StoneMor 10Q 2019 Q1 Quarterly report

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, 2019

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

For the transition period from to .

Commission File Number: 001-32270

STONEMOR PARTNERS L.P.

(Exact name of registrant as specified in its charter)

Delaware

80-0103159

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

3600 Horizon Boulevard

Trevose, Pennsylvania

19053

(Address of principal executive offices)

(Zip Code)

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

__________________________________

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 ☐

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 units	STON	NYSE

The number of the registrant’s outstanding common units at May 6, 2019 was 38,288,857.

FORM 10-Q OF STONEMOR PARTNERS L.P.

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	36

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	48

Item 4.	Controls and Procedures	49


PART II	Other Information

Item 1.	Legal Proceedings	51

Item 1A.	Risk Factors	51

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51

Item 3.	Defaults upon Senior Securities	52

Item 4.	Mine Safety Disclosures	52

Item 5.	Other Information	52

Item 6.	Exhibits	52

	Signatures	53

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PART 1 – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

STONEMOR PARTNERS L.P.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands)

	March 31,			December 31,
	2019			2018
Assets
Current assets:
Cash and cash equivalents	$	24,448		$	18,147
Accounts receivable, net of allowance		58,398			57,928
Prepaid expenses		9,398			4,475
Assets held for sale		757			757
Other current assets		17,136			17,009
Total current assets		110,137			98,316

Long-term accounts receivable, net of allowance		83,578			87,148
Cemetery property		330,968			330,841
Property and equipment, net of accumulated depreciation		112,142			112,716
Merchandise trusts, restricted, at fair value		515,065			488,248
Perpetual care trusts, restricted, at fair value		344,825			330,562
Deferred selling and obtaining costs		112,643			112,660
Deferred tax assets		86			86
Goodwill		24,862			24,862
Intangible assets		59,950			61,421
Other assets		33,223			22,241
Total assets	$	1,727,479		$	1,669,101

Liabilities and Partners’ Deficit
Current liabilities:
Accounts payable and accrued liabilities	$	57,921		$	59,035
Accrued interest		7,751			1,967
Current portion, long-term debt		953			798
Total current liabilities		66,625			61,800

Long-term debt, net of deferred financing costs		345,933			320,248
Deferred revenues		941,040			914,286
Deferred tax liabilities		6,675			6,675
Perpetual care trust corpus		344,825			330,562
Other long-term liabilities		51,216			42,108
Total liabilities		1,756,314			1,675,679
Commitments and contingencies
Partners’ deficit :
General partner interest		(4,242	)		(4,008	)
Common limited partners’ interest		(24,593	)		(2,570	)
Total partners’ deficit		(28,835	)		(6,578	)
Total liabilities and partners’ deficit	$	1,727,479		$	1,669,101

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

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STONEMOR PARTNERS L.P.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands, except per unit data)

	Three Months Ended March 31,
	2019			2018
Revenues:
Cemetery:
Interments	$	15,944		$	19,625
Merchandise		16,541			16,627
Services		15,967			16,491
Investment and other		9,458			9,500
Funeral home:
Merchandise		6,275			7,429
Services		7,284			8,273
Total revenues		71,469			77,945
Costs and Expenses:
Cost of goods sold		9,743			13,435
Cemetery expense		17,247			17,414
Selling expense		14,733			16,256
General and administrative expense		11,439			10,958
Corporate overhead		13,413			11,827
Depreciation and amortization		2,757			3,045
Funeral home expenses:
Merchandise		2,317			2,478
Services		5,553			5,518
Other		3,630			5,040
Total costs and expenses		80,832			85,971

Other losses		—			(5,205	)
Operating loss		(9,363	)		(13,231	)
Interest expense		(13,171	)		(7,113	)
Loss from operations before income taxes		(22,534	)		(20,344	)
Income tax benefit		—			2,421
Net loss	$	(22,534	)	$	(17,923	)
General partner’s interest	$	(234	)	$	(187	)
Limited partners’ interest	$	(22,300	)	$	(17,736	)
Net loss per limited partner unit (basic and diluted)	$	(0.59	)	$	(0.47	)
Weighted average number of limited partners’ units outstanding (basic and diluted)		38,031			37,959

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

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STONEMOR PARTNERS L.P.

CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS’ DEFICIT (UNAUDITED)

(dollars in thousands, except units)

	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	)

Three Months Ended March 31, 2018
December 31, 2017		37,957,936	$	94,655		$	(2,959	)	$	91,696
Cumulative effect of accounting change		—		(27,805	)		(292	)		(28,097	)
January 1, 2018		37,957,936	$	66,850		$	(3,251	)	$	63,599
Common unit awards under incentive plans		709		158			—			158
Net loss		—		(17,736	)		(187	)		(17,923	)
March 31, 2018		37,958,645	$	49,272		$	(3,438	)	$	45,834

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

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STONEMOR PARTNERS L.P.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

	Three Months Ended March 31,
	2019			2018
Cash Flows From Operating Activities:
Net loss	$	(22,534	)	$	(17,923	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Cost of lots sold		1,522			1,830
Depreciation and amortization		2,757			3,045
Provision for bad debt		2,042			600
Non-cash compensation expense		277			158
Non-cash interest expense		4,429			1,167
Other losses, net		—			5,205
Changes in assets and liabilities:
Accounts receivable, net of allowance		(1,965	)		(3,668	)
Merchandise trust fund		(5,990	)		(3,818	)
Other assets		(4,382	)		(3,055	)
Deferred selling and obtaining costs		17			(1,866	)
Deferred revenues		8,584			15,791
Deferred taxes, net		—			(2,596	)
Payables and other liabilities		2,140			11,280
Net cash (used in) provided by operating activities		(13,103	)		6,150
Cash Flows From Investing Activities:
Cash paid for capital expenditures		(1,903	)		(4,369	)
Cash paid for acquisitions		—			(833	)
Net cash used in investing activities		(1,903	)		(5,202	)
Cash Flows From Financing Activities:
Proceeds from borrowings		24,562			14,380
Repayments of debt		(253	)		(11,530	)
Principal payment on finance leases		(366	)		—
Cost of financing activities		(2,636	)		(207	)
Net cash provided by financing activities		21,307			2,643
Net increase in cash, cash equivalents and restricted cash		6,301			3,591
Cash, cash equivalents and restricted cash—Beginning of period		18,147			6,821
Cash, cash equivalents and restricted cash—End of period	$	24,448		$	10,412
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	2,842		$	2,478
Cash paid during the period for income taxes		41			39
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	932		$	—
Operating cash flows from finance leases		116			—
Non-cash investing and financing activities:
Acquisition of assets by financing	$	1,314		$	278
Classification of assets as held for sale		—			283

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

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STONEMOR PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

GENERAL

Nature of Operations

StoneMor Partners L.P. (the "Partnership") is a provider of funeral and cemetery products and services in the death care industry in the United States. As of March 31, 2019, the Partnership operated 322 cemeteries in 27 states and Puerto Rico, of which 291 were owned and 31 were operated under lease, management or operating agreements. The Partnership also owned and operated 90 funeral homes, including 42 located on the grounds of cemetery properties that the Partnership owns, in 17 states and Puerto Rico.

The Partnership’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 and cemetery services include the installation of this merchandise and other service items. The Partnership 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 Partnership’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.

Basis of Presentation

The accompanying condensed consolidated financial statements, which are unaudited except for the balance sheet at December 31, 2018, which has been derived from audited financial statements, have been prepared in accordance with the requirements of Form 10-Q and accounting principles generally accepted in the United States (“GAAP”) for interim reporting. They do not include all disclosures normally made in financial statements contained in Form 10-K. In management’s opinion, all adjustments necessary for a fair presentation of the Partnership’s financial position, results of operations and cash flows for the periods disclosed have been made. These interim condensed consolidated financial statements should be read in conjunction with the audited financial statements and the related notes thereto presented in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2018. The results of operations for the three months ended March 31, 2019 may not necessarily be indicative of the results of operations for the full year ended December 31, 2019.

Principles of Consolidation

The unaudited condensed financial statements include the accounts of each of the Partnership’s 100% owned subsidiaries. These statements also include the accounts of the merchandise and perpetual care trusts in which the Partnership has a variable interest and is the primary beneficiary. The Partnership operates 31 cemeteries under long-term lease, operating or management agreements. The operations of 16 of these managed cemeteries have been consolidated.

The Partnership operates 15 cemeteries under long-term leases and other agreements that do not qualify as acquisitions for accounting purposes. As a result, the Partnership did not consolidate all of the existing assets and liabilities related to these cemeteries. The Partnership has consolidated the existing assets and liabilities of the merchandise and perpetual care trusts associated with these cemeteries as variable interest entities since the Partnership controls and receives the benefits and absorbs any losses from operating these trusts. Under the long-term leases, and other agreements associated with these properties, which are subject to certain termination provisions, the Partnership is the exclusive operator of these cemeteries and earns revenues related to sales of merchandise, services and interment rights, and incurs expenses related to such sales, including the maintenance and upkeep of these cemeteries. Upon termination of these agreements, the Partnership will retain all of the benefits and related contractual obligations incurred from sales generated during the agreement period. The Partnership has also recognized the existing customer contract-related performance obligations that it assumed as part of these agreements.

Proposed Merger and Reorganization

On September 27, 2018, the Partnership, StoneMor GP LLC, a Delaware limited liability company and the general partner of the Partnership (“GP”), StoneMor GP Holdings LLC, a Delaware limited liability company and 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”), entered into a Merger and Reorganization Agreement (the “Merger Agreement”) pursuant to which, among other things, GP will convert from a Delaware limited liability company into a Delaware corporation to be named StoneMor Inc. (the “Company” when referring to StoneMor Inc. subsequent to such conversion), the Partnership will become a wholly owned subsidiary of the Company and the unitholders of the Partnership will become stockholders in the Company. The Merger remains subject to unitholder approval.

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Per the terms of the Merger Agreement each Party shall bear its own expenses, costs and fees (including attorneys’, auditors’ and financing fees, if any) in connection with the preparation and delivery of the Merger Agreement and compliance therewith, whether or not the transactions contemplated by the Merger Agreement are effected. The Partnership has incurred $2.5 million in legal and other expenses for the transactions contemplated by the Merger Agreement through March 31, 2019, of which $2.2 million was incurred through December 31, 2018 and $0.3 million was incurred in the three months ended March 31, 2019.

January 2019 Restructuring

On January 31, 2019, the Partnership announced a restructuring initiative implemented as part of its ongoing organizational review. This restructuring was intended to further integrate, streamline and optimize the Partnership’s operations.

As part of this restructuring, the Partnership undertook certain cost reduction initiatives, including a reduction of approximately 45 positions of its workforce, primarily related to corporate functions in Trevose, a streamlining of general and administrative expenses and an optimization of location spend. The Partnership expects to incur cash charges of $0.6 million of employee separation and other benefit-related costs in connection with the January 2019 restructuring initiative. Substantially all of these cash payments are anticipated to be made by the end of 2019 and the Partnership anticipates that substantially all of the actions associated with this restructuring will be completed by the end of 2019. Under this restructuring, separation costs are expensed over the requisite service period, if any.

Uses and Sources of Liquidity

The Partnership’s primary sources of liquidity are cash generated from operations and borrowings under its revolving credit facility. As a master limited partnership (“MLP”), the Partnership's primary cash requirements, in addition to normal operating expenses, are for capital expenditures, net contributions to the merchandise and perpetual care trust funds, debt service and cash distributions. In general, as part of its operating strategy, the Partnership expects to fund:

•

working capital deficits through cash generated from operations, additional borrowings, and sales of underperforming properties;

•

expansion capital expenditures, net contributions to the merchandise and perpetual care trust funds and debt service obligations through available cash, cash generated from operations, additional borrowings or 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 relates (see "Summary of Significant Accounting Policies" section below regarding revenue recognition), which will reduce the amount of additional borrowings or asset sales needed; and

•

any cash distributions the Partnership is permitted and determines to pay in accordance with its partnership agreement and maintenance capital expenditures through available cash and cash flows from operating activities.

While the Partnership relies heavily on its cash flows from operating activities and borrowings under its credit facility to execute its operational strategy and meet its financial commitments and other short-term financial needs, the Partnership cannot be certain that sufficient capital will be generated through operations or available to the Partnership to the extent required and on acceptable terms. Moreover, although the Partnership's cash flows from operating activities have been positive, the Partnership has experienced negative financial trends which, when considered in the aggregate, raise substantial doubt about the Partnership’s ability to continue as a going concern. These negative financial trends include:

•

the Partnership has continued to incur net losses for the three months ended March 31, 2019 and has an accumulated deficit as of March 31, 2019, due to an increased competitive environment, increased expenses due to the proposed conversion of the Partnership to a C-corporation and increases in professional fees and compliance costs;

•

a decline in billings coupled with the increase in professional, compliance and consulting expenses, tightened the Partnership's liquidity position and increased reliance on long-term financial obligations, which, in turn, eliminated the Partnership's ability to pay distributions;

•

the Partnership's failure to comply with certain debt covenants required by the Partnership’s credit facility due to the Partnership's inability to complete a timely filing of its Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q, as well as exceeding of the maximum consolidated leverage ratio financial covenant for the quarters ended December 31, 2017 and March 31, 2018, exceeding the maximum consolidated secured net leverage ratio financial covenant for the periods ended June 30, 2018, September 30, 2018 and December 31, 2018 and not being able to achieve the minimum consolidated fixed charge coverage ratio for the periods ended June 30, 2018, September 30,

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2018 and December 31, 2018. As further disclosed in the credit facility subsection in Note 9 Long-Term Debt, these failures constituted defaults that the Partnership's lenders agreed to waive; and

•

the provision for ticking fees assessed on the amount of outstanding loans made under the Tranche A Revolving Credit Facility (the “Tranche A Revolving Loans”) and payable to the Tranche A Revolving Lenders (i) in-kind, by increasing the outstanding principal amount of such Lender’s Tranche A Revolving Loans (“PIK”) or (ii) in cash in the following amounts and on the following dates:

•

3.00% on July 1, 2019, of which (x) 2.00% shall PIK and (y) 1.00% shall be payable in cash, unless Required Lenders agree to PIK;

•

1.00% on August 1, 2019, payable in cash, unless the Required Lenders agree to PIK;

•

1.00% on September 1, 2019, payable in cash, unless the Required Lenders agree to PIK; and

•

1.00% on October 1, 2019, PIK.

During 2018 and 2019, the Partnership 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:

•

continue to manage recurring operating expenses and seek to limit non-recurring operating expenses over the next twelve-month period;

•

the Partnership engaged a financial advisor to advise the Partnership in the arrangement of the refinancing in full of the obligations with respect to the Tranche A Revolving Credit Facility including debt and equity financing vehicles, however, at this time the Partnership has no commitments to obtain any additional funds, and there can be no assurance that such funds will be available on acceptable terms or at all;

•

complete sales of certain assets and businesses to provide supplemental liquidity; and

•

for the reasons disclosed above, the Partnership was not in compliance with certain of its amended credit facility covenants as of December 31, 2017, March 31, 2018, June 30, 2018, September 30, 2018 and December 31, 2018. These failures constituted defaults that the lenders agreed to waive pursuant to the Sixth Amendment and Waiver, the Seventh Amendment and Waiver and the Eighth Amendment and Waiver to the Partnership's credit facility on June 12, 2018, July 13, 2018 and February 4, 2019, respectively, as disclosed in the credit facility subsection in Note 9 Long-Term Debt. Moreover, based on the Partnership's forecasted operating performance, cash flows and projected plans to file financial statements on a timely basis consistent with the debt covenants, the Partnership does not believe it is probable that the Partnership will further breach the covenants under its amended credit facility for the next twelve-month period. However, there is no certainty that the Partnership's actual operating performance and cash flows will not be substantially different from forecasted results, and no certainty the Partnership will not need further amendments to its credit facility in the future. Factors that could impact the significant assumptions used by the Partnership in assessing its ability to satisfy its financial covenants include the following:

•

operating performance not meeting reasonably expected forecasts;

•

failing to generate profitable sales;

•

investments in the Partnership'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 Partnership's markets;

•

the number of deaths in the Partnership's markets declining; and

•

the mix of funeral and cemetery revenues between burials and cremations.

