to the assets held in the Company’s merchandise and perpetual care trust (the “Trusts”) and certain pooled investment vehicles administered by the trustee of the Trusts (the “Trustee”) in which certain of the Trusts participate or invest (collectively, the “Investment Assets”):

~~ITEM 2.~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF~~ ~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~



Advise Cornerstone with respect to the allocation and investment of the Investment Assets on a non-discretionary basis, including providing advice concerning portfolio allocation among investment strategies;



Oversee other subcontractors or external managers engaged by Cornerstone to provide advice with respect to the Investment Assets;



Provide quarterly investment performance reports to and meet on a quarterly basis with the Trust Committee;



As requested by Cornerstone from time to time, perform the tasks and responsibilities delegated by the Trust Committee to Cornerstone under the Company’s investment policy statement; and



As requested by Cornerstone, assist Cornerstone in performing its duties by providing general back office and administrative support to Cornerstone and, at Cornerstone’s reasonable request, the Trustee.

Under the Agreement, Axar is entitled to a quarterly fee equal to 0.0125% of the value of the Investment Assets through December 31, 2021 and, thereafter, a quarterly fee equal to 0.025% of the value of the Investment Assets. In each case, the value of the Investment Assets will be determined by the Trustee. During the three and nine months ended September 30, 2021, the Company incurred fees of $105,000 and $277,000, respectively, due to Axar.

The initial term of the Agreement is through December 31, 2021 and it automatically renews for an unlimited number of one-year terms thereafter, provided that either party may terminate the Agreement on 90 days’ prior written notice. The Agreement also includes customary confidentiality and indemnification provisions.

On April 13, 2021, the Company reimbursed American Infrastructure Funds LLC (“AIM”), an entity controlled by Robert B. Hellman, Jr., a former Chairman and member of the Company's Board of Directors, $0.6 million for certain expenses incurred by AIM in responding to a document production request from the SEC in connection with an SEC investigation of the Company and StoneMor GP that was settled in December 2019.

The Company is a party to a Nomination and Director Voting Agreement dated as of September 17, 2018 (as amended on February 4, 2019, June 27, 2019, November 3, 2020 and November 20, 2020, the “DVA”) with Axar, certain funds and managed accounts for which it serves as investment manager and its general partner, Axar GP, LLC (collectively, the “Axar Entities”), StoneMor GP Holdings LLC, a Delaware limited liability company and formerly the sole member of StoneMor GP (“GP Holdings”), and Robert B. Hellman, Jr., as trustee under the Voting and Investment Trust Agreement for the benefit of American Cemeteries Infrastructure Investors LLC (“ACII” and, collectively with GP Holdings, the “ACII Entities”). Under the DVA, and subject to certain conditions and exceptions, the Axar Entities and their affiliates are prohibited from acquiring additional shares of the Company’s Common Stock. On April 13, 2021, the Axar Entities, the ACII Entities and the Company entered into a letter agreement (the “Waiver”) pursuant to which the Axar Entities were permitted to acquire some or all of the shares of the Company’s Common Stock held by ACII and its affiliates in a single privately negotiated transaction and not in the open market. The terms of the Waiver were approved by the Conflicts Committee of the Company’s Board of Directors. The waiver was subject to the following conditions:



any such purchase be consummated on or before May 31, 2021;



the Company, the Axar Entities and the ACII Entities have entered into a further amendment to the DVA to clarify that the standstill period applicable to the Axar Entities will expire on December 31, 2023;



Axar will vote or direct the voting of all shares of the Company’s Common Stock it beneficially owns in favor of amendments to Article VIII of the Company’s Certificate of Incorporation (the “Charter”) relating to amendments of the Company’s Bylaws and Article X of the Charter with respect to any amendment or repeal of Article V, Article VI(c), Article VII(a)-(d), Article VIII, Article X or Article XI of the Charter to increase the required stockholder approval required thereunder from “at least sixty six and two thirds percent (66 2/3%)” to “at least eighty-five percent (85%) (collectively, the “Supermajority Provisions”);” and

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pending the effectiveness of such amendment to Article VIII and Article X of the Charter, Axar would not vote or direct the voting of any shares of the Company’s Common Stock in favor of any proposal to which the Supermajority Provisions are applicable unless such proposal has been approved by the Company’s Board of Directors and its Conflicts Committee.

As contemplated by the Waiver, on April 13, 2021, the Company, the Axar Entities and the ACII Entities also entered into the Fifth Amendment to the DVA pursuant to which the parties clarified that the standstill period applicable to the Axar Entities thereunder would expire on December 31, 2023.

On September 27, 2021, the Company announced that it had received the Letter dated September 22, 2021 from Axar in which Axar expressed an interest in pursuing discussions concerning strategic alternatives that may be beneficial to the Company and its various stakeholders. Axar has engaged Schulte Roth & Zabel LLP as its legal advisor and stated in the Letter that it would engage a financial advisor at the appropriate time. According to the Letter, Axar expects that any such discussions would be conducted with a special committee of the Board, assisted by financial and legal advisors it engages. The Letter also stated that any transaction involving Axar arising from such discussions would be conditioned upon, among other things, approval of the special committee and the Board, the negotiation and execution of mutually satisfactory definitive agreements and customary terms. The Letter also stated that any transaction structured as a take-private transaction would be subject to a closing condition that the approval of holders of a majority of the outstanding shares not owned by Axar or its affiliates be obtained. On September 26, 2021, the Board authorized its Conflicts Committee, which is comprised of independent directors Stephen J. Negrotti, Kevin Patrick and Patricia Wellenbach, to engage in the discussions contemplated by the Letter, including the authority to engage in discussions concerning and to negotiate the terms and provisions of any strategic alternative the Conflicts Committee determines to be appropriate in connection with such discussions. Under its charter, the Conflicts Committee has the authority to reject, approve or recommend that the Board approve any transaction that is a related party transaction, which would include any transaction to which Axar is a party. The Conflicts Committee has retained independent legal and financial advisors to assist in such discussions.

17.

SUBSEQUENT EVENTS

The Company operates certain of its cemeteries under long-term leases, operating agreements and management agreements. On October 1, 2021, the Company terminated 1 of the management agreements.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s discussion and analysis presented below provides information to assist in understanding the Company’s financial condition and results of operations and should be read in conjunction with the Company’s unaudited condensed consolidated financial statements included in Part I, Item 1 Financial Statements (Unaudited) of this Quarterly Report.

Certain statements contained in this Quarterly Report, including, but not limited to, information regarding our operating activities, the plans and objectives of our management and assumptions regarding our future performance and plans are forward-looking statements. When used in this Quarterly Report, the words “believes,” “anticipates,” “expects” and similar expressions are intended to identify forward-looking statements. Forward-looking statements are based on management’s expectations and estimates. These statements are neither promises nor guarantees and are made subject to certain risks and uncertainties that could cause actual results to differ materially from the results stated or implied in this Quarterly Report. We believe the assumptions underlying the unaudited condensed consolidated financial statements are reasonable.

Our primary risks include uncertainties regarding current business and economic disruptions resulting from the ~~recent~~ COVID-19 Pandemic, ~~including the effect of government regulations issued in connection therewith,~~ our substantial indebtedness, whether our common stock will trade at prices that exceed the minimum share requirement of the NYSE and the related risk that the NYSE could initiate proceedings to delist the common stock from trading on the NYSE, our ability to identify and negotiate acceptable agreements with sellers and purchasers of additional properties, the cash flow from our pre-need and at-need sales, trusts and financings, which may impact our ability to meet our financial projections and service our debt, as well as with our ability to maintain an effective system of internal control over financial reporting including effective disclosure controls and procedures.

Our risks and uncertainties are more particularly described in Part I, Item 1A. Risk Factors of our Annual Report and in Part II, Item 1A of this Quarterly Report. Readers are cautioned not to place undue reliance on forward-looking statements included in this Quarterly Report, which speak only as of the date the statements were made. Except as required by applicable laws, we undertake no obligation to update or revise forward-looking statements, whether as a result of new information, future events or otherwise.

BUSINESS OVERVIEW

We are one of the leading providers of funeral and cemetery products and services in the death care industry in the United States (“U.S.”). As of ~~March 31, 2020,~~September 30, 2021, we operated ~~319~~301 cemeteries in 2724 states and Puerto Rico, of which ~~289~~271 were owned and 30 were operated under leases, operating agreements or management agreements. We also owned, operated or managed 8870 funeral homes in 1715 states and Puerto Rico. On December 31, 2019, we consummated the C-Corporation Conversion for the purpose of transitioning the Partnership and its affiliates from a master limited partnership structure to a corporate form. See ~~Part 1.~~ ~~Item 1.~~ ~~Financial Statements (Unaudited)—Notes to the Unaudited Condensed Consolidated Financial Statements—Note 1 General~~ ~~of this Quarterly Report for further information related to the C-Corporation Conversion.~~

Our revenue is derived from our Cemetery Operations and Funeral Home Operations segments. Our Cemetery Operations segment principally generates revenue from sales of interment rights, cemetery merchandise, which includes markers, bases, vaults, caskets and cremation niches and our cemetery services, which include opening and closing services, cremation services and fees for the installation of cemetery merchandise. Our Funeral Home Operations segment principally generates revenue from sales of funeral home merchandise, which includes caskets and other funeral related items and service revenues, which include services such as family consultation, the removal of and preparation of remains and the use of funeral home facilities for visitation and prayer services. These sales occur 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. Our Funeral Home Operations segment also include revenues related to the sale of term and whole life insurance on an agency basis, in which we earn a commission from the sales of these insurance policies.

The pre-need sales enhance our financial position by providing a backlog of future revenue from both trust and insurance-funded pre-need funeral and cemetery sales. We believe pre-need sales add to the stability and predictability of our revenues and cash flows. Pre-need sales are typically sold on an installment plan. While revenue on the majority of pre-need funeral sales is deferred until the time of need, sales of pre-need cemetery property interment rights provide opportunities for full current revenue recognition when the property is available for use by the customer.

We also earn investment income on certain payments received from customers on pre-need contracts, which are required by law to be deposited into our merchandise and service trusts. Amounts are withdrawn from our merchandise and service trusts when we fulfill the performance obligations. Earnings on these trust funds, which are specifically identifiable for each performance obligation, are also included in the total transaction price. For sales of interment rights, a portion of the cash

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proceeds received are required to be deposited into a perpetual care trust. While the principal balance of the perpetual care trust must remain in the trust in perpetuity, we recognize investment income on such assets as revenue, excluding realized gains and losses from the sale of trust assets. Pre-need contracts are subject to financing arrangements on an installment basis, with a contractual term not to

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exceed 60 months. Interest income is recognized utilizing the effective interest method. For those contracts that do not bear a market rate of interest, we impute such interest based upon the prime rate at the time of origination plus 150 basis points in order to segregate the principal and interest components of the total contract value.

Our revenue depends upon the demand for funeral and cemetery services and merchandise, which can be influenced by a variety of factors, some of which are beyond our control including demographic trends, such as population growth, average age, death rates and number of deaths. Our operating results and cash flows could also be influenced by our ability to remain relevant to the customers. We provide a variety of unique product and service offerings to meet the needs of our customers’ families. The mix of services could influence operating results, as it influences the average revenue per contract. Expense management, which includes controlling salaries, merchandise costs, corporate overhead and other expense categories, could also impact operating results and cash flows. Lastly, economic conditions, legislative and regulatory changes and tax law changes, all of which are beyond our control, could impact our operating results and cash flows.

For further discussion of our key operating metrics, see our Results of Operations and Liquidity and Capital Resources sections below.

RECENT EVENTS

The following are key events and transactions that have occurred during ~~2020 through the date~~2021 that were material to us and/or facilitate an understanding of ~~issuance of the~~our unaudited condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q:



Axar Letter. On September 27, 2021, we announced that we had received the Letter dated September 22, 2021 from Axar in which Axar expressed an interest in pursuing discussions concerning strategic alternatives that may be beneficial to us and our various stakeholders. Axar has engaged Schulte Roth & Zabel LLP as its legal advisor and stated in the Letter that it would engage a financial advisor at the appropriate time. According to the Letter, Axar expects that any such discussions would be conducted with a special committee of the Board, assisted by financial and legal advisors it engages. The Letter also stated that any transaction involving Axar arising from such discussions would be conditioned upon, among other things, approval of the special committee and the Board, the negotiation and execution of mutually satisfactory definitive agreements and customary terms. The Letter also stated that any transaction structured as a take-private transaction would be subject to a closing condition that the approval of holders of a majority of the outstanding shares not owned by Axar or its affiliates be obtained. On September 26, 2021, the Board authorized its Conflicts Committee, which is comprised of independent directors Stephen J. Negrotti, Kevin Patrick and Patricia Wellenbach, to engage in the discussions contemplated by the Letter, including the authority to engage in discussions concerning and to negotiate the terms and provisions of any strategic alternative the Conflicts Committee determines to be appropriate in connection with such discussions. Under its charter, the Conflicts Committee has the authority to reject, approve or recommend that the Board approve any transaction that is a related party transaction, which would include any transaction to which Axar is a party. The Conflicts Committee has retained independent legal and financial advisors to assist in such discussions.



