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 ~~June~~ September 30, 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

__________________________________

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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

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

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

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

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

The number of the registrant’s outstanding common units at ~~August~~November 6, 2019 was 3942,~~582~~636,~~542~~311.

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	3942
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5457
Item 4.	Controls and Procedures	5558
PART II	Other Information
Item 1.	Legal Proceedings	5860
Item 1A.	Risk Factors	5860
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6265
Item 3.	Defaults upon Senior Securities	6265
Item 4.	Mine Safety Disclosures	6265
Item 5.	Other Information	6365
Item 6.	Exhibits	6466
	Signatures	6668

Table of Contents

PART 1 – FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

STONEMOR PARTNERS L.P.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands)

	June 30,			December 31,
	September 30,			December 31,
	2019			2018
Assets
Current assets:
Cash and cash equivalents, excluding restricted cash	$	4143,~~859~~515		$	18,147
Restricted cash		20,~~095~~580			—
Accounts receivable, net of allowance		5961,~~550~~470			57,928
Prepaid expenses		85,~~942~~630			4,475
Other current assets		1718,~~231~~148			17,766
Total current assets		~~147~~149,~~677~~343			98,316
Long-term accounts receivable, net of allowance		8378,~~775~~138			87,148
Cemetery property		~~329~~328,~~760~~612			330,841
Property and equipment, net of accumulated depreciation		~~110~~108,~~655~~992			112,716
Merchandise trusts, restricted, at fair value		519,~~382~~529			488,248
Perpetual care trusts, restricted, at fair value		343,~~308~~028			330,562
Deferred selling and obtaining costs		~~112~~113,~~916~~601			112,660
Deferred tax assets		6755			86
Goodwill		~~24,862~~—			24,862
Intangible assets		56,~~877~~562			61,421
Other assets		3332,~~536~~663			22,241
Total assets	$	1,~~762~~730,~~815~~523		$	1,669,101
Liabilities, Redeemable Convertible Preferred Units and Partners’ Deficit
Current liabilities:
Accounts payable and accrued liabilities	$	5564,~~063~~585		$	59,035
Accrued interest		~~312~~—			1,967
Current portion, long-term debt		~~591~~503			798
Total current liabilities		5565,~~966~~088			61,800
Long-term debt, net of deferred financing costs		~~357~~362,~~575~~173			320,248
Deferred revenues		~~944~~943,~~142~~555			914,286
Deferred tax liabilities		1211,~~883~~264			6,675
Perpetual care trust corpus		343,~~308~~028			330,562
Other long-term liabilities		5251,~~385~~940			42,108
Total liabilities		1,~~766~~777,~~259~~048			1,675,679
Commitments and contingencies
Redeemable convertible preferred units:
Series A		57,500			—
Total redeemable convertible preferred units		57,500			-—
Partners’ deficit :
General partner interest		(45,~~597~~026	)		(4,008	)
Common limited partners’ interest		(5698,~~347~~999	)		(2,570	)
Total partners’ deficit		(60104,~~944~~025	)		(6,578	)
Total liabilities, redeemable convertible preferred units and partners’ deficit	$	1,~~762~~730,~~815~~523		$	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 June 30,						Six Months Ended June 30,
	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Revenues:
Cemetery:
Interments	$	2015,~~995~~605		$	2017,~~789~~716		$	3652,~~939~~544		$	4058,~~414~~130
Merchandise		1718,~~315~~014			1718,~~116~~023			3351,~~856~~870			3351,~~743~~766
Services		17,~~365~~068			1716,~~737~~419			3350,~~332~~400			3450,~~228~~647
Investment and other		910,~~953~~063			129,~~038~~247			1929,~~411~~474			2130,~~538~~785
Funeral home:
Merchandise		65,~~073~~572			65,~~522~~581			1217,~~348~~920			1319,~~951~~532
Services		6,~~794~~829			76,~~369~~199			1420,~~078~~907			1521,~~642~~841
Total revenues		7873,~~495~~151			8173,~~571~~185			~~149~~223,~~964~~115			~~159~~232,~~516~~701
Costs and Expenses:
Cost of goods sold		10,~~843~~677			1312,~~086~~866			2031,~~586~~263			2639,~~521~~387
Cemetery expense		2118,~~636~~362			2119,~~007~~407			3857,~~883~~245			3857,~~421~~828
Selling expense		1514,~~497~~609			1714,~~166~~251			3044,~~230~~839			3347,~~422~~673
General and administrative expense		1011,~~958~~033			10,~~163~~916			2233,~~397~~430			2132,~~121~~037
Corporate overhead		1311,~~137~~595			1512,~~165~~876			2638,~~550~~145			2639,~~992~~868
Depreciation and amortization		2,~~716~~647			32,~~071~~737			58,~~473~~120			68,~~116~~853
Funeral home expenses:
Merchandise		1,~~014~~896			1,~~108~~341			35,~~331~~227			34,~~586~~927
Services		5,~~459~~351			5,~~582~~493			1116,~~012~~363			1116,~~100~~593
Other		3,~~994~~422			3,~~961~~314			711,~~624~~046			912,~~001~~315
Total costs and expenses		8579,~~254~~592			9083,~~309~~201			~~166~~245,~~086~~678			~~176~~259,~~280~~481
Other losses		(3,429	)		—			(3,429	)		(5,205	)
Other gains (losses), net		(129	)		702			(3,558	)		(4,503	)
Operating loss		(106,~~188~~570	)		(89,~~738~~314	)		(1926,~~551~~121	)		(2131,~~969~~283	)
Interest expense		(912,~~346~~765	)		(87,~~107~~638	)		(2235,~~517~~282	)		(1522,~~220~~858	)
Loss on debt extinguishment		~~(8,478~~—	)		—			(8,478	)		—
Loss from operations before income taxes		(28,012	)		(16,845	)		(50,546	)		(37,189	)
Loss on impairment of goodwill		(24,862	)		—			(24,862	)		—
Income tax benefit (expense)		(6,386	)		(172	)		(6,386	)		2,249
Loss from operations before income taxes		(44,197	)		(16,952	)		(94,743	)		(54,141	)
Net loss	$	(34,398	)	$	(17,017	)	$	(56,932	)	$	(34,940	)
Income tax benefit (expense)		1,545			(273	)		(4,841	)		1,976
Accretion of redeemable convertible preferred units		-			-			-			-
Net loss	$	(42,652	)	$	(17,225	)	$	(99,584	)	$	(52,165	)
Net loss attributable to common unit holders	$	(34,398	)	$	(17,017	)	$	(56,932	)	$	(34,940	)
General partner’s interest	$	(426	)	$	(179	)	$	(1,018	)	$	(543	)
General partner’s interest	$	(357	)	$	(177	)	$	(592	)	$	(364	)
Limited partners’ interest	$	(42,226	)	$	(17,046	)	$	(98,566	)	$	(51,622	)
Limited partners’ interest	$	(34,041	)	$	(16,840	)	$	(56,340	)	$	(34,576	)
Net loss per limited partner unit (basic and diluted)	$	(1.09	)	$	(0.45	)	$	(2.56	)	$	(1.36	)
Net loss per limited partner unit (basic and diluted)	$	(1.44	)	$	(0.44	)	$	(1.44	)	$	(0.91	)
Weighted average number of limited partners’ units outstanding (basic and diluted)		38,916			37,959			38,438			37,959
Weighted average number of limited partners’ units outstanding (basic and diluted)		39,329			37,958			39,115			37,958

Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

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STONEMOR PARTNERS L.P.

CONDENSED CONSOLIDATED STATEMENTS OF PREFERRED UNITS AND PARTNERS’ EARNINGS (DEFICIT) (UNAUDITED)

(dollars in thousands, except units)

	Redeemable Convertible Preferred Unit				Partners’ Deficit
	Series A
	Number of Outstanding Preferred Units		Value of Outstanding Preferred Units		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 June 30, 2019
March 31, 2019		—	$	—		38,260,471		$	(24,593	)	$	(4,242	)	$	(28,835	)
Common unit awards under incentive plans		—		—		1,273,376			2,287			2			2,289
Issuance of Series A convertible preferred units, net of issuance		52,083,333		57,500		—			—			—			57,500
Net loss		—		—		—			(34,041	)		(357	)		(34,398	)
June 30, 2019		52,083,333	$	57,500		39,533,847		$	(56,347	)	$	(4,597	)	$	(3,444	)
	.
Three Months Ended September 30, 2019
June 30, 2019		52,083,333	$	57,500		39,533,847		$	(56,347	)	$	(4,597	)	$	(3,444	)
Common unit awards under incentive plans		—		—		31,983			250			(2	)		248
Units repurchased and retired related to unit-based compensation		—		—		(376	)		(677	)		—			(677	)
Net loss		—		—		—			(42,225	)		(427	)		(42,652	)
September 30, 2019		52,083,333	$	57,500		39,565,454		$	(98,999	)	$	(5,026	)	$	(46,525	)

	Redeemable Convertible Preferred Unit				Partners’ Earnings (Deficit)
	Series A
	Number of Outstanding Preferred Units		Value of Outstanding Preferred Units		Outstanding Common Units		Common Limited Partners			General Partner			Total
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
Three Months Ended June 30, 2018
March 31, 2018		—	$	—		37,958,645	$	49,272		$	(3,438	)	$	45,834
Common unit awards under incentive plans		—		—		—		1,755			—			1,755
Net loss		—		—		—		(16,840	)		(177	)		(17,017	)
June 30, 2018		—	$	—		37,958,645	$	34,187		$	(3,615	)	$	30,572

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

Table of Contents

	Redeemable Convertible Preferred Unit				Partners’ Earnings (Deficit)
	Series A
	Number of Outstanding Preferred Units		Value of Outstanding Preferred Units		Outstanding Common Units		Common Limited Partners			General Partner			Total
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

Three Months Ended June 30, 2018
March 31, 2018		—	$	—		37,958,645	$	49,272		$	(3,438	)	$	45,834
Common unit awards under incentive plans		—		—		—		1,755			—			1,755
Net loss		—		—		—		(16,840	)		(177	)		(17,017	)
June 30, 2018		—	$	—		37,958,645	$	34,187		$	(3,615	)	$	30,572

Three Months Ended September 30, 2018
June 30, 2018		—	$	—		37,958,645	$	34,187		$	(3,615	)	$	30,572
Common unit awards under incentive plans		—		—		—		113			—			113
Net loss		—		—		—		(17,046	)		(179	)		(17,225	)
September 30, 2018		—		—		37,958,645	$	17,254		$	(3,794	)	$	13,460

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)