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as a going concern. Additionally, a failure to generate additional liquidity could negatively impact the Partnership's access to inventory or services that are important to the operation of the Partnership's business. Given the Partnership's level of cash and cash equivalents, to preserve capital resources and liquidity, the Board of Directors of the General Partner concluded that it was not in the best interest of unitholders to pay distributions to unitholders after the first quarter of 2017. In addition, the Partnership's revolving credit facility effectively prohibits the Partnership from making distributions to unitholders. Any of these events may have a material adverse effect on the Partnership's results of operations and financial condition. The ability of the Partnership to meet its obligations at March 31, 2019, and to continue as a going concern, is dependent upon achieving the action plans noted above. The unaudited condensed consolidated financial statements for the three months ended March 31, 2019, were prepared on the basis of a going concern which contemplates that the Partnership 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 Partnership be required to liquidate its assets. The ability of the Partnership to meet its obligations at March 31, 2019, and to continue as a going concern is dependent upon the availability of a refinancing in full of the obligations with respect to the Tranche A Revolving Credit Facility, continued ability to manage expenses and increased sales. As such, the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q do not include any adjustments that might result from the outcome of these uncertainties.

Summary of Significant Accounting Policies

Refer to Note 1 to the Partnership’s audited consolidated financial statements included in Item 8 of its Annual Report on Form 10-K for the year ended December 31, 2018, which was filed with Securities and Exchange Commission ("SEC") on April 3, 2019, for the complete summary of significant accounting policies.

Use of Estimates

The preparation of the Partnership’s unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions as described in its Annual Report on Form 10-k for the year ended December 31, 2018. 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.

Cash and Cash Equivalents

The Partnership 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 of $24.4 million and $18.1 million as of March 31, 2019 and December 31, 2018, respectively, includes $4.5 million and $0, respectively, of restricted cash. Cash that is restricted from withdrawal or use under the terms of certain contractual agreement is recorded as restricted cash and included within cash and cash equivalents.

Leases

The Partnership leases a variety of assets throughout the organization, such as office space, funeral homes, warehouses, and equipment. The Partnership has both operating and finance leases. The Partnership’s operating leases primarily include office space, funeral homes and equipment. The Partnership’s finance leases primarily consist of vehicles and certain IT equipment. The Partnership 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 Partnership recognizes lease expense for these leases on a straight-line basis over the lease term. For leases agreements with an initial term in excess of 12 months, the Partnership 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 Partnership 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. Where leases contain escalation clauses, rent abatements and/or concessions, the Partnership applies them in the determination of lease expense. The exercise of lease renewal options is at the Partnership’s sole discretion and the Partnership is only including the renewal option in the lease term when the Partnership can be reasonably certain that the Partnership will exercise the additional options.

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

The Partnership calculates operating lease expense ratably over the lease term plus any reasonably assured renewal periods. We consider reasonably assured renewal options, fixed escalation provisions and residual value guarantees in our 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 Partnership’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.

Net Loss per Common Unit

Basic net loss attributable to common limited partners per unit is computed by dividing net loss attributable to common limited partners, which is determined after the deduction of the general partner’s interest, by the weighted average number of common limited partner units outstanding during the period. Net loss attributable to common limited partners is determined by deducting net loss attributable to participating securities, if applicable, and net loss attributable to the general partner’s units. The general partner’s interest in net loss is calculated on a quarterly basis based upon its units and incentive distributions to be distributed for the quarter, with a priority allocation of net income to the general partner’s incentive distributions, if any, in accordance with the partnership agreement, and the remaining net loss allocated with respect to the general partner’s and limited partners’ ownership interests.

The Partnership presents net loss per unit under the two-class method for MLPs, which considers whether the incentive distributions of an MLP represent a participating security when considered in the calculation of earnings per unit under the two-class method. The two-class method considers whether the partnership agreement contains any contractual limitations concerning distributions to the incentive distribution rights that would impact the amount of earnings to allocate to the incentive distribution rights for each reporting period. If distributions are contractually limited to the incentive distribution rights’ share of currently designated available cash for distributions as defined under the partnership agreement, undistributed earnings in excess of available cash should not be allocated to the incentive distribution rights. Under the two-class method, management of the Partnership believes the partnership agreement contractually limits cash distributions to available cash; therefore, undistributed earnings in excess of available cash are not allocated to the incentive distribution rights.

The following is a reconciliation of net loss allocated to the common limited partners for purposes of calculating net loss attributable to common limited partners per unit (in thousands):

	Three Months Ended March 31,
	2019			2018
Net loss	$	(22,534	)	$	(17,923	)
Less: Incentive distribution right (“IDR”) payments to general partner		—			—
Net loss to allocate to general and limited partners		(22,534	)		(17,923	)
General partner’s interest excluding IDRs		(234	)		(187	)
Net loss attributable to common limited partners	$	(22,300	)	$	(17,736	)

Diluted net loss attributable to common limited partners per unit is calculated by dividing net loss attributable to common limited partners, less income allocable to participating securities, by the sum of the weighted average number of common limited partner units outstanding and the dilutive effect of unit awards, as calculated by the treasury stock or if converted methods, as applicable. These awards consist of common units that are contingently issuable upon the satisfaction of certain vesting conditions and common units issuable upon the exercise of certain unit appreciation rights awards under the terms of the Partnership’s long-term incentive plans.

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The following table sets forth the reconciliation of the Partnership’s weighted average number of common limited partner units used to compute basic net loss attributable to common limited partners per unit with those used to compute diluted net loss attributable to common limited partners per unit (in thousands):

	Three Months Ended March 31,
	2019		2018
Weighted average number of common limited partner units—basic		38,031		37,959
Add effect of dilutive incentive awards (1)		—		—
Weighted average number of common limited partner units—diluted		38,031		37,959

(1)

The diluted weighted average number of limited partners’ units outstanding presented on the unaudited condensed consolidated statement of operations does not include 977,166 units (747,142 time-based employee phantom units and 230,024 director phantom units) and 452,558 units (175,211 time-based phantom employee units and 277,347 director phantom units) for the three months ended March 31, 2019 and 2018, respectively, as their effects would be anti-dilutive. For the three months ended March 31, 2019 and 2018 anti-dilutive units excludes 46,734 and 126,768 units, respectively that are contingently issuable for which the contingency has not been met. See Note 17 Subsequent Events, for further detail of unit grants under the Partnership’s Amended and Restated 2019 Long-Term Incentive Plan.

Recently Issued Accounting Standard Updates - Adopted in the Current Period

Leases

The Partnership adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), using the modified retrospective approach, as of January 1, 2019. The core principle of ASU 2016-02 is that all leases create an asset and a liability for lessees and recognition of those lease assets and lease liabilities represents an improvement over previous GAAP, which did not require lease assets and lease liabilities to be recognized for most leases or disclosure of key information about leasing arrangements. In addition, the new standard offers specific accounting guidance for a lessee, a lessor, and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.

ASU 2016-02 provides for certain practical expedients when adopting the guidance. The Partnership elected the package of practical expedients allowing the Partnership to not reassess whether any expired or existing contracts are, or contain, leases, the lease classification for any expired or existing leases or initial direct costs for any expired or existing leases. The Partnership did not apply the hindsight practical expedient. The Partnership applied the land easements practical expedient allowing the Partnership to not assess whether any expired or existing land easements are, or contain, leases if they were not previously accounted for as leases under the existing leasing guidance. Instead, the Partnership will continue to apply its existing accounting policies to historical land easements. The Partnership elected to apply the short-term lease exception; therefore, the Partnership did not record a right-of-use asset or corresponding lease liability for leases with a term of twelve months or less and instead recognized a single lease cost allocated over the lease term, generally on a straight-line basis. The Partnership is separating lease components from non-lease components, as it did not elect the applicable practical expedient. The Partnership has excluded maintenance, taxes and insurance costs from the calculation of the initial lease liability in the transition. Non-lease components are accounted for separately from the lease and recorded as maintenance, taxes, and insurance and expense as incurred.

The Partnership adopted the new guidance on January 1, 2019 and as a result of the adoption, the Partnership recorded:

•

a $1.1 million reclassification from Intangible assets to Other assets for below market lease intangibles,

•

a $0.1 million and $0.2 million reclassification from Accounts payable and accrued liabilities and Other long-term liabilities, respectively, to Other assets for a deferred gain on a sale leaseback transaction,

•

a $0.3 million and $3.5 million reclassification from Accounts payable and accrued liabilities and Other long-term liabilities, respectively, to Other assets for a rent incentive,

•

a $15.3 million increase to Other assets for operating lease right-of-use assets, and

•

a $2.2 million and $13.1 million increase to Accounts payable and accrued liabilities and Other long-term liabilities, respectively, for operating lease liabilities.

The foregoing adjustments resulted in the creation of a net right-of-use asset of $12.3 million and operating lease liability of $15.3 million as of the adoption date.

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Presentation

In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements on the analysis of partners’ deficit for interim financial statements. Under the amendments, an analysis of changes in each caption of shareholders’ equity presented in the balance sheet must be provided in a note or separate statement. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive income is required to be filed. The final rule was effective on November 5, 2018; as such, the Partnership used the new presentation of a condensed consolidated statement of Partners' deficit within its interim financial statements in this Form 10-Q for the quarter ended March 31, 2019.

Recently Issued Accounting Standard Updates - Not Yet Effective

Credit Losses

In the second quarter of 2016, the FASB issued Update No. 2016-13, Credit Losses (Topic 326) ("ASU 2016-13"). The core principle of ASU 2016-13 is that all assets measured at amortized cost basis should be presented at the net amount expected to be collected using historical experience, current conditions and reasonable and supportable forecasts as a basis for credit loss estimates, instead of the probable initial recognition threshold used under current GAAP. The amendment is effective for annual reporting periods beginning after December 15, 2019. Early application is permitted. The Partnership plans to adopt the requirements of ASU 2016-13 upon its effective date of January 1, 2020, and is evaluating the potential impact of the adoption on its financial position, results of operations and related disclosures.

2.	ACQUISITIONS

On January 19, 2018, the Partnership acquired six cemetery properties in Wisconsin and their related assets, net of certain assumed liabilities, for cash consideration of $2.5 million, of which $0.8 million was paid at closing. These properties had been managed by the Partnership since August 2016. The Partnership has accounted for the purchase of these properties, which were not material individually or in the aggregate, under the acquisition method of accounting. The Partnership did not complete any acquisitions during the three months ended March 31, 2019.

3.	IMPAIRMENT & OTHER LOSSES

Inventory

Merchandise is sold to both at-need and pre-need customers. Merchandise allocated to service pre-need contractual obligations is recorded at cost and managed and stored by the Partnership until the Partnership services the underlying customer contract.

Merchandise stored at certain locations may be exposed to changes in weather conditions. Primarily due to weather related deterioration over a number of years, the Partnership recorded inventory impairment charges of approximately $1.9 million for the three months ended March 31, 2018. This impairment loss related to damaged and excess inventory and is included in cost of goods sold for the three months ended March 31, 2018 in the accompanying consolidated statements of operations as this merchandise was utilized to fulfill the Partnership’s contractual obligations to at-need and pre-need customers.

Due to enhanced inventory control procedures implemented in late 2018, the Partnership determined that certain merchandise inventory allocated to pre-need customers had been damaged due to weather related deterioration occurring over a number of years or had otherwise been deemed impractical for use by management as a result of past operating practices relating to inventory. For the three months ended March 31, 2018, the Partnership recorded an estimated impairment loss of approximately $5.0 million related to this damaged and unusable merchandise. The impairment loss is included in other losses in the accompanying consolidated statement of operations for three months ended March 31, 2018. The loss recorded represents management’s best estimate. This impairment was based on estimates and assumptions that have been deemed reasonable by management and included percentages of merchandise deemed unusable. Management’s assessment process relied on estimates and assumptions that are inherently uncertain, and unanticipated events or circumstances may occur that might cause the Partnership to change those estimates and assumptions.

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4.	ACCOUNTS RECEIVABLE, NET OF ALLOWANCE

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

	March 31, 2019			December 31, 2018

Customer receivables	$	163,533		$	167,017
Unearned finance income		(16,650	)		(17,000	)
Allowance for bad debt		(4,907	)		(4,941	)
Accounts receivable, net of allowance		141,976			145,076
Less: Current portion, net of allowance		58,398			57,928
Long-term portion, net of allowance	$	83,578		$	87,148

Activity in the allowance for bad debt was as follows (in thousands):

	Three months ended March 31,
	2019			2018
Balance, beginning of period	$	4,941		$	19,795
Cumulative effect of accounting changes		—			(12,876	)
Provision for bad debt		2,043			600
Charge-offs, net		(2,077	)		(1,309	)
Balance, end of period	$	4,907		$	6,210

5.	CEMETERY PROPERTY

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

	March 31, 2019		December 31, 2018

Cemetery land	$	256,163	$	255,708
Mausoleum crypts and lawn crypts		74,805		75,133
Cemetery property	$	330,968	$	330,841

6.	PROPERTY AND EQUIPMENT

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

	March 31, 2019			December 31, 2018

Buildings and improvements	$	130,384		$	129,971
Furniture and equipment		59,841			58,706
Funeral home land		14,185			14,185
Property and equipment, gross		204,410			202,862
Less: Accumulated depreciation		(92,268	)		(90,146	)
Property and equipment, net of accumulated depreciation	$	112,142		$	112,716

Depreciation expense was $2.4 million and $2.6 million for the three months ended March 31, 2019 and 2018, respectively.

7.	MERCHANDISE TRUSTS

At March 31, 2019 and December 31, 2018, the Partnership’s merchandise trusts consisted of investments in debt and equity marketable securities and cash equivalents, both directly as well as through mutual and investment funds. All of these investments are carried at fair value. All of these investments subject to the fair value hierarchy are considered either Level 1 or

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Level 2 assets pursuant to the three-level hierarchy described in Note 13 Fair Value of Financial Instruments. There were no Level 3 assets. When the Partnership receives a payment from a customer, the Partnership deposits the amount required by law into the merchandise trusts that may be subject to cancellation on demand by the customer. The Partnership’s merchandise trusts related to states in which customers may cancel contracts with the Partnership comprises 53.4% of the total merchandise trust as of March 31, 2019. The merchandise trusts are variable interest entities (“VIE”) of which the Partnership 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 Partnership may be required to fund this shortfall.

The Partnership included $9.1 million and $8.7 million of investments held in trust as required by law by the West Virginia Funeral Directors Association at March 31, 2019 and December 31, 2018 respectively, in its merchandise trust assets. These trusts are recognized at their account value, which approximates fair value.

A reconciliation of the Partnership’s merchandise trust activities for the three months ended March 31, 2019 and 2018 is presented below (in thousands):

	Three months ended March 31,
	2019			2018
Balance—beginning of period	$	488,248		$	515,456
Contributions		13,883			17,109
Distributions		(13,639	)		(14,652	)
Interest and dividends		7,325			6,247
Capital gain distributions		99			64
Realized gains and losses, net		(281	)		(464	)
Other than temporary impairment		(2,314	)		(11,153	)
Taxes		4			283
Fees		(873	)		(1,351	)
Unrealized change in fair value		22,613			(2,853	)
Balance—end of period	$	515,065		$	508,686

During the three months ended March 31, 2019 and 2018, purchases of available for sale securities were approximately $21.3 million and $32.5 million, respectively. During the three months ended March 31, 2019 and 2018, sales, maturities and paydowns of available for sale securities were approximately $9.1 million and $24.9 million, respectively. Cash flows from pre-need contracts are presented as operating cash flows in the Partnership’s unaudited condensed consolidated statement of cash flows.