Refinancing. On May 11, 2021, we issued $400.0 million aggregate principal amount of 8.500% Senior Secured Notes due 2029 (the “2029 Notes”). The gross proceeds from the sale of the 2029 Notes was $389.9 million, less advisor fees, legal fees, mortgage costs and other closing expenses. The 2029 Notes were issued pursuant to the 2029 Indenture, dated as of May 11, 2021, by and among the Company, the guarantors named therein and Wilmington Trust, National Association, as trustee and collateral agent. Substantially concurrently with the closing of the offering of the 2029 Notes, the 2024 Issuers deposited from the net cash proceeds from the offering of the 2029 Notes an amount sufficient to fund the full redemption of the outstanding 2024 Notes with the 2024 Trustee as trustee under the 2024 Indenture, among the 2024 Issuers, the guarantors party thereto and the 2024 Trustee governing the 2024 Notes. Upon deposit of such funds with the 2024 Trustee, the 2024 Indenture was satisfied and discharged in accordance with its terms. As a result of the satisfaction and discharge of the 2024 Indenture, the 2024 Issuers and the 2024 Guarantors, including the Company, have been released from their obligations with respect to the 2024 Indenture and the 2024 Notes, except with respect to those provisions of the 2024 Indenture that, by their terms, survive the satisfaction and discharge of the 2024 Indenture.

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

COVID-19 Pandemic. ~~The~~ In December 2019, an outbreak of ~~COVID-19, which has~~a novel strain of coronavirus (“COVID-19”) spread worldwide posing public health risks that reached pandemic proportions (the “COVID-19 Pandemic”). The COVID-19 Pandemic poses a significant threat to the health and economic wellbeing of our employees, customers and vendors. ~~Currently, our~~Our operations ~~have been~~are deemed essential by the state and local governments in which we operate, with the exception of Puerto Rico, and we ~~are actively~~have been working with federal, state and local government officials to ensure that we continue to satisfy their requirements for offering our essential services.

Our top priority is the health and safety of our employees and the families we serve. Since the start of the outbreak in the U.S., our Company’s senior management team has taken actions to protect our employees and the families served, and to support our field locations as they adapt and adjust to the circumstances resulting from the COVID-19 Pandemic. The operation of all of our facilities is critically dependent on the employees who staff these locations. To ensure the wellbeing of our employees and their families, we ~~have~~ provided all of our employees with detailed health and safety literature on COVID-19, such as the CDC’s industry-specific guidelines for working with the deceased who were ~~and~~or may have been infected with COVID-19. In addition, our procurement and safety teams have consistently secured and distributed supplies to ensure that our locations have appropriate PPE and cleaning supplies to provide our essential services, as well as updated and developed new safety-oriented guidelines to support daily field ~~operations~~operations. These guidelines include reducing the number of staff present for a service and ~~continue to provide personal protection equipment to those~~restricting the number of attendees. We also implemented additional safety and precautionary measures as it concerns our businesses’ day-to-day interaction with the families and communities we serve. Our corporate office employees ~~whose positions necessitate them, and we have implemented work~~began working from home ~~policies at our corporate office~~in March 2020 consistent with CDC guidance to reduce the risks of exposure to COVID-19 while still supporting ~~the families that we serve. The Company has~~our field operations. We have not experienced any significant disruptions to ~~its~~our business as a result of the work from home policies in ~~its~~our corporate office. We monitor the CDC guidance on a regular basis, continually review and update our processes and procedures and provide updates to our employees as needed to comply with regulatory guidelines.

Our marketing and sales team quickly responded to the sales challenges presented by the COVID-19 Pandemic by implementing virtual meeting options using a variety of web-based tools to ensure that we can continue to connect with and meet our customers’ needs in a safe, effective and productive manner. Some of our locations ~~are providing~~provide live video streaming of their funeral and burial services to our customers or providing other alternatives that respect social distancing, so that family and friends can connect during their time of grief.

Like most businesses world-wide, the COVID-19 Pandemic has impacted us financially. ~~Through early March 2020, we were experiencing sales growth for~~At the ~~first quarter of 2020, as compared to the first quarter of 2019; however, over the last two weeks~~start of the ~~quarter,~~COVID-19 Pandemic in early 2020, we saw our pre-need sales and at-need sales activity decline as Americans practiced social distancing and crowd size restrictions were put in place. ~~In addition, our pre-need customers with installment contracts could default on their installment contracts due to lost work or other financial stresses arising from the COVID-19 Pandemic. While~~However, since May 2020, we ~~expect our~~experienced at-need sales growth and, since late 2020, we have experienced pre-need sales ~~to be challenged during the COVID 19 Pandemic, we~~growth. We believe the implementation of our virtual meeting tools is one of several key steps to mitigate this disruption. ~~In addition, we expect that throughout this disruption~~Throughout the COVID-19 Pandemic, our cemeteries and funeral homes ~~will remain~~have largely remained open and available to serve our families in all the locations in which we operate to the extent permitted by local authorities and we expect that this will continue. The Company has leveraged the relationships it has made with the ~~exception~~families it has served during its response to the COVID-19 Pandemic, which has directly resulted in new sales leads and increased pre-need sales activity. In addition, as community restrictions have eased and the COVID-19 vaccine became more available, the Company has experienced record growth in its pre-need cemetery sales. However, we had experienced limited location closures due to COVID-19 cases, required quarantines and cleanings. During the year ended December 31, 2020, we incurred costs of ~~Puerto Rico.~~approximately $1.0 million related to the implementation of prescribed safety protocols related to the COVID-19 Pandemic.

We expect the COVID-19 Pandemic ~~to continue to~~could have an adverse effect on our future results of operations and cash flows ~~however~~depending on COVID-19 variants and increased case counts. However we cannot presently predict ~~with certainty,~~ the likely scope and severity of that impact. We may incur additional costs related to the implementation of prescribed safety protocols related to the COVID-19 Pandemic. In the event there are confirmed diagnoses of COVID-19 within a significant number of our facilities, we may incur additional costs related to the closing and subsequent cleaning of these facilities and the ability to adequately staff the impacted sites. ~~As a~~In addition, our pre-need customers with installment contracts could default on their installment contracts due to lost work or other financial stresses arising from the COVID-19 Pandemic.



Moon. In April 2020, we had outsourced all of the grounds and maintenance services at most of the funeral homes and cemeteries we own or manage to Moon. We also have the right under the MSAs to take back the responsibility for grounds and maintenance services at the locations outsourced to Moon. Due to certain liquidity constraints and performance issues experienced by Moon, we have exercised this right with respect to 81 locations effective July 1, 2021, 22 locations effective August 1, 2021 and an additional 111 locations effective August 9, 2021, representing in the aggregate approximately 61% of the locations we had originally outsourced to Moon. We are continuing to evaluate Moon’s performance under the MSAs.

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~~result~~In connection with these changes, we are now using our own equipment to service these locations and rehired the employees Moon had hired from us upon execution of the ~~implications~~MSAs. These employees will continue to provide certain grounds services for us at these locations using the equipment previously leased to Moon. We are outsourcing substantially all of ~~COVID-19,~~the landscaping and other maintenance services previously provided by Moon at these locations to other vendors who had previously been subcontractors to Moon. We do not anticipate that these changes will have any material impact on the cost of providing the services compared to the amounts due to Moon under the MSAs.

From time to time, on the behalf of Moon, we ~~assessed long-lived assets for impairment~~incurred a higher level of expenses relating to services covered by the MSAs, including location materials and ~~concluded no assets~~supplies, uniforms, repair of marker damage, customer refunds and payments to third party landscapers and repair shops. These additional payments, which were ~~impaired~~in addition to the payments specified in the MSAs, were recorded as cemetery operating expenses in the relevant periods and as of ~~March 31, 2020.~~September 30, 2021 aggregated $6.0 million. We have the ability to seek reimbursement from Moon for these additional payments as outlined in the MSAs.

Management believes the impact on the Company of Moon’s bankruptcy filing has been partially mitigated because we have taken back the responsibilities under the MSAs for the 214 locations noted above and will take back such responsibilities with respect to an additional 53 locations by early December 2021. However, given the uncertainty associated with the bankruptcy proceedings and the locations for which Moon will continue to be responsible under the MSAs, it is possible that we may continue to experience performance issues and other disruptions in operations at those locations, particularly if it becomes necessary for us to assume the responsibility for servicing those locations in the near future on relatively short notice. In addition, we expect that we will continue to incur additional expenses relating to services covered by the MSAs. If Moon is unable to obtain appropriate financing or reach an agreement to sell its assets and is unable to have a plan of reorganization confirmed by the Bankruptcy Court, we would likely not be able to obtain reimbursement of the Pre-Petition Cure Amount or the Post-Petition Cure Amount.

To date, the disruptions resulting from Moon’s bankruptcy filing have not had, and we do not expect that any additional disruptions it may experience in the future will have, a material adverse effect on our overall business given the number of locations for which we are now and will soon be responsible and our previous relationships, which were established before the transfer of responsibilities to Moon. We continue to closely monitor the overall situation.

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

Divestitures. On ~~January 3, 2020,~~May 24, 2021, we ~~consummated~~completed the ~~Oakmont~~Missouri Sale ~~with Carriage Funeral Holdings, Inc.~~ for ~~an aggregate~~a total cash purchase price of ~~$33.0 million. The divested assets consisted~~$720,000, resulting in a loss on sale of ~~one cemetery, one funeral home and certain related assets.~~$1.7 million for the nine months ended September 30, 2021.

On April ~~7, 2020,~~2, 2021, we ~~consummated~~completed the ~~Olivet~~Clearstone Sale ~~with Cypress Lawn Cemetery Association~~ for a net cash purchase price of ~~$24.3~~$6.2 million, subject to certain ~~adjustments, and the assumption of certain~~ ~~liabilities, including $17.1 million in land purchase obligations~~.In addition, in March 2020, we entered into the California Agreement with certain entities owned by John Yeatman and Guy Saxton to sell substantially all of our remaining California properties, consisting of five cemeteries, six funeral establishments and four crematories for a cash purchase price of $7.1 million, subject to certain closing adjustments.

~~During the three months ended March 31, 2020, we~~ We redeemed an ~~aggregate $31.3~~additional $6.7 million of principal on the Senior Secured Notes, primarily using the net proceeds from the Oakmont Sale. In April 2020, we redeemed an aggregate $20.5 million of principal on the Senior Secured Notes using the net proceeds from the Olivet Sale. Per the Indenture, we anticipate using the first $3.2 million of net proceeds and the remaining 80%amount of the ~~net proceeds from the Remaining California Sale to redeem additional principal portions of the outstanding Senior Secured Notes.~~

~~Amendments to Indenture and Capital Raise~~2024 Notes in ~~2020.~~ ~~On April 1, 2020, the Partnership, CFS West Virginia and Wilmington Trust, National Association, as trustee, entered into the Supplemental Indenture. Pursuant to~~accordance with the terms of the ~~Supplemental Indenture, several financial covenants were amended.~~ ~~Concurrently~~2024 Indenture. The Clearstone Agreement to sell the Clearstone Assets, together with the ~~execution~~other divestitures completed in 2020, represented a strategic exit from the West Coast. Therefore, the results of operations of the ~~Supplemental Indenture, we entered~~Clearstone Assets, and of the ~~Axar Commitment pursuant to which Axar committed to (a) purchase shares~~businesses sold in 2020 for the period before their respective sales, have been presented as discontinued operations on the accompanying consolidated statements of ~~our Series A Preferred Stock with an aggregate purchase price~~operations for the nine months ended September 30, 2021 and the three and nine months ended September 30, 2020. Additionally, all of ~~$8.8 million on April 3, 2020, (b) exercise its basic rights in~~ the ~~rights offering by tendering the shares of Series A Preferred Stock so purchased for shares of Common Stock~~assets and (c) purchase any shares offered in the rights offering for which other stockholders do not exercise their rights, up to a maximum of an additional $8.2 million of such shares. We did not pay Axar any commitment, backstop or other fees in connectionliabilities associated with the ~~Axar Commitment. As contemplated by~~Clearstone Assets have been classified as held for sale on the ~~Axar Commitment, on April 3,~~accompanying consolidated balance sheet at December 31, 2020 we sold an aggregate of 176 shares of our Series A Preferred Stock to the 2020 Purchasers for an aggregate purchase price of $8.8 million. Under the terms of the Supplemental Indenture and the Axar Commitment, we agreed to undertake an offering to holders of our Common Stock of transferable rights to purchase their pro rata share of shares of Common Stock with an aggregate exercise price of at least $17.0 million at a price of $0.73 per share. The rights offering period, during which the rights will be transferable, will be no less than 20 calendar days and no more than 45 calendar days. We agreed to use our best efforts to complete the rights offering with an expiration date no later than July 24, 2020..

GENERAL TRENDS AND OUTLOOK

We expect our business to be affected by key trends in the death care industry, based upon assumptions made by us and information currently available. Death care industry factors affecting our financial position and results of operations include, but are not limited to, death rates, per capita disposable income, demographic trends in terms of number of adults aged 65 and older, cremation rates and trends and e-commerce sales. In addition, we are subject to fluctuations in the fair value of equity and fixed-maturity debt securities held in our trusts. These values can be negatively impacted by contractions in the credit market and overall downturns in economic activity. Our ability to make payments on our debt depends on our success at managing operations with respect to these industry trends. To the extent our underlying assumptions about or interpretations of available information prove to be incorrect, our actual results may vary materially from our expected results.

Business Strategies

Our management identified key areas of strategic improvement as part of its turnaround strategy in 2018, which has allowed us to realize upside in our operational and financial performance. The key pillars of the turnaround strategy included:



Strategic Evaluation of Asset Base.We ~~believe~~performed a full asset review to align resources on targeted facilities while divesting select non-core assets.