	Six Months Ended June 30,
	Nine Months Ended September 30,
	2019			2018
Cash Flows From Operating Activities:
Net loss	$	(5699,~~932~~584	)	$	(3452,~~940~~165	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Cost of lots sold		35,~~718~~339			35,~~489~~850
Depreciation and amortization		58,~~473~~120			68,~~116~~853
Provision for bad debt		45,~~219~~380			13,~~644~~776
Non-cash compensation expense		2,~~566~~814			12,~~913~~026
Loss on debt extinguishment		8,478			—
Non-cash interest expense		6,684			3,215
Loss on impairment of goodwill		24,862			—
Other losses, net		3,433			5,205
Non-cash interest expense		12,435			4,576
Non-cash impairment charge and other losses, net		3,558			4,503
Changes in assets and liabilities:
Accounts receivable, net of allowance		(814,~~611~~305	)		15,~~195~~574
Merchandise trust fund		(911,~~482~~137	)		(46,~~181~~917	)
Other assets		(41,~~522~~339	)		(12,~~395~~047	)
Deferred selling and obtaining costs		(1,~~165~~850	)		(4,~~184~~780	)
Deferred revenues		1523,~~126~~860			3340,~~599~~361
Deferred taxes, net		64,~~227~~620			(2,~~649~~545	)
Payables and other liabilities		(61,~~784~~994	)		612,~~377~~346
Net cash (used in) provided by operating activities		(3126,~~572~~755	)		1519,~~404~~411
Cash Flows From Investing Activities:
Cash paid for capital expenditures		(45,~~838~~743	)		(710,~~626~~164	)
Cash paid for acquisitions		—			(~~833~~1,667	)
Proceeds from divestitures		1,250			—
Net cash used in investing activities		(3,588	)		(8,459	)
Proceeds from asset sales		—			954
Net cash used in investing activities		(4,493	)		(10,877	)
Cash Flows From Financing Activities:
Proceeds from issuance of redeemable convertible preferred units, net		57,500			—
Proceeds from borrowings		406,087			1623,880
Repayments of debt		(366,~~470~~644	)		(1227,~~896~~924	)
Principal payment on finance leases		(~~713~~1,098	)		—
Cost of financing activities		(17,~~437~~972	)		(23,~~771~~268	)
Net cash provided by financing activities		78,967			1,213
Units repurchased and retired related to unit-based compensation		(677	)		—
Net increase in cash, cash equivalents and restricted cash		43,807			8,158
Net cash provided by (used in) financing activities		77,196			(7,312	)
Net increase in cash, cash equivalents and restricted cash		45,948			1,222
Cash, cash equivalents and restricted cash—Beginning of period		18,147			6,821
Cash, cash equivalents and restricted cash—End of period	$	6164,~~954~~095		$	148,~~979~~043
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	1624,~~981~~444		$	1215,~~865~~809
Cash paid during the period for income taxes		1,~~402~~470			~~709~~1,517
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	12,~~858~~759		$	—
Operating cash flows from finance leases		~~238~~370			—
Financing cash flows from finance leases		~~713~~1,098			—
Non-cash investing and financing activities:
Acquisition of assets by financing	$	12,~~731~~234		$	~~688~~1,620
Classification of assets as held for sale		~~(408~~—	)		543

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

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STONEMOR PARTNERS L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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 ~~June~~September 30, 2019, the Partnership operated 321 cemeteries in 27 states and Puerto Rico, of which 291 were owned and 30 were operated under lease, management or operating agreements. The Partnership also owned and operated 9089 funeral homes, including 42 located on the grounds of cemetery properties that the Partnership owns, in 17 states and Puerto Rico. ~~As a percentage of revenue and assets, the Partnership’s major operations consist of its cemetery operations.~~

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, which 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 audited,~~ have been prepared in accordance with the requirements of the Quarterly Report on 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 ~~the~~ Annual Reports on 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~~The ~~interim~~balance ~~unaudited~~sheet ~~condensed~~at ~~consolidated~~December 31, ~~financial~~2018 ~~statements~~has ~~should~~been bederived ~~read~~from ~~in conjunction with~~ the audited consolidated financial ~~statements~~statement ~~and~~as ~~the~~of ~~related~~December 31, ~~notes~~2018, ~~thereto~~as presented in the Partnership’s Amendment No. 1 to Annual Report on Form 10-K for the year ended December 31, 2018, which was filed with Securities and Exchange Commission ("SEC") on August 28, 2019 (the “Amended Annual Report”). The interim unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and the related notes thereto presented in the Amended Annual Report. The results of operations for the ~~three~~nine months ended ~~June~~September 30, 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 consolidated 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 30 cemeteries under long-term leases, operating agreements and management agreements. The operations of 16 of these managed cemeteries have been consolidated. On May 10, 2019, the Partnership terminated one of the management agreements and recorded a $2.1 million loss upon the termination, which is included in Other losses, net in the accompanying unaudited condensed consolidated statements of operations for the ~~three~~nine ~~and six~~ months ended ~~June~~September 30, 2019.

The Partnership operates 14 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.

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Recapitalization Transactions

Series A Preferred Offering

On June 27, 2019, funds and accounts affiliated with Axar Capital, a related party and the largest holder of the Partnership’s outstanding common units of record, and certain other investors (individually a “Purchaser” and collectively the “Purchasers”) and the Partnership entered into the Series A Preferred Unit Purchase Agreement (the “Series A Purchase Agreement” and the transactions contemplated thereby, the “Preferred Offering”) pursuant to which the Partnership sold to the Purchasers an aggregate of 52,083,333 of the Partnership’s Series A Preferred Units (the “preferred units”) representing limited partner interests in the Partnership with certain rights, preferences and privileges as are set forth in the Partnership’s Third Amended and Restated Agreement of Limited Partnership dated as of June 27, 2019 (the “Third Amended Partnership Agreement”). The purchase price for the preferred units sold pursuant to the Series A Purchase Agreement was $1.1040 per preferred unit, reflecting an 8% discount to the liquidation preference of each preferred unit, for an aggregate purchase price of $57.5 million.

Senior Secured Notes

Concurrently with the closing of the Preferred Offering, discussed above, the Partnership completed a private placement of $385.0 million of 9.875%/11.500% Senior Secured PIK Toggle Notes due 2024 (the “Senior Secured Notes”) of the Partnership to certain financial institutions (the “Notes Offering,” and collectively with the Preferred Offering, the “Recapitalization Transactions”) pursuant to the terms of an ~~Indenture~~indenture dated June 27, 2019 by and among the Partnership, Cornerstone Family Services of West Virginia Subsidiary, Inc. (“Cornerstone” and, collectively with the Partnership, the “Issuers”), certain direct and indirect subsidiaries of the Partnership (the “Guarantors”), the initial purchasers party thereto and Wilmington Trust, National Association, as trustee (the “Indenture”). The net proceeds of the ~~Recent~~Recapitalization Transactions were used to fully repay the then-outstanding senior notes due in June 2021, retire the Partnership’s revolving credit facility due in May 2020 and pay the associated transaction expenses, with the remaining balance reserved for general corporate purposes. The Partnership is to pay quarterly interest at either a fixed rate of 79.50875% per annum in cash or, at their periodic option through January 30, 2022, a fixed rate of 7.50% per annum in cash plus a fixed rate of 4.00% per annum payable in kind. The Senior Secured Notes will require cash interest payments at 9.875% for all interest periods after January 30, 2022.

Proposed C-Corporation Conversion

On September 27, 2018, StoneMor GP LLC (the “general partner”) and the Partnership publicly announced a plan to convert from a master limited partnership structure to a more traditional C-Corporation structure. Accordingly, the general partner and the Partnership entered into a Merger and Reorganization Agreement (as amended to date, the “Merger Agreement”) with StoneMor GP Holdings and Hans Merger Sub, LLC, a Delaware limited liability company and wholly-owned subsidiary of the general partner, providing for a series of transactions and resulting in (i) the general partner converting into a Delaware corporation to be named “StoneMor Inc.,” and (ii) Hans Merger Sub merging with and into the Partnership (the “Merger”) with the Partnership surviving and with StoneMor Inc. as its sole general partner, in each case, pursuant to the terms of the Merger Agreement (collectively, the “C-Corporation Conversion”). At the consummation of the Merger, which is anticipated byto be no later than the end of the ~~first~~fourth quarter of ~~2020~~2019, the general partner will complete its transition to a new publicly traded Delaware corporation, StoneMor Inc.

Going Concern and Uses and Sources of Liquidity

The Partnership’s primary sources of liquidity are cash generated from operations and the remaining balance of the proceeds from the sale of the Senior Secured Notes. 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 available cash, including the remaining balance of the proceeds from the sale of the Senior Secured Notes, cash generated from operations and ~~sales~~divestitures of ~~underperforming~~non-core ~~properties~~assets;

•

expansion capital expenditures, net contributions to the merchandise and perpetual care trust funds and debt service obligations through available cash, cash generated from operations or 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.

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While the Partnership relies heavily on its available cash and cash flows from operating activities to execute its operational strategy and meet its financial commitments and other short-term financial needs, the Partnership cannot be certain that sufficient capital will be generated through operations or be available to the Partnership to the extent required and on acceptable terms. The Partnership has experienced negative financial trends, including use of cash in operating activities, 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 ~~six~~nine months ended ~~June~~September 30, 2019 and has an accumulated deficit and negative cash ~~flow~~flows from operating activities as of ~~June~~September 30, 2019, due to an increased competitive environment, increased expenses due to the proposed C-Corporation Conversion and increases in professional fees and compliance costs; and

•

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.

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:

•

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

•

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

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

Based on the Partnership's forecasted operating performance, planned actions to improve profitability, 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 breach the covenants under the Indenture 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 amendments to the Indenture in the future and such amendments will be granted. 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;

•

failing to achieve cost reduction targets;

•

inability to achieve and capitalize on its divestiture strategy;

•

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

• ~~being~~inability ~~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.

If the Partnership's planned, implemented and not yet implemented actions are not completed or implemented and cash savings are not realized, or the Partnership fails to improve its operating performance and cash flows or the Partnership is not able to comply with the covenants under the Indenture, the Partnership may be forced to limit its business activities, limit its ability to implement further modifications to its operations or limit the effectiveness of some actions that are included in its forecasts, amend its Indenture and/or seek other sources of capital, and the 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 Indenture 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 continue as a going concern is dependent upon achieving the action plans noted above. The unaudited condensed consolidated financial statements for the ~~three and six months ended June 30, 2019 were prepared on the basis of a going concern, which contemplates that the~~

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three and nine months ended September 30, 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.

Summary of Significant Accounting Policies

Refer to Note 1 to the Partnership’s audited consolidated financial statements included in Item 8 of its Amended 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 Amended 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 was $4143.95 million and $18.1 million as of ~~June~~September 30, 2019 and December 31, 2018, respectively.

Restricted Cash

Cash that is restricted from withdrawal or use under the terms of certain contractual agreement is recorded as restricted cash. Restricted cash was $20.16 million as of ~~June~~September 30, 2019, primarily related to cash collateralization of ~~letters of credit that were existing under~~ the Partnership’s ~~retired~~letters of credit ~~facilities~~ and ~~that~~surety ~~were issued to secure the Partnership’s credit card program~~bonds. There was no restricted cash as of December 31, 2018.