The cost and market value associated with the assets held in the merchandise trusts as of March 31, 2019 and December 31, 2018 were as follows (in thousands):

March 31, 2019	Fair Value Hierarchy Level		Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Short-term investments		1	$	10,761	$	—	$	—		$	10,761
Fixed maturities:
U.S. governmental securities		2		416		—		(147	)		269
Corporate debt securities		2		1,250		16		(316	)		950
Total fixed maturities				1,666		16		(463	)		1,219
Mutual funds—debt securities		1		188,195		4,295		(602	)		191,888
Mutual funds—equity securities		1		45,045		6,506		—			51,551
Other investment funds (1)				220,198		2,001		(1,982	)		220,217
Equity securities		1		18,178		3,955		(146	)		21,987
Other invested assets		2		8,322		—		—			8,322
Total investments			$	492,365	$	16,773	$	(3,193	)	$	505,945
West Virginia Trust Receivable				9,120		—		—			9,120
Total			$	501,485	$	16,773	$	(3,193	)	$	515,065

(1)

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funds, which have lockup periods of one to seven years with three potential one year extensions at the discretion of the funds’ general partners. As of March 31, 2019, there were $60.0 million in unfunded investment commitments to the private credit funds, which are callable at any time.

December 31, 2018	Fair Value Hierarchy Level		Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Short-term investments		1	$	16,903	$	—	$	—		$	16,903
Fixed maturities:
U.S. governmental securities		2		392		—		(147	)		245
Corporate debt securities		2		1,311		29		(328	)		1,012
Total fixed maturities				1,703		29		(475	)		1,257
Mutual funds—debt securities		1		187,840		262		(2,645	)		185,457
Mutual funds—equity securities		1		45,023		110		(18	)		45,115
Other investment funds (1)				210,655		388		(7,784	)		203,259
Equity securities		1		18,097		1,327		(213	)		19,211
Other invested assets		2		8,398		2		(17	)		8,383
Total investments			$	488,619	$	2,118	$	(11,152	)	$	479,585
West Virginia Trust Receivable				8,663		—		—			8,663
Total			$	497,282	$	2,118	$	(11,152	)	$	488,248

(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 two to seven years with three potential one year extensions at the discretion of the funds’ general partners. As of December 31, 2018, there were $71.0 million in unfunded investment commitments to the private credit funds, which are callable at any time.

The contractual maturities of debt securities as of March 31, 2019 and December 31, 2018 were as follows below (in thousands):

March 31, 2019	Less than 1 year		1 year through 5 years		6 years through 10 years		More than 10 years
U.S. governmental securities	$	—	$	32	$	238	$	—
Corporate debt securities		78		816		37		16
Total fixed maturities	$	78	$	848	$	275	$	16

December 31, 2018	Less than 1 year		1 year through 5 years		6 years through 10 years		More than 10 years
U.S. governmental securities	$	—	$	137	$	108	$	—
Corporate debt securities		68		873		55		16
Total fixed maturities	$	68	$	1,010	$	163	$	16

Temporary Declines in Fair Value The Partnership evaluates declines in fair value below cost for each asset held in the merchandise trusts on a quarterly basis.

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An aging of unrealized losses on the Partnership’s investments in debt and equity securities within the merchandise trusts as of March 31, 2019 and December 31, 2018 is presented below (in thousands):

	Less than 12 months				12 months or more				Total
March 31, 2019	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Fixed maturities:
U.S. governmental securities	$	—	$	—	$	267	$	147	$	267	$	147
Corporate debt securities		50		—		557		316		607		316
Total fixed maturities		50		—		824		463		874		463
Mutual funds—debt securities		155		5		1,231		597		1,386		602
Mutual funds—equity securities		—		—		—		—		—		—
Other investment funds		83,779		1,982		—		—		83,779		1,982
Equity securities		—		—		555		146		555		146
Other invested assets		—		—		—		—		—		—
Total	$	83,984	$	1,987	$	2,610	$	1,206	$	86,594	$	3,193

	Less than 12 months				12 months or more				Total
December 31, 2018	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Fixed maturities:
U.S. governmental securities	$	—	$	—	$	243	$	147	$	243	$	147
Corporate debt securities		103		2		549		326		652		328
Total fixed maturities		103		2		792		473		895		475
Mutual funds—debt securities		46,005		2,011		1,195		634		47,200		2,645
Mutual funds—equity securities		131		18		—		—		131		18
Other investment funds		169,929		7,784		—		—		169,929		7,784
Equity securities		—		—		597		213		597		213
Other invested assets		—		4		790		13		790		17
Total	$	216,168	$	9,819	$	3,374	$	1,333	$	219,542	$	11,152

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

Other-Than-Temporary Impairment of Trust Assets

The Partnership assesses its merchandise trust assets for other-than-temporary declines in fair value on a quarterly basis. During the three months ended March 31, 2019, the Partnership determined, based on its review, that there were 89 securities with an aggregate cost basis of approximately $91.9 million and an aggregate fair value of approximately $89.6 million, resulting in an impairment of $2.3 million, with such impairment considered to be other-than-temporary due to credit indicators. During the three months ended March 31, 2018, the Partnership determined, based on its review, that there were 94 securities with an aggregate cost basis of approximately $165.8 million and an aggregate fair value of approximately $154.6 million, resulting in an impairment of $11.2 million, with such impairment considered to be other-than-temporary due to credit indicators. Accordingly, the Partnership 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 Partnership’s unaudited condensed consolidated statement of operations in future periods as the underlying merchandise is delivered or the underlying service is performed.

8.	PERPETUAL CARE TRUSTS

At March 31, 2019 and December 31, 2018, the Partnership’s perpetual care trusts consisted of investments in debt and equity marketable securities and cash equivalents, both directly as well as through mutual and investment funds.

All of these investments are 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 13 Fair Value of Financial Instruments. There were no Level 3 assets. The perpetual care trusts are VIEs for which the Partnership is the primary beneficiary.

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A reconciliation of the Partnership’s perpetual care trust activities for the three months ended March 31, 2019 and 2018 is presented below (in thousands):

	Three months ended March 31,
	2019			2018
Balance—beginning of period	$	330,562		$	339,928
Contributions		1,983			5,504
Distributions		(4,403	)		(4,189	)
Interest and dividends		5,148			5,894
Capital gain distributions		114			124
Realized gains and losses, net		977			57
Other than temporary impairment		(713	)		(6,834	)
Taxes		4			8
Fees		(704	)		(2,441	)
Unrealized change in fair value		11,857			(1,804	)
Balance—end of period	$	344,825		$	336,247

During the three months ended March 31, 2019 and 2018, purchases of available for sale securities were approximately $35.3 million and $20.7 million, respectively. During the three months ended March 31, 2019 and 2018, sales, maturities and paydowns of available for sale securities were approximately $31.9 million and $18.2 million, respectively. Cash flows from perpetual care trust related contracts are presented as operating cash flows in Partnership’s unaudited condensed consolidated statement of cash flows.

The cost and market value associated with the assets held in the perpetual care trusts as of March 31, 2019 and December 31, 2018 were as follows (in thousands):

March 31, 2019	Fair Value Hierarchy Level	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Short-term investments	1	$	11,671	$	—	$	—		$	11,671
Fixed maturities:
U.S. governmental securities	2		957		4		(92	)		869
Corporate debt securities	2		3,165		23		(265	)		2,923
Total fixed maturities			4,122		27		(357	)		3,792
Mutual funds—debt securities	1		107,649		2,386		(187	)		109,848
Mutual funds—equity securities	1		14,396		2,174		(2	)		16,568
Other investment funds (1)			176,600		6,719		(4,096	)		179,223
Equity securities	1		20,122		3,678		(77	)		23,723
Other invested assets	2		—		—		—			-
Total investments		$	334,560	$	14,984	$	(4,719	)	$	344,825

(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 eight years with three potential one year extensions at the discretion of the funds’ general partners. As of March 31, 2019 there were $82.0 million in unfunded investment commitments to the private credit funds, which are callable at any time.

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December 31, 2018	Fair Value Hierarchy Level	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Short-term investments	1	$	12,835	$	—	$	—		$	12,835
Fixed maturities:
U.S. governmental securities	2		960		4		(121	)		843
Corporate debt securities	2		4,883		161		(321	)		4,723
Total fixed maturities			5,843		165		(442	)		5,566
Mutual funds—debt securities	1		108,451		227		(837	)		107,841
Mutual funds—equity securities	1		19,660		304		(142	)		19,822
Other investment funds (1)			165,284		3,039		(4,607	)		163,716
Equity securities	1		20,025		826		(145	)		20,706
Other invested assets	2		56		20		—			76
Total investments		$	332,154	$	4,581	$	(6,173	)	$	330,562

(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 two to eight years with three potential one year extensions at the discretion of the funds’ general partners. As of December 31, 2018 there were $94.5 million in unfunded investment commitments to the private credit funds, which are callable at any time.

The contractual maturities of debt securities as of March 31, 2019 and December 31, 2018, were as follows below (in thousands):

March 31, 2019	Less than 1 year		1 year through 5 years		6 years through 10 years		More than 10 years
U.S. governmental securities	$	—	$	45	$	793	$	32
Corporate debt securities		213		2,513		147		51
Total fixed maturities	$	213	$	2,558	$	940	$	83

December 31, 2018	Less than 1 year		1 year through 5 years		6 years through 10 years		More than 10 years
U.S. governmental securities	$	—	$	416	$	395	$	32
Corporate debt securities		705		3,702		265		51
Total fixed maturities	$	705	$	4,118	$	660	$	83

Temporary Declines in Fair Value

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

An aging of unrealized losses on the Partnership’s investments in debt and equity securities within the perpetual care trusts as of March 31, 2019 and December 31, 2018 is presented below (in thousands):

	Less than 12 months				12 months or more				Total
March 31, 2019	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Fixed maturities:
U.S. governmental securities	$	—	$	—	$	818	$	92	$	818	$	92
Corporate debt securities		—		—		2,530		265		2,530		265
Total fixed maturities		—		—		3,348		357		3,348		357
Mutual funds—debt securities		223		9		2,969		178		3,192		187
Mutual funds—equity securities		207		2		—		—		207		2
Other investment funds		59,569		4,096		—		—		59,569		4,096
Equity securities		201		10		642		67		843		77
Total	$	60,200	$	4,117	$	6,959	$	602	$	67,159	$	4,719

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	Less than 12 months				12 months or more				Total
December 31, 2018	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Fixed maturities:
U.S. governmental securities	$	—	$	—	$	790	$	121	$	790	$	121
Corporate debt securities		405		15		2,902		306		3,307		321
Total fixed maturities		405		15		3,692		427		4,097		442
Mutual funds—debt securities		21,867		591		2,814		246		24,681		837
Mutual funds—equity securities		1,382		141		—		1		1,382		142
Other investment funds		101,536		4,607		—		—		101,536		4,607
Equity securities		241		16		583		129		824		145
Total	$	125,431	$	5,370	$	7,089	$	803	$	132,520	$	6,173

Other-Than-Temporary Impairment of Trust Assets

The Partnership assesses its perpetual care trust assets for other-than-temporary declines in fair value on a quarterly basis. During the three months ended March 31, 2019, the Partnership determined that there were 66 securities with an aggregate cost basis of approximately $29.2 million and an aggregate fair value of approximately $28.5 million, resulting in an impairment of $0.7 million, with such impairment considered to be other-than-temporary. During the three months ended March 31, 2018, the Partnership determined that there were 105 securities with an aggregate cost basis of approximately $118.0 million and an aggregate fair value of approximately $111.2 million, resulting in an impairment of $6.8 million, with such impairment considered to be other-than-temporary. Accordingly, the Partnership adjusted the cost basis of these assets to their current value and offset these changes against the liability for perpetual care trust corpus.

9.	LONG-TERM DEBT

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

	March 31, 2019			December 31, 2018

Credit facility	$	180,132		$	155,739
7.875% Senior Notes, due June 2021		173,748			173,613
Notes payable—acquisition debt		37			92
Notes payable—acquisition non-competes		-			-
Insurance and vehicle financing		1,366			1,294
Less deferred financing costs, net of accumulated amortization		(8,397	)		(9,692	)
Total debt		346,886			321,046
Less current maturities		(953	)		(798	)
Total long-term debt	$	345,933		$	320,248

Credit Agreements

On August 4, 2016, our 100% owned subsidiary, StoneMor Operating LLC (the “Operating Company”) entered into a Credit Agreement (the “Original Credit Agreement”) among each of the Subsidiaries of the Operating Company (together with the Operating Company, “Borrowers”), the Lenders identified therein, Capital One, National Association (“Capital One”), as Administrative Agent, Issuing Bank and Swingline Lender, Citizens Bank N.A., as Syndication Agent, and TD Bank, N.A. and Raymond James Bank, N.A., as Co-Documentation Agents. In addition, on the same date, the Partnership, the Borrowers and Capital One, as Administrative Agent, entered into the Guaranty and Collateral Agreement (the “Guaranty Agreement,” and together with the Credit Agreement, “New Agreements”). Capitalized terms which are not defined in the following description of the New Agreements shall have the meaning assigned to such terms in the New Agreements, as amended.

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On March 15, 2017, the Borrowers, Capital One, as Administrative Agent and acting in accordance with the written consent of the Required Lenders, entered into the First Amendment to Credit Agreement. Those parties subsequently entered into a Second Amendment and Limited Waiver on July 26, 2017, a Third Amendment and Limited Waiver effective as of August 15, 2017, a Fourth Amendment to Credit Agreement dated September 29, 2017, a Fifth Amendment to Credit Agreement dated as of December 22, 2017 but effective as of September 29, 2017, a Sixth Amendment and Waiver to Credit Agreement dated June 12, 2018, a Seventh Amendment and Waiver to the Credit Agreement dated July 13, 2018 and the Eighth Amendment and Waiver to Credit Agreement (the “Eighth Amendment”) dated February 4, 2019. We refer to the Original Credit Agreement, as so amended, as the “Original Amended Agreement.”

Prior to the Eighth Amendment, the Amended Credit Agreement provided for up to $175.0 million initial aggregate amount of Revolving Commitments, which were subject to borrowing base limitations.

The Eighth Amendment added to the Amended Credit Agreement a separate last out revolving credit facility (the “Tranche B Revolving Credit Facility”) in the aggregate amount of $35.0 million to be provided by certain affiliates of Axar Capital Management as the initial lenders under the Tranche B Revolving Credit Facility (the “Tranche B Revolving Lenders”) on the following terms (as further detailed in the Eighth Amendment):

•

the aggregate amount of the Tranche B Revolving Commitments is $35.0 million; such Commitments were utilized in the amount of $25.0 million, which was reduced by a $0.7 million Original Issue Discount on the effective date of the Eighth Amendment (the “Eighth Amendment Effective Date”). The borrowings were subject to a fairness opinion, which has been received, in accordance with provisions of the Tranche B conditions of such borrowings. The remaining $10 million in commitments may be utilized in the amount of $5.0 million (or any integral multiple thereof) from time to time until April 30, 2019;

•

Tranche B Revolving Credit Facility Maturity Date is one business day after the maturity date of the original revolving credit facility (the “Tranche A Revolving Credit Facility”);

•

the interest rate applicable to the loans made under the Tranche B Revolving Credit Facility is 8.00% per annum, payable quarterly in arrears;

•

borrowings under the Tranche B Revolving Credit Facility on the Eighth Amendment Effective Date were subject to an original issue discount in the amount of $0.7 million; and

•

upon the repayment or prepayment of the Tranche B Revolving Credit Facility in full, the Tranche B Revolving Lenders will receive additional interest in the amount of $0.7 million.