Decentralized Operating Structure. We restructured our operating model with divisional presidents and general managers to increase responsibility of property-level employees and help execute on operational and financial strategies.



Sales Productivity and Profitable Sales Growth. We established key performance indicators, implemented client relationship management analytics, realigned incentives and created new onboarding program to improve the ~~Recapitalization Transactions demonstrate both strong underlying values~~productivity of our ~~asset base, as well as confidence in~~sales force.



Significant Expense Reductions. We optimized our ~~ability~~expense structure by integrating new expense systems, downsizing headcount and identifying other inefficient uses of resources.



Financial Reporting Efficiencies. We upgraded our internal accounting and financial practices and senior accounting personnel to generate increased transparency and financial integrity.

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We are poised to execute ~~our turnaround plan. We believe~~on a targeted, long-term growth strategy to reduce leverage and increase the ~~recapitalization~~sustainability of our ~~balance sheet has reset our financial footing and helps position us to execute~~operations. We have identified the following ~~business strategies:~~pathway to additional growth:



~~Execute on Financial Strategy. The Recapitalization Transactions have significantly extended our debt capital structure with a five-year maturity, which provides us with a meaningful liquidity improvement~~Continued Execution of Organic Growth

Continue to ~~execute~~recognize the benefits of expanding margins created through the realization of our turnaround strategy ~~including the next phase of our performance improvement plans. In April 2019, we announced a turnaround strategy focused~~and sustainable operational performance;

Focus on ~~four key goals: cash flow~~sales growth and ~~liquidity, capital structure, strategic balance sheet/portfolio review, and performance improvement from cost reductions and revenue enhancement.~~

•

~~Implementation of New Strategic Initiatives~~. We view our substantial and diverse asset base as a strength, but we have prioritized the ways in which we view our assets. We believe that by tiering operating units by class and contribution, identifying and initiating a divestiture plan for select assets and prioritizing certain assets over others, we will be able to optimize results in our top tier properties and more efficiently manage our assets. From a portfolio

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review perspective, we continue to focus our resources on improving our “top tier” assets as we believe they possess the greatest potential for improved profitability. We are also minimizing costs and resources on our “lower-tier” assets to reduce the impact these assets have on profitability of the portfolio.

~~Improve Operating Efficiencies~~. We believe we have identified significant expense reduction opportunities in the next phase of this operational turnaround strategy with additional “4-wall level” operational savings, identified projects and industry benchmarking. In addition, we are focused on improving performance through cost reductions and revenue enhancement and executing on other long and short-term turnaround strategies that will allow us to meet our primary objectives on a continuing basis. The next phase of cost reduction and operational performance improvement opportunities have now been identified with a focus on prioritizing identified opportunities in procurement, sourcing, product hierarchy, field labor efficiencies, shared services and outsourcing. We believe that the execution of these initiatives will result in improved profitability and cash flow across the asset base. In terms of revenue enhancements, we believe we have identified the primary drivers of our sales productivityEBITDA at each property location, driving both at-need and pre-need sales ~~issues~~for additional cash flow today and into the future;

Explore new product offerings to cater to evolving customer demands; and

Deploy capital expenditure projects to capitalize on new sales, performance or efficiency opportunities.



Inorganic Growth and Acquisition Opportunities

Target core markets for accretive, strategic growth that complements our existing portfolio, while ~~it is in the early stages, we remain focused~~leveraging our scale and management capabilities; and

Focus on ~~improving retention~~existing synergies to add value to new acquisitions, including trust management capabilities and a robust pre-need sales program.



Naturally De-Lever and Grow Our Platform

Use excess cash flow to acquire new properties to create additional EBITDA;

Grow at a sustainable pace and integrate assets to take advantage of ~~sales personnel~~our existing platform and ~~optimizing staffing levels across~~management expertise; and

Continue to build upon our ~~asset base.~~

strong backlog of assets and trust appreciation through existing operations, organic growth opportunities and future acquisitions.

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RESULTS OF OPERATIONS

We have two distinct reportable segments, Cemetery Operations and Funeral Home Operations, which are supported by corporate costs and expenses.

Cemetery Operations

Overview

We are currently the one of the largest owners and operators of cemeteries in the U.S. As of ~~March 31, 2020,~~September 30, 2021, we operated ~~319~~301 cemeteries in 2724 states and Puerto Rico. We ~~own 289~~owned 271 of these cemeteries, and we ~~manage~~managed or ~~operate~~operated the remaining 30 under leases, operating agreements or management agreements. Revenues from our Cemetery Operations segment accounted for approximately ~~82%~~86% of our total revenues for the three and nine months ended ~~March 31, 2020.~~September 30, 2021.

Operating Results

Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020

The following ~~table presents~~tables present operating results for our Cemetery Operations segment for the three months ended ~~March 31,~~September 30, 2021 and 2020 ~~and 2019~~ (in thousands):


	Three Months Ended March 31,										Three Months Ended September 30,
					Variance										Variance
	2020		2019		$			%			2021		2020		$			%
Interments	$	15,954	$	15,944	$	10			0	%	$	21,954	$	20,316	$	1,638			8	%
Merchandise		15,166		16,541		(1,375	)		(8	%)		16,935		15,949		986			6	%
Services		15,560		15,967		(407	)		(3	%)		17,240		16,078		1,162			7	%
Interest income		1,938		1,822		116			6	%		2,092		2,071		21			1	%
Investment and other		9,448		7,636		1,812			24	%		12,593		7,606		4,987			66	%
Total revenues		58,066		57,910		156			0	%		70,814		62,020		8,794			14	%
Cost of goods sold		9,925		9,743		182			2	%		11,023		9,624		1,399			15	%
Cemetery expense		17,848		17,247		601			3	%		19,286		16,198		3,088			19	%
Selling expense		13,049		14,733		(1,684	)		(11	%)		14,451		13,119		1,332			10	%
General and administrative expense		10,316		11,439		(1,123	)		(10	%)		10,534		10,027		507			5	%
Depreciation and amortization		1,704		1,962		(258	)		(13	%)		1,471		1,556		(85	)		(5	%)
Total costs and expenses		52,842		55,124		(2,282	)		(4	%)		56,765		50,524		6,241			12	%
Segment operating profit	$	5,224	$	2,786	$	2,438			88	%	$	14,049	$	11,496	$	2,553			22	%

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~~The following table presents supplemental operating data for the three months ended March 31, 2020 and 2019:~~

Three Months Ended March 31,

Variance

SUPPLEMENTAL DATA:

2020

2019

#

%

Interments performed

12,820

12,995

(175
)

(1
%)
Net interment rights sold ⁽¹⁾

Lots

5,776

4,485

1,291

29
%
Mausoleum crypts (including pre-construction)

414

215

199

93
%
Niches

347

338

9

3
%
Total net interment rights sold ⁽¹⁾

6,537

5,038

1,499

30
%
Number of pre-need cemetery contracts written

8,091

8,434

(343
)

(4
%)
Number of at-need cemetery contracts written

12,880

13,249

(369
)

(3
%)
Number of cemetery contracts written

20,971

21,683

(712
)

(3
%)

⁽¹⁾

~~Net of cancellations. Sales of double-depth burial lots are counted as two sales.~~

Cemetery interments revenues were ~~$16.0~~$22.0 million for the three months ended ~~March 31, 2020, which~~September 30, 2021, an increase of $1.6 million and 8% from $20.3 million for the three months ended September 30, 2020. The increase resulted primarily from an increase in pre-need revenues of $1.4 million due to improved productivity of the salesforce. At-need revenues increased $0.8 million or 15% versus the prior year. Additionally, there was ~~essentially unchanged~~a decrease of $0.5 million associated with increased cancellations and promotional discounts.

Cemetery merchandise revenues were $16.9 million for the three months ended September 30, 2021, an increase of $1.0 million and 6% from $15.9 million for the three months ended ~~March 31, 2019. An~~September 30, 2020. The increase resulted primarily from a $1.0 million increase in ~~all~~ at-need revenues ~~totaling $0.7 million~~ and a ~~decrease~~$0.2 million increase in ~~the cancellation reserve~~pre-need turned at-need revenues. These increases were primarily associated with delivery of ~~$0.6 million~~markers and bases, including those deliveries previously delayed due to ~~increased collections were offset by a net decrease in pre-need revenues of $1.3 million, primarily due to decreased revenues from pre-need mausoleums and lawn crypts.~~

~~Cemetery merchandise revenues~~ ~~were $15.2 million for~~ the ~~three~~ ~~months ended March 31, 2020,~~COVID-19 Pandemic. Additionally, there was a decrease of ~~$1.4~~$0.2 million associated with increased cancellations and ~~8% from $16.5~~promotional discounts.

Cemetery service revenues were $17.2 million for the three months ended ~~March 31, 2019. The change was due to a decrease in pre-need revenues~~September 30, 2021, an increase of ~~$1.8~~$1.2 million ~~primarily due to decreases in vaults~~ and ~~bases, combined with a net decrease in at-need revenues of $0.1 million. These decreases were partially offset by a decrease in the cancellation reserve of $0.5 million due to increased collections.~~

~~Cemetery service revenues were $15.6~~7% from $16.1 million for the three months ended ~~March 31, 2020,~~September 30, 2020. The increase resulted from a $0.7 million increase in pre-need turned at-need revenues and a $0.7 million increase in at-need revenues. These increases were primarily associated with the installation of markers, including those previously delayed due to the COVID-19 Pandemic. Additionally, there was a decrease of ~~$0.4~~$0.2 million associated with increased cancellations and ~~3% from $16.0~~promotional discounts.

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Investment and other income was $12.6 million for the three months ended March 31, 2019. The change was due to a decrease in pre-need revenues of $1.0 million primarily due to grave openings, partially offset by an increase in at-need revenues of $0.3 million and a decrease in the cancellation reserve of $0.3 million due to increased collections.

~~Investment and other income was $9.4 million for the three months ended March 31, 2020,~~September 30, 2021, an increase of ~~$1.8~~$5.0 million and ~~24%~~66% from $7.6 million for the three months ended ~~March 31, 2019.~~September 30, 2020. The ~~change~~increase was ~~due to an increase~~driven by increases in investment income ~~primarily due to~~associated with the merchandise trust and the perpetual care trust of $2.7 million and $1.8 million, respectively. Additionally, there was an increase of $0.2 million in RIA fees earned and a ~~change~~$0.3 million increase in ~~investment strategy.~~other revenues.

Cost of goods sold was ~~$9.9~~$11.0 million for the three months ended ~~March 31, 2020,~~September 30, 2021, an increase of ~~$0.2~~$1.4 million and 2%15% from ~~$9.7~~$9.6 million for the three months ended ~~March~~September 30, 2020. The increase was primarily the result of increased revenue recognized. As a percentage of cemetery revenue, cost of goods sold was essentially flat at 15.6% for the three months ended September 30, 2021, compared to 15.5% for the three months ended September 31, ~~2019. The change was due to higher costs primarily related to markers.~~2020.

Cemetery expenses were ~~$17.8~~$19.3 million for the three months ended ~~March 31, 2020,~~September 30, 2021, an increase of ~~$0.6~~$3.1 million and 3%19% from ~~$17.2~~$16.2 million for the three months ended ~~March 31, 2019.~~September 30, 2020. The ~~change~~increase was due to ~~increases~~approximately $2.2 million in ~~landscaping~~general expenditures, including ancillary and ~~lawn care~~other costs associated with the transition of ~~$3.4~~cemetery maintenance back from Moon, coupled with a $0.9 million due to a change in timing of recognizing contract expense. This was partially offset by a decrease in payroll and related taxes of $1.2 million resulting from a reduction in workforce in 2019, a decreaseincrease in repairs and maintenance ~~of $0.5 million, a decrease in employee benefits of $0.4 million and a net decrease in various other expenses of $0.7 million.~~expense.

Selling expenses were ~~$13.0~~$14.5 million for the three months ended ~~March 31, 2020, a decrease~~September 30, 2021, an increase of ~~$1.7~~$1.3 million and ~~11%~~10% from ~~$14.7~~$13.1 million for the three months ended ~~March 31, 2019.~~September 30, 2020. As a percentage of cemetery revenue, selling expenses decreased to 20.4% from 21.2%, notwithstanding a $0.5 million increase in marketing and advertising expense. In 2020, marketing and advertising expense was curtailed in response to the on-going COVID-19 Pandemic. The ~~change~~decrease in selling expenses as a percentage of cemetery revenue was ~~due to lower revenue activity, combined with a return to a normal level of deferring selling expense as the first quarter of 2019 included an adjustment due to further refinement of~~driven by improved efficiencies in our ~~process for recording revenues and related expenses in accordance with ASC 606.~~salesforce.

General and administrative expenses were ~~$10.3~~$10.5 million for the three months ended ~~March 31, 2020, a decrease~~September 30, 2021, an increase of ~~$1.1~~$0.5 million and ~~10%~~5% from ~~$11.4~~$10.0 million for the three months ended ~~March 31, 2019.~~September 30, 2020. The ~~change~~increase was ~~due to~~primarily the result of a ~~decrease~~$0.2 million increase in professional fees, including legal fees and settlement costs, a $0.2 million increase in insurance expense, ~~of $0.4~~a $0.1 million increase in credit card processing fees associated with increased revenues and $0.3 million increase in other miscellaneous expenses. These increases were offset in part by a $0.3 million decrease in ~~employee benefits~~spend associated with one-time purchases of ~~$0.3 million and a net decrease~~personal protective equipment in ~~various other expenses~~the third quarter of ~~$0.4 million.~~2020.