Revenues

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

Deferred Revenues

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

Accounts Receivable, Net of Allowance

The Partnership sells pre-need cemetery contracts whereby the customer enters into arrangements for future merchandise and services prior to the time of need. These sales are usually made using interest-bearing installment contracts not to exceed 60 months. The interest income is recorded as revenue when the interest amount is considered realizable and collectible, which

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~~months. The interest income is recorded as revenue when the interest amount is considered realizable and collectible, which~~ typically coincides with cash payment. Interest income is not recognized until payments are collected in accordance with the contract. At the time of a pre-need sale, the Partnership records an account receivable in an amount equal to the total contract value less unearned finance income and any cash deposit paid, net of an estimated allowance for customer cancellations. The Partnership recognizes an allowance for cancellation of these receivables based upon its historical experience, which is recorded as a reduction in accounts receivable and a corresponding offset to deferred revenues. The Partnership recognizes an allowance for cancellation of receivables related to recognized contracts as an offset to revenue. Management evaluates customer receivables for impairment based upon its historical experience, including the age of the receivables and the customers’ payment histories

Leases

The Partnership leases a variety of assets throughout its 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 the Partnership recognizes lease expense for these leases on a straight-line basis over the lease term. For lease agreements with an initial term in excess of 12 months, the 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.

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 its weighted average cost of capital to determine its 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. The Partnership considers reasonably assured renewal options, fixed escalation provisions and residual value guarantees in its calculation. Leasehold improvements are amortized over the shorter of the lease term or asset life, which may include renewal periods where the renewal is reasonably assured, and are included in the determination of straight-line rent expense. The depreciable life of assets and leasehold improvements are generally limited by the expected lease term.

The 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 MLP, 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,

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~~earnings in excess of available cash should not be allocated to the incentive distribution rights. Under the two-class method,~~ management 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 June 30,						Six Months Ended June 30,
	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Net loss	$	(3442,~~398~~652	)	$	(17,~~017~~225	)	$	(5699,~~932~~584	)	$	(3452,~~940~~165	)
Less: Incentive distribution right (“IDR”) payments to general partner		—			—			—			—
Net loss to allocate to general and limited partners		(3442,~~398~~652	)		(17,~~017~~225	)		(5699,~~932~~584	)		(3452,~~940~~165	)
General partner’s interest excluding IDRs		(~~357~~426	)		(~~177~~179	)		(~~592~~1,018	)		(~~364~~543	)
Net loss attributable to common limited partners	$	(3442,~~041~~226	)	$	(1617,~~840~~046	)	$	(5698,~~340~~566	)	$	(3451,~~576~~622	)

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.

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 June 30,				Six Months Ended June 30,
	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Weighted average number of common limited partner units—basic		3938,~~329~~916		37,~~958~~959		3938,~~115~~438		37,~~958~~959
Plus effect of dilutive incentive awards(1)		—		—		—		—
Effect of dilutive incentive awards(1)		—		—		—		—
Weighted average number of common limited partner units—diluted		3938,~~329~~916		37,~~958~~959		3938,~~115~~438		37,~~958~~959

(1) For the three and ~~six~~nine months ended ~~June~~September 30, 2019, the diluted weighted average number of limited partner units outstanding presented on the unaudited condensed consolidated statement of operations does not include ~~201~~563,~~995~~183 ~~and 203,433~~ units, ~~respectively,~~ as their effects would be anti-dilutive. In addition, all outstanding Preferred Units are exempt for purposes of calculating the diluted weighted average number of common limited partner units, as their conversion is not based on meeting a contingency derived from the Partnership’s unit price. The Preferred Units are convertible upon the completion of the Rights Offering (defined herein), which isoccurred ~~anticipated to occur~~ early in the fourth quarter of 2019. For further detail on the Rights Offering, see Note 17 Subsequent Events. For the three and ~~six~~nine months ended ~~June~~September 30, 2018, the diluted weighted average number of limited partner units outstanding presented on the unaudited condensed consolidated statement of operations does not include 560,839 units, as their effects would be anti-dilutive.

Recently Adopted Accounting Standards

Leases

The Partnership adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), and subsequently-issued related ASUs, 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.

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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 ROU 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, recorded as maintenance, taxes and insurance and expensed 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 ROU asset of $12.3 million and operating lease liability of $15.3 million as of the adoption date.

In connection with the adoption of these new lease standards, the Partnership implemented internal controls to ensure that its contracts are properly evaluated to determine applicability under ASU 2016-02 and that the Partnership properly applies ASU 2016-02 in accounting for and reporting on all its qualifying leases.

Stock Compensation

In June 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2018-07, Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, to simplify the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees. This amendment iswas effective for fiscal years and interim periods within fiscal years beginning after December 15, 2018. The Partnership adopted this standard effective January 1, 2019. The adoption of this standard did not have an impact on the Partnership’s unaudited condensed consolidated financial statements, as the Partnership has only issued ~~shares~~units to employees or nonemployee directors and has previously recognized its nonemployee directors ~~share~~unit-based payments in line with its recognition of ~~share~~unit-based payments to employees, using the grant-date fair value of the equity instruments issued, amortized over the requisite service period.

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 Quarterly Report on Form 10-Q for the ~~six~~nine months ended ~~June~~September 30, 2019.

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Recently Issued Accounting Standard Updates - Not Yet Effective

Credit Losses

In June 2016, FASB issued ASU No. 2016-13, Credit Losses (Topic 326) ("ASU 2016-13"). The core principle of ASU 2016-13 is that all assets measured at amortized cost basis should be presented at the net amount expected to be collected using historical experience, current conditions and reasonable and supportable forecasts as a basis for credit loss estimates, instead of the probable initial recognition threshold used under current GAAP. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses (“ASU 2018-09”), which clarified that receivables arising from operating leases are not within the scope of Accounting Standards Codification (“ASC”) 326-20, Financial Instruments-Credit Losses-Measured at Amortized Cost, and should be accounted for in accordance with ASC 842. In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments (“ASU 2019-04”), which include clarifications to the amendments issued in ASU 2016-13. In May 2019, the FASB issued ASU No. 2019-05, Financial Instruments-Credit Losses (Topic 326), which provides entities that have certain instruments within the scope of ASC 326-20 with an option to irrevocably elect the fair value option in ASC 825, Financial Instruments, upon adoption of ASU 2016-13. Each of these amendments are effective for fiscal years beginning after December 15, ~~2019~~2022. Early ~~application~~adoption is permitted. The Partnership plans to adopt the requirements of these amendments upon their effective date of January 1, ~~2020~~2023, using the modified-retrospective method, and is evaluating the potential impact of the adoption on its financial position, results of operations and related disclosures.

Variable Interest Entities

In October 2018, the FASB issued ASU No. 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities (“ASU 2018-17”). The core principle of ASU 2018-17 is that indirect interests held through related parties in common control arrangements should be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. ASU 2018-17 is effective for fiscal years beginning after December 15, 2019. The Partnership plans to adopt the requirements of these amendments upon their effective date of January 1, 2020 retrospectively and is evaluating the potential impact of the adoption on its financial position, results of operations and related disclosures.

Fair Value Measurement

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). This standard removed, modified and added disclosure requirements from ASC 820, Fair Value Measurements. ~~ASU~~The ~~2018-13~~Partnership isplans ~~effective~~to ~~for~~adopt ~~fiscal~~the ~~years~~requirements ~~beginning~~of ~~after~~this ~~December~~amendment 15upon its effective date of January 1, ~~2019.~~2020 ~~The~~prospectively ~~Partnership~~and does not expect the adoption of this standard to have a significant impact on its consolidated financial statements, as this standard primarily addresses disclosure requirements for Level 3 fair value measurements~~. Currently~~, ~~the~~and ~~Partnership’s~~it ~~only~~has no Level 3 fair value instruments ~~are its assets held for sale, which do not represent a material amount on its consolidated balance sheets~~.

Internal-Use Software

In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software: Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. The amendments in this standard aligned the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The Partnership plans to adopt the requirements of this amendment upon its effective date of January 1, 2020 prospectively and does not expect the adoption of this standard to have a significant impact on its consolidated financial statements.

2.IMPAIRMENT & OTHER LOSSES

Goodwill Impairment Assessment

Due to a decline in the market value of the Partnership’s unit values and the Partnership’s significant under-performance relative to historical or projected future operating results noted during the nine months ended September 30, 2019, management conducted an interim goodwill impairment assessment as of September 30, 2019. As a result of such assessment, management concluded on November 4, 2019 that the carrying value of its Cemetery Operations reporting unit exceeded its fair value, and the Partnership’s goodwill was fully impaired as of September 30, 2019. The Partnership recognized a $24.9 million

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impairment charge included in Loss on impairment of goodwill in the accompanying unaudited condensed consolidated statement of operations during the three and nine months ended September 30, 2019.

Impairment of Long-Lived Assets

The Partnership recorded an impairment of cemetery property due to circumstances that indicated the assets’ carrying value may not be recovered. The Partnership recorded a $1.35 million impairment charge included in Other losses, net inon the accompanying unaudited condensed consolidated statement of operations ~~for~~during the ~~six~~nine months ended ~~June~~ September 30, 2019, as the sum of future undiscounted cash flows ~~were~~was less than the carrying value of the assets.

Termination of Management Agreement

The Partnership operates certain of its cemeteries under long-term leases, operating agreements and management agreements. On May 10, 2019, the Partnership terminated one of the management agreements and recorded a $2.1 million loss, which is included in Other losses, net on the unaudited condensed consolidated statement of operations for the ~~six~~nine months ended ~~June~~ September 30, 2019.

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3.	ACCOUNTS RECEIVABLE, NET OF ALLOWANCE

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

	June 30, 2019			December 31, 2018
	September 30, 2019			December 31, 2018
Customer receivables	$	~~166~~162,~~970~~967		$	167,017
Unearned finance income		(17,~~343~~254	)		(17,000	)
Allowance for bad debt		(6,~~302~~105	)		(4,941	)
Accounts receivable, net of allowance		~~143~~139,~~325~~608			145,076
Less: Current portion, net of allowance		5961,~~550~~470			57,928
Long-term portion, net of allowance	$	8378,~~775~~138		$	87,148

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

	June 30, 2019			December 31, 2018
	September 30, 2019			December 31, 2018
Balance, beginning of period	$	4,941		$	19,795
Cumulative effect of accounting changes		—			(12,876	)
Provision for bad debt		45,~~219~~380			7,358
Charge-offs, net		(24,~~858~~216	)		(9,336	)
Balance, end of period	$	6,~~302~~105		$	4,941

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

4.	CEMETERY PROPERTY

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

	June 30, 2019		December 31, 2018
	September 30, 2019		December 31, 2018
Cemetery land	$	~~256~~255,~~052~~624	$	255,708
Mausoleum crypts and lawn crypts		7372,~~708~~988		75,133
Cemetery property	$	329,760	$	330,841
Cemetery property(1)	$	328,612	$	330,841

(1) The Partnership recorded an impairment of cemetery property during the ~~three~~nine ~~and six~~ months ended ~~June~~ September 30, 2019. For further details see Note 2 Impairment & Other Losses.