The Eighth Amendment also amended certain terms of the Original Amended Agreement to:

•

reduce the Tranche A Revolving Credit Availability Period to end on the Eighth Amendment Effective Date, which precludes borrowings under the Tranche A Revolving Credit Facility after such date;

•

reduce the amount of the Letter of Credit Sublimit from $15.0 million to $9.4 million, plus the principal amount of loans under the Tranche A Revolving Credit Facility that become subject to optional prepayment after the Eighth Amendment Effective Date, and permit the issuance of letters of credit under the Tranche A Revolving Credit Facility after the Eight Amendment Effective Date;

•

modify the Tranche A Revolving Credit Facility Maturity Date to be the earlier of (i) May 1, 2020 and (ii) the date that is six months prior to the earliest scheduled maturity date of any outstanding Permitted Unsecured Indebtedness;

•

redetermine the Applicable Rate to be 4.50% for Eurodollar Rate Loans and 3.50% for Base Rate Loans from the Eighth Amendment Effective Date to February 28, 2019; 4.75% and 3.75%, respectively, from March 1, 2019 to March 31, 2019; 5.50% and 4.50%, respectively, from April 1, 2019 to April 30, 2019; 5.75% and 4.75%, respectively, from May 1, 2019 to May 31, 2019; and 6.00% and 5.00%, respectively, from June 1, 2019;

•

discontinue the accrual of the commitment fee after the Eighth Amendment Effective Date;

•

provide for ticking fees assessed on the amount of outstanding loans made under the Tranche A Revolving Credit Facility (the “Tranche A Revolving Loans”) and payable to the Tranche A Revolving Lenders (i) in-kind, by

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increasing the outstanding principal amount of such Lender’s Tranche A Revolving Loans (“PIK”) or (ii) in cash, in the following amounts and on the following dates:

3.00% on July 1, 2019, of which (x) 2.00% shall PIK and (y) 1.00% shall be payable in cash, unless the Required Lenders agree to PIK;

1.00% on August 1, 2019, payable in cash, unless the Required Lenders agree to PIK;

1.00% on September 1, 2019, payable in cash, unless the Required Lenders agree to PIK; and

1.00% on October 1, 2019, PIK;

•

amend the definition of “Consolidated Net Income” for purposes of calculating the Consolidated EBITDA to exclude, for the time period from January 1, 2018 to January 1, 2019, (i) any non-recurring charges for adjustments made to cost of goods sold for merchandise inventory impairment related to excess and damaged inventory of the Partnership or a subsidiary of the Partnership (and any reversal thereof) incurred during the fiscal year ended December 31, 2018 in an aggregate amount not to exceed $5.0 million and (ii) any non-recurring charges for the establishment of liability reserves required for future obligations of the Partnership or a Subsidiary of the Partnership to deliver allocated merchandise to customers (and any reversal thereof) incurred during the Fiscal Year ended December 2018 in an aggregate amount not to exceed $15.0 million;

•

amend the definition of “Consolidated EBITDA” for purposes of calculating the financial covenant to (i) adjust the limit on add backs for non-recurring cash expenses, losses, costs and charges to $17.0 million for each Measurement Period ended on or after April 1, 2018 and (ii) remove a separate add back for non-recurring cash expenses, costs and charges relating to “non-ordinary course of business” legal matters;

•

remove the Consolidated Secured Net Leverage Ratio and Consolidated Fixed Charge Coverage Ratio and replace them with a covenant requiring the Partnership to ensure that its Consolidated EBITDA is not less than the following amounts for the four quarters ending on the following dates: (i) $18.0 million for the period ended March 31, 2018; (ii) $13.0 million for the period ended June 30, 2018; (iii) $2.5 million for the period ended September 30, 2018; (iv) ($3.0 million) for the period ended December 31, 2018; (v) $1.0 million for the period ending March 31, 2019; (vi) $3.5 million for the period ending June 30, 2019; (vii) $8.0 million for the period ending September 30, 2019; (viii) $8.25 million for the period ending December 31, 2019; and (ix) $9.25 million for the period ending March 31, 2020;

•

provide for mandatory prepayments in an amount equal to 100% of the net cash proceeds from (i) sale/leaseback transactions and certain other permitted dispositions of assets and (ii) incurrence of certain indebtedness (including any indebtedness not permitted under the Amended Credit Agreement) in an amount exceeding $5.0 million;

•

extend the deadline for filing the Partnership’s Form 10-Q for the period ended March 31, 2018 to the later of February 6, 2019 and the date that is two Business Days following the Eighth Amendment Effective Date and for the periods ended June 30, 2018 and September 30, 2018 to February 15, 2019;

•

add a covenant requiring the Partnership and the Administrative Borrower to use their reasonable best efforts to consummate the transactions contemplated under the Merger Agreement (as defined below) by May 15, 2019 (the “C-Corporation Conversion”); modify the definition of “Change in Control” and several covenants, including but not limited to reporting covenants and covenants restricting fundamental changes, dispositions, investments, acquisitions and transactions with affiliates to permit the C-Corporation Conversion and to permit the Partnership to be a wholly-owned subsidiary of StoneMor Inc. (as defined below);

•

add a covenant requiring the Administrative Borrower to engage Houlihan Lokey or any other acceptable financial advisor by no later than the second business day after the Eighth Amendment Effective Date to advise it in the arrangement of the refinancing in full of the obligations with respect to the Tranche A Revolving Credit Facility (such refinancing, the “Refinancing”);

•

add a covenant requiring the Administrative Borrower to retain Carl Marks & Co. or another acceptable consultant of recognized national standing on or prior to the Eighth Amendment Effective Date, who shall (i) assist the Administrative Borrower in further developing its financial planning and analysis function; (ii) prepare a detailed analysis of G&A expenses and other overhead and develop cost savings initiatives and (iii) present a monthly written update to the Administrative Agent and the Lenders on progress; and

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•

amend other provisions of the agreement in connection with the foregoing.

In addition, in the Eighth Amendment, the Administrative Agent and Lenders party thereto waived existing defaults under the Original Amended Agreement as a result of the Partnership’s failure to (i) deliver the financial statements for the periods ended March 31, 2018, June 30, 2018 and September 30, 2018 and the related compliance certificates; (ii) comply with the facility’s maximum Consolidated Secured Net Leverage Ratio for each period ended June 30, 2018, September 30, 2018 and December 31, 2018 (iii) comply with the facility’s minimum Fixed Charge Coverage Ratio for each period ended June 30, 2018, September 30, 2018 and December 31, 2018; and (iv) inaccuracies in representations and warranties resulting from such defaults. The effectiveness of the Eighth Amendment was subject to the satisfaction of certain conditions, including the payment to the Tranche A Revolving Lenders of a fee in the aggregate amount of $0.8 million.

Additional covenants include customary limitations, subject to certain exceptions, on, among others: (i) the incurrence of Indebtedness; (ii) granting of Liens; (iii) fundamental changes and dispositions; (iv) investments, loans, advances, guarantees and acquisitions; (v) swap agreements; (vi) transactions with Affiliates; (vii) Restricted Payments; (viii) restrictive agreements; (ix) amendments to organizational documents and indebtedness; (x) prepayment of indebtedness; and (xi) Sale and Leaseback Transactions. The Original Amended Agreement also prohibited distributions to the Partnership’s partners unless the Consolidated Leverage Ratio (determined based on Consolidated EBITDA calculated giving effect to amendments under the Sixth Amendment) was not greater than 7.50:1.00 and the Revolving Credit Availability was at least $25.0 million.

The Borrowers’ obligations under the Original Amended Agreement are guaranteed by the Partnership and the Borrowers. Pursuant to the Guaranty Agreement, the Borrowers’ obligations under the Original Amended Agreement are secured by a first priority lien and security interest (subject to permitted liens and security interests) in substantially all of the Partnership’s and Borrowers’ assets, whether then owned or thereafter acquired, excluding certain excluded assets, which include, among others: (i) Trust Accounts, certain proceeds required by law to be placed into such Trust Accounts and funds held in such Trust Accounts; and (ii) Excluded Real Property, including owned and leased real property that may not be pledged as a matter of law.

As of March 31, 2019, the outstanding amount of borrowings under the Original Amended Agreement was $180.7 million, which was used to pay down outstanding obligations under the Partnership’s prior credit agreement, to pay fees, costs and expenses related to the New Agreements and to fund working capital needs.

Each Borrowing under the Original Amended Credit Agreement is comprised of Base Rate Loans or Eurodollar Loans. The Loans comprising each Base Rate Borrowing (including each Swingline Loan) bear interest at the Base Rate plus the Applicable Rate, and the Loans comprising each Eurodollar Borrowing bear interest at the Eurodollar Rate plus the Applicable Rate.

Prior to the Sixth Amendment and Waiver, the Applicable Rate was determined based on the Consolidated Leverage Ratio of the Partnership and its Subsidiaries and ranged from 1.75% to 3.75% for Eurodollar Rate Loans and 0.75% to 2.75% for Base Rate Loans and between 0.30% and 0.50% for unused commitment fee. The Sixth Amendment and Waiver redetermined the Applicable Rate based on the Consolidated Secured Net Leverage Ratio of the Partnership and its Subsidiaries and increased the minimum and maximum Applicable Rate by 0.50% to be in the range between 2.25% to 4.25% for Eurodollar Rate Loans and 1.25% to 3.75% for Base Rate Loans (but in no event less that the Applicable Rate that would be in effect if calculated as set forth in the Original Amended Agreement not giving effect to the Sixth Amendment and Waiver and the Seventh Amendment and Waiver). As of March 31, 2019, the Applicable Rate for Eurodollar Rate Loans was 4.75% and for Base Rate Loans was 3.75%. Prior to the Eighth Amendment, the Borrowers were also required to pay a quarterly unused commitment fee, which accrued at the Applicable Rate on the amount by which the commitments under the Original Amended Agreement exceeded the usage of such commitments, and which was included within interest expense on the Partnership’s condensed consolidated statements of operations. On March 31, 2019, the weighted average interest rate on outstanding borrowings under the Original Amended Agreement was 7.66%.

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Senior Notes

On May 28, 2013, the Partnership issued $175.0 million aggregate principal amount of 7.875% Senior Notes due 2021 (the "Senior Notes"). The Partnership pays 7.875% interest per annum on the principal amount of the Senior Notes, payable in cash semi-annually in arrears on June 1 and December 1 of each year. The net proceeds from the offering of the Senior Notes were used to retire a $150.0 million aggregate principal amount of 10.25% Senior Notes due 2017 and the remaining proceeds were used for general corporate purposes. The Senior Notes were issued at 97.832% of par resulting in gross proceeds of $171.2 million with an original issue discount of approximately $3.8 million. The Partnership incurred debt issuance costs and fees of approximately $4.6 million. These costs and fees are deferred and will be amortized over the life of the Senior Notes. The Senior Notes mature on June 1, 2021.

The Partnership may redeem the Senior Notes at any time, in whole or in part, at the redemption prices (expressed as percentages of the principal amount) set forth below, together with accrued and unpaid interest, if any, to the redemption date, if redeemed during the 12-month period beginning June 1 of the years indicated:

Year	Percentage
2018		101.969	%
2019 and thereafter		100.000	%

Subject to certain exceptions, upon the occurrence of a Change of Control (as defined in the Indenture), each holder of the Senior Notes will have the right to require the Partnership to purchase that holder’s Senior Notes for a cash price equal to 101% of the principal amounts to be purchased, plus accrued and unpaid interest.

The Senior Notes are jointly and severally guaranteed by certain of the Partnership’s subsidiaries. The Indenture governing the Senior Notes contains covenants, including limitations of the Partnership’s ability to incur additional indebtedness and liens, make certain dividends, distributions, redemptions or investments, enter into certain transactions with affiliates, make certain asset sales, and engage in certain mergers, consolidations or sales of all or substantially all of the Partnership’s assets, among other items. As of March 31, 2019, the Partnership was in compliance with these covenants.

10.	DEFERRED REVENUES AND COSTS

The Partnership defers revenues and all direct costs associated with the sale of pre-need cemetery merchandise and services until the merchandise is delivered or the services are performed. The Partnership recognizes deferred merchandise and service revenues as deferred revenues within long-term liabilities on its consolidated balance sheets. The Partnership recognizes deferred direct costs associated with pre-need cemetery merchandise and service revenues as deferred selling and obtaining costs within long-term assets on its consolidated balance sheets. The Partnership also defers the costs to obtain new pre-need cemetery and new prearranged funeral business as well as the investment earnings on the prearranged services and merchandise trusts.

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

	March 31, 2019		December 31, 2018

Deferred contract revenues	$	833,050	$	830,602
Deferred merchandise trust revenue		94,410		92,718
Deferred merchandise trust unrealized gains (losses)		13,580		(9,034	)
Deferred revenues	$	941,040	$	914,286
Deferred selling and obtaining costs	$	112,643	$	112,660

For the three months ended March 31, 2019, the Partnership recognized $22.6 million of the deferred revenue balance at December 31, 2018 as revenue. Also during the three months ended March 31, 2019, the Partnership had no change in the deferred selling and obtaining costs as recognition offset deferrals of new incremental direct selling costs.

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The components of deferred revenues, net in the Partnership’s Unaudited Condensed Consolidated Balance Sheet at March 31, 2019 and December 31, 2018 were as follows (in thousands):

	March 31, 2019			December 31, 2018

Deferred revenue	$	963,612		$	937,708
Amounts due from customers for unfulfilled performance obligations on cancellable pre-need contracts		(22,572	)		(23,422	)
Deferred revenue, net	$	941,040		$	914,286

The Partnership 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. The Partnership expects to service 55% of its deferred revenue in the first 4-5 years and approximately 80% of its deferred revenue within 18 years.

11.COMMITMENTS AND CONTINGENCIES

Legal

The Partnership is currently subject to class or collective actions under the Securities Exchange Act of 1934 and for related state law claims that certain of our officers and directors breached their fiduciary duty to the Partnership and its unitholders. The Partnership could also become subject to additional claims and legal proceedings relating to the factual allegations made in these actions. While management cannot reasonably estimate the potential exposure in these matters at this time, if the Partnership does not prevail in any such proceedings, the Partnership could be required to pay substantial damages or settlement costs, subject to certain insurance coverages. Management has determined that, based on the status of the claims and legal proceedings against us, the amount of the potential losses cannot be reasonably estimated at this time. These actions are summarized below.

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Anderson v. StoneMor Partners, LP, et al., No. 2:16-cv-6111, filed on November 21, 2016, in the United States District Court for the Eastern District of Pennsylvania. The plaintiffs in this case (as well as Klein v. StoneMor Partners, LP, et al., No. 2:16-cv-6275, filed in the United States District Court for the Eastern District of Pennsylvania on December 2, 2016, which has been consolidated with this case) brought an action on behalf of a putative class of the holders of Partnership units and allege that the Partnership made misrepresentations to investors in violation of Section 10(b) of the Securities Exchange Act of 1934 by, among other things and in general, failing to clearly disclose the use of proceeds from debt and equity offerings by making allegedly false or misleading statements concerning (a) the Partnership’s strength or health in connection with a particular quarter’s distribution announcement, (b) the connection between operations and distributions and (c) the Partnership’s use of cash from equity offerings and its credit facility. Plaintiffs sought damages from the Partnership and certain of its officers and directors on behalf of the class of Partnership unitholders, as well as costs and attorneys' fees. Lead plaintiffs have been appointed in this case, and filed a Consolidated Amended Class Action Complaint on April 24, 2017. Defendants filed a motion to dismiss that Consolidated Amended Complaint on June 8, 2017. The motion was granted on October 31, 2017, and the court entered judgment dismissing the case on November 30, 2017. Plaintiffs filed a notice of appeal on December 29, 2017. Oral argument was held before the United States Court of Appeals for the Third Circuit on November 1, 2018. The Partnership expects the court to render a decision in the near future, but there can be no assurance as to when the court will issue its ruling.