Depreciation and amortization expenses were ~~$1.7~~$1.5 million for the three months ended ~~March 31, 2020,~~September 30, 2021, a decrease of ~~$0.3~~$0.1 million and ~~13%~~5% from ~~$2.0~~$1.6 million for the three months ended ~~March 31, 2019.~~September 30, 2020. The ~~change~~ decrease was due to routine depreciation and amortization of the associated asset base.

48Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020

The following tables present operating results for our Cemetery Operations segment for the nine months ended September 30, 2021 and 2020 (in thousands):


	Nine Months Ended September 30,
					Variance
	2021		2020		$			%
Interments	$	65,379	$	51,542	$	13,837			27	%
Merchandise		51,004		44,918		6,086			14	%
Services		52,219		47,656		4,563			10	%
Interest income		6,568		5,723		845			15	%
Investment and other		34,752		23,841		10,911			46	%
Total revenues		209,922		173,680		36,242			21	%
Cost of goods sold		34,642		28,307		6,335			22	%
Cemetery expense		55,537		50,375		5,162			10	%
Selling expense		43,434		37,376		6,058			16	%
General and administrative expense		31,377		28,672		2,705			9	%
Depreciation and amortization		4,552		4,815		(263	)		(5	%)
Total costs and expenses		169,542		149,545		19,997			13	%
Segment operating profit	$	40,380	$	24,135	$	16,245			67	%

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Cemetery interments revenues were $65.4 million for the nine months ended September 30, 2021, an increase of $13.8 million and 27% from $51.5 million for the nine months ended September 30, 2020. The increase resulted from an increase in pre-need revenues of $12.8 million due to improved productivity of the salesforce and an increase in at-need revenues of $2.0 million primarily related to increases in death rates associated with the COVID-19 Pandemic, offset by an increase in cancellations and promotional discounts of $1.0 million.

Cemetery merchandise revenues were $51.0 million for the nine months ended September 30, 2021, an increase of $6.1 million and 14% from $44.9 million for the nine months ended September 30, 2020. The increase resulted from an increase of $5.3 million in at-need revenues and an increase in pre-need turning at-need revenues of $1.0 million, both of which were positively impacted by increased burial rates associated with the COVID-19 Pandemic, offset by an increase in cancellations and promotional discounts of $0.2 million.

Cemetery service revenues were $52.2 million for the nine months ended September 30, 2021, an increase of $4.6 million and 10% from $47.7 million for the nine months ended September 30, 2020. The increase resulted from an increase of $2.1 million in at-need revenues and an increase in pre-need turning at-need revenues of $2.7 million, both of which were positively impacted by the increased burial rates associated with the COVID-19 Pandemic. Additionally, there was a decrease of $0.2 million associated with increased cancellations and promotional discounts.

Investment and other income was $34.8 million for the nine months ended September 30, 2021, an increase of $10.9 million and 46% from $23.8 million for the nine months ended September 30, 2020. The increase was driven by increases in investment income associated with the merchandise trust and the perpetual care trust of $2.5 million and $6.2 million, respectively. Additionally, there was an increase of $1.4 million in RIA fees earned and a $0.8 million increase in other revenues.

Cost of goods sold was $34.6 million for the nine months ended September 30, 2021, an increase of $6.3 million and 22% from $28.3 million for the nine months ended September 30, 2020. The increase was primarily the result of increased revenue recognized. As a percentage of cemetery revenue, cost of goods sold increased slightly to 16.5% for the nine months ended September 30, 2021, compared to 16.3% for the nine months ended September 30, 2020.

Cemetery expenses were $55.5 million for the nine months ended September 30, 2021, an increase of $5.2 million and 10% from $50.4 million for the nine months ended September 30, 2020. The increase was due to approximately $3.5 million in general expenditures, including ancillary and other costs associated with the transition of cemetery maintenance back from Moon, coupled with a $1.5 million increase in repairs and maintenance expense and $0.2 million increase in real estate taxes.

Selling expenses were $43.4 million for the nine months ended September 30, 2021, an increase of $6.1 million and 16% from $37.4 million for the nine months ended September 30, 2020. As a percentage of cemetery revenue, selling expenses decreased to 20.6% from 21.5%, notwithstanding a $1.2 million increase in marketing and advertising expense. In 2020, marketing and advertising expense was curtailed in response to the on-going COVID-19 pandemic. The decrease in selling expenses as a percentage of cemetery revenue was driven by improved efficiencies in our salesforce.

General and administrative expenses were $31.4 million for the nine months ended September 30, 2021, an increase of $2.7 million and 9% from $28.7 million for the nine months ended September 30, 2020. The increase was primarily the result of a $1.4 million increase in insurance costs, a $0.4 million increase in credit card processing fees associated with increased revenues, a $0.3 million increase in payroll and payroll related costs primarily associated with enhanced bonus program for general managers and regional administration, and a $1.2 million increase in other miscellaneous expenses. Those increases were offset by a $0.6 million decrease in spend associated with one-time purchases of personal protective equipment in the third quarter of 2020.

Depreciation and amortization expenses were $4.6 million for the nine months ended September 30, 2021, a decrease of $0.3 million and 5% from $4.8 million for the nine months ended September 30, 2020. The decrease was due to routine depreciation and amortization of the associated asset base.

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Funeral Home Operations

Overview

As of ~~March 31, 2020,~~September 30, 2021, we owned, operated or managed 8870 funeral homes. These properties ~~are~~were located in 1715 states and Puerto Rico. Revenues from Funeral Home Operations accounted for approximately ~~18%~~14% of our total revenues for the three and nine months ended ~~March 31, 2020.~~September 30, 2021.

Operating Results

Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020

The following ~~table presents~~tables present operating results for our Funeral Home Operations for the three months ended ~~March 31,~~September 30, 2021 and 2020 ~~and 2019~~ (in thousands):


	Three Months Ended March 31,										Three Months Ended September 30,
					Variance										Variance
	2020		2019		$			%			2021		2020		$			%
Merchandise	$	6,568	$	6,275	$	293			5	%	$	6,120	$	5,793	$	327			6	%
Services		6,611		7,284		(673	)		(9	%)		5,361		4,900		461			9	%
Total revenues		13,179		13,559		(380	)		(3	%)		11,481		10,693		788			7	%
Merchandise		1,776		2,317		(541	)		(23	%)		1,668		1,539		129			8	%
Services		5,397		5,553		(156	)		(3	%)		4,874		4,775		99			2	%
Depreciation and amortization		539		588		(49	)		(8	%)		419		453		(34	)		(8	%)
Other		3,485		3,630		(145	)		(4	%)		3,543		2,834		709			25	%
Total expenses		11,197		12,088		(891	)		(7	%)		10,504		9,601		903			9	%
Segment operating profit	$	1,982	$	1,471	$	511			35	%	$	977	$	1,092	$	(115	)		(11	%)

Funeral home merchandise revenues were ~~$6.6~~$6.1 million for the three months ended ~~March 31, 2020,~~September 30, 2021, an increase of $0.3 million and 5%6% from ~~$6.3~~$5.8 million for the three months ended ~~March 31, 2019.~~September 30, 2020. The ~~change was due to~~increase resulted from a ~~net~~$0.4 million increase in ~~various merchandise revenues.~~at-need revenues partially offset by a $0.1 million decrease in pre-need turned at-need revenue.

Funeral home services revenues were ~~$6.6~~$5.4 million for the three months ended ~~March 31, 2020, a decrease~~September 30, 2021, an increase of ~~$0.7~~$0.5 million and 9% from ~~$7.3~~$4.9 million for the three months ended ~~March 31, 2019.~~September 30, 2020. The increase was primarily associated with a $0.6 million increase in at-need revenues, partially offset by a $0.1 million decrease in trust and RIA fees recognized.

Funeral home total expenses were $10.5 million for the three months ended September 30, 2021, an increase of $0.9 million and 9% from $9.6 million for the three months ended September 30, 2020. Funeral home merchandise costs increased $0.1 million or 8%. Funeral home services costs increased $0.1 million or 2%. Other funeral home expenses increased $0.7 million, primarily driven by increases in costs associated with insurance and repairs and maintenance.

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Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020

The following tables present operating results for our Funeral Home Operations for the nine months ended September 30, 2021 and 2020 (in thousands):


	Nine Months Ended September 30,
					Variance
	2021		2020		$			%
Merchandise	$	17,542	$	16,004	$	1,538			10	%
Services		16,125		14,732		1,393			9	%
Total revenues		33,667		30,736		2,931			10	%
Merchandise		4,807		4,239		568			13	%
Services		14,012		13,594		418			3	%
Depreciation and amortization		1,273		1,359		(86	)		(6	%)
Other		9,801		8,084		1,717			21	%
Total expenses		29,893		27,276		2,617			10	%
Segment operating profit	$	3,774	$	3,460	$	314			9	%

Funeral home merchandise revenues were $17.5 million for the nine months ended September 30, 2021, an increase of $1.5 million and 10% from $16.0 million for the nine months ended September 30, 2020. The increase resulted from a $1.4 million increase in at-need revenues and a $0.1 million increase in pre-need turned at-need revenue.

Funeral home services revenues were $16.1 million for the nine months ended September 30, 2021, an increase of $1.4 million and 9% from $14.7 million for the nine months ended September 30, 2020. The increase was associated primarily with a $0.6 million increase in at-need revenues, a $0.5 million increase in income recognized on merchandise trust, a $0.1 million increase in pre-need turned at-need revenues and a $0.2 million increase in other funeral home revenues.

Funeral home expenses were $29.9 million for the nine months ended September 30, 2021, an increase of $2.6 million and 10% from $27.3 million for the nine months ended September 30, 2020. Funeral home merchandise costs increased $0.6 million or 13%. Funeral home services costs increased $0.4 million or 3%. Other funeral home expenses increased $1.6 million, primarily driven by increases in costs associated with insurance and repairs and maintenance.

Corporate

Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020

Corporate Overhead

Corporate overhead expense was $10.0 million for the three months ended September 30, 2021, an increase of $0.2 million and 2% from $9.8 million for the three months ended September 30, 2020. The increase was primarily related to a $0.2 million increase in stock compensation expense, a $0.2 million increase in telecommunications related expenses, a $0.2 million increase in miscellaneous taxes, a $0.1 million increase in corporate insurance and a $0.1 million increase in professional fees. These increases were partially offset by a $0.3 million decrease in corporate payroll and a $0.3 million decrease in miscellaneous expenses.

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Loss on Sale of Business and Other Impairments

For the three months ended September 30, 2021, we recorded a loss of $0.1 million in connection with the Missouri Sale in May 2021. For the three months ended September 30, 2020, there were no such losses.

Other Losses, net

Other losses, net were $0.6 million for the three months ended September 30, 2021and consisted of an impairment charge related to one funeral home. For the three months ended September 30, 2020, there were no such losses.

Interest Expense

Interest expense was $9.3 million for the three months ended September 30, 2021, a decrease of $2.6 million and 22% from $11.9 million for the three months ended September 30, 2020. The change was due to a decrease ~~in pre-need services~~ of ~~$0.5~~$1.9 million ~~combined with~~related to a lower interest rate on the 2029 Notes and a decrease ~~in at-need services~~ of ~~$0.2 million.~~$0.7 million due to lower amortization of deferred financing fees.

~~Funeral home expenses were $11.2~~Income Tax Benefit

Income tax benefit was $0.2 million for the three months ended ~~March 31, 2020, a decrease of $0.9 million and 7% from $12.1~~September 30, 2021, compared to $1.1 million for the three months ended ~~March 31, 2019.~~September 30, 2020. The income tax benefit for the three months ended September 30, 2021 was primarily due to the loss from continuing operations. The income tax benefit for the three months ended September 30, 2020 was primarily related to the reduction of deferred tax liabilities due to losses incurred.

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020

Corporate Overhead

Corporate overhead expense was $29.1 million for the nine months ended September 30, 2021, an increase of $2.0 million and 8% from $27.0 million for the nine months ended September 30, 2020. The increase was primarily related to a $0.6 million increase in corporate payroll, which included bonus accruals, a $0.6 million increase in corporate insurance, a $0.4 million increase in stock compensation expense, a $0.3 million increase in miscellaneous taxes, and a $0.2 million increase in telecommunications related expenses. Additionally, there was an increase of $0.5 million related to lower vendor rebates that offset the expense. These increases were offset by a $0.3 million decrease in legal and professional fees and a $0.3 million decrease in corporate office rent.

Loss on Sale of Business and Other Impairments

For the nine months ended September 30, 2021, we recorded a loss of $2.3 million which consisted of a loss of $1.8 million in connection with the Missouri Sale in May 2021 and an impairment of $0.5 million related to property and equipment held for sale. For the nine months ended September 30, 2020, there were no such transactions.

Other Losses, net

Other losses, net were $0.5 million for the nine months ended September 30, 2021 and primarily consisted of an impairment charge related to one funeral home. For the nine months ended September 30, 2020, there were no such losses.