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5.	PROPERTY AND EQUIPMENT

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

	June 30, 2019			December 31, 2018
	September 30, 2019			December 31, 2018
Buildings and improvements	$	~~131~~130,~~769~~181		$	129,971
Furniture and equipment		59,~~891~~883			58,706
Funeral home land		14,~~355~~185			14,185
Property and equipment, gross		~~206~~204,~~015~~249			202,862
Less: Accumulated depreciation		(95,~~360~~257	)		(90,146	)
Property and equipment, net of accumulated depreciation	$	~~110~~108,~~655~~992		$	112,716

15Depreciation expense was $2.3 million for the three months ended September 30, 2019 and 2018 and $7.1 million and $7.5 million for the nine months ended September 30, 2019 and 2018, respectively.

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Depreciation expense was $2.4 million and $2.6 million for the three months ended June 30, 2019 and 2018, respectively, and $4.8 million and $5.2 million for the six months ended June 30, 2019 and 2018, respectively.

6.	MERCHANDISE TRUSTS

At ~~June~~September 30, 2019 and December 31, 2018, the Partnership’s merchandise trusts consisted of investments in debt and equity marketable securities and cash equivalents, both directly and through mutual and investment funds. All of these investments are carried at fair value. All of these investments are subject to the fair value hierarchy and considered either Level 1 or Level 2 assets pursuant to the three-level hierarchy described in Note 13 Fair Value of Financial Instruments. There were no Level 3 assets. When the Partnership receives a payment from a pre-need customer, the Partnership deposits the amount required by law into the merchandise trusts that may be subject to cancellation on demand by the pre-need customer. The Partnership’s merchandise trusts related to states in which pre-need customers may cancel contracts with the Partnership comprises 53.6% of the total merchandise trust as of ~~June~~September 30, 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 $9.3 million and $8.7 million of investments held in trust as required by law by the West Virginia Funeral Directors Association at ~~June~~September 30, 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 ~~six~~nine months ended ~~June~~September 30, 2019 and 2018 is presented below (in thousands):

	Six months ended June 30,
	Nine months ended September 30,
	2019			2018
Balance—beginning of period	$	488,248		$	515,456
Contributions		2740,~~075~~440			3149,~~510~~762
Distributions		(3045,~~938~~256	)		(3353,~~658~~321	)
Interest and dividends		1522,~~479~~537			1320,~~261~~486
Capital gain distributions		~~168~~363			79405
Realized gains and losses, net		~~593~~2,063			(~~941~~258	)
Other than temporary impairment		(2,~~314~~816	)		(11,~~154~~977	)
Taxes		(~~716~~655	)		(~~355~~337	)
Fees		(13,~~978~~206	)		(23,~~014~~049	)
Unrealized change in fair value		2317,~~765~~811			~~(332~~2,860	)
Balance—end of period	$	519,~~382~~529		$	~~511~~520,~~852~~027

During the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, purchases of available for sale securities were approximately $2942.12 million and $4478.53 million, respectively. During the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, sales, maturities and paydowns of available for sale securities were approximately $1930.97 million and $3566.76 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.

1617

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The cost and market value associated with the assets held in the merchandise trusts as of ~~June~~September 30, 2019 and December 31, 2018 were as follows (in thousands):

June 30, 2019

Fair Value Hierarchy Level

Cost

Gross Unrealized Gains

Gross Unrealized Losses

Fair Value

September 30, 2019

Fair Value Hierarchy Level

Cost

Gross Unrealized Gains

Gross Unrealized Losses

Fair Value

Short-term investments

16182,~~211~~560

—

16182,~~211~~560

Fixed maturities:

U.S. governmental securities

~~525~~488

710

(~~132~~95

)

~~400~~403

Corporate debt securities

~~867~~816

1613

(~~154~~116

)

~~729~~713

Total fixed maturities

1,~~392~~304

(~~286~~211

)

1,~~129~~116

Mutual funds—debt securities

~~179~~117,~~111~~566

64,~~508~~937

(1779

)

~~185~~122,~~602~~424

Mutual funds—equity securities

47,~~149~~346

63,~~448~~035

—(1

)

5350,~~597~~380

Other investment funds(1)

~~229~~130,~~256~~952

2,~~326~~410

(2,~~083~~524

)

~~229~~130,~~499~~838

Equity securities

13,~~708~~293

1,~~900~~175

(884

)

1514,~~520~~464

Other invested assets

8,~~502~~403

—16

—

8,~~502~~419

Total investments

~~495~~501,~~329~~424

1711,~~205~~596

(2,~~474~~819

)

510,~~060~~201

West Virginia Trust Receivable

9,~~322~~328

—

9,~~322~~328

Total

~~504~~510,~~651~~752

1711,~~205~~596

(2,~~474~~819

)

519,~~382~~529

(1) Other investment funds are measured at fair value using the net asset value per share practical expedient and have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the balance sheet. This asset class is composed of fixed income funds and equity funds, which have redemption periods ranging from 1 to 30 days, and private credit funds, which have lockup periods of one to seven years with three potential one year extensions at the discretion of the funds’ general partners. As of ~~June~~September 30, 2019, there were $5163.13 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.

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The contractual maturities of debt securities as of ~~June~~September 30, 2019 and December 31, 2018 were as follows below (in thousands):

June 30, 2019	Less than 1 year		1 year through 5 years		6 years through 10 years		More than 10 years
September 30, 2019	Less than 1 year		1 year through 5 years		6 years through 10 years		More than 10 years
U.S. governmental securities	$	112	$	30	$	~~243~~246	$	1516
Corporate debt securities		8596		~~606~~598		3818		—
Total fixed maturities	$	~~197~~208	$	~~636~~628	$	~~281~~264	$	1516

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.

An aging of unrealized losses on the Partnership’s investments in debt and equity securities within the merchandise trusts as of ~~June~~September 30, 2019 and December 31, 2018 is presented below (in thousands):

	Less than 12 months				12 months or more				Total
June 30, 2019	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
September 30, 2019	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Fixed maturities:
U.S. governmental securities	$	—110	$	—	$	~~604~~397	$	~~132~~95	$	~~604~~507	$	~~132~~95
Corporate debt securities		8575		96		~~706~~424		~~145~~110		~~791~~499		~~154~~116
Total fixed maturities		85185		96		~~1,310~~821		~~277~~205		1,~~395~~006		~~286~~211
Mutual funds—debt securities		~~149~~15,178		579		~~174~~—		12—		~~323~~15,178		1779
Mutual funds—equity securities		7242		—1		—		—		7242		-1
Other investment funds		9469,~~501~~464		2,~~083~~524		—		—		9469,~~501~~464		2,~~083~~524
Equity securities		~~2,043~~5		884		-—		—		~~2,043~~5		884
Other invested assets		—	.	—		—		—		—		-—
Total	$	9685,~~785~~074	$	2,~~185~~614	$	~~1,484~~821	$	~~289~~205	$	9885,~~269~~895	$	2,~~474~~819

	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.

1819

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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 ~~six~~three months ended ~~June~~September 30, 2019, the Partnership determined, based on its review, that there were 8962 securities with an aggregate cost basis of approximately $914.98 million and an aggregate fair value of approximately $894.63 million, resulting in an impairment of $20.5 million, with such impairment considered to be other-than-temporary. During the three months ended September 30, 2018, the Partnership determined, based on its review, that there were 37 securities with an aggregate cost basis of approximately $62.1 million and an aggregate fair value of approximately $61.3 million, resulting in an impairment of $0.8 million, with such impairment considered to be other-than-temporary. During the nine months ended September ~~due~~30, 2019, the Partnership determined, based on its review, that there were 87 securities with an aggregate cost basis of approximately $96.7 million and an aggregate fair value of approximately $93.9 million, resulting in an impairment of $2.8 million, with such impairment considered to ~~credit~~be ~~indicators~~other-than-temporary. During the ~~six~~nine months ended ~~June~~September 30, 2018, the Partnership determined, based on its review, that there were 94122 securities with an aggregate cost basis of approximately $~~165~~227.89 million and an aggregate fair value of approximately $~~154~~215.69 million, resulting in an impairment of $1112.20 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 statements of operations in future periods as the underlying merchandise is delivered or the underlying service is performed. ~~During the three months ended June 30, 2019 and 2018, the Partnership determined that there were no other than temporary impairments to the investment portfolio in the merchandise trusts.~~

7.	PERPETUAL CARE TRUSTS

At ~~June~~September 30, 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 14 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.

A reconciliation of the Partnership’s perpetual care trust activities for the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018 is presented below (in thousands):

	Six months ended June 30,
	Nine months ended September 30,
	2019			2018
Balance—beginning of period	$	330,562		$	339,928
Contributions		35,~~668~~520			710,~~442~~795
Distributions		(1216,~~461~~709	)		(913,~~314~~790	)
Interest and dividends		1015,~~480~~621			1217,~~097~~416
Capital gain distributions		~~250~~1,134			~~173~~612
Realized gains and losses, net		12,~~019~~303			~~(323~~353	)
Other than temporary impairment		(~~713~~1,297	)		(67,~~834~~449	)
Taxes		(~~555~~634	)		(~~242~~292	)
Fees		(12,~~574~~388	)		(34,~~293~~087	)
Unrealized change in fair value		128,~~632~~916			~~730~~1,536
Balance—end of period	$	343,~~308~~028		$	~~340~~345,~~364~~022

During the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, purchases of available for sale securities were approximately $3742.25 million and $2256.54 million, respectively. During the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, sales, maturities and paydowns of available for sale securities were approximately $2528.91 million and $1949.14 million, respectively. Cash flows from perpetual care trust related contracts are presented as operating cash flows in Partnership’s unaudited condensed consolidated statements of cash flows.