•

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 StoneMor GP’s officers and directors aided and abetted in breaches of StoneMor GP’s purported fiduciary duties by, among other things and in general, allegedly making misrepresentations through the use of non-GAAP accounting standards in its public filings, by allegedly failing to clearly disclose the use of proceeds from debt and equity offerings, and by allegedly approving unsustainable distributions. The plaintiff also claims that these actions and misrepresentations give rise to causes of action for gross mismanagement, unjust enrichment, and (in connection with a purportedly misleading proxy statement filed in 2014) violations of Section 14(a) of the Securities Exchange Act of 1934. The derivative plaintiff seeks an award of damages, attorneys’ fees and costs in favor of the Partnership as nominal plaintiff, as well as general compliance and governance changes. This case has been stayed, by the agreement of the parties, pending final resolution of the motion to dismiss filed in the Anderson case, provided that either party may terminate the stay on 30 days' notice.

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Muth v. StoneMor G.P. LLC, et al., December Term, 2016, No. 1196 and Binder v. StoneMor G.P. LLC, et al., January Term, 2017, No. 4872, both pending in the Court of Common Pleas for Philadelphia County, Pennsylvania, and filed on December 20, 2016 and February 3, 2017, respectively. In these cases, the plaintiffs brought, derivatively on behalf of the Partnership, claims that StoneMor GP’s officers and directors aided and abetted in breaches of StoneMor GP’s purported fiduciary duties by, among other things and in general, allegedly making misrepresentations through the use of non-GAAP accounting standards in its public filings and by failing to clearly disclose the use of proceeds from debt and equity offerings, as well as approving unsustainable distributions. The plaintiffs also claim that these actions and misrepresentations give rise to a cause of action for unjust enrichment. The derivative plaintiffs seek an award of damages, attorneys’ fees and costs in favor of the Partnership as nominal plaintiff, as well as alterations to the procedures for electing members to the board of StoneMor GP, and other compliance and governance changes. These cases have been consolidated and stayed, by the agreement of the parties, pending final resolution of the motion to dismiss filed in the Anderson case, provided that either party may terminate the stay on 30 days' notice.

The Philadelphia Regional Office of the Securities and Exchange Commission, Enforcement Division, is continuing its investigation of the Partnership as to whether violations of federal securities laws have occurred. The investigation relates to, among other things, our prior restatements, financial statements, internal control over financial reporting, public disclosures, use of non-GAAP financial measures, matters pertaining to unitholder distributions and the sources of funds therefor and information relating to protection of our confidential information and our policies regarding insider trading. We are continuing to cooperate with the SEC staff.

The Partnership 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 Partnership carries insurance with coverage and coverage limits that it believes to be customary in the cemetery and funeral home industry. Although there can be no assurance that such insurance will be sufficient to protect the Partnership against all contingencies, management believes that the insurance protection is reasonable in view of the nature and scope of the operations.

Other

In connection with the Partnership’s 2014 lease and management agreements with the Archdiocese of Philadelphia, it has committed to pay aggregate fixed rent of $36.0 million in the following amounts:

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

The fixed rent for lease years 6 through 11, an aggregate of $6.0 million, is deferred. If, prior to May 31, 2024, the Archdiocese terminates the agreements pursuant to a lease year 11 termination or the Partnership terminates the agreements as a result of a default by the Archdiocese, the Partnership is entitled to retain the deferred fixed rent. If the agreements are not terminated, the deferred fixed rent will become due and payable on or before June 30, 2024.

12.

LEASES

The Partnership leases a variety of assets throughout the organization, such as office space, funeral homes, warehouses, and equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet and the Partnership recognizes lease expense for these leases on a straight-line basis over the lease term. For leases agreements with an initial term of more than 12 months, the Partnership 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 Partnership 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. The exercise of lease renewal options is at the Partnership’s sole discretion and the Partnership is only including the renewal option in the lease term when the Partnership can be reasonably certain that we will exercise the additional options.

The Partnership has the following balances recorded on the unaudited condensed balance sheet related to leases:

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	March 31, 2019
Assets:
Operating	$	11,667
Finance		6,005
Total Leased Assets	$	17,672
Liabilities:
Current
Operating	$	2,016
Finance		1,282
Long-term
Operating		12,692
Finance		4,434
Total Lease Liabilities	$	20,424

As most of the Partnership’s leases do not provide an implicit rate, the Partnership uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Partnership used the incremental borrowing rate on January 1, 2019, for operating leases that commenced prior to that date. The weighted average borrowing rates for Operating and Finance leases were 9.9% and 8.1%, respectively as of March 31, 2019.

The components of lease expense were as follows:

		Three months ended March 31, 2019
Lease cost	Classification
Operating lease costs	General and administrative expense	$	920
Finance lease costs
Amortization of leased assets	Depreciation and Amortization		320
Interest on lease liabilities	Interest expense		116
Net Lease costs		$	1,356

Maturities of lease labilities as of March 31, 2019 were as follows:

	Operating		Financing
2019	$	2,576	$	1,306
2020		3,107		1,479
2021		2,616		1,627
2022		2,346		1,897
2023		2,155		519
Thereafter		8,469		—
Total	$	21,269	$	6,828
Less: Interest		6,561		1,113
Present value of lease liabilities	$	14,708	$	5,715

Operating and finance lease payments include $3.5 million related to options to extend lease terms that are reasonably certain of being exercised and $1.9 million related to residual value guarantees. The weighted average remaining lease term for operating and finance leases was 7.6 years and 3.3 years, respectively as of March 31, 2019.

13.	FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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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.

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

•

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

The Partnership’s current assets and liabilities and customer receivables on its unaudited condensed consolidated balance sheets are similar to cash basis financial instruments, and their estimated fair values approximate their carrying values due to their short-term nature and thus are categorized as Level 1. The Partnership’s merchandise and perpetual care trusts consist of investments in debt and equity marketable securities and cash equivalents, are carried at fair value, and are considered either Level 1 or Level 2 (see Note 7 Merchandise Trusts and Note 8 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.

The Partnership’s other financial instruments at March 31, 2019 and December 31, 2018 consisted of its Senior Notes and outstanding borrowings under its revolving credit facility (see Note 9 Long-Term Debt). The estimated fair values of the Partnership’s Senior Notes at March 31, 2019 and December 31, 2018 were $157.3 million and $162.5 million, respectively, based on trades made on those dates, compared with the carrying amounts of $173.7 million and $173.6 million, respectively. At March 31, 2019 and December 31, 2018, the carrying values of outstanding borrowings under the Partnership’s revolving credit facility (see Note 9 Long-Term Debt), which bears interest at variable interest rates with maturities of 90 days or less, approximated their estimated fair values. The Senior Notes and the credit facility are valued using Level 2 inputs.

The Partnership may be required to measure certain assets and liabilities at fair value on a nonrecurring basis in accordance with GAAP from time to time. These adjustments to fair value usually result from impairment charges.

The lower of cost or estimated fair value of assets held for sale at March 31, 2019 and December 31, 2018 was $0.8 million . Assets held for sale are valued at lower of cost or estimated fair value based on broker comparables and estimates at the time the assets are classified as held for sale. These assets held for sale are classified as Level 3 pursuant to the fair value measurement hierarchy.

14.	SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION

The Partnership’s Senior Notes are guaranteed by StoneMor Operating LLC and its 100% owned subsidiaries, other than the co-issuer, as described below. The guarantees are full, unconditional, joint and several. The Partnership, or the "Parent," and its 100% owned subsidiary, Cornerstone Family Services of West Virginia Subsidiary Inc., are the co-issuers of the Senior Notes. The Partnership’s consolidated financial statements as of March 31, 2019 and December 31, 2018 and for the three months ended March 31, 2019 and 2018 include the accounts of cemeteries operated under long-term lease, operating or management agreements. For the purposes of this note, these entities are deemed non-guarantor subsidiaries, as they are not 100% owned by the Partnership. The Partnership’s 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 Partnership’s standalone accounts, the combined accounts of the subsidiary co-issuer, the combined accounts of the guarantor subsidiaries, the combined accounts of the non-guarantor subsidiaries, the consolidating adjustments and eliminations and the Partnership’s consolidated accounts as of March 31, 2019 and December 31, 2018 and for the three months ended March 31, 2019 and 2018. For the purpose of the following financial information, the Partnership’s investments in its subsidiaries and the guarantor subsidiaries’ investments in their respective subsidiaries are presented in accordance with the equity method of accounting (in thousands):

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CONDENSED CONSOLIDATING BALANCE SHEETS (UNAUDITED)

March 31, 2019	Parent			Subsidiary Issuer			Guarantor Subsidiaries		Non- Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents and restricted cash	$	—		$	—		$	23,021	$	1,427		$	—		$	24,448
Assets held for sale		—			—			757		—			—			757
Other current assets		—			3,677			68,590		12,665			—			84,932
Total current assets		—			3,677			92,368		14,092			—			110,137
Long-term accounts receivable		—			2,902			69,040		11,636			—			83,578
Cemetery and funeral home property and equipment		—			776			408,713		33,621			—			443,110
Merchandise trusts		—			—			—		515,065			—			515,065
Perpetual care trusts		—			—			—		344,825			—			344,825
Deferred selling and obtaining costs		—			5,476			88,843		18,324			—			112,643
Goodwill and intangible assets		—			—			24,493		60,319			—			84,812
Other assets		—			—			30,398		2,911			—			33,309
Investments in and amounts due from affiliates eliminated upon consolidation		39,671			—			570,680		—			(610,351	)		—
Total assets	$	39,671		$	12,831		$	1,284,535	$	1,000,793		$	(610,351	)	$	1,727,479
Liabilities and Partners’ Capital (Deficit)
Current liabilities	$	—		$	169		$	65,134	$	1,322		$	—		$	66,625
Long-term debt, net of deferred financing costs		68,506			105,242			172,185		—			—			345,933
Deferred revenues		—			32,628			793,209		115,203			—			941,040
Perpetual care trust corpus		—			—			—		344,825			—			344,825
Other long-term liabilities		—			—			42,393		15,498			—			57,891
Due to affiliates		—			25,979			173,748		567,399			(767,126	)		—
Total liabilities		68,506			164,018			1,246,669		1,044,247			(767,126	)		1,756,314
Partners’ capital (deficit)		(28,835	)		(151,187	)		37,866		(43,454	)		156,775			(28,835	)
Total liabilities and partners’ capital (deficit)	$	39,671		$	12,831		$	1,284,535	$	1,000,793		$	(610,351	)	$	1,727,479

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CONDENSED CONSOLIDATING BALANCE SHEETS (UNAUDITED) (continued)

December 31, 2018	Parent			��	Subsidiary Issuer			Guarantor Subsidiaries		Non- Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	—			$	—		$	16,298	$	1,849		$	—		$	18,147
Assets held for sale		—				—			757		—			—			757
Other current assets		—				3,718			64,167		11,527			—			79,412
Total current assets		—				3,718			81,222		13,376			—			98,316
Long-term accounts receivable		—				3,118			71,708		12,322			—			87,148
Cemetery and funeral home property and equipment		—				806			409,201		33,550			—			443,557
Merchandise trusts		—				—			—		488,248			—			488,248
Perpetual care trusts		—				—			—		330,562			—			330,562
Deferred selling and obtaining costs		—				5,511			88,705		18,444			—			112,660
Goodwill and intangible assets		—				—			25,676		60,607			—			86,283
Other assets		—				—			19,403		2,924			—			22,327
Investments in and amounts due from affiliates eliminated upon consolidation		61,875				(586	)		539,997		—			(601,286	)		-
Total assets	$	61,875			$	12,567		$	1,235,912	$	960,033		$	(601,286	)	$	1,669,101
Liabilities and Partners’ Capital (Deficit)
Current liabilities	$	—			$	184		$	60,216	$	1,400		$	—		$	61,800
Long-term debt, net of deferred financing costs		68,453				105,160			146,635		—			—			320,248
Deferred revenues		—				32,147			770,337		111,802			—			914,286
Perpetual care trust corpus		—				—			—		330,562			—			330,562
Other long-term liabilities		—				—			33,553		15,230			—			48,783
Due to affiliates		—				—			173,613		543,543			(717,156	)		-
Total liabilities		68,453				137,491			1,184,354		1,002,537			(717,156	)		1,675,679
Partners’ capital (deficit)		(6,578	)			(124,924	)		51,556		(42,502	)		115,870			(6,578	)
Total liabilities and partners’ capital (deficit)	$	61,875			$	12,567		$	1,235,910	$	960,035		$	(601,286	)	$	1,669,101

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CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS (UNAUDITED)

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	)
Other loss		—			—			—			—			—			—
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 continuing operations before income taxes		(22,534	)		(23,968	)		(15,639	)		(494	)		40,101			(22,534	)
Income tax benefit		—			—			—			—			—			—
Net income (loss)	$	(22,534	)	$	(23,968	)	$	(15,639	)	$	(494	)	$	40,101		$	(22,534	)

Three Months Ended March 31, 2018	Parent			Subsidiary Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Total revenues	$	—		$	1,625		$	65,789		$	12,860		$	(2,329	)	$	77,945
Total costs and expenses		—			(3,310	)		(70,913	)		(14,077	)		2,329			(85,971	)
Other loss		—			—			(5,205	)		—			—			(5,205	)
Net loss from equity investment in subsidiaries		(16,565	)		(14,793	)		—			—			31,358			—
Interest expense		(1,358	)		(2,087	)		(3,416	)		(252	)		—		$	(7,113	)
Income (loss) from continuing operations before income taxes		(17,923	)		(18,565	)		(13,745	)		(1,469	)		31,358			(20,344	)
Income tax benefit		—			—			2,421			—			—			2,421
Net income (loss)	$	(17,923	)	$	(18,565	)	$	(11,324	)	$	(1,469	)	$	31,358		$	(17,923	)

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CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (UNAUDITED)

Three Months Ended March 31, 2019	Parent		Subsidiary Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net cash 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 in 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 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, 2018	Parent		Subsidiary Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net cash provided by operating activities	$	—	$	145		$	10,340		$	(890	)	$	(3,445	)	$	6,150
Cash Flows From Investing Activities:
Cash paid for acquisitions and capital expenditures, net of proceeds from divestitures and asset sales		—		(145	)		(4,952	)		(105	)		—			(5,202	)
Net cash used in investing activities		—		(145	)		(4,952	)		(105	)		—			(5,202	)
Cash Flows From Financing Activities:
Cash distributions		—		—			—			—			—			—
Payments to affiliates		—		—			(3,445	)		—			3,445			—
Net borrowings and repayments of debt		—		—			2,850			—			—			2,850
Other financing activities		—		—			(207	)		—			—			(207	)
Net cash used in financing activities		—		—			(802	)		—			3,445			2,643
Net decrease in cash and cash equivalents		—		—			4,586			(995	)		—			3,591
Cash and cash equivalents—Beginning of period		—		—			4,216			2,605			—			6,821
Cash and cash equivalents—End of period	$	—	$	—		$	8,802		$	1,610		$	—		$	10,412

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15.	SEGMENT INFORMATION

The Partnership’s operations include two reportable operating segments, Cemetery Operations and Funeral Home Operations. These operating segments reflect the way the Partnership manages its operations and makes business decisions as of March 31, 2019. Operating segment data for the periods indicated was as follows (in thousands):

	Three months ended March 31,
	2019			2018
STATEMENT OF OPERATIONS DATA:
Cemetery Operations:
Revenues	$	57,910		$	62,243
Operating costs and expenses		(53,162	)		(58,063	)
Depreciation and amortization	$	(1,962	)		(2,074	)
Segment income	$	2,786		$	2,106
Funeral Home Operations:
Revenues	$	13,559		$	15,702
Operating costs and expenses		(11,500	)		(13,036	)
Depreciation and amortization		(588	)		(713	)
Segment income	$	1,471		$	1,953
Reconciliation of segment income to net loss:
Cemetery Operations	$	2,786		$	2,106
Funeral Home Operations		1,471			1,953
Total segment income		4,257			4,059
Corporate overhead		(13,413	)		(11,827	)
Corporate depreciation and amortization		(207	)		(258	)
Other losses, net		—			(5,205	)
Interest expense		(13,171	)		(7,113	)
Income tax benefit (expense)		—			2,421
Net loss	$	(22,534	)	$	(17,923	)

CASH FLOW DATA:
Capital expenditures:
Cemetery Operations	$	890		$	4,299
Funeral Home Operations		976			44
Corporate		37			26
Total capital expenditures	$	1,903		$	4,369

	March 31, 2019		December 31, 2018

BALANCE SHEET DATA:
Assets:
Cemetery Operations	$	1,545,620	$	1,508,667
Funeral Home Operations		143,420		136,064
Corporate		38,439		24,370
Total assets	$	1,727,479	$	1,669,101
Goodwill:
Cemetery Operations	$	24,862	$	24,862

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16.	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 Partnership’s unaudited condensed consolidated statements of cash flows (in thousands):

	Three months ended March 31,
	2019			2018
Pre-need/at-need contract originations (sales on credit)	$	(27,587	)	$	(35,987	)
Cash receipts from sales on credit (post-origination)		25,622			32,319
Changes in Accounts receivable, net of allowance	$	(1,965	)	$	(3,668	)
Deferrals:
Cash receipts from customer deposits at origination, net of refunds	$	34,205		$	36,416
Withdrawals of realized income from merchandise trusts during the period		2,124			2,101
Pre-need/at-need contract originations (sales on credit)		27,587			35,987
Undistributed merchandise trust investment earnings, net		3,610			2,393
Recognition:
Merchandise trust investment income, net withdrawn as of end of period		(2,255	)		(1,769	)
Recognized maturities of customer contracts collected as of end of period		(46,131	)		(45,900	)
Recognized maturities of customer contracts uncollected as of end of period		(10,556	)		(13,437	)
Changes in Deferred revenues	$	8,584		$	15,791

17.	SUBSEQUENT EVENTS

Appointment of Senior Vice President and Chief Financial Officer

On April 15, 2019, the Partnership announced the appointment of Garry P. Herdler as Senior Vice President and Chief Financial Officer of StoneMor GP LLC, the general partner of the Partnership (“StoneMor GP”), and the retirement of Mark L. Miller as Chief Financial Officer and Senior Vice President of StoneMor GP, effective on April 15, 2019.