Interest Expense

Interest expense was $29.7 million for the nine months ended September 30, 2021, a decrease of $5.2 million and 15% from $35.0 million for the nine months ended September 30, 2020. The change was due to a decrease ~~in casket costs~~ of ~~$0.6~~$4.4 million related to a ~~decrease in payroll~~lower interest rate on the 2029 Notes and ~~related expenses of $0.2 million and a net decrease in various other expenses of $0.1 million.~~

~~Corporate~~

~~Corporate Overhead~~

~~The following table summarizes our corporate overhead by expense category for the three months ended March 31, 2020 and 2019 (in thousands):~~

Three Months Ended March 31,

Variance

2020

2019

$

%

Corporate overhead

$
8,501

$
13,413

$
(4,912
)

(37
%)
Non-recurring adjustments

Severance

—

464

(464
)

(100
%)
C-Corporation Conversion fees

75

316

(241
)

(76
%)
Other professional fees and other

219

2,393

(2,174
)

(91
%)
Total non-recurring adjustments

294

3,173

(2,879
)

(91
%)
Corporate overhead, adjusted

$
8,207

$
10,240

$
(2,033
)

(20
%)

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~~Corporate overhead expense was $8.5 million for the three months ended March 31, 2020,~~ a decrease of ~~$4.9~~$0.8 million ~~and 37% from $13.4 million for~~due to lower amortization of deferred financing fees.

Loss on Debt Extinguishment

For the ~~three~~nine months ended ~~March 31, 2019. The change~~ ~~was due to the following:~~

~~a reduction in professional fees of $2.6 million primarily resulting from a change in auditors, the roll-off of financial advisory and consulting fees, and a decrease in legal fees;~~

~~savings in payroll and benefits of $1.6 million resulting primarily from a reduction in workforce in 2019 and a roll-off of the related severance; and~~

~~a net decrease in various other expenses of $0.7 million, primarily related to a rebate of contractual savings related to employee benefits.~~

~~Gain on Sale of Businesses~~

~~For the three months ended March 31, 2020,~~September 30, 2021, we recorded a ~~gain~~loss of ~~$24.1~~$40.1 million ~~primarily in connection with the Oakmont Sale in January 2020.~~ ~~For the three months ended March 31, 2019, there were no~~ ~~such transactions.~~

~~Interest Expense~~

~~Interest expense was $12.3 million for the three months ended March 31, 2020, a decrease of $0.9 million and 7% from $13.2 million for the three months ended March 31, 2019. The change was due~~related to the ~~following:~~

~~a decrease of $5.3 million due to the payoff~~full redemption of the ~~revolving credit facility in the second quarter~~2024 Notes, which was comprised of ~~2019;~~

~~a decrease~~an early redemption fee of ~~$3.2~~$18.5 million ~~due to~~and the write-off of deferred financing fees and original issue discount of ~~$2.4 million in connection with amending our~~$21.6 million. For the nine months ended September 30, 2020 there was no loss on debt ~~agreement in the first quarter~~extinguishment.

Table of ~~2019 and lower amortization of deferred financing fees in the first quarter of 2020; offset by~~Contents

an increase of $7.6 million related to a higher interest rate and principal on our Senior Secured Notes compared to the interest rate and principal on our prior revolving credit facility and senior notes.

Income Tax ~~Expense~~Benefit

Income tax ~~expense~~benefit was ~~$1.3~~$11.7 million for the ~~three~~nine months ended ~~March 31, 2020. There was no income tax expense~~September 30, 2021, compared to $3.3 million for the ~~three~~nine months ended ~~March 31, 2019.~~September 30, 2020. The income tax ~~expense in~~benefit for the ~~three~~nine months ended ~~March 31,~~September 30, 2021 was primarily due to the loss from continuing operations. The income tax benefit for the nine months ended September 30, 2020 was primarily related to changes in projected state deferred ~~taxes on~~tax savings related to consolidated state filings as well as the ~~Oakmont Sale. There was no income tax benefit or expense for the three months ended March 31, 2019 because the statutory maximum in reductions to~~reduction of deferred tax liabilities ~~had already been achieved in the fourth quarter of 2018.~~due to losses incurred.

LIQUIDITY AND CAPITAL RESOURCES

General

Our primary sources of liquidity are cash generated from operations, ~~and~~ proceeds from asset ~~sales.~~sales and the remaining proceeds from the sale of the 2029 Notes. Our primary cash requirements, in addition to normal operating expenses, are for capital expenditures, net contributions to the merchandise and perpetual care trust funds and debt service. ~~In general, as part of our operating strategy, we expect to fund:~~

~~working capital deficits through available cash, cash generated from operations,~~ ~~proceeds from asset sales and proceeds from equity offerings~~;

expansion capital expenditures, net contributions to the merchandise and perpetual care trust funds and debt service obligations through available cash, cash generated from operations or proceeds from asset sales. Amounts contributed to the merchandise trust funds will be withdrawn at the time of the delivery of the product or service sold to which the contribution related, which will reduce the amount of additional borrowings or asset sales ~~needed; and~~needed.

~~any maintenance capital expenditures through available cash and cash flows from operating activities.~~

While we rely heavily on our available cash and cash flows from operating activities to execute our operational strategy and meet our financial commitments and other short-term financial needs, we cannot be certain that sufficient capital will be generated through operations or be available to us to the extent required and on acceptable terms. We have experienced negative financial trends, including use of cash in operating activities, which, when considered in the aggregate, raise substantial doubt about our ability to continue as a going concern. These negative financial trends include:

we have continued to generate negative cash flow from operating activities through March 31, 2020, due to an increased competitive environment and increases in professional fees and compliance costs; and

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•

~~a decline in billings coupled with the increase in professional, compliance and consulting expenses tightened our liquidity position and increased reliance on long-term financial obligations.~~

~~During 2019 and 2020, we implemented (and will continue to implement) various actions to improve profitability and cash flows to fund operations. A summary of these actions is as follows:~~

~~2019~~

sold an aggregate of 52,083,333 of the Partnership’s Preferred Units for an aggregate purchase price of $57.5 million and completed a private placement of $385.0 million of the Senior Secured Notes. The net proceeds of both transactions were used to fully repay the then-outstanding senior notes due in June 2021 and retire our revolving credit facility that was due in May 2020;

~~managed recurring operating expenses, sought to limit non-recurring operating expenses; and~~

~~identified sales of select assets to provide supplemental liquidity.~~

~~2020~~

~~completed certain asset sales previously identified in 2019;~~

~~on April 1, 2020, entered into the Third Supplemental Indenture to the Indenture to amend certain financial covenants;~~

on April 1, 2020, entered into the Axar Commitment with Axar pursuant to which Axar committed to (a) purchase shares of the Company’s Series A Preferred Stock, par value $0.01 per share (“Series A Preferred Stock”) with an aggregate purchase price of $8.8 million on April 3, 2020, (b) exercise its basic rights in a rights offering to be effected by the Company by tendering the shares of Series A Preferred Stock so purchased for shares of Common Stock and (c) purchasing any shares offered in the rights offering for which other stockholders do not exercise their rights, up to a maximum of an additional $8.2 million of such shares;

~~on April 3, 2020, sold 176 shares of Series A Preferred Stock to Axar for a cash price of $50,000 per share, an aggregate of $8.8 million; and~~

~~implemented cost reduction initiatives to minimize the impact of the COVID-19 Pandemic on us, including~~ ~~streamlining corporate staff, consolidations of field positions to reduce redundancies and implement executive level salary reductions.~~

There is no certainty that our actual operating performance and cash flows will not be substantially different from forecasted results, and there is no certainty we will not need amendments to the Indenture in the future or that any such amendments will be available on terms acceptable to us or at all. Factors that could impact the significant assumptions used by us in assessing our ability to satisfy our financial covenants include the following:

~~operating performance not meeting reasonably expected forecasts, including the effects of the COVID-19 Pandemic on our operations;~~

~~failing to generate profitable sales;~~

~~investments in our trust funds experiencing significant declines due to factors outside our control;~~

~~being unable to compete successfully with other cemeteries and funeral homes in our markets;~~

~~the number of deaths in our markets declining; and~~

~~an adverse change in the mix of funeral and cemetery revenues between burials and cremations.~~

If our planned, implemented and not yet implemented actions are not successful in generating sustainable cash savings for us, or we fail to improve our operating performance and cash flows or we are not able to comply with the covenants under the Indenture, we may be forced to limit our business activities, limit our ability to implement further modifications to our operations or limit the effectiveness of some actions that are included in our forecasts, amend the Indenture and/or seek other sources of capital, and we may be unable to continue as a going concern. Additionally, a failure to generate additional liquidity could negatively impact our access to inventory or services that are important to the operation of our business. Our ability to meet our obligations at March 31, 2020, and to continue as a going concern, is dependent upon achieving the action plans noted above.

Based on our forecasted operating performance ~~planned actions to improve our profitability~~ and ~~cash flows,~~ the ~~execution~~issuance of the ~~Supplemental Indenture~~2029 Notes and the ~~Axar Commitment and the consummation~~redemption of the transactions contemplated thereby, including receipt of not less than $17.0 million in proceeds from the contemplated rights offering, together with plans to file financial statements on a timely basis consistent with the debt covenants,2024 Notes, we ~~do not~~ believe ~~it is probable~~ that we will ~~breach~~

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~~the covenants under the Indenture or~~ be ~~unable~~able to continue as a going concern for the next twelve-month period. As such, the unaudited condensed consolidated financial statements for the three months ended March 31, 2020 were prepared on the basis of a going concern, which contemplates that we will be able to realize assets and discharge liabilities in the normal course of business. Accordingly, they do not give effect to adjustments, if any, that would be necessary should we be required to liquidate our assets.

Cash Flows

The following table summarizes our unaudited condensed consolidated statements of cash flows by class of activities in thousands:

Three Months Ended March 31,

2020

2019

Cash used in operating activities

$
(5,238
)

$
(13,103
)
Cash provided by (used in) investing activities

26,117

(1,903
)
Cash (used in) provided by financing activities

(30,180
)

21,307


	Nine Months Ended September 30,
	2021		2020
Net cash provided by operating activities	$	10,427	$	3,785
Net cash provided by investing activities		787		43,552
Net cash provided by (used in) financing activities		44,620		(39,500	)

Significant Sources and Uses of Cash During the ~~Three~~Nine Months Ended ~~March 31,~~September 30, 2021 and 2020 ~~and 2019~~

Operating Activities

Net cash ~~used in operations~~provided by operating activities was ~~$5.2~~$10.4 million for the ~~three~~nine months ended ~~March 31, 2020~~September 30, 2021 as compared to ~~$13.1~~$3.8 million ~~of net cash used in operations~~ during the ~~three~~nine months ended ~~March 31, 2019.~~September 30, 2020. The ~~$7.9~~$6.6 million ~~change~~increase in operating cash flows was primarily due to an increase of $17.5 million resulting from a reduction in the ~~following:~~

~~Net income~~net loss excluding non-cash items ~~- $7.0 million: Net income excluding non-cash items increased $7.0 million primarily~~ due to improved operating performance and expense management efforts, ~~during~~offset in part by the ~~three months ended March 31, 2020.~~

~~Other working capital items – $9.1 million: Our operating cash flows were further impacted by other~~change in working capital items which resulted in a net ~~increase~~decrease in operating cash ~~inflows~~flows of ~~$9.1~~$10.9 million.

~~Change in cash from accounts payable and other liabilities – $8.2 million:~~ ~~Higher paydowns on our payables resulted in a net increase in operating cash outflows of $8.2 million in 2020.~~

Investing Activities

Net cash provided by investing activities for the ~~three~~nine months ended ~~March 31, 2020~~September 30, 2021 was ~~$26.1~~$0.8 million as compared to ~~$1.9~~$43.6 million ~~of net cash used in investing activities~~ for the ~~three~~nine months ended ~~March 31, 2019.~~September 30, 2020. The cash provided by investing activities for the ~~three~~nine months ended ~~March 31, 2020~~September 30, 2021 was ~~primarily~~ attributable to proceeds from divestitures of ~~$28.2~~$6.5 million, partially offset ~~in part~~ by capital expenditures ~~of $2.1 million~~ for ~~both~~ purchases and maintenance of property, plant and ~~equipment.~~equipment of $5.7 million. Net cash ~~used in~~provided by investing activities during the ~~three~~nine months ended ~~March 31, 2019~~September 30, 2020 consisted ~~entirely~~ of proceeds from divestitures of $48.3 million, offset in part by cash used for capital ~~expenditures.~~expenditures for purchases and maintenance of property, plant and equipment of $4.8 million.

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Financing Activities

Net cash provided by financing activities for the nine months ended September 30, 2021 was $44.6 million as compared to $39.5 million of net cash used in financing activities for the ~~three~~nine months ended ~~March 31, 2020 was $30.2 million as compared to $21.3 million of net~~September 30, 2020. The cash provided by financing activities for the ~~three~~nine months ended ~~March 31, 2019. The~~September 30, 2021 was primarily due to proceeds from the issuance of the 2029 Notes offset partially by the full redemption of the 2024 Notes and the related early redemption fee and costs of financing. Net cash used in financing activities ~~for~~during the ~~three~~nine months ended ~~March 31,~~September 30, 2020 was primarily due to the redemption of ~~$31.3~~$51.7 million of ~~Senior Secured~~the 2024 Notes, using proceeds from the Oakmont ~~sale~~Sale, the Olivet Sale and other immaterial ~~dispositions. Net cash provided~~dispositions, offset in part by ~~financing activities during the three months ended March 31, 2019 consisted primarily of $23.9~~$17.0 million of ~~net~~ proceeds from ~~borrowings, partially offset by $2.6 million~~the issuance of ~~financing costs.~~equity.