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The cost and market value associated with the assets held in the perpetual care trusts as of ~~June~~September 30, 2019 and December 31, 2018 were as follows (in thousands):

June 30, 2019	Fair Value Hierarchy Level	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
September 30, 2019	Fair Value Hierarchy Level	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Short-term investments	1	$	687,~~564~~453	$	—	$	—		$	687,~~564~~453
Fixed maturities:
U.S. governmental securities	2		1,~~117~~081		3544		(8954	)		1,~~063~~071
Corporate debt securities	2		2,~~022~~025		1721		(~~221~~145	)		1,~~818~~901
Total fixed maturities			3,~~139~~106		5265		(~~310~~199	)		2,~~881~~972
Mutual funds—debt securities	1		~~106~~70,~~095~~425		32,~~673~~730		(1559	)		~~109~~73,~~753~~096
Mutual funds—equity securities	1		16,~~894~~685		21,~~483~~528		(2418	)		1918,~~353~~195
Other investment funds(1)			~~184~~143,~~121~~050		7,~~597~~143		(45,~~313~~024	)		~~187~~145,~~405~~169
Equity securities	1		1514,~~436~~968		21,~~001~~177		(~~104~~18	)		1716,~~333~~127
Other invested assets	2		1916		—		—			1916
Total investments		$	~~332~~335,~~268~~703	$	1512,~~806~~643	$	(45,~~766~~318	)	$	343,~~308~~028

(1) Other investment funds are measured at fair value using the net asset value per share practical expedient and have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the balance sheet. This asset class is composed of fixed income funds and equity funds, which have a redemption period ranging from 1 to 30 days, and private credit funds, which have lockup periods ranging from one to seven years with three potential one year extensions at the discretion of the funds’ general partners. As of ~~June~~September 30, 2019 there were $7141.32 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	$	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 ~~June~~September 30, 2019 and December 31, 2018, were as follows below (in thousands):

June 30, 2019

Less than 1 year

1 year through 5 years

6 years through 10 years

More than 10 years

September 30, 2019

Less than 1 year

1 year through 5 years

6 years through 10 years

More than 10 years

U.S. governmental securities

~~812~~821

~~121~~119

Corporate debt securities

~~148~~203

1,~~498~~536

~~172~~163

-—

Total fixed maturities

~~208~~263

1,~~568~~606

984

~~121~~119

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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 ~~June~~September 30, 2019 and December 31, 2018 is presented below (in thousands):

Less than 12 months

12 months or more

Total

June 30, 2019

Fair Value

Unrealized Losses

Fair Value

Unrealized Losses

Fair Value

Unrealized Losses

September 30, 2019

Fair Value

Unrealized Losses

Fair Value

Unrealized Losses

Fair Value

Unrealized Losses

Fixed maturities:

U.S. governmental securities

—

1,~~327~~021

8954

1,~~327~~021

8954

Corporate debt securities

6676

4345

21,~~631~~889

~~178~~100

21,~~697~~965

~~221~~145

Total fixed maturities

6676

4345

32,~~958~~910

~~267~~154

42,~~024~~986

~~310~~199

Mutual funds—debt securities

~~706~~11,348

1459

343

1—

~~740~~11,351

1559

Mutual funds—equity securities

~~188~~505

518

~~280~~—

19—

~~468~~505

2418

Other investment funds

6067,~~385~~147

45,~~313~~024

—

6067,~~385~~147

45,~~313~~024

Equity securities

~~2,485~~176

~~104~~18

-—

~~2,485~~176

~~104~~18

Total

6379,~~830~~252

45,~~479~~164

42,~~272~~913

~~287~~154

6882,~~102~~165

45,~~766~~318

	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~~22

The Partnership assesses its perpetual care trust assets for other-than-temporary declines in fair value on a quarterly basis. During the six months ended June 30, 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 six months ended June 30, 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 with the offset going against the liability for perpetual care trust corpus. During the three months ended June 30, 2019 and 2018, the Partnership determined that there were no other-than-temporary impairments to the investment portfolio in the perpetual care trusts.

Table of Contents

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 September 30, 2019, the Partnership determined that there were 49 securities with an aggregate cost basis of approximately $6.6 million and an aggregate fair value of approximately $6.0 million, resulting in an impairment of $0.6 million, with such impairment considered to be other-than-temporary. During the three months ended September 30, 2018, t the Partnership determined that there were 49 securities with an aggregate cost basis of approximately $40.0 million and an aggregate fair value of approximately $39.4 million, resulting in an impairment of $0.6 million, with such impairment considered to be other-than-temporary. During the nine months ended September 30, 2019, the Partnership determined that there were 68 securities with an aggregate cost basis of approximately $35.8 million and an aggregate fair value of approximately $34.5 million, resulting in an impairment of $1.3 million, with such impairment considered to be other-than-temporary. During the nine months ended September 30, 2018, the Partnership determined that there were 116 securities with an aggregate cost basis of approximately $158.0 million and an aggregate fair value of approximately $150.6 million, resulting in an impairment of $7.4 million, with such impairment considered to be other-than-temporary. Accordingly, the Partnership adjusted the cost basis of these assets to their current value with the offset going against the liability for perpetual care trust corpus.

8.	LONG-TERM DEBT

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

	June 30, 2019			December 31, 2018
	September 30, 2019			December 31, 2018
9.875%/11.500% Senior Secured PIK Toggle Notes, due June 2024	$	~~371~~376,~~547~~166		$	-—
7.875% Senior Notes, due June 2021		-—			173,613
Credit facility		-—			155,739
Notes payable—acquisition debt		—			92
Insurance and vehicle financing		~~964~~790			1,294
Less deferred financing costs, net of accumulated amortization		(14,~~345~~280	)		(9,692	)
Total debt		~~358~~362,~~166~~676			321,046
Less current maturities		(~~591~~503	)		(798	)
Total long-term debt	$	~~357~~362,~~575~~173		$	320,248

Senior Secured Notes

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

Pursuant to the terms of the Indenture, the Initial Purchasers purchased Senior Secured Notes in the aggregate principal amount of $385.0 million in a private placement exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”) pursuant to Section 4(a)(2) thereof. The gross proceeds from the sale of the Senior Secured Notes was $371.5 million, less advisor fees (including a placement agent fee of approximately $7.0 million), legal fees, mortgage costs and other closing expenses, as well as cash funds for collateralization of existing letters of credit and credit card needs under the former credit facility.

The Issuers can elect to pay interest at either a fixed rate of 9.875% per annum in cash or, at their option through January 30, 2022, a fixed rate of 7.50% per annum in cash plus a fixed rate of 4.00% per annum payable in kind by increasing the principal amount of the Senior Secured Notes or by issuing additional Senior Secured Notes. The Senior Secured Notes will require cash interest payments at 9.875% for all interest periods after January 30, 2022. Interest is payable quarterly in arrears on the 30th day of each March, June, September and December, commencing September 30, 2019. The Partnership elected the cash plus payable in kind option to pay its September 30, 2019 interest payment, resulting in a $4.0 million increase in the outstanding principal amount of the Senior Secured Notes. The Senior Secured Notes mature on June 30, 2024.

The Senior Secured Notes are senior secured obligations of the Issuers. The Issuers’ joint and several obligations under the Senior Secured Notes and the Indenture are jointly and severally guaranteed (the “Note Guarantees”) by each subsidiary of the Partnership (other than Cornerstone) that the Partnership has caused or will cause to become a Guarantor pursuant to the terms of the Indenture. In addition, the Issuers, the Guarantors and the Collateral Agent entered into a Collateral Agreement (the “Collateral Agreement”). Pursuant to the Indenture and the Collateral Agreement, the Issuers’ obligations under the Indenture and the Senior Secured Notes and the Guarantors’ Note Guarantees are secured by a first priority lien and security interest (subject to permitted liens and security interests) in substantially all of the Issuers’ and the Guarantors’ assets, whether now owned or hereafter acquired, excluding certain assets which include, among others: (a) trust and other fiduciary accounts and amounts required to be deposited or held therein and (b) unless encumbered by a mortgage existing on the date of the Indenture, owned and leased real property that (i) may not be pledged as a matter of law or without governmental approvals, (ii) is not operated or intended to be operated as a cemetery, crematory or funeral home or (iii) is the subject of specified immaterial leases.

The Issuers may redeem the Senior Secured Notes at their option, in whole or in part, at any time for a redemption price equal to the principal balance thereof, accrued and unpaid interest thereon and, if applicable, a premium (the “Applicable Premium”) calculated as follows:23

• If redeemed before June 27, 2021, the sum of 4% of the principal amount so redeemed plus the excess of (i) the interest that would have accrued on the principal amount of the redeemed Senior Secured Notes from the redemption date through June 27, 2021 assuming an interest rate of 11.500% per annum over (ii) the interest that would have accrued on the principal amount of the redeemed Senior Secured Notes from the redemption date through June 27,

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~~2021~~of atthe anIndenture. ~~interest~~In ~~rate~~addition, ~~equal~~the Issuers, the Guarantors and the Collateral Agent entered into a Collateral Agreement (the “Collateral Agreement”). Pursuant to the ~~then-applicable~~Indenture ~~rate~~and onthe ~~United~~Collateral ~~States~~Agreement, ~~Treasury~~the ~~securities~~Issuers’ ~~for~~obligations under the ~~period~~Indenture ~~most~~and ~~nearly~~the ~~equaling~~Senior Secured Notes and the Guarantors’ Note Guarantees are secured by a first priority lien and security interest (subject to permitted liens and security interests) in substantially all of the Issuers’ and the Guarantors’ assets, whether now owned or hereafter acquired, excluding certain assets which include, among others: (a) trust and other fiduciary accounts and amounts required to be deposited or held therein and (b) unless encumbered by a mortgage existing on the date of the Indenture, owned and leased real property that ~~time~~(i) ~~period~~may ~~plus~~not 0be pledged as a matter of law or without governmental approvals, (ii) is not operated or intended to be operated as a cemetery, crematory or funeral home or (iii) is the subject of specified immaterial leases.~~50%;~~

•

If redeemed before June 27, 2021, the sum of 4% of the principal amount so redeemed plus the excess of (i) the interest that would have accrued on the principal amount of the redeemed Senior Secured Notes from the redemption date through June 27, 2021 assuming an interest rate of 11.500% per annum over (ii) the interest that would have accrued on the principal amount of the redeemed Senior Secured Notes from the redemption date through June 27, 2021 at an interest rate equal to the then-applicable rate on United States Treasury securities for the period most nearly equaling that time period plus 0.50%;

•

If redeemed on or after June 27, 2021 and before June 27, 2022, 4% of the principal amount so redeemed;

•

If redeemed on or after June 27, 2022 and before June 27, 2023, 2% of the principal amount so redeemed; and

•

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

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

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

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

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

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

•

the Operating Cash Flow Amount for the six months ending December 31, 2019 to be less than $20.0 million;

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•

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

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

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

• the average daily balance of Unrestricted Cash and unrestricted Permitted Investments of the Partnership and its subsidiaries as of the end of any day for any 10-business day period to be less than $20.0 million during the quarter ~~ending~~ended September 30, 2019, $15.0 million during the quarter ending December 31, 2019 and $12.5 million during any subsequent quarter; or

• the ratio of the (a) the sum of Unrestricted Cash, accounts receivable and merchandise trust account balances to (b) the aggregate principal or face amount of Consolidated Funded Indebtedness, or Asset Coverage Test, for the applicable measurement period as of the last day of any fiscal quarter beginning with the fiscal quarter ~~ending~~ended September 30, 2019, to be less than 1.60:1.00.