Awards of Phantom Units

On April 15, 2019, an aggregate of 494,421 phantom units subject to time-based vesting and an aggregate of 520,626 phantom units subject to performance-based vesting were awarded under the Partnership’s Amended and Restated 2019 Long-Term Incentive Plan. Also on April 15, 2019, an additional 275,000 restricted units were awarded to an officer of the General Partner pursuant to his employment agreement, which units vest in equal quarterly installments over a four year period commencing three months after the grant date.

Existing Loan Agreement with a Related Party

In accordance with the Eighth Amendment to the Credit Agreement and under the provisions of the Tranche B Revolving Credit Facility, the Partnership was able to increase borrowings under Tranche B until April 30, 2019 under the existing documentation. On April 26, 2019, the Partnership had drawn down the remaining $10.0 million under the Tranche B Revolving Credit Facility to fully utilize the $35.0 million commitment.

First Amendment to Merger and Reorganization Agreement

As previously disclosed, on September 27, 2018, StoneMor Partners L.P., a Delaware limited partnership (the “Partnership”), StoneMor GP LLC, a Delaware limited liability company and the general partner of the Partnership (“GP”), StoneMor GP Holdings LLC, a Delaware limited liability company and 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”), entered into a Merger and Reorganization Agreement (the “Merger Agreement”) pursuant to which, among other things, GP will convert from a Delaware limited liability company into a Delaware corporation to be named StoneMor Inc. (the “Company”) and Merger Sub will merge with and into the Partnership (the “Merger”) with the Partnership surviving and with the Company as its sole general partner.

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On April 30, 2019, the parties to the Merger Agreement executed that certain First Amendment to Merger and Reorganization Agreement (the “First Amendment to Merger Agreement”) to extend the Termination Date (as defined in the Merger Agreement) to October 1, 2019.

Second Amendment to Voting and Support Agreement

As previously disclosed, and in connection with the execution and delivery of the Merger Agreement, on September 27, 2018, the Partnership, GP, GP Holdings, Robert B. Hellman, Jr., in his capacity as trustee under the Voting and Investment Trust Agreement for the benefit of American Cemeteries Infrastructure Investors, LLC (“ACII” and together with GP Holdings, the “ACII Entities”), Axar Capital Management, LP, a Delaware limited partnership (“Axar”), Axar GP, LLC, a Delaware limited liability company (“Axar GP”) and Axar Master Fund, Ltd., a Cayman Islands exempted limited partnership (the “Axar Funds,” and together with Axar and Axar GP, the “Axar Entities”) entered into a voting and support agreement (the “Original Voting and Support Agreement”), pursuant to which, among other things, the Axar Entities were restricted from owning or acquiring more than 19.99% in aggregate of the outstanding common units representing limited partner interests in the Partnership (the “Common Units”) prior to the closing of the Merger. The Original Voting and Support Agreement was subsequently amended on February 4, 2019 (such amendment, the “First Amendment to Voting and Support Agreement”) to permit the Axar Entities to acquire up to 27.49% in the aggregate of the outstanding Common Units prior to the closing of the Merger.

On April 30, 2019, and in connection with the execution of the First Amendment to Merger Agreement, the parties to the Original Voting and Support Agreement and First Amendment to Voting and Support Agreement executed that certain Second Amendment to Voting and Support Agreement (the “Second Amendment to Voting and Support Agreement”) to extend the termination date set forth therein to October 1, 2019.

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

The management’s discussion and analysis presented below provides information to assist in understanding the Partnership’s financial condition and results of operations and should be read in conjunction with the Partnership’s condensed consolidated financial statements included in Item 1 of this Form 10-Q. Unless the context otherwise requires, references to “we,” “us,” “our,” “StoneMor,” the “Company,” or the “Partnership” are to StoneMor Partners L.P. and its subsidiaries.

Certain statements contained in this Form 10-Q, 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 Form 10-Q, 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 Form 10-Q. We believe the assumptions underlying the condensed consolidated financial statements are reasonable.

Our major risks are related to our substantial secured and unsecured indebtedness, our ability to refinance our secured indebtedness in the near term, uncertainties associated with the cash flow from pre-need and at-need sales, trusts and financings, which may impact our ability to meet our financial projections, service our debt and pay distributions at previous or any different amounts, as well as with our ability to maintain an effective system of internal control over financial reporting and disclosure controls and procedures.

Our additional risks and uncertainties include, but are not limited to, the following: uncertainties associated with future revenue and revenue growth; uncertainties associated with the integration or anticipated benefits of recent acquisitions or any future acquisitions; our ability to complete and fund additional acquisitions; the effect of economic downturns; the impact of our significant leverage on our operating plans; uncertainty of our ability to generate sufficient cash to service all of our indebtedness; the decline in the fair value of certain equity and debt securities held in trusts; our ability to attract, train and retain an adequate number of sales people; uncertainties associated with the volume and timing of pre-need sales of cemetery services and products; increased use of cremation; changes in religious beliefs, changes in the death rate; changes in the political or regulatory environments, including potential changes in tax accounting and trusting policies; our ability to successfully implement a strategic plan relating to achieving operating improvements, strong cash flows and further deleveraging; our ability to successfully compete in the cemetery and funeral home industry; litigation or legal proceedings that could expose us to significant liabilities and damage our reputation; the effects of cyber security attacks due to our significant reliance on information technology; our ability to negotiate bonding arrangements with third-party insurance companies; uncertainties relating to the financial condition of third-party insurance companies that fund our pre-need funeral contracts; and various other uncertainties associated with the death care industry and our operations in particular.

Our risks and uncertainties are more particularly described in Part I, Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2018. Readers are cautioned not to place undue reliance on forward-looking statements included in this Form 10-Q, 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 a publicly-traded Delaware master-limited partnership ("MLP") and provider of funeral and cemetery products and services in the death care industry in the United States. As of March 31, 2019, we operated 322 cemeteries in 27 states and Puerto Rico, of which 291 were owned and 31 were operated under lease, management or operating agreements. We also owned, operated or managed 90 funeral homes in 17 states and Puerto Rico. We are proposing to convert to a “C” Corporation which, if approved, will be effective during 2019. See Part 1, Item 1. Financial Statements, Note 1 General, to the unaudited condensed consolidated financial statements for further information related to the Merger and Reorganization Agreement.

Our revenue is derived from Cemetery Operations and Funeral Home Operations. Our Cemetery Operation segment principally generates revenue from sales of interment rights, cemetery merchandise, which includes markers, bases, vaults, caskets, cremation niches and services including opening and closing (“O&C”), 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, including 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 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 policies.

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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 the customer on pre-need contracts, which are required by law to be deposited into the merchandise and service trusts. Amounts are withdrawn from the merchandise and service trusts when the Partnership fulfills 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 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 exceed 60 months. Interest income is recognized utilizing the effective interest method. For those contracts that do not bear a market rate of interest, the Partnership imputes 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 including 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 customer. We provide a variety of unique product and service offerings to meet the needs of our customer’s families. The mix of services could influence operating results, as it influences the average revenue per contract. Expense management including 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 including cash flow.

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

RECENT EVENTS

The following key events and transactions occurred during 2019 through the date of issuance of the attached financial statements as discussed in further detail in Results of Operations sections of Management’s Discussion and Analysis:



•	Garry P. Herdler became our Senior Vice President and Chief Financial Officer on April 15, 2019.
•	On February 4, 2019, we amended and restated our existing Credit Agreement, which had been previously amended in June and July 2018, to modify its covenants to provide us with greater financial and operating flexibility.
•	On February 4, 2019, as part of the recent amendment to our credit facility, we have added a “last out” senior secured credit facility with Axar Capital Management, a related party, for up to $35.0 million. The proceeds of the facility will be used to finance the working capital needs and for other general corporate purposes to drive improvements in sales. We borrowed $15.0 million under this facility on February 4, 2019, and any borrowings resulting in the outstanding balance of this last-out facility exceeding $25.0 million was subject to receipt of a fairness opinion with respect to the last-out facility, which was obtained prior to such borrowings. On March 29, 2019, the Partnership had an additional borrowing of $10 million and on April 26, 2019, the Partnership drew down the $10 million remaining capacity under the Tranche B Revolving Credit Facility.

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, demographic trends in terms of population growth, average age and cremation trends. 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.

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Effective January 1, 2019, the Partnership adopted the Lease standard as further discussed in Part 1, Item 1, Footnote 1, “General”, which resulted in an increase in Other Assets of $15.3 million and increases of $2.2 million and $13.1 million in accounts payable and accrued liabilities and other long-term liabilities, respectively, in the Unaudited Condensed Consolidated Balance Sheet as of March 31, 2019. The adoption did not have a material impact to Partnership’s results of operations.

Due to enhanced inventory control procedures implemented in late 2018, we recorded inventory impairment charges related to damaged and excess inventory and to certain excess inventory allocated to pre-need customers that had been damaged due to weather related deterioration or had otherwise been deemed impractical for use by management. These impairments resulted in an increase of $1.9 million to cost of goods sold and $5.0 million charge included in other losses for the three months ended March 31, 2018.

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the "Tax Act") was signed into law. The Tax Act makes broad and complex changes to the U.S. tax code by, among other things, reducing the federal corporate income tax rate, creating a new limitation on deductible interest expense, creating bonus depreciation that will allow for full expensing on qualified property, changing the lives of post-2017 net operating loss carryovers and imposing limitations on deductibility of certain executive compensation.

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 second largest owner and operator of cemeteries in the United States of America. As of March 31, 2019 we operated 322 cemeteries in 27 states and Puerto Rico. We own 291 of these cemeteries and we manage or operate the remaining 31 under lease, operating or management agreements. Revenues from Cemetery Operations accounted for approximately 81% of our total revenues during the quarter ended March 31, 2019.

Operating Results

The following table presents operating results for our Cemetery Operations for the respective reporting periods (in thousands):

	Three Months Ended March 31,
	2019		2018
Interments	$	15,944	$	19,625
Merchandise		16,541		16,627
Services		15,967		16,491
Interest income		1,822		2,135
Investment and other		7,636		7,365
Total revenues		57,910		62,243
Cost of goods sold		9,743		13,435
Cemetery expense		17,247		17,414
Selling expense		14,733		16,256
General and administrative expense		11,439		10,958
Depreciation and amortization		1,962		2,074
Total costs and expenses		55,124		60,137
Segment income	$	2,786	$	2,106

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The following table presents supplemental operating data for the periods presented (in thousands):

	Three Months Ended March 31,
SUPPLEMENTAL DATA:	2019		2018
Interments performed		12,995		14,572
Net interment rights sold ⁽¹⁾
Lots		4,485		6,536
Mausoleum crypts (including pre-construction)		215		546
Niches		338		429
Total net interment rights sold ⁽¹⁾		5,038		7,511
Number of pre-need cemetery contracts written		8,434		10,162
Number of at-need cemetery contracts written		13,249		14,727
Number of cemetery contracts written		21,683		24,889

______________________________

⁽¹⁾

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

Cemetery interments revenues were $15.9 million for the quarter ended March 31, 2019, a decrease of $3.7 million from $19.6 million for the quarter ended March 31, 2018. The decrease was primarily due to declines in pre-need lot, mausoleum and crypt revenues of $2.1 million, $0.8 million and $0.6 million, respectively, and a net decrease in revenue from various other products totaling $0.2 million.

Cemetery merchandise revenues were $16.5 million for the quarter ended March 31, 2019, a decrease of $0.1 million from $16.6 million for the quarter ended March 31, 2018. The decrease was primarily due to declines in pre-need markers and caskets of $0.9 million and $0.3 million, respectively, and a net decrease in revenues from various other products totaling $0.2 million. Substantially offsetting these decreases were increases in contracts serviced that were acquired through acquisitions in prior years of $0.5 million, at-need marker revenues of $0.5 million and pre-need vault revenues of $0.3 million.

Cemetery services revenues were $16.0 million for the quarter ended March 31, 2019, a decrease of $0.5 million from $16.5 million for the quarter ended March 31, 2018. The decrease was primarily due to a decrease in at-need opening and closing revenues of $1.0 million and a net decrease in revenues from various other products totaling $0.3 million. Partially offsetting these decreases were increases in pre-need opening and closing revenues of $0.6 million and at-need marker installations of $0.2 million.

Interest income was $1.8 million for the quarter ended March 31, 2019, a decrease of $0.3 million from $2.1 million for the quarter ended March 31, 2018. The decrease was due to a decrease in payments and a corresponding deceleration of interest received.

Investment and other income was $7.6 million for the quarter ended March 31, 2019, an increase of $0.3 million from $7.4 million for quarter ended March 31, 2018. The increase was primarily due to an increase in investment income, partially offset by decreases in various other sources of income.

Cost of goods sold was $9.7 million for the quarter ended March 31, 2019, a decrease of $3.7 million from $13.4 million for the quarter ended March 31, 2018. The decrease was primarily the result of the decline in revenues, combined with vault inventory adjustments and impairments of $1.9 million recorded in the prior period that did not recur in the current period, and decreases in the cost of markers and merchandise associated with older contracts that were acquired through acquisitions.

Cemetery expenses were $17.2 million for the quarter ended March 31, 2019, a decrease of $0.2 million from $17.4 million for the quarter ended March 31, 2018. The decrease was primarily due to a decrease in payroll of $0.7 million associated with the implementation of a general manager operating model, and a decrease in landscaping costs of $0.2 million. These decreases were partially offset by increases in repairs and maintenance of $0.3 million, employee benefits of $0.2 million and various other expenses totaling $0.2 million.

Selling expenses were $14.7 million for the quarter ended March 31, 2019, a decrease of $1.5 million from $16.3 million for the quarter ended March 31, 2018. The decrease was due to a reduction in compensation to sales personnel of $1.2 million resulting from the decline in sales and number of sales employees.

General and administrative expenses were $11.4 million for the quarter ended March 31, 2019, an increase of $0.5 million from $11.0 million for the quarter ended March 31, 2018. The increase was primarily due to an increase in payroll of $0.9 million associated with the implementation of a general manager operating model, partially offset by a net decrease in various other expenses of $0.4 million.