The following table summarizes maintenance and expansion capital expenditures ~~excluding amounts paid for acquisitions,~~ for the periods presented (in thousands):


	Three Months Ended March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2021		2020		2021		2020
Maintenance capital expenditures	$	1,276	$	1,012	$	1,199	$	353	$	2,241	$	2,030
Expansion capital expenditures		797		891		1,115		640		3,434		2,754
Total capital expenditures	$	2,073	$	1,903	$	2,314	$	993	$	5,675	$	4,784

~~Table~~Long-Term Debt

On May 11, 2021, we issued $400.0 million aggregate principal amount of ~~Contents~~

~~Long-Term Debt~~

8.500% Senior Secured Notes

~~On June 27, 2019, StoneMor Partners L.P., CFS West Virginia~~ due 2029 and ~~collectively with the Company, certain direct and indirect subsidiaries~~used a substantial portion of the ~~Company,~~proceeds to fund the initial purchasers party thereto and Wilmington Trust, National Association, as trustee and as collateral agent, entered into an indenture with respect to the 9.875%/11.500% Senior Secured PIK Toggle Notes due 2024.

redemption of all of our outstanding 2024 Notes. For further details on our ~~Senior Secured~~2029 Notes, see Note 9 8 Long-Term Debt ~~and Note 18~~ ~~Subsequent Events~~ of Part I, Item 1. Financial Statements (Unaudited) of this Quarterly Report.

Surety Bonds

We have entered into arrangements with certain surety companies, whereby such companies agree to issue surety bonds on our behalf as financial assurance and/or as required by existing state and local regulations. The surety bonds are used for various business purposes; however, the majority of the surety bonds issued and outstanding have been used to support our pre-need sales activities.

When selling pre-need contracts, we may post surety bonds where allowed by state law. We post the surety bonds in lieu of trusting a certain amount of funds received from the customer. If we were not able to renew or replace any such surety bond, we would be required to fund the trust only for the portion of the applicable pre-need contracts for which we have received payments from the customers, less any applicable retainage, in accordance with state law. We have provided cash collateral to secure these surety bond obligations and may be required to provide additional cash collateral in the future under certain circumstances.

For the ~~three~~nine months ended ~~March 31,~~September 30, 2021 and 2020, ~~and 2019,~~ we had ~~$93.3~~$100.5 million and ~~$88.7~~$97.0 million, respectively, of cash receipts from sales attributable to related bond contracts. These amounts do not consider reductions associated with taxes, obtaining costs or other costs.

Surety bond premiums are paid annually and the bonds are automatically renewable until maturity of the underlying pre-need contracts, unless we are given prior notice of cancellation. Except for cemetery pre-construction bonds (which are irrevocable), the surety companies generally have the right to cancel the surety bonds at any time with appropriate notice. In the event a surety company were to cancel the surety bond, we are required to obtain replacement surety assurance from another surety company or fund a trust for an amount generally less than the posted bond amount. We do not expect that we will be required to fund material future amounts related to these surety bonds due to a lack of surety capacity or surety company non-performance.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of our unaudited condensed consolidated financial statements and related notes included within Part I, Item 1. Financial Statements (Unaudited) of this Quarterly Report in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and disclosure of contingent assets and liabilities that arose during the reporting period and through the date our financial statements are filed with the SEC. Although we base our estimates on historical experience and various other assumptions we believe to be reasonable, actual results may differ from these estimates.

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A critical accounting estimate or policy is one that requires a high level of subjective judgement by management and could have a material impact to our financial position, results of operations or cash flows if actuals vary significantly from our estimates.

There have been no significant changes to the critical accounting policies and estimates identified in the Annual Report, as described in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Annual Report.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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~~ITEM 3.~~

~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~

The primary objective of the following information is to provide forward-looking quantitative and qualitative information about our potential exposure to market risks. The term "market" risk refers to the risk of gains or losses arising from changes in interest rates and prices of marketable securities. The disclosures are not meant to be precise indicators of expected future gains or losses, but rather indicators of reasonably possible gains or losses. This forward-looking information provides indicators of how we view and manage our ongoing market risk exposures. All of our market risk-sensitive instruments were entered into for purposes other than trading.

The trusts are invested in assets with the primary objective of maximizing income and distributable cash flow for trust distributions, while maintaining an acceptable level of risk. Certain asset classes in which we invest for the purpose of maximizing yield are subject to an increased market risk. This increased market risk will create volatility in the unrealized gains and losses of the trust assets from period to period.

INTEREST-BEARING INVESTMENTS

The interest-bearing investments in our merchandise trusts and perpetual care trusts that are subject to interest rate sensitivity consist of fixed-income securities, money market investments and other short-term investments. As of ~~March 31, 2020,~~September 30, 2021, the accumulated fair value of the interest-bearing investments in our merchandise trusts and perpetual care trusts was ~~$126.6~~$44.3 million and ~~$36.1~~$23.5 million, respectively, or ~~27.7%~~8.1% and ~~11.8%~~7.0% of the fair value of our total trust assets, respectively.

MARKETABLE EQUITY SECURITIES

The marketable equity securities in our merchandise trusts and perpetual care trusts that are subject to market price sensitivity consist of individual equity securities as well as closed and open-ended mutual funds. As of ~~March 31, 2020,~~September 30, 2021, the accumulated fair value of the marketable equity securities in our merchandise trusts and perpetual care trusts was ~~$37.3~~$26.4 million and ~~$17.2~~$13.1 million, respectively, or ~~8.2%~~4.8% and ~~5.6%~~3.9% of the fair value of our total trust assets, respectively.

OTHER INVESTMENT FUNDS

Other investment funds are measured at fair value using the net asset value per share practical expedient. This asset class is composed of fixed income funds and equity funds, which have a redemption period ranging from 1 to 30 days, and private credit funds, which have lockup periods ranging from ~~one~~zero to ~~eight~~fifteen years with three potential one year extensions at the discretion of the funds’ general partners. This asset class has an inherent valuation risk as the values provided by investment fund managers may not represent the liquidation values obtained by the trusts upon redemption or liquidation of the fund assets. As of ~~March 31, 2020,~~September 30, 2021, the fair value of other investment funds in our merchandise trusts and perpetual care trusts represented ~~50.3%~~83.2% and ~~73.9%~~86.9%, respectively, of the fair value of total trust assets. The fair market value of the holdings in these funds was ~~$230.4~~$456.2 million and ~~$226.7~~$291.0 million in our merchandise trusts and perpetual care trusts, respectively, as of ~~March 31, 2020,~~September 30, 2021, based on net asset value quotes.

~~ITEM 4.~~

~~CONTROLS AND PROCEDURES~~

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ITEM 4. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure.

Our management, including the CEO and CFO, evaluated the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of ~~March 31, 2020.~~September 30, 2021. Based on such evaluation, our CEO and CFO concluded the disclosure controls and procedures were not effective due to the on-going remediation associated with the material weaknesses in internal control over financial reporting described below.

Notwithstanding these material weaknesses, based on the additional analysis and other post-closing procedures performed, management believes that the financial statements included in this report fairly present in all material respects our financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

Material Weaknesses in Internal Control over Financial Reporting

A material weakness (as defined in Rule 12b-2 under the Exchange Act) is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement in our annual or interim financial statements will not be prevented or detected on a timely basis. ~~The deficiencies noted below could result in a material misstatement in our financial statements; therefore, they represent material weaknesses in our internal control over financial reporting.~~

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~~In 2018 and 2019, management~~Management previously identified and reported material weaknesses in its Annual Report on Form 10-K for the Year Ended December 31, 2019. We conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting ~~in our annual reports on Form 10-K for the years ended~~as of December 31, ~~2018~~2020 based on the criteria set forth in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Based on our assessment, we concluded that the Company did not maintain effective internal control over financial reporting as of December 31, 2020 as a result of the material weaknesses described below:

A. Control environment, control activities and ~~2019 related to the following:~~monitoring:

A.	~~Control environment, control activities and monitoring:~~

The Company did not design and maintain effective internal controls over financial reporting related to control environment, control activities and monitoring based on the criteria established in the Committee of Sponsoring Organization Internal Control Integrated Framework including more specifically:



Management did not implement effective oversight to support deployment of control activities due to (a) failure to establish clear accountability for the performance of internal control over financial reporting responsibilities in certain areas important to financial reporting and (b) failure to prioritize and implement related corrective actions in a timely manner.



Management did not have a Delegation of Authority matrix outside of the procurement process or effective monitoring controls over the ~~periodic~~ review of ~~user access to applications and data and for user access to segregate~~segregation of duties within relevant financial applications.

B.	~~Establishment and review of certain accounting policies:~~

B. Establishment and review of certain accounting policies:

The Company’s controls applicable to establishment, periodic review for ongoing relevance and consistent application of material accounting policies in conformity with GAAP ~~including (i)~~relating to revenue recognition ~~and (ii) insurance-related assets and liabilities~~ were not designed appropriately and thus failed to operate effectively. More specifically:



Management did not maintain effective controls over sales contract origination occurring at its site locations. Specifically, there was no subsequent review of contract entry at site locations or corporate, as well as the lack of an approved standard price list and ~~no approved master price listing.~~

approvals for pricing deviations.



Management did not have effective review and monitoring controls over revenue recognition with respect to the Accounting Standards Codification 606, Revenues from Contracts with Customers, to timely detect misstatements

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in income statement and balance sheet accounts. There was no oversight monitoring at corporate for contract cancellations and the timely and accurate servicing of contracts for proper revenue recognition.

~~Management did not maintain effective completeness and accuracy controls at a level~~C. Reconciliation of ~~precision~~certain general ledger accounts to ~~timely detect misstatements related to the insurance related assets and liabilities.~~supporting details:

C.	~~Reconciliation of certain general ledger accounts to supporting details:~~

The Company’s controls over the reconciliation of amounts recorded in the general ledger for "Cemetery property" and "Deferred revenues" on the consolidated balance sheets were not designed appropriately and thus failed to operate effectively. More specifically:



Management did not have effective segregation of duties over the preparation and subsequent review of its deferred revenue reconciliation process at a sufficient level of precision to timely detect potential misstatements of the related income statement and balance sheet accounts.



Management did not consistently reconcile these general ledger account balances to supporting documentation.

D.	~~Accurate and timely relief of deferred revenues and corresponding recognition of income statement impacts~~:

D. Accurate and timely relief of deferred revenues and corresponding recognition of income statement impacts:

The Company’s internal controls designed to prevent a material misstatement in the recognized amount of "Deferred revenues" as of the balance sheet date were not designed appropriately. Specifically, the Company concluded that it did not design effective controls that would lead to a timely identification of a material error in "Deferred revenues" due to failure to accurately and timely relieve the liability when the service was performed, or merchandise was delivered. Further, the Company’s review controls designed to detect such errors did not operate at the appropriate level of precision to identify such error. More specifically:



Management did not have effective review and monitoring controls over the revenue, cost of goods sold and deferred balances of pre-acquisition contracts at a sufficient level of precision to timely detect potential misstatements of the related income statement and balance sheet accounts.



Management did not have effective review and monitoring controls over the results of ongoing deferred revenue testing at a sufficient level of precision to detect potential misstatements of the related balance sheet accounts.

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~~Notwithstanding these material weaknesses, based on~~Our management communicated the additional analysis and other post-closing procedures performed, management believes that the financial statements included in this report fairly present in all material respects our financial position, results of ~~operations, capital position and cash flows for~~its assessment to the ~~periods presented in conformity with GAAP.~~Audit Committee of the Board of Directors.

STATUS OF REMEDIATION OF MATERIAL WEAKNESSES

While we continue to make improvements to our internal control over financial reporting related to the material weaknesses described above, material weaknesses continue to exist, and we believe that the material weaknesses referenced above accurately reflect the material weaknesses in our internal control over financial reporting as of ~~March 31, 2020.~~September 30, 2021. Management, with oversight from our Audit Committee, ~~has~~ identified and planned actions during the first quarter of 2021 that we believe will remediate these material weaknesses. Management has developed multiple workstreams which correlate to these material weaknesses that include various levels of cross functional management and detail relevant work steps that are assigned, project managed and have defined due dates for completion. Management’s corrective actions are multi-faceted to address each aspect of the respective material weaknesses. Management began to implement the resulting corrective actions during the second quarter of 2021 and progress continued through the third quarter of 2021 and remains on-going. While management’s corrective actions have remediated certain aspects of each material weakness, additional work is necessary to fully remediate the material ~~weaknesses described above once~~weaknesses. Once all corrective actions are fully implemented and ~~operating~~the controls operate effectively for a sufficient period of time, and are adequately tested through audit procedures, we believe the material weaknesses will be remediated. We will continue to devote significant time and attention, including internal and external resources, to these remedial efforts.

~~We will test the ongoing operating effectiveness~~ For a more comprehensive discussion of ~~the new remedial controls subsequent~~Management’s remediation action plans refer to ~~implementation~~Item 9A., Disclosure Controls and ~~consider the material weaknesses remediated after the applicable remedial controls operate effectively for a sufficient period~~Procedures, of ~~time.~~

~~Refer to the~~our 2020 Annual Report ~~for further details~~ on ~~the remediation efforts.~~Form 10-K.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

During the three months ended ~~March 31, 2020,~~September 30, 2021, despite the remote work environment due to the ongoing issues surrounding the COVID-19 Pandemic we continued to make improvements to our internal control over financial reporting with respect to material weaknesses that had been present at that time, and those remediation efforts remain ongoing. Other than as described above and in greater detail in the Item 9A., Disclosure Controls and Procedures, of our 2020 Annual Report on Form 10-K, there were no changes in our internal control over financial reporting as defined in Rules 13a-15(d) and 15d-15(d) of the Exchange Act during the three months ended ~~March 31, 2020~~September 30, 2021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II- OTHER INFORMATION

~~ITEM 1.~~

~~LEGAL PROCEEDINGS~~

ITEM 1. LEGAL PROCEEDINGS

For information regarding our significant pending administrative and judicial proceedings involving regulatory, operating, transactional, environmental, and other matters, see Part 1. Item 1. Financial Statements (Unaudited)—Notes to the Unaudited Condensed Consolidated Financial Statements—Note 1211 Commitments and Contingencies of this Quarterly Report.