The Indenture requires the Issuers and the Guarantors, as applicable, to comply with certain other covenants including, but not limited to, covenants that, subject to certain exceptions, limit the Issuers’ and the Guarantors’ ability to: (i) incur additional indebtedness; (ii) grant liens; (iii) engage in certain sale/leaseback, merger, consolidation or asset sale transactions; (iv) make certain investments; (v) pay dividends or make distributions; (vi) engage in affiliate transactions and (vii) amend its organizational documents.

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certain investments; (v) pay dividends or make distributions; (vi) engage in affiliate transactions and (vii) amend its organizational documents.

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

•

failure by the Issuers to pay any interest on any Senior Secured Note when it becomes due and payable that remains uncured for five business days;

•

failure by the Issuers to pay the principal on any of the Senior Secured Notes when it becomes due and payable, whether at the due date thereof, at a date fixed for redemption, by acceleration or otherwise;

•

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

•

failure by the Issuers to comply with any other agreement or covenant contained in the Indenture, the Collateral Agreement or any other Note Document that remains uncured for a period of 15 days after the earlier of written notice and request for cure from the Trustee or holders of at least 25% of the aggregate principal amount of the Senior Secured Notes;

•

the acceleration of or the failure to pay at final maturity indebtedness (other than the Senior Secured Notes) in a principal amount exceeding $5.0 million;

•

the occurrence of a Change in Control;

•

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

•

the C-Corporation Conversion shall not have occurred on or before March 31, 2020 and such default remains uncured for a period of five business days; and

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

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Partnership’s and its Subsidiaries’ consolidated revenue and (ii) $30.0 million, and such breach is not cured within 30 days.

At the option of holders holding a majority of the outstanding principal amount of the Senior Secured Notes (and automatically upon any default for failure to pay principal of the Senior Secured Notes when due and payable or certain bankruptcy or insolvency proceedings involving an Issuer), the interest rate on the Senior Secured Notes will increase to 13.50% per annum, payable in cash.

Registration Rights Agreement

In connection with the sale of the Senior Secured Notes, on June 27, 2019, the Issuers, the Guarantors party thereto and the Initial Purchasers entered into a Registration Rights Agreement (the “Notes Registration Rights Agreement”), pursuant to which the Issuers and the Guarantors agreed, for the benefit of the holders of the Notes, to use their commercially reasonable efforts to file a registration statement with the SEC with respect to a registered offer to exchange the Senior Secured Notes for new “exchange” notes having terms substantially identical in all material respects to the Senior Secured Notes, with certain exceptions (the “Exchange Offer”). The Issuers have agreed to use their commercially reasonable efforts (i) to consummate the Exchange Offer on or before July 14, 2020 (the “Exchange Date”) and (ii) upon the occurrence of certain events described in the Notes Registration Rights Agreement which result in the inability to consummate the Exchange Offer, to cause a shelf registration statement covering resales of the Notes to be declared effective.

If the Issuers fail to comply with their obligations under the Notes Registration Rights Agreement, additional interest will accrue on the Notes at a rate of 0.25% per annum (increasing by an additional 0.25% per annum with respect to each subsequent 90-day period that occurs after the date on which such default occurs, up to a maximum additional interest rate of 1.00%) from and including the date on which any such default shall occur to but excluding the earlier of (x) the date on which all such defaults have been cured and (y) the date on which the Notes are freely tradeable by persons other than affiliates of the Issuers pursuant to Rule 144 under the Securities Act.

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Deferred Financing Costs

In connection with the Tranche B revolving credit facility established in February 2019, the Partnership incurred debt issuance costs and fees of approximately $3.0 million during the three months ended March 31, 2019, which was being amortized over the life of the Tranche B revolving credit facility, using the ~~effective~~straight-line ~~interest~~ method. In connection with the issuance of its Senior Secured Notes, the Partnership incurred debt issuance costs and fees of approximately $14.3 million, during ~~the~~nine ~~three~~ months ended ~~June~~September 30, 2019, which have been deferred and are being amortized over the life of the Senior Secured Notes, using the effective interest method. No debt issuance costs or fees were incurred during the three months ended September 30, 2019.

In connection with the retirement of its revolving credit facilities and its $175.0 million, 7.875% senior notes due 2021, the Partnership wrote-off unamortized deferred financing fees of $6.9 million, during the ~~three~~nine ~~and six~~ months ended ~~June~~September 30, 2019, which is presented in loss on debt extinguishment in the accompanying unaudited condensed consolidated statement of operations.

9.	REDEEMABLE CONVERTIBLE PREFERRED UNITS AND PARTNERS’ DEFICIT

Redeemable Convertible Preferred Units

On June 27, 2019, funds and accounts affiliated with Axar Capital Management LP (“Axar”) and certain other investors (individually a “Purchaser” and collectively the “Purchasers”) and the Partnership entered into the Series A Preferred Unit Purchase Agreement (the “Series A Purchase Agreement”) pursuant to which the Partnership sold to the Purchasers an aggregate of 52,083,333 of the Partnership’s Series A Preferred Units (the “Preferred Units”) representing limited partner interests in the Partnership with certain rights, preferences and privileges as are set forth in the Partnership’s Third Amended and Restated Agreement of Limited Partnership dated as of June 27, 2019 (the “Third Amended Partnership Agreement”). The purchase price for the Preferred Units sold pursuant to the Series A Purchase Agreement (the “Purchased Units”) was $1.1040 per Purchased Unit, reflecting an 8% discount to the liquidation preference of each Preferred Unit, for an aggregate purchase price of $57.5 million.

Pursuant to the Series A Purchase Agreement, the Partnership agreed to file a registration statement on Form S-1 with the SEC as promptly as practicable to effect a $40.2 million rights offering of common units representing limited partnership interests in the Partnership (“Common Units”) to all holders of Common Units (other than the Purchasers, American Infrastructure Funds LP and their respective affiliates) with a purchase price of $1.20 per Common Unit (the “Rights Offering”), and agreed to use its reasonable best efforts to complete the Rights Offering within 100 days after the Closing Date. The ~~proceeds from the~~ Rights Offering ~~will be used to redeem certain of the Preferred Units as described below.~~

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occurred early in the fourth quarter of 2019, and the proceeds from the Rights Offering were used to redeem certain of the Preferred Units as described below. For further detail on the Rights Offering and the related redemption of certain Preferred Units, see Note 17 Subsequent Events.

Under the Series A Purchase Agreement, the Partnership also granted the Purchasers a preemptive right to purchase a pro rata share of any subsequent issuance of Common Units or shares of common stock of the corporation (“Common Stock”) into which the General Partner is converted in the C-Corporation Conversion or rights to acquire any such securities, for so long as the Purchaser continues to hold any Preferred Units, any Common Units or Common Stock issued upon conversion thereof.

The Preferred Units have the following rights, preferences and privileges, among others as set forth in the Third Amended Partnership Agreement:

•

Conversion: The Preferred Units are convertible at the option of the holders thereof at any time beginning 10 days after completion of the Rights Offering and shall automatically be converted upon consummation of the C-Corporation Conversion, in each case at an initial conversion rate of one Common Unit or one share of Common Stock, as applicable, for each Preferred Unit. Subject to customary exceptions, the conversion rate for each Preferred Unit is subject to adjustment (a) proportionately, in the event of distributions made in the form of interests in the Partnership, any split, combination or similar recapitalization of Common Units and certain other specified transactions with respect to interests in the Partnership, (b) upon any issuance or deemed issuance by the Partnership prior to consummation of the Rights Offering of Common Units for a price per Common Unit less than the Series A Liquidation Preference (as defined below), to the rate determined by dividing the Series A Liquidation Preference by the price per Common Unit in such issuance or deemed issuance and (c) upon any issuance or deemed issuance by the Partnership after consummation of the Rights Offering of Common Units for a price per Common Unit less than the Series A Liquidation Preference, to a rate determined on a weighted average anti-dilution adjustment basis.

•

Voting: The holder of a Preferred Unit is entitled to one vote for each Common Unit into which such Preferred Unit is convertible (whether or not such right to convert is exercisable at such time). The holders of Preferred Units are entitled to vote as a single class with the holders of Common Units on all matters submitted to the limited partners for a vote. In addition, the affirmative vote of the holders of at least 60% of the outstanding Preferred Units is required to:

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Amend the Third Amended Partnership Agreement or the Partnership’s Certificate of Limited Partnership if such amendment would be adverse (other than in a de minimus manner) to any of the rights, preferences or privileges of the Preferred Units;

Pay any distribution from Capital Surplus (as defined in the Third Amended Partnership Agreement); or

Issue any class or series of interest in the Partnership that, with respect to distributions, is senior to or pari passu with the Preferred Units, or modify the terms of any existing class or series of interest in the Partnership to so provide.

•

Distributions: Holders of Preferred Units are entitled to participate in any distributions made to holders of Common Units on an as-converted basis (whether or not such right to convert is exercisable at such time), and any such distributions with respect to Preferred Units shall be excluded in calculating the distributions or allocations of income or gain to holders of incentive distribution rights under the Third Amended Partnership Agreement.

•

Redemption: Upon completion of the Rights Offering, the Partnership is obligated to use 100% of the net proceeds thereof to redeem up to 33,487,904 Preferred Units held by Axar and the other Purchasers at a redemption price of $1.20 per Preferred Unit.

•

Liquidation: Upon any liquidation, dissolution or winding up of the Partnership, holders of Preferred Units are entitled to receive a payment of $1.20 per Preferred Unit (the “Series A Liquidation Preference”) before payments are made to any other class or series of interest in the Partnership ranking junior to the Preferred Units, including Common Units.

•

Restrictions on Transfer: Holders of Preferred Units may not transfer such Preferred Units other than to one or more affiliates without the approval of the Partnership.

The Series A Purchase Agreement included various representations, warranties, covenants, indemnification and other provisions which are customary for a transaction of this nature.

The Partnership offered and sold the Purchased Units in reliance upon the exemption from the registration requirements of the Securities Act pursuant to Section 4(a)(2) thereof. The Partnership relied on this exemption from registration based in part on representations made by the Purchasers in the Series A Purchase Agreement.

~~Contingent Beneficial Conversion Feature~~27

The Partnership accounts for potential beneficial conversion features under FASB ASC Topic 470-20, Debt – Debt with conversion and Other Options (“ASC 470-20”), which states that conversion terms of preferred units triggered by future events not controlled by the issuer shall be accounted for as contingent conversion options. Accordingly, the conversion feature of the Preferred Units is not considered an embedded derivative that requires bifurcation. The Partnership determined that its commitment in connection with the sale of the Preferred Units to use its best efforts to complete the Rights Offering is analogous to an initial public offering and considered to be a contingency outside the control of the holder. The guidance in ASC 470 states that a contingent beneficial conversion feature in an instrument shall not be recognized in earnings until the contingency is resolved. The beneficial conversion will be measured using the intrinsic value calculated at the date the contingency is resolved using the conversion price and trading value of the Partnership’s Common Units at the date the Preferred Units were issued. Accordingly, the Partnership will evaluate any discounts and any beneficial conversion features upon the resolution of the contingency. The Series A Preferred is convertible upon the completion of the Rights Offering, which is anticipated to occur early in the fourth quarter of 2019.