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Depreciation and amortization expenses were $2.0 million for the quarter ended March 31, 2019, a decrease of $0.1 million from $2.1 million for the quarter ended March 31, 2018. The decrease was due to normal depreciation and amortization of the associated asset base.

Funeral Home Operations

Overview

As of March 31, 2019, we owned, operated or managed 90 funeral homes. These properties are located in 17 states and Puerto Rico. Revenues from Funeral Home Operations accounted for approximately 19% of our total revenues during the quarter ended March 31, 2019.

Operating Results

The following table presents operating results for our Funeral Home Operations for the respective reporting periods (in thousands):

	Three Months Ended March 31,
	2019		2018
Merchandise	$	6,275	$	7,429
Services		7,284		8,273
Total revenues		13,559		15,702
Merchandise		2,317		2,478
Services		5,553		5,518
Depreciation and amortization		588		713
Other		3,630		5,040
Total expenses		12,088		13,749
Segment income	$	1,471	$	1,953

Funeral home merchandise revenues were $6.3 million for the quarter ended March 31, 2019, a decrease of $1.2 million from $7.4 million for the quarter ended March 31, 2018. The decrease was primarily due to decreases in pre-need casket revenues, at-need casket revenues and various other product revenues of $0.3 million, $0.3 million and $0.4 million, respectively, combined with the impact of properties divested since the prior period of $0.1 million and a return to a normal level of cancellations of $0.1 million as there was a reversal of the cancellation reserve in the prior year that did not recur in the current period.

Funeral home services revenues were $7.3 million for the quarter ended March 31, 2019, a decrease of $1.0 million from $8.3 million for the quarter ended March 31, 2018. The decrease was primarily due to a decrease in at-need services of $0.4 million, a decrease in insurance commission revenues of $0.3 million resulting from selling fewer insurance contracts, the impact of properties divested since the prior period of $0.1 million, a return to a normal level of cancellations of $0.1 million as there was a reversal of the cancellation reserve in the prior year that did not recur in the current period and a net decrease of $0.1 million in revenues from various other services.

Funeral home expenses were $12.1 million for the quarter ended March 31, 2019, a decrease of $1.7 million from $13.7 million for the quarter ended March 31, 2018. The decrease was primarily due to savings of $1.0 million from elimination of the insurance sales group, a decrease in legal fees of $0.2 million, the impact of properties divested since the prior period of $0.2 million and a net decrease of $0.3 million in various other expenses.

Corporate Overhead

Corporate overhead expense was $13.4 million for the quarter ended March 31, 2019, an increase of $1.6 million from $11.8 million for the quarter ended March 31, 2018. The increase was primarily due to increases in professional fees of $1.9 million largely attributable due to increased costs associated with consulting and professional fees arising from the potential C-Corp conversion, debt refinancing, various employee severance and other ongoing management initiatives. This increase was partially offset by a decrease in salaries and benefits of $0.3 million.

Corporate Depreciation and Amortization

Depreciation and amortization expense was $0.2 million for the quarter ended March 31, 2019, a decrease of $0.1 million from $0.3 million for the quarter ended March 31, 2018. The decrease was primarily due to normal depreciation and amortization of the associated asset base.

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Gains and Losses

For the quarter ended March 31, 2019, there were no other gains or losses. For the quarter ended March 31, 2018, other losses were $5.2 million and consisted primarily of losses related to damaged merchandise of approximately $5.0 million which represented the probable amount of the loss which was recognized during the quarter. Additionally, there were other losses recognized on a property impairment.

Interest Expense

Interest expense was $13.2 million for the quarter ended March 31, 2019, an increase of $6.1 million from $7.1 million for the quarter ended March 31, 2018. The increase was principally due to a write-off of $2.4 million in deferred financing costs associated with amending our debt agreement in the first quarter of 2019, combined with an increase of $1.9 million related to the ticking fee under the Tranche A Revolving Credit Facility. Additionally the Partnership had a higher weighted average interest rate and higher weighted average line of credit balance outstanding for the current year compared to the prior year.

Income Tax Benefit

There was no Income tax benefit or expense for the quarter ended March 31, 2019 compared to $2.4 million income tax benefit for the quarter ended March 31, 2018. The lack of benefit for the quarter ended March 31, 2019 was driven by the fact that the statutory maximum in reductions to deferred tax liabilities had been already achieved in the fourth quarter of 2018. The benefit for the quarter ended March 31, 2018 was primarily driven by changes in the Tax Act with allowed the Partnership to use post December 31, 2017 net operating losses against long life deferred tax liabilities. Our effective tax rate differs from our statutory tax rate primarily because our legal entity structure includes different tax filing entities, including partnerships with significant income that are not subject to entity level income taxes.

LIQUIDITY AND CAPITAL RESOURCES

General

Our primary sources of liquidity are cash generated from operations and borrowings under our revolving credit facility. As an MLP, our primary cash requirements, in addition to normal operating expenses, are for capital expenditures, net contributions to the merchandise and perpetual care trust funds, debt service and cash distributions. In general, as part of our operating strategy, we expect to fund:

•

working capital deficits through cash generated from operations, additional borrowings and sales of underperforming properties;

•

expansion capital expenditures, net contributions to the merchandise and perpetual care trust funds and debt service obligations through available cash, cash generated from operations, additional borrowings or 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 relates, which will reduce the amount of additional borrowings; and

•

any cash distributions we are permitted and determine to pay in accordance with our partnership agreement and maintenance capital expenditures through available cash and cash flows from operating activities.

•

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•

our failure to comply with certain covenants of our Credit Agreement (as defined below), as amended due to our prior inability to complete timely filings of our Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q, exceeding the maximum consolidated leverage ratio financial covenant for the periods ended December 31, 2017 and March 31, 2018, exceeding the maximum consolidated secured net leverage ratio financial covenant for the periods ended June 30, 2018, September 30, 2018 and December 31, 2018 and not being able to achieve the minimum consolidated fixed charge coverage ratio for the periods ended June 30, 2018, September 30, 2018 and December 31, 2018. As disclosed in the credit facility subsection in Part I, Item 1. Financial Statements (Unaudited) Note 1 General and Note 9 Long-Term Debt, these failures constituted defaults that our lenders have waived; and

•

3.00% on July 1, 2019, of which (x) 2.00% shall PIK and (y) 1.00% shall be payable in cash, unless Required Lenders agree to PIK;

•

1.00% on August 1, 2019, payable in cash, unless the Required Lenders agree to PIK;

•

1.00% on September 1, 2019, payable in cash, unless the Required Lenders agree to PIK; and

•

1.00% on October 1, 2019, PIK;

•

continue to manage recurring operating expenses and seek to limit non-recurring operating expenses over the next twelve-month period, which includes the January 2019 Restructuring actions discussed above;

•

complete sales of certain assets and/or businesses to provide supplemental liquidity; and

•

operating performance not meeting reasonably expected forecasts;

•

failing to generate profitable sales;

•

investments in the Partnership'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 Partnership's markets;

•

the number of deaths in the Partnership's markets declining; and

•

the mix of funeral and cemetery revenues between burials and cremations.

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If the Partnership's planned and implemented actions are not completed and cash savings realized and the Partnership fails to improve its operating performance and cash flows, or the Partnership is not able to comply with the covenants under its amended credit facility, the Partnership may be forced to limit its business activities, implement further modifications to its operations, further amend its credit facility and/or seek other sources of capital, and the Partnership may be unable to continue as a going concern. Additionally, a failure to generate additional liquidity could negatively impact the Partnership's access to inventory or services that are important to the operation of the Partnership's business. Given the Partnership's level of cash and cash equivalents, to preserve capital resources and liquidity, the Board of Directors of the General Partner concluded that it was not in the best interest of unitholders to pay distributions to unitholders after the first quarter of 2017. In addition, the Partnership's revolving credit facility effectively prohibits the Partnership from making distributions to unitholders. Any of these events may have a material adverse effect on the Partnership's results of operations and financial condition. The ability of the Partnership to meets its obligations at March 31, 2019, and to continue as a going concern is dependent upon achieving the action plans noted above. The unaudited consolidated financial statements for the quarter ended March 31, 2019 were prepared on the basis of a going concern which contemplates that the Partnership 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 Partnership be required to liquidate its assets. The ability of the Partnership to meet its obligations at March 31, 2019, and to continue as a going concern is dependent upon the availability of a refinancing in full of the obligations with respect to the Tranche A Revolving Credit Facility, continued ability to manage expenses and increase sales. As such, the unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q do not include any adjustments that might result from the outcome of these uncertainties.

Cash Flows

Net cash used in operating activities was $13.1 million during the quarter ended March 31, 2019, a change of $19.3 million from $6.2 million in net cash provided by operating activities during the quarter ended March 31, 2018. The $19.3 million unfavorable movement resulted from $13.7 million net cash outflow to fund changes in working capital and a $5.6 million increase in net loss excluding non-cash items. The increase in net working capital was primarily the result of managing our working capital through an increased focus on collection of accounts receivable. The increase in net loss excluding non-cash items was due to a decrease in revenues coupled with increased general and administrative expense due to increased consulting and professional fees resulting from the potential C-Corp conversion and due to various changes in our senior management.

Net cash used in investing activities was $1.9 million during the quarter ended March 31, 2019, a decrease of $3.3 million from $5.2 million during the quarter ended March 31, 2018. Net cash used in investing activities during 2019 consisted of $1.9 million for capital expenditures. The decrease was primarily attributable to a $2.5 million decrease in capital expenditures compared to the quarter ended March 31, 2018, which included $1.4 million related to the construction of a funeral home on an existing cemetery location. In addition the prior year had a use of cash of $0.8 million related to acquisitions.

Net cash provided by financing activities was $21.3 million for the quarter ended March 31, 2019, an increase of $18.7 million from $2.6 million for the quarter ended March 31, 2018. Net cash provided by financing activities during 2019 was driven by proceeds from long-term debt of partially offset by financing costs incurred of $2.6 million.

Capital Expenditures

Our capital requirements consist primarily of:

•

Expansion capital expenditures – we consider expansion capital expenditures to be capital expenditures that expand the capacity of our existing operations; and

•

Maintenance capital expenditures – we consider maintenance capital expenditures to be any capital expenditures that are not expansion capital expenditures – generally, this will include furniture, fixtures, equipment and major facility improvements that are capitalized in accordance with generally accepted accounting principles.

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,
	2019		2018
Maintenance capital expenditures	$	1,012	$	1,044
Expansion capital expenditures		891		3,325
Total capital expenditures	$	1,903	$	4,369

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Long-Term Debt

Credit Facility

On August 4, 2016, StoneMor Operating LLC (the “Operating Company”), a 100% owned subsidiary of the Partnership, entered into the Credit Agreement (the “Credit Agreement”) among each of the Subsidiaries of the Operating Company (together with the Operating Company, “Borrowers”), the Lenders identified therein, Capital One, National Association (“Capital One”), as Administrative Agent, Issuing Bank and Swingline Lender, Citizens Bank N.A., as Syndication Agent, and TD Bank, N.A. and Raymond James Bank, N.A., as Co-Documentation Agents. In addition, on the same date, the Partnership, the Borrowers and Capital One, as Administrative Agent, entered into the Guaranty and Collateral Agreement (the “Guaranty Agreement,” and together with the Credit Agreement, “New Agreements”). Capitalized terms which are not defined in the following description of the New Agreements shall have the meaning assigned to such terms in the New Agreements, as amended.

On March 15, 2017, the Borrowers, Capital One, as Administrative Agent and acting in accordance with the written consent of the Required Lenders, entered into the First Amendment to Credit Agreement. Those parties subsequently entered into a Second Amendment and Limited waiver on July 26, 2017, a Third Amendment and Limited Waiver effective as of August 15, 2017, a Fourth Amendment to Credit Agreement dated September 29, 2017, a Fifth Amendment to Credit Agreement dated as of December 22, 2017 but effective as of September 29, 2017, a Sixth Amendment and Waiver dated as of June 12, 2018, a Seventh Amendment and Waiver dated as of July 13, 2018 and an Eighth Amendment and Wavier dated as of February 4, 2019. We refer to the Credit Agreement, as so amended, as the “Amended Credit Agreement.”

Prior to the Eighth Amendment, the Amended Credit Agreement provided for up to $175.0 million initial aggregate amount of Revolving Commitments, which were subject to borrowing base limitations. Under the Eighth Amendment, the Partnership can no longer draw on Revolving Commitments under the Tranche A Revolving Credit Facility but had availability of $10 million under the Tranche B Revolving Credit Facility (in addition to amounts drawn on February 4, 2019 and March 29, 2019), which may be utilized in the amount of $5.0 million (or integral multiple thereof) from time to time until April 30, 2019, provided that borrowings on the last $10 million required the Partnership to receive a fairness opinion with respect to the Tranche B Revolving Credit Facility, which was obtained. On April 26, 2019, the Partnership had drawn down the remaining $10.0 million under the Tranche B Revolving Credit Facility and fully utilized the $35.0 million in commitments under the Tranche B Revolving Credit Facility, which was before the last remaining draw date of April 30, 2019 in accordance with the terms under the Eighth Amendment. The Operating Company may also request the issuance of Letters of Credit for up to $9.4 million (plus an amount equal to the principal amount of Tranche A Revolving Loans subject to the optional prepayment after the Eighth Amendment Effective Date) in the aggregate, of which there were $9.4 million outstanding at March 31, 2019 and December 31, 2018. The Maturity Date under the Amended Credit Agreement is the earlier of (i) May 1, 2020 and (ii) the date that is six months prior to the earliest scheduled maturity date of any outstanding Permitted Unsecured Indebtedness (at present, such date is December 1, 2020, which is six months prior to June 1, 2021 maturity date of outstanding 7.875% senior notes).

As of March 31, 2019, the outstanding amount of borrowings under the Amended Credit Agreement was $180.7 million, which was used to pay down outstanding obligations under the Partnership’s prior credit agreement, to pay fees, costs and expenses related to the New Agreements and to fund working capital needs. Generally, proceeds of the Loans made under the Tranche A Revolving Credit Facility under the Amended Credit Agreement could be used to finance the working capital needs and for other general corporate purposes of the Borrowers and Guarantors, including acquisitions and distributions permitted under the Amended Credit Agreement. Proceeds of the Loans made under the Tranche B Revolving Credit Facility under the Amended Credit Agreement can be used to finance the working capital needs and for other general corporate purposes of the Borrowers and Guarantors, and to pay fees and expenses related to the Tranche B Revolving Credit Facility. On the Eighth Amendment Effective Date, no part of the proceeds of loans made under the Tranche B Revolving Credit Facility may be used to make any payment of principal on the Tranche A Revolving Loans.

Each Borrowing under the Tranche A Revolving Credit Facility is comprised of Base Rate Loans or Eurodollar Loans. The Loans comprising each Base Rate Borrowing (including each Swingline Loan) bear interest at the Base Rate plus the Applicable Rate, and the Loans comprising each Eurodollar Borrowing bear interest at the Eurodollar Rate plus the Applicable Rate.

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Prior to June 12, 2018, the Applicable Rate was determined based on the Consolidated Leverage Ratio of the Partnership and its Subsidiaries and ranged from 1.75% to 3.75% for Eurodollar Rate Loans, 0.75% to 2.75% for Base Rate Loans and between 0.30% and 0.50% for unused commitment fee. The Sixth Amendment increased the minimum and maximum Applicable Rate by 0.50% and redetermined the Applicable Rate based on the Consolidated Secured Net Leverage Ratio of the Partnership and its Subsidiaries to be in the range between 2.25% to 4.25% for Eurodollar Rate Loans and 1.25% to 3.25% for Base Rate Loans (but in no event less that the Applicable Rate that would be in effect if calculated as set forth in the Original Amended Agreement not giving effect to the Sixth Amendment and Waiver and the Seventh Amendment and Waiver). As a result of the Eighth Amendment, the Applicable Rate is as follows: 4.50% for Eurodollar Rate Loans and 3.50% for Base Rate Loans from February 4, 2019 to February 28, 2019; 4.75% and 3.75%, respectively, from March 1, 2019 to March 31, 2019; 5.50% and 4.50%, respectively, from April 1, 2019 to April 30, 2019; 5.75% and 4.75%, respectively, from May 1, 2019 to May 31, 2019 and 6.00% and 5.00%, respectively, from June 1, 2019. As of March 31, 2019, the Applicable Rate for Eurodollar Rate Loans was 4.75% and for Base Rate Loans was 3.75%. On March 31, 2019, the weighted average interest rate on outstanding borrowings under the Amended Credit Agreement was 7.66%.