We and certain of our subsidiaries are parties to legal proceedings that have arisen in the ordinary course of business. We do not expect such matters to have a material adverse effect on our unaudited condensed consolidated financial position, results of operations or cash flows. We carry insurance with coverage and coverage limits that we believe to be customary in the cemetery and funeral home industry. Although there can be no assurance that such insurance will be sufficient to protect us against such contingencies, we believe that our insurance protection is reasonable in view of the nature and scope of our operations.

~~ITEM 1A.~~

~~RISK FACTORS~~

~~In addition to the other information set forth in this Quarterly Report on Form 10-Q, you~~ITEM 1A. RISK FACTORS

You should carefully consider the ~~factors disclosed~~risks described below. The ongoing coronavirus (COVID-19) pandemic may also have the effect of heightening many of the risks we face, such as those relating to our substantial level of indebtedness, our future capital needs, our need to generate sufficient cash to service our indebtedness and our ability to comply with the covenants contained in ~~Part I, Item 1A.~~ ~~Risk Factors~~ ~~of our Annual Report, which are incorporated by reference herein. Except as~~the 2029 Indenture. The risks and uncertainties described below ~~the risk factors in our Annual Report have not materially changed. The risks described~~and in our Annual Report are not the only risks and uncertainties that we face. Additional risks and uncertainties not ~~currently~~presently known to us or that we currently deem ~~to be~~ immaterial may also ~~may materially adversely affect~~impair our business operations. If any of those risks actually occurs, our business, financial condition ~~and/~~and results of operations would suffer. Please see the risk factors set forth below as well as those risks described in Part I, Item 1A. Risk Factors of our Annual Report.

RISKS RELATED TO OUR INDEBTEDNESS

Our level of indebtedness could adversely affect our financial condition and prevent us from fulfilling our debt obligations.

As of September 30, 2021, we had $401.8 million of total debt (not including debt issuance costs or capital lease obligations), consisting of $400.0 million of the 2029 Notes and $1.8 million of financed insurance and vehicles. Our indebtedness requires significant interest and principal payments. Subject to certain limitations and the satisfaction of certain conditions contained in the 2029 Indenture, we may also be permitted to incur substantial additional debt from time to time to finance working capital, capital expenditures, investments or acquisitions, or for other purposes. If we do so, the risks related to our high level of debt could increase.

Our level of indebtedness could have important consequences to us, including:



continuing to require us to dedicate a substantial portion of our cash flow from operations to the payment of the principal of and interest on our indebtedness, thereby reducing the funds available for operations and any future business opportunities;



limiting flexibility in planning for, or reacting to, changes in our business or the industry in which we operate;



placing us at a competitive disadvantage compared to our competitors that have proportionately less indebtedness;



making us more susceptible to changes in credit ratings, which could impact our ability to obtain financing in the future and increase the cost of such financing;



increasing our vulnerability to adverse general economic or industry conditions; and



limiting our ability to obtain additional financing to fund working capital, capital expenditures, acquisitions or other general corporate requirements and increasing our cost of borrowing.

In addition, the 2029 Indenture prevents us from incurring additional debt or liens for working capital expenditures, acquisitions or other purposes (subject to very limited exceptions). Our ability to make payments on and to refinance our indebtedness will depend on our ability to generate cash in the future from operations, financings or asset sales. Our ability to repay our indebtedness and comply with the restrictive covenants will be dependent on, among other things, the successful execution of our strategic plans. If we require additional capacity under the restrictive covenants to successfully execute our strategic plans, we will need to seek the required consent from a majority of the holders of the 2029 Notes. No assurances can be given that we will be successful in obtaining such consent, and any failure to do so will have a material adverse effect on our business operations and our financial results.

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Our ability to generate cash is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. We may not generate sufficient funds to service our debt and meet our business needs, such as funding working capital or the expansion of our operations. If we are not able to repay or refinance our debt as it becomes due, we may be forced to take certain actions, including reducing spending on day-to-day operations, reducing future financing for working capital, capital expenditures and general corporate purposes, selling assets or dedicating an unsustainable level of our cash flow from operations to the payment of principal and interest on our indebtedness. The trustee or the holders of the 2029 Notes could also accelerate amounts due in the event that we default, which could potentially trigger a default or acceleration of the maturity of our debt.

In addition, our ability to withstand competitive pressures and to react to changes in our industry could be impaired, and our leverage could put us at a competitive disadvantage compared to our competitors that are less leveraged, as these competitors could have greater financial flexibility to pursue strategic acquisitions and secure additional financing for their operations. Our leverage could also impede our ability to withstand downturns in our industry or the economy in general.

Despite our current indebtedness level, we and any of our existing or future subsidiaries may still be able to incur substantially more debt, which could exacerbate the risks associated with our substantial leverage.

We and any of our existing and future subsidiaries may be able to incur substantial additional indebtedness in the future. Although the terms of the 2029 Indenture contains limitations on our ability to incur additional indebtedness, these restrictions will be subject to a number of qualifications and exceptions, and we have the ability under the 2029 Indenture to incur up to $40 million of additional senior secured debt. If new debt is added to our or any of our existing and future subsidiaries’ current debt levels, the related risks that we now face could be exacerbated.

We may not be able to generate sufficient cash to service all of our indebtedness or repay such indebtedness when due, including the 2029 Notes, and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

Our ability to make scheduled payments on or to refinance our debt obligations, including the 2029 Notes, depends on our financial condition and operating ~~results.~~performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control, including the effects of the COVID-19 Pandemic. We cannot assure you that our business will generate sufficient cash flows from operating activities, or that future borrowings will be available in an amount sufficient to enable us to pay the principal of, and premium, if any, and interest on, our indebtedness, including the 2029 Notes, or any portion of any of the foregoing, or to fund our other liquidity needs.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital or restructure or refinance our indebtedness, including the 2029 Notes. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. The terms of the 2029 Indenture restrict us from adopting some of these alternatives. In addition, any failure to make payments of interest and principal on our outstanding indebtedness on a timely basis would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness. In the absence of such operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. The 2029 Indenture restricts our ability to dispose of assets and use the proceeds from the disposition. We may not be able to consummate those dispositions or to obtain the proceeds that we could realize from them and these proceeds may not be adequate to meet any debt service obligations then due. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations.

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The 2029 Indenture imposes significant operating and financial restrictions, which may prevent us from pursuing certain business opportunities and taking certain actions.

The 2029 Indenture contains various covenants that limit our ability to engage in specified types of transactions. These covenants limit our and our restricted subsidiaries’ ability to, among other things:



incur additional indebtedness or issue certain preferred shares;



pay dividends on, repurchase or make distributions in respect of our capital stock or make other restricted payments;



make certain investments;



transfer or sell certain assets, including capital stock of our restricted subsidiaries;



create or incur liens;



consolidate, merge, sell or otherwise dispose of all or substantially all of our assets;



agree to dividend or other payment restrictions affecting our restricted subsidiaries;



change the business we conduct;



withdraw any monies or other assets from, or make any investments of, our trust funds; and



enter into certain transactions with our affiliates.

Our ability to comply with these covenants can be affected by events beyond our control, and we may not be able to satisfy them.

We depend on third party vendors to provide a substantial portion of our grounds and maintenance services.

In April 2020, we had outsourced all of the grounds and maintenance services at most of the funeral homes and cemeteries we own or manage to Moon. Because we are dependent on Moon to provide these services, disruptions in the supply of these services may be beyond our control. Due to certain liquidity constraints and performance issues experienced by Moon, we have exercised our right under the MSAs to take back the responsibility for the grounds and maintenance services at approximately 61% of the locations we had outsourced to Moon. While we have retained responsibility for certain grounds services at these locations, we have outsourced responsibility for landscaping and other maintenance services to many of the same vendors who had been providing such services as subcontractors to Moon. We are continuing to evaluate Moon’s performance under the MSAs. On August 12, 2021, Moon and certain of its affiliates filed a petition under Chapter 11 of Title 11 of the United States Code in the Bankruptcy Court. On October 7, 2021, Moon and the Company entered into a summary of terms (the “Term Sheet”) pursuant to which (a) Moon would file a motion with the Bankruptcy Court to assume the MSAs, (b) the aggregate amounts due to the Company from Moon under the MSAs for periods prior to the initial bankruptcy filing (the “Pre-Petition Cure Amount”) was at least $5.1 million, (c) the aggregate amount due to the Company from Moon under the MSAs for periods after such filing were at least $572,605 (the “Post-Petition Cure Amount”), (d) payment of the Pre-Petition Cure Amount would be deferred until a later date, but not later than the effective date of any approved reorganization plan, (e) the Company was permitted to set off $42,500 from each bi-weekly payment to Moon under the MSAs as payment against the Post-Petition Cure Amount, with any unpaid balance being paid when the Pre-Petition Cure Amount was paid, (f) upon Bankruptcy Court approval of Moon’s motion to assume the MSAs, the Company would exercise its right to modify the MSAs by taking back responsibility for ground and maintenance services at an additional 53 locations but would otherwise agree not to further exercise such right for a period of 60 days after such approval absent certain breaches by Moon. On October 14, 2021, Moon filed a motion with the Bankruptcy Court seeking approval to assume the MSAs subject to the terms and conditions of the Term Sheet. After a hearing before the Bankruptcy Court on November 4, 2021, the Bankruptcy Court granted Moon’s motion to assume the MSAs, which would normally include an obligation to repay in full both the Pre-Petition Cure Amount and the Post-Petition Cure Amount as a priority claim in the bankruptcy case. However, in its order, the Bankruptcy Court reserved decision on whether the Pre-Petition Cure Amount would be entitled to such priority treatment notwithstanding the assumption of the MSAs, and all interested parties, including the Company, reserved their respective rights with respect to that decision. Even if we obtain Bankruptcy Court approval, or if any of our recently engaged third party vendors is unable to provide adequate services, there is no assurance that we will be able to make alternative arrangements in a timely manner. Given the uncertainty associated with the bankruptcy proceedings and the locations for which Moon will continue to be responsible under the MSAs, it is at least reasonably possible that we may continue to experience performance issues and other disruptions in operations at those locations, particularly if it becomes necessary for the Company to assume the responsibility for servicing those locations in the near future. Under any of these circumstances, our ability to serve our customers and to operate our business may be adversely affected. Moreover, if Moon is unable to obtain appropriate financing or reach an agreement to sell its assets and is unable to have a plan of reorganization confirmed by the Bankruptcy Court, we would likely not be able to obtain reimbursement of the additional payments we have made or may hereafter make on Moon’s behalf under the MSAs.

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Newly enacted federal regulations related to the COVID-19 Pandemic ~~has had~~will require us to incur additional costs and may have an adverse effect on our ~~business~~operations.

On November 4, 2021, the Occupational Safety and ~~results~~Health Administration (“OSHA”) issued an Emergency Temporary Standard (the “ETS”) to minimize the risk of ~~operations~~COVID-19 transmission in the workplace which generally mandates that all private employers with 100 or more employees, such as StoneMor, require their employees to either get vaccinated by January 4, 2022, or undergo weekly COVID-19 testing. The ETS also requires us to provide paid-time off for our employees to get vaccinated, provide sick leave if needed to recover from any side effects and ~~future public health concerns~~require face masks for all unvaccinated workers. Even though many of our employees are already vaccinated and ~~other crises~~our current policies require unvaccinated employees to wear masks, complying with the ETS could ~~adversely affect~~be difficult and will require us to incur additional costs. The ETS does not require us to pay for any costs associated with testing; however, depending on state law, we may be required to reimburse our ~~business, financial condition, profitability or cash flows.~~

~~The COVID-19 Pandemic has impacted the global economy, and it has had an adverse effect on our business and results of operations~~employees who are unvaccinated for the ~~three months ended March 31, 2020. As~~cost of and pay them for time related to weekly COVID-19 testing. In addition, the ETS requires us to determine the vaccination status of each employee, obtain acceptable proof of vaccination, maintain records of each employee’s vaccination status and maintain a ~~result~~roster of each employee’s vaccination status. Further, it is possible that some employees may choose to leave employment over the ~~COVID-19 Pandemic~~vaccine or testing requirement. Any such workforce implications may impact our ability to serve our customers and ~~the related adverse economic and health consequences, we~~ have ~~experienced and could continue to be subject to any of the following risks, any of which could have a material,~~an adverse effect on our business, financial condition and results of operations: our pre-need sales may decrease; our pre-need installment contract defaults may increase; our revenues may decrease due to reduced and deferred services; the value of our pre-need trust investments and related net investment income may diminish due to the disruption in the financial markets; illnesses could disrupt our workforce; our supply chain could be disrupted; our operating costs may increase due to increased overtime, supply costs, health insurance, worker’s compensation claims, or other effects related to COVID-19. While we have experienced an adverse effect on our sales and results of operations for the three months ended March 31, 2020, and ~~we expect the COVID-19 Pandemic to continue to have an adverse effect on our results of operations and cash flows,~~ we cannot presently predict, with certainty, the scope and severity with which the COVID-19 Pandemic will continue to impact our business, financial condition, results of operations and cash flows. The extent of the full impact of the COVID-19 Pandemic will depend on future developments, which are highly uncertain and largely outside of our control.operations.