The Partnership has the right to redeem the Series A Preferred from the net proceeds of the Rights Offering. Upon exercise of the redemption right, any previously recognized accretion of deemed dividends will be reversed in the period of redemption and reflected as income attributable to common unitholders in the Partnership’s consolidated statements of operations, along with the related per unit amounts.

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Contingent Beneficial Conversion Feature

The Partnership has the obligation to redeem a portion of the Series A Preferred from the net proceeds of the Rights Offering. Upon exercise of the redemption right, any previously recognized accretion of deemed dividends will be reversed in the period of redemption and reflected as income attributable to common unitholders in the Partnership’s consolidated statements of operations, along with the related per unit amounts.

For further detail on the Rights Offering, see Note 17 Subsequent Events.

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 customer contract liabilities 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. Such costs are recognized when the associated performance obligation is fulfilled based upon the net change in the customer contract liabilities. All other selling costs are expensed as incurred. Additionally, the Partnership has elected the practical expedient of not recognizing incremental costs to obtain as incurred when the amortization period otherwise would have been one year or less

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

	June 30, 2019		December 31, 2018
	September 30, 2019		December 31, 2018
Deferred contract revenues	$	~~829~~830,~~082~~038	$	830,602
Deferred merchandise trust revenue		~~100~~104,~~329~~740		92,718
Deferred merchandise trust unrealized gains (losses)		148,~~731~~777		(9,034	)
Deferred revenues	$	~~944~~943,~~142~~555	$	914,286
Deferred selling and obtaining costs	$	~~112~~113,~~916~~601	$	112,660

For the three and ~~six~~nine months ended ~~June~~September 30, 2019, the Partnership recognized $1813.47 million and $4154.07 million, respectively, of the customer contract liabilities balance that existed at December 31, 2018 as revenue.

The components of the customer contract liabilities, net in the Partnership’s consolidated balance sheets at ~~June~~September 30, 2019 and December 31, 2018 were as follows (in thousands):

	June 30, 2019			December 31, 2018
	September 30, 2019			December 31, 2018
Customer contract liabilities	$	~~968~~972,~~455~~767		$	937,708
Amounts due from customers for unfulfilled performance obligations on cancellable pre-need contracts		(2429,~~313~~212	)		(23,422	)
Customer contract liabilities, net	$	~~944~~943,~~142~~555		$	914,286

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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. 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.

11. LONG-TERM INCENTIVE PLAN

On April 15, 2019, the Compensation and Nominating and Governance Committee (the “Committee”) of the Board approved the award of 1,015,047 phantom unit awards consisting of 494,421 phantom units subject to time-based vesting (“TVUs”) and 520,626 phantom units subject to performance-based vesting (“PVUs”) to certain members of the general partner’s senior management. The awards of phantom units were made under the Partnership’s Amended and Restated 2019 Long-Term Incentive Plan (“LTIP”).

The TVUs shall vest, if at all, in three equal annual installments on each April 3 (or first business day thereafter) commencing on April 3, 2020. The PVUs shall vest based on the extent, if any, to which the Committee determines that the performance conditions established by the Committee for calendar years 2019, 2020 and 2021 have been achieved or waived in writing, as follows:

•

if the “threshold” performance condition with respect to a calendar year has been achieved or waived but not the “target” condition, then 25% of the PVUs subject to vesting with respect to such year (rounded down to the nearest whole phantom unit) shall vest;

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•

if the “target” performance condition with respect to a calendar year has been achieved or waived, then 50% of the PVUs subject to vesting with respect to such year shall vest; and

•

if the “maximum” performance condition with respect to a calendar year has been achieved or waived, then 100% of the PVUs subject to vesting with respect to such year shall vest.

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 July 15, 2019, the three month anniversary of the grant date.

The Recapitalization Transactions, described in Note 1 General, resulted in a Change of Control as defined in the LTIP. The Change of Control accelerated the vesting of certain awards, resulting in the immediate vesting of 1,~~351493~~351,493 phantom and restricted units. These awards were net settled with 376,351 units withheld to satisfy the participants’ tax withholding obligations, resulting in a net number of 975,142 common units tobeing be issued. The Partnership recognized $2.2 million in unit-based compensation expense related to this accelerated vesting. These units were ~~not yet outstanding as of June 30, 2019 and will be~~ delivered in the third quarter of 2019.

InAn ~~addition, an~~ aggregate of 238,553 phantom units issued under the LTIP and held in deferred compensation accounts for certain directors that either became payable as a result of the Recapitalization Transactions or had previously become payable ~~will~~were be issued in the third quarter of 2019.

An aggregate of 48,924 restricted units vested in the second quarter of 2019 in accordance with the awards’ contractual vesting schedule, which were net settled with 17,629 units withheld to satisfy the participants’ tax withholding obligations, resulting in a net number of 31,295 common units being issued. In addition, 49,379 restricted units vested in the third quarter of 2019 in accordance with the awards’ contractual vesting schedule, which were net settled with 17,772 units withheld to satisfy the participants’ tax withholding obligations, resulting in a net number of 31,607 common units being issued.

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12.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.

• 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. On June 20, 2019, the Third Circuit affirmed the dismissal of plaintiffs’ case. On July 11, 2019, the plaintiffs filed a petition to have the appeal reheard by the entire Third Circuit;, ~~this~~which the Third Circuit denied on September 16, 2019. Plaintiffs have 90 days from that date to file a petition isfor ~~currently~~certiorari ~~before~~with the United States Supreme Court to seek discretionary review of the Third Circuit’s ~~for~~ decision.

• Bunim v. Miller, et al., No. 2:17-cv-519-ER, pending in the United States District Court for the Eastern District of Pennsylvania, and filed on February 6, 2017. The plaintiff in this case brought, derivatively on behalf of the Partnership, claims that the officers and directors of the Partnership’s general partner aided and abetted in breaches of the general partner’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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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.

•

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 the officers and directors of the Partnership’s general partner aided and abetted in breaches of the general partner’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 the Partnership’s general partner, 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.

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The Philadelphia Regional Office of the SEC, 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.

13.

LEASES

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

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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 it will exercise the renewal options. The Partnership does have residual value guarantees on the finance leases for its vehicles, but no residual guarantees on any of its operating leases.

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

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

	June 30, 2019
Assets:
Operating	$	11,588
Finance		6,094
Total ROU assets(1)	$	17,682
Liabilities:
Current
Operating	$	2,062
Finance		1,175
Long-term
Operating		12,566
Finance		4,627
Total lease liabilities(2)	$	20,430

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	September 30, 2019
Assets:
Operating	$	11,321
Finance		6,211
Total ROU assets⁽¹⁾	$	17,532
Liabilities:
Current
Operating	$	2,080
Finance		1,236
Long-term
Operating		12,246
Finance		4,656
Total lease liabilities⁽²⁾	$	20,218

⁽¹⁾	The Partnership’s ROU operating assets and finance assets are presented within Other assets and Property and equipment, net of accumulated depreciation, respectively in its unaudited condensed consolidated balance sheet.

⁽²⁾	The Partnership’s current lease liabilities and long-term are presented within Accounts payable and accrued liabilities and Other long-term liabilities, respectively in its unaudited condensed consolidated balance sheet.

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 8.24%, respectively as of ~~June~~September 30, 2019.

The components of lease expense were as follows:

		Six months ended June 30, 2019
		Nine months ended September 30, 2019
Lease cost	Classification
Operating lease costs	General and administrative expense	$	12,~~831~~687
Finance lease costs
Amortization of leased assets	Depreciation and Amortization		~~640~~899
Interest on lease liabilities	Interest expense		~~238~~370
Variable lease costs	General and administrative expense		-—
Short-term lease costs	General and administrative expense		-—
Net Lease costs		$	23,~~709~~956

⁽¹⁾	The Partnership does not have any short-term leases with lease terms greater than one month.

Maturities of the Partnership’s lease labilities as of September 30, 2019, per ASC 842, Leases, were as follows:

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Year ending December 31,	Operating		Finance
2019	$	867	$	484
2020		3,320		1,761
2021		2,830		1,922
2022		2,532		1,978
2023		2,279		763
Thereafter		8,495		43
Total	$	20,323	$	6,951
Less: Interest		5,997		1,059
Present value of lease liabilities	$	14,326	$	5,892

Maturities of the Partnership’s lease labilities as of June 30, 2019, per ASC 842, Leases, were as follows:

Year ending December 31,	Operating			Finance
2019	$	1,746		$	913
2020		3,248			1,608
2021		2,758			1,750
2022		2,459			1,883
2023		2,232			714
Thereafter		8,489			26
Total	$	20,932		$	6,894
Less: Interest		(6,304	)		(1,092	)
Present value of lease liabilities	$	14,628		$	5,802

Minimum lease commitments remaining under the Partnership’s operating leases and capital leases, per ASC 840, Leases, as of December 31, 2018 were as follows:

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Year ending December 31,	Operating		Capital
2019	$	4,349	$	1,499
2020		2,765		1,196
2021		2,130		949
2022		1,539		558
2023		1,184		89
Thereafter		5,737		—
Total	$	17,704	$	4,291
Less: Interest				(875	)
Present value of lease liabilities			$	3,416

Operating and finance lease payments include $3.53 million related to options to extend lease terms that are reasonably certain of being exercised and $2.0 million related to residual value guarantees. The weighted average remaining lease term for operating and finance leases was 7.42 years and 3.20 years, respectively as of ~~June~~September 30, 2019.

As of ~~June~~ September 30, 2019, the Partnership does not have additional operating and finance leases that have not yet commenced nor any lease transactions with its related parties. In addition, as of ~~June~~ September 30, 2019, the Partnership has not entered into any new sale-leaseback arrangements.

14.	FAIR VALUE OF FINANCIAL INSTRUMENTS

Management has established a hierarchy to classify the inputs used to measure the Partnership’s financial instruments at fair value, pursuant to which the Partnership is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs represent market data obtained from independent sources; whereas, unobservable inputs reflect the 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:

•

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

•

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

•

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

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

Recurring Fair Value Measurement

At September 30, 2019 and December 31, 2018, the two financial instruments measured by the Partnership at fair value on a recurring basis were its merchandise and perpetual care trusts, which consist of investments in debt and equity marketable securities and cash equivalents that are carried at fair value and are classified as either Level 1 or Level 2 (see Note 7 Merchandise Trusts and Note 8 Perpetual Care Trusts).