The Amended Credit Agreement contains a financial covenant, pursuant to which the Partnership could or will not permit its Consolidated EBITDA to be less than the following amounts for the four consecutive fiscal quarters ending on the following dates: (i) $18.0 million for the period ended March 31, 2018; (ii) $13.0 million for the period ended June 30, 2018 (iii) $2.5 million for the period ended September 30, 2018, (iv) ($3.0 million) for the period ended December 31, 2018, (v) $1.0 million for the period ending March 31, 2019, (vi) $3.5 million for the period ending June 30, 2019; (vii) $8.0 million for the period ending September 30, 2019, (viii) $8.25 million for the period ending December 31, 2019; and (ix) $9.25 million for the period ending March 31, 2020.

The Borrowers’ obligations under the Amended Credit Agreement are guaranteed by the Partnership and the Borrowers. Pursuant to the Guaranty Agreement, the Borrowers’ obligations under the Amended Credit Agreement are secured by a first priority lien and security interest (subject to permitted liens and security interests) in substantially all of the Partnership’s and Borrowers’ assets, whether then owned or thereafter acquired, excluding certain excluded assets, which include, among others: (i) Trust Accounts, certain proceeds required by law to be placed into such Trust Accounts and funds held in such Trust Accounts; and (ii) Excluded Real Property, including owned and leased real property that may not be pledged as a matter of law.

Senior Notes

On May 28, 2013, we issued $175.0 million aggregate principal amount of 7.875% Senior Notes due 2021 (the "Senior Notes"). We pay 7.875% interest per annum on the principal amount of the Senior Notes, payable in cash semi-annually in arrears on June 1 and December 1 of each year. The net proceeds from the offering were used to retire a $150.0 million aggregate principal amount of 10.25% Senior Notes due 2017 and the remaining proceeds were used for general corporate purposes. The Senior Notes were issued at 97.832% of par resulting in gross proceeds of $171.2 million with an original issue discount of approximately $3.8 million. We incurred debt issuance costs and fees of approximately $4.6 million. These costs and fees are deferred and will be amortized over the life of these notes. The Senior Notes mature on June 1, 2021.

We may redeem the Senior Notes at any time, in whole or in part, at the redemption prices (expressed as percentages of the principal amount) set forth below, together with accrued and unpaid interest, if any, to the redemption date, if redeemed during the 12-month period beginning June 1 of the years indicated:

Year	Percentage
2018		101.969	%
2019 and thereafter		100.000	%

Subject to certain exceptions, upon the occurrence of a Change of Control (as defined in the indenture governing the Senior Notes), each holder of the Senior Notes will have the right to require us to purchase that holder’s Senior Notes for a cash price equal to 101% of the principal amounts to be purchased, plus accrued and unpaid interest.

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The Senior Notes are jointly and severally guaranteed by certain of our subsidiaries. The indenture governing the Senior Notes contains covenants, including limitations of our ability to incur certain additional indebtedness and liens, make certain dividends, distributions, redemptions or investments, enter into certain transactions with affiliates, make certain asset sales, and engage in certain mergers, consolidations or sales of all or substantially all of our assets, among other items. As of March 31, 2019, we were in compliance with these covenants.

Cash Distribution Policy

Our partnership agreement requires that we distribute 100% of available cash to our common unitholders and general partner within 45 days following the end of each calendar quarter in accordance with their respective percentage interests. Available cash consists generally of all of our cash receipts, less cash disbursements. Our general partner is granted discretion under the partnership agreement to establish, maintain and adjust reserves for future operating expenses, debt service, maintenance capital expenditures and distributions for the next four quarters. These reserves are not restricted by magnitude, but only by type of future cash requirements with which they can be associated.

Available cash is distributed to the common limited partners and the general partner in accordance with their ownership interests, subject to the general partner’s incentive distribution rights if quarterly cash distributions per limited partner unit exceed specified targets. Incentive distribution rights are generally defined as all cash distributions paid to our general partner that are in excess of its general partner ownership interest. The incentive distribution rights will entitle our general partner to receive the following increasing percentage of cash distributed by us as it reaches certain target distribution levels:

•

13.0% of all cash distributed in any quarter after each common unit has received $0.5125 for that quarter;

•

23.0% of all cash distributed in any quarter after each common unit has received $0.5875 for that quarter; and

•

48.0% of all cash distributed in any quarter after each common unit has received $0.7125 for that quarter.

Given the Partnership’s level of cash and cash equivalents, to preserve capital resources and liquidity, the Board of Directors of the General Partner concluded that it was not in the best interest of unitholders to pay distributions to unitholders after the first quarter of 2017. In addition, our revolving credit facility effectively prohibits us from making distributions to unitholders.

We anticipate that we will use any cash generated from borrowings or asset sales for working capital and capital expenditures and provide a reserve to enhance our financial condition relative to the financial covenants in the Amended Credit Agreement.

Agreements with the Archdiocese of Philadelphia

In accordance with the lease and management agreements with the Archdiocese of Philadelphia, we have agreed to pay to the Archdiocese aggregate fixed rent of $36.0 million in the following amounts:

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

The fixed rent for lease years 6 through 11, an aggregate of $6.0 million is deferred. If, prior to May 31, 2024, the Archdiocese terminates the agreements pursuant to its right to do so in its sole discretion during lease year 11 or we terminate the agreements as a result of a default by the Archdiocese, we are entitled to retain the deferred fixed rent. If the agreements are not terminated, the deferred fixed rent will become due and payable on or before June 30, 2024.

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 preneed sales activities.

When selling preneed 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 preneed 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

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secure these surety bond obligations and may be required to provide additional cash collateral in the future under certain circumstances.

For the three months ended March 31, 2019 and 2018, we had $88.7 million and $91.4 million, respectively, of cash receipts from sales attributable to related bonded 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 preneed 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. Management does 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 financial statements in conformity with GAAP requires making estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of actual revenue and expenses during the reporting period. Although we base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances, actual results may differ from the estimates on which our financial statements are prepared at any given point of time. Changes in these estimates could materially affect our financial position, results of operations or cash flows. Significant items that are subject to such estimates and assumptions include revenue and expense accruals, depreciation and amortization, merchandise trust and perpetual care trust asset valuation, allowance for cancellations, unit-based compensation, deferred revenues, deferred merchandise trust investment earnings, deferred selling and obtaining costs, assets and liabilities obtained through business combinations, income taxes, hurricane-related losses and goodwill including any interim assessment for impairment. A discussion of our significant accounting policies we have adopted and followed in the preparation of our unaudited condensed consolidated financial statements was included in our Annual Report on Form 10-K for the year ended December 31, 2018.

There were no significant changes to our accounting policies that have occurred subsequent to December 31, 2018, except as described in Part 1, Item 1. Financial Statements, Note 1, "Recently Issued Accounting Updates-Adopted in the Current Period."

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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 which the Partnership invests in 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

Our fixed-income securities subject to market risk consist primarily of certain investments in our merchandise trusts and perpetual care trusts. As of March 31, 2019, the fair value of fixed-income securities in our merchandise trusts and perpetual care trusts represented 0.2% and 1.1%, of the fair value of total trust assets, respectively. The aggregate of the quoted fair value of these fixed-income securities was $1.2 million and $3.8 million in the merchandise trusts and perpetual care trusts, respectively, as of March 31, 2019. Holding all other variables constant, a hypothetical 1% change in variable interest rates on these fixed-income securities would change the fair market value of the assets in both our merchandise trusts and perpetual care trusts by less than $0.1 million based on discounted expected future cash flows. If these securities are held to maturity, no change in fair market value will be realized. Our money market and other short-term investments subject to market risk consist primarily of certain investments in our merchandise trusts and perpetual care trusts. As of March 31, 2019, the fair value of money market and short-term investments in our merchandise trusts and perpetual care trusts represented 2.1% and 3.4%, respectively, of the fair value of total trust assets. The aggregate of the quoted fair value of these money market and short-term investments was $10.8 million and $11.7 million in the merchandise trusts and perpetual care trusts, respectively, as of March 31, 2019. Holding all other variables constant, a hypothetical 1% change in variable interest rates on these money market and short-term investments would change the fair market value of the assets in both our merchandise trusts and perpetual care trusts by approximately $0.1, based on discounted expected future cash flows.

MARKETABLE EQUITY SECURITIES

Our marketable equity securities subject to market risk consist primarily of certain investments held in our merchandise trusts and perpetual care trusts. These assets consist of investments in both individual equity securities as well as closed and open-ended mutual funds. As of March 31, 2019, the fair value of marketable equity securities in our merchandise trusts and perpetual care trusts represented 4.3% and 6.9%, of the fair value of total trust assets, respectively. The aggregate of the quoted fair market value of these individual equity securities was $22.0 million and $23.7 million in our merchandise trusts and perpetual care trusts, respectively, as of March 31, 2019, based on final quoted sales prices. Holding all other variables constant, a hypothetical 10% change in variable interest rates of the equity securities would change the fair market value of the assets in our merchandise trusts and perpetual care trusts by approximately $2.2 million and $2.4 million, respectively, based on discounted expected future cash flows. As of March 31, 2019, the fair value of marketable closed and open-ended mutual funds in our merchandise trusts represented 47.3% of the fair value of total merchandise trust assets, 78.8% of which pertained to fixed-income mutual funds. As of March 31, 2019, the fair value of marketable closed and open-ended mutual funds in our perpetual care trusts represented 36.7% of total perpetual care trust assets, 86.9% of which pertained to fixed-income mutual funds. The aggregate of the quoted fair market value of these closed and open-ended mutual funds was $243.4 million and $126.4 million in the merchandise trusts and perpetual care trusts, respectively, as of March 31, 2019, based on final quoted sales prices, of which $191.9 million and $109.8 million, respectively, pertained to fixed-income mutual funds. Holding all other variables constant, a hypothetical 10% change in the average market prices of the closed and open-ended mutual funds would change the fair market value of the assets in our merchandise trusts and perpetual care trusts by approximately $24.3 million and $12.6 million, respectively, based on discounted expected future cash flows.

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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 to eight 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, 2019, the fair value of other investment funds in our merchandise trusts and perpetual care trusts represented 42.8% and 52.0%, respectively, of the fair value of total trust assets. The fair market value of the holdings in these funds was $220.2 million and $179.2 million in our merchandise trusts and perpetual care trusts, respectively, as of March 31, 2019, based on net asset value quotes.

DEBT INSTRUMENTS

Certain borrowings under our Amended Credit Facility bear interest at a floating rate, based on LIBOR, which is adjusted quarterly. This subjects us to increases in interest expense resulting from movements in interest rates. As of March 31, 2019, we had $180.7 million of borrowings outstanding under our credit facility, which generally bears interest at a variable rate. Holding all other variables constant, a hypothetical 1% change in variable interest rates would change our consolidated interest expense for the three months ended March 31, 2019, by approximately $0.4 million.


ITEM 4.	CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

The Partnership 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 SEC 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, 2019. Based on such evaluation, our CEO and CFO concluded the disclosure controls and procedures were not effective due to the material weaknesses in internal control over financial reporting described below.

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.

We previously identified and reported material weaknesses in internal control over financial reporting as of December 31, 2018 in our Annual Report on Form 10-K related to the following:

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Control environment, control activities and monitoring:

The Partnership did not design and maintain effective internal control over financial reporting related to control environment, control activities and monitoring based on the criteria established in the COSO 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 maintain effective controls over sales contract origination occurring at its site locations. Specifically, there was no subsequent review of contract entry and no approved master pricing listing. In addition there was no oversight monitoring at its corporate office related to cancelations and timely and accurate servicing for correct revenue recognition.

•

Management did not maintain effective controls over the accuracy and valuation of its merchandise inventory allocated to pre-need contracts. Specifically, the Partnership did not have effective controls over the assessment of condition and impairment of allocated and un-allocated merchandise inventory due to excessive or deterioration damage.

Establishment and review of certain accounting policies:

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

•

Management did not have effective segregation of duties, review and monitoring controls over revenue recognition with respect to the ASC 606 transition adjustment and subsequent calculations at a sufficient level of precision to timely detect misstatements in the related income statement and balance sheet account.

•

Management did not maintain effective completeness and accuracy controls at a level of precision to timely detect misstatements related to the insurance related assets and liabilities.

Reconciliation of certain general ledger accounts to supporting details:

The Partnership’s controls over the reconciliation of amounts recorded in the general ledger to relevant supporting detail for "Cemetery property" and "Deferred revenues" on the consolidated balance sheets were not designed appropriately and thus failed to operate effectively. Management has identified that the specified general ledger account balances were not always reconciled to supporting documentation.

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

The Partnership’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 Partnership 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 Partnership’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 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 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.

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•

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.

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, capital position, and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States (“GAAP”).

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, 2019. Management, with oversight from our Audit Committee, has identified and begun executing actions we believe will remediate the material weaknesses described above once fully implemented and operating for a sufficient period of time, and 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 of the new controls subsequent to implementation and consider the material weaknesses remediated after the applicable remedial controls operate effectively for a sufficient period of time.

Refer to our Annual Report on Form 10-K as of December 31, 2018 for further details on the remediation efforts.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

During the fiscal quarter ended March 31, 2019, we continued to make improvements to our internal control over financial reporting with respect to material weaknesses that had been identified at that time, and those remediation efforts remain ongoing. Other than as described above and in greater detail in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, 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, 2019 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting

PART II- OTHER INFORMATION

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 11 Commitments and Contingencies

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

Not applicable.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

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ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.

OTHER INFORMATION

None.

ITEM 6.

EXHIBITS

Exhibit Number		Description


10.1*		First Amendment to Voting and Support Agreement, dated February 4, 2019, by and among StoneMor Partners L.P., StoneMor GP LLC, and the unitholders of StoneMor Partners L.P. named therein (incorporated by reference to exhibit 10.1 of Registrant’s Current Report on Form 8-K filed on February 4, 2019).

10.2*		Eighth Amendment and Waiver to Credit Agreement, effective as of February 4, 2019, by and among StoneMor Partners L.P., StoneMor Operating LLC, the other Borrowers party thereto, Capital One, National Association, as Administrative Agent, and the Required Lenders party thereto (incorporated by reference to Exhibit 10.2 of Registrant’s Current Report on Form 8-K filed on February 4, 2019).

10.3*†		StoneMor Amended and Restated 2019 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-k filed on April 2, 2019).

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 Garry P. Herdler, 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 (furnished herewith).

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 Garry P. Herdler, Chief Financial Officer and Senior Vice President (furnished herewith).

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, 2019, and December 31, 2018; (ii) Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2019 and 2018; (iii) Unaudited Condensed Consolidated Statements of Partners’ (Deficit) Capital; (iv) Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018; 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 Partners L.P.

*	Incorporated by reference, as indicated

†	Management contract, compensatory plan or arrangement

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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 PARTNERS L.P.

	By:	StoneMor GP LLC, its General Partner

Date: May 9, 2019		By:	/s/ Joseph M. Redling
			Joseph M. Redling
			President and Chief Executive Officer


Date: May 9, 2019		By:	/s/ Garry P. Herdler
			Garry P. Herdler
			Chief Financial Officer and Senior Vice President (Principle Financial Officer)

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StoneMor 10-Q2019 Q1 Quarterly report

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