There can be no assurances that these and other scenarios resulting from the COVID-19 Pandemic, or other similar health crises, will not have a material and adverse impact on our business, financial condition or results of operations. We are continuing to monitor this public health crisis and its impact on employees, customers, vendors, distribution channels and other business partners and the overall economic environment within the U.S. and worldwide, but we cannot presently predict the full scope and severity of the disruptions caused by the COVID-19 Pandemic on our business, financial condition, results of operations and cash flows.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

~~If the market price for our common stock does not increase to over $1.00, the NYSE may delist our common stock, which could have an adverse effect on the value of an investment in our stock.~~None.

As previously reported on a current report on Form 8-K filed with the SEC on April 20, 2020, we received a notice from the NYSE on April 14, 2020 stating that we were not in compliance with the NYSE’s continued listing requirements, because the 30-trading day average closing price of our common stock had fallen below $1.00 per share. We have a period of six months following the receipt of the NYSE notice to regain compliance with the minimum share price requirement, which period has been tolled from April 21, 2020 through June 30, 2020. In order to regain compliance, on the last trading day of any calendar month during the cure period, our common stock must have (i) a closing price of at least $1.00 per share and (ii) an average closing price of at least $1.00 per share over the 30-trading day period ending on the last trading day of such month. In the event that at the expiration of the cure period in late December 2020, both a $1.00 share price and a $1.00 average share priceITEM 3. DEFAULTS UPON SENIOR SECURITIES

57None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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over the preceding 30 trading days are not attained, the NYSE will commence suspension and delisting procedures. If our common stock is delisted from the NYSE, the value of an investment in our common stock would be adversely affected.ITEM 6. EXHIBIT INDEX

~~ITEM 2.~~

~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~

~~Purchases of Equity Securities~~

Issuer Purchases of Equity Securities

Period

(a)
Total Number of Shares Purchased⁽¹⁾

(b)
Average Price Paid per Share⁽²⁾

(c)
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs

(d)
Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs

January 18, 2020

17,129

$
1.37

—

$
—

Total

17,129

$
1.37

—

$
—

~~(1)~~ Represents shares that were withheld upon the vesting of awards under the Plan to satisfy certain tax obligations of the recipients of such awards arising from the vesting thereof and thus may be deemed to have been repurchased by the Company.

~~(1)~~ ~~The value of the shares withheld was the closing price of the Company’s common stock on the last trading day before the date on which such shares were withheld.~~

~~ITEM 3.~~

~~DEFAULTS UPON SENIOR SECURITIES~~

~~None.~~

~~ITEM 4.~~

~~MINE SAFETY DISCLOSURES~~

~~Not applicable.~~

~~ITEM 5.~~

~~OTHER INFORMATION~~

~~None.~~

~~Table of Contents~~

~~ITEM 6.~~

~~EXHIBIT INDEX~~

The documents listed in the Exhibit Index of this Quarterly Report on Form 10-Q are incorporated by reference or are filed with this Quarterly Report on Form 10-Q, in each case as indicated therein (numbered in accordance with Item 601 of Regulation S-K).


		Incorporated by Reference
Exhibit Number	Description	Form	Exhibit	Filing Date

2.1*31.1	~~Asset Sale Agreement dated as of March 13, 2020 by and among Cypress Lawn Cemetery Association, StoneMor California Subsidiary, Inc. and StoneMor California, Inc.~~	~~8-K/A~~	~~2.1~~	~~March 20, 2020~~

2.2*	Asset Sale Agreement dated as of March 19, 2020 by and among Laverne Memorial Association, Inc., Lodi Memorial Association, Inc., Lodi Memorial Funeral Home, Inc., Melrose Abbey Memorial Association, Inc., Melrose Abbey Memorial Mortuary, Inc., Oakmont Memorial Funeral & Cremation, Inc., Rocha’s Memorial Mortuary, Inc., Sacramento Memorial Association, Inc., Sacramento Memorial Funeral Home, Inc., Sierra View Memorial Association, Inc., Sierra View Memorial Mortuary, Inc., StoneMor California, Inc., Sierra View Memorial Park, and StoneMor California Subsidiary, Inc.	~~8-K/A~~	~~2.2~~	~~March 20, 2020~~

4.1*	Second Supplemental Indenture, dated as of January 30, 2020, by and among StoneMor Partners L.P., Cornerstone Family Services of West Virginia Subsidiary, Inc., StoneMor Inc., StoneMor LP Holdings, LLC and Wilmington Trust, National Association	~~10-K~~	~~4.3~~	~~April 7, 2020~~

4.2*	Supplement to Collateral Agreement dated January 30, 2020 by StoneMor LP Holdings, LLC to Collateral Agreement dated as of June 27, 2019 by and among StoneMor Partners L.P., Cornerstone Family Services of West Virginia Subsidiary, Inc., the guarantors named therein and Wilmington Trust, National Association, as collateral agent	~~10-K~~	~~4.7~~	~~April 7, 2020~~

10.1*	Registration Rights Agreement dated as of January 30, 2020 by and among StoneMor Inc., American Cemeteries Infrastructure Investors, LLC, StoneMor GP Holdings, LLC and certain funds and managed accounts for which Axar Capital Management, LP serves as investment manager	~~8-K~~	~~10.1~~	~~February 4, 2020~~

~~31.1~~	Certification pursuant to Exchange Act Rule 13a-14(a) of Joseph M. Redling, President and Chief Executive Officer

31.2	Certification pursuant to Exchange Act Rule 13a-14(a) of Jeffrey DiGiovanni, Chief Financial Officer and Senior Vice President

32.1	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350) and Exchange Act Rule 13a-14(b) of Joseph M. Redling, President and Chief Executive Officer

32.2	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350) and Exchange Act Rule 13a-14(b) of Jeffrey DiGiovanni, Chief Financial Officer and Senior Vice President

101.INS	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH	Inline XBRL Taxonomy Extension Schema Documents.

101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104	Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

59* Incorporated by reference, as indicated

Table of Contents

~~101~~

Attached as Exhibit 101 to this report are the following Interactive Data Files formatted in XBRL (eXtensible Business Reporting Language): (i) Unaudited Condensed Consolidated Balance Sheets as of March 31, 2020, and December 31, 2019; (ii) Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019; (iii) Unaudited Condensed Consolidated Statements of Equity for the three months ended March 31, 2020 and 2019; (iv) Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019; and (v) Notes to the Unaudited Condensed Consolidated Financial Statements. Users of this data are

~~advised pursuant to Rule 401 of Regulation S-T that the information contained in the XBRL documents is unaudited and these are not the official publicly filed financial statements of StoneMor Inc.~~

*	~~Incorporated by reference, as indicated~~

~~Table of Contents~~SIGNATURES

~~SIGNATURES~~

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	STONEMOR INC.


Date: ~~May 15, 2020~~November 12, 2021		By:	/s/ Joseph M. Redling
			Joseph M. Redling
			President and Chief Executive Officer


Date: ~~May~~ ~~15, 2020~~November 12, 2021		By:	/s/ Jeffrey DiGiovanni
			Jeffrey DiGiovanni
			Senior Vice President and Chief Financial Officer

	Partners’ Deficit
	Outstanding Common Units		Common Limited Partners			General Partner			Total
Three Months Ended March 31, 2019
December 31, 2018		37,958,645	$	(2,570	)	$	(4,008	)	$	(6,578	)
Common unit awards under incentive plans		301,826		277			—			277
Net loss		—		(22,300	)		(234	)		(22,534	)
March 31, 2019		38,260,471	$	(24,593	)	$	(4,242	)	$	(28,835	)

	Number of Stock Options			Weighted Average Grant Date Fair Value		Weighted Average Exercise Price
Total outstanding at December 31, 2019		5,500,000		$	0.34	$	1.20
Options granted		—			—		—
Options exercisable		—			—		—
Options exercised		—			—		—
Options forfeited		(225,000	)		0.34		1.20
Options expired		—			—		—
Total outstanding at March 31, 2020		5,275,000		$	0.34	$	1.20

	2019 Options Granted
Valuation assumptions:
Expected dividend yield	None
Expected volatility		23.41	%
Expected term (years)		6.0
Risk-free interest rate		1.78	%
Weighted average:
Exercise price per stock option	$	1.20
Market price per share	$	1.23
Weighted average fair value per stock option	$	0.34

	Number of Phantom Unit and Restricted Unit Awards			Weighted Average Grant Date Fair Value
Total non-vested at December 31, 2019		559,218		$	3.67
Units issued		18,518			1.08
Units vested		(46,875	)		3.88
Units forfeited		—			—
Total non-vested at March 31, 2020		530,861		$	3.56

March 31, 2020	Parent			Partnership			CFS West Virginia			Guarantor Subsidiaries		Non- Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents, excluding restricted cash	$	—		$	—		$	—		$	25,621	$	1,445		$	—		$	27,066
Restricted cash		—			—			—			20,400		—			—			20,400
Assets held for sale		—			—			—			77,850		—			—			77,850
Other current assets		—			—			3,565			60,619		11,574			—			75,758
Total current assets		—			—			3,565			184,490		13,019			—			201,074
Long-term accounts receivable		—			—			2,345			59,074		10,055			—			71,474
Cemetery and funeral home property and equipment		—			—			531			364,534		32,035			—			397,100
Merchandise trusts		—			—			—			—		437,638			—			437,638
Perpetual care trusts		—			—			—			—		284,832			—			284,832
Deferred selling and obtaining costs		—			—			5,704			89,682		18,225			—			113,611
Intangible assets		—			—			—			98		55,844			—			55,942
Other assets		—			—			—			24,141		2,607			—			26,748
Investments in and amounts due from affiliates eliminated upon consolidation		—			279,834			—			576,588		—			(856,422	)		—
Total assets	$	—		$	279,834		$	12,145		$	1,298,607	$	854,255		$	(856,422	)	$	1,588,419
Liabilities and Owners' Equity
Current liabilities		—			—			180			102,968		1,486			—			104,634
Long-term debt, net of deferred financing costs		—			279,834			61,470			139		—			—			341,443
Deferred revenues		—			—			31,431			727,227		108,749			—			867,407
Perpetual care trust corpus		—			—			—			—		284,832			—			284,832
Other long-term liabilities		—			—			—			66,670		16,545			—			83,215
Investments in and amounts due to affiliates eliminated upon consolidation		93,112			93,112			177,069			341,304		494,246			(1,198,843	)		—
Total liabilities		93,112			372,946			270,150			1,238,308		905,858			(1,198,843	)		1,681,531
Owners' equity		(93,112	)		(93,112	)		(258,005	)		60,299		(51,603	)		342,421			(93,112	)
Total liabilities and owners' equity	$	—		$	279,834		$	12,145		$	1,298,607	$	854,255		$	(856,422	)	$	1,588,419

Three Months Ended March 31, 2019	Parent		Subsidiary Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net cash used in (provided by) operating activities	$	—	$	119		$	(9,509	)	$	(268	)	$	(3,445	)	$	(13,103	)
Cash Flows From Investing Activities:
Cash paid for acquisitions and capital expenditures, net of proceeds from divestitures and asset sales		—		(106	)		(1,717	)		(80	)		—			(1,903	)
Net cash used investing activities		—		(106	)		(1,717	)		(80	)		—			(1,903	)
Cash Flows From Financing Activities:
Cash distributions		—		—			—			—			—			—
Payments to affiliates		—		—			(3,445	)		—			3,445			—
Net borrowings and repayments of debt		—		(13	)		24,030			(74	)		—			23,943
Other financing activities		—		—			(2,636	)		—			—			(2,636	)
Net cash (used in) provided by financing activities		—		(13	)		17,949			(74	)		3,445			21,307
Net increase (decrease) in cash and cash equivalents and restricted cash		—		—			6,723			(422	)		—			6,301
Cash and cash equivalents and restricted cash —Beginning of period		—		—			16,298			1,849			—			18,147
Cash and cash equivalents and restricted cash —End of period	$	—	$	—		$	23,021		$	1,427		$	—		$	24,448

	Three Months Ended March 31,
					Variance
SUPPLEMENTAL DATA:	2020		2019		#			%
Interments performed		12,820		12,995		(175	)		(1	%)
Net interment rights sold ⁽¹⁾
Lots		5,776		4,485		1,291			29	%
Mausoleum crypts (including pre-construction)		414		215		199			93	%
Niches		347		338		9			3	%
Total net interment rights sold ⁽¹⁾		6,537		5,038		1,499			30	%
Number of pre-need cemetery contracts written		8,091		8,434		(343	)		(4	%)
Number of at-need cemetery contracts written		12,880		13,249		(369	)		(3	%)
Number of cemetery contracts written		20,971		21,683		(712	)		(3	%)

Issuer Purchases of Equity Securities

Period	(a) Total Number of Shares Purchased⁽¹⁾		(b) Average Price Paid per Share⁽²⁾		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		(d) Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
January 18, 2020		17,129	$	1.37		—	$	—
Total		17,129	$	1.37		—	$	—