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At June 30, 2019 and December 31, 2018, the two financial instruments measured by the Partnership at fair value on a recurring basis were its merchandise and perpetual care trusts, which consist of investments in debt and equity marketable securities and cash equivalents that are carried at fair value and are classified as either Level 1 or Level 2 (see Note 7 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.

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Non-Recurring Fair Value Measurement

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

Other Financial Instruments

The Partnership’s other financial instruments at ~~June~~September 30, 2019 consisted of its Senior Secured Notes (see Note 8 Long-Term Debt) and at December 31, 2018 consisted of its Senior Notes and outstanding borrowings under its revolving credit facility.

• At ~~June~~September 30, 2019, the ~~carrying~~estimated fair value of the Partnership’s Senior Secured Notes ~~approximated~~was ~~their~~$386.5 ~~fair~~million, ~~value~~based ~~due~~on totrades ~~the~~made ~~timing~~on ofthat ~~the~~date, ~~sale~~compared ofwith the ~~Senior~~carrying ~~Secured~~amount ~~Notes~~of on$376.2 ~~June 27, 2019~~million.

•

At December 31, 2018, the estimated fair value of the Partnership’s Senior Notes was $162.5 million, based on trades made on that date, compared with the carrying amount of $173.6 million.

15.	SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION

The Partnership’s Senior Secured Notes are guaranteed by the Partnership’s 100% owned subsidiaries, other than the co-issuer, as described in Note 8 Long-Term Debt. 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 Secured Notes. The Partnership’s unaudited condensed consolidated financial statements as of ~~June~~September 30, 2019 and December 31, 2018 and for the three and ~~six~~nine months ended ~~June~~September 30, 2019 and 2018 include the accounts of cemeteries operated under long-term leases, operating agreements and management agreements. For the purposes of this note, these entities are deemed non-guarantor subsidiaries, as they are not 100% owned by the Partnership. The Partnership’s unaudited condensed consolidated financial statements also contain merchandise and perpetual care trusts that are also non-guarantor subsidiaries for the purposes of this note.

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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 ~~June~~September 30, 2019 and December 31, 2018 and for the three and ~~six~~nine months ended ~~June~~September 30, 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):

CONDENSED CONSOLIDATING BALANCE SHEETS (UNAUDITED)

June 30, 2019	Parent			Subsidiary Issuer			Guarantor Subsidiaries		Non- Guarantor Subsidiaries			Eliminations			Consolidated
September 30, 2019	Parent			Subsidiary Issuer			Guarantor Subsidiaries		Non- Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents, excluding restricted cash	$	—		$	—		$	4042,~~329~~066	$	1,~~530~~449		$	—		$	4143,~~859~~515
Restricted cash		—			—			20,~~095~~580		—			—			20,~~095~~580
Other current assets		—			3,~~774~~470			7069,~~794~~812		11,~~155~~966			—			85,~~723~~248
Total current assets		—			3,~~774~~470			~~131~~132,~~218~~458		1213,~~685~~415			—			~~147~~149,~~677~~343
Long-term accounts receivable		—			2,~~747~~906			7064,~~002~~918		1110,~~026~~314			—			8378,~~775~~138
Cemetery and funeral home property and equipment		—			~~713~~696			~~407~~404,~~511~~948		3231,~~191~~960			—			~~440~~437,~~415~~604
Merchandise trusts		—			—			—		519,~~382~~529			—			519,~~382~~529
Perpetual care trusts		—			—			—		343,~~308~~028			—			343,~~308~~028
Deferred selling and obtaining costs		—			5,~~553~~580			8990,~~673~~236		17,~~690~~785			—			~~112~~113,~~916~~601
Goodwill and intangible assets		—			—			24,443		57,296			—			81,739
Intangible assets		—			—			187		56,375			—			56,562
Other assets		—			—			3029,~~960~~939		2,~~643~~779			—			3332,~~603~~718
Investments in and amounts due from affiliates eliminated upon consolidation		—			—			~~648~~649,~~063~~920		—			(~~648~~649,~~063~~920	)		—
Total assets	$	—		$	12,~~787~~652		$	1,~~401~~372,~~870~~606	$	~~996~~995,~~221~~185		$	(~~648~~649,~~063~~920	)	$	1,~~762~~730,~~815~~523
Liabilities, Redeemable Convertible Preferred Units and Partners’ Capital (Deficit)
Current liabilities		—			~~173~~150			5463,~~551~~418		1,~~242~~520			—			5565,~~966~~088
Long-term debt, net of deferred financing costs		—			—			~~357~~362,~~575~~173		—			—			~~357~~362,~~575~~173
Deferred revenues		—			32,~~966~~926			~~798~~797,~~618~~538		~~112~~113,~~558~~091			—			~~944~~943,~~142~~555
Perpetual care trust corpus		—			—			—		343,~~308~~028			—			343,~~308~~028
Other long-term liabilities		—			—			4946,~~397~~820		1516,~~871~~384			—			6563,~~268~~204
Investments in and amounts due to affiliates eliminated upon consolidation		346,~~444~~525			~~224~~259,~~749~~737			—		570,~~605~~954			(~~798~~877,~~798~~216	)		—
Total liabilities		346,~~444~~525			~~257~~292,~~888~~813			1,~~260~~269,~~141~~949		1,~~043~~044,~~584~~977			(~~798~~877,~~798~~216	)		1,~~766~~777,~~259~~048
Redeemable convertible preferred units		57,500			—			—		—			—			57,500
Partners’ capital (deficit)		(60104,~~944~~025	)		(~~245~~280,~~101~~161	)		~~141~~102,~~729~~657		(4749,~~363~~792	)		~~150~~227,~~735~~296			(60104,~~944~~025	)
Total liabilities, redeemable convertible preferred units and partners’ capital (deficit)	$	—		$	12,~~787~~652		$	1,~~401~~372,~~870~~606	$	~~996~~995,~~221~~185		$	(~~648~~649,~~063~~920	)	$	1,~~762~~730,~~815~~523

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CONSOLIDATING BALANCE SHEET

December 31, 2018	Parent			Subsidiary Issuer			Guarantor Subsidiaries		Non- Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents, excluding restricted cash	$	—		$	—		$	16,298	$	1,849		$	—		$	18,147
Restricted cash		—			—			—		—			—			—
Other current assets		—			3,718			64,924		11,527			—			80,169
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, Redeemable Convertible Preferred Units 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
Redeemable convertible preferred units		—			—			—		—			—			—
Partners’ capital (deficit)		(6,578	)		(124,924	)		51,556		(42,502	)		115,870			(6,578	)
Total liabilities, redeemable convertible preferred units 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 June 30, 2019	Parent			Subsidiary Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Three Months Ended September 30, 2019	Parent			Subsidiary Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Total revenues	$	—		$	1,~~439~~257		$	6561,~~749~~520		$	1312,~~068~~154		$	(1,~~761~~780	)	$	7873,~~495~~151
Total costs and expenses		—			(43,~~038~~336	)		(6664,~~980~~596	)		(1513,~~997~~440	)		1,~~761~~780			(8579,~~254~~592	)
Other loss		—			—			(~~1,346~~129	)		~~(2,083~~—	)		—			(~~3,429~~129	)
Net loss from equity investment in subsidiaries		(3042,~~577~~652	)		(2233,~~358~~050	)		—		.	—			5275,~~935~~702			—
Interest expense		~~(2,883~~—	)		~~(3,822~~—	)		(212,~~369~~486	)		(~~272~~279	)		—			(912,~~346~~765	)
Loss on debt extinguishment		~~(938~~—	)		~~(1,441~~—	)		~~(6,099~~—	)		—			—			~~(8,478~~—	)
Income (loss) from continuing operations before income taxes		(34,398	)		(30,220	)		(11,045	)		(5,284	)		52,935			(28,012	)
Loss on impairment of goodwill		—			—			(24,206	)		(656	)		—			(24,862	)
Income tax benefit		—			—			(6,386	)		—			—			(6,386	)
Income (loss) from continuing operations before income taxes		(42,652	)		(35,129	)		(39,897	)		(2,221	)		75,702			(44,197	)
Net income (loss)	$	(34,398	)	$	(30,220	)	$	(17,431	)	$	(5,284	)	$	52,935		$	(34,398	)
Income tax benefit		—			—			1,545			—			—			1,545
Three Months Ended June 30, 2018	Parent			Subsidiary Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net income (loss)	$	(42,652	)	$	(35,129	)	$	(38,352	)	$	(2,221	)	$	75,702		$	(42,652	)
Total revenues	$	—		$	1,425		$	69,595		$	13,414		$	(2,863	)	$	81,571
Three Months Ended September 30, 2018	Parent			Subsidiary Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Total costs and expenses		—			(3,776	)		(74,911	)		(14,485	)		2,863			(90,309	)
Total revenues	$	—		$	1,513		$	61,254		$	12,116		$	(1,698	)		73,185
Other loss		—			—			—			—			—			—
Total costs and expenses		—			(3,192	)		(68,979	)		(12,728	)		1,698			(83,201	)
Net loss from equity investment in subsidiaries		(15,657	)		(12,309	)		—			—			27,966			—
Other income		—			—			702			—			—			702
Interest expense		(1,359	)		(2,087	)		(4,404	)		(257	)		—			(8,107	)
Net loss from equity investment in subsidiaries		(15,867	)		(13,280	)		—			—			29,147			—
Income (loss) from continuing operations before income taxes		(17,016	)		(16,747	)		(9,720	)		(1,328	)		27,966			(16,845	)
Interest expense		(1,358	)		(2,087	)		(3,935	)		(258	)					(7,638	)
Income tax benefit		—			—			(172	)		—			—			(172	)
Income (loss) from continuing operations before income taxes		(17,225	)		(17,046	)		(10,958	)		(870	)		29,147			(16,952	)
Net income (loss)	$	(17,016	)	$	(16,747	)	$	(9,892	)	$	(1,328	)	$	27,966		$	(17,017	)
Income tax expense		—			—			(273	)		—			—			(273	)
Net income (loss)	$	(17,225	)	$	(17,046	)	$	(11,231	)	$	(870	)	$	29,147		$	(17,225	)

Six Months Ended June 30, 2019	Parent			Subsidiary Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Total revenues	$	—		$	3,003		$	125,501		$	24,200		$	(2,740	)	$	149,964
Total costs and expenses		—			(8,558	)		(132,915	)		(27,353	)		2,740			(166,086	)
Other loss		—			—			(1,346	)		(2,083	)		—			(3,429	)
Net loss from equity investment in subsidiaries		(51,753	)		(41,283	)		—			—			93,036			—
Interest expense		(4,241	)		(5,909	)		(11,825	)		(542	)		—			(22,517	)
Loss on debt extinguishment		(938	)		(1,441	)		(6,099	)					—			(8,478	)
Income (loss) from continuing operations before income taxes		(56,932	)		(54,188	)		(26,684	)		(5,778	)		93,036			(50,546	)
Income tax benefit		—			—			(6,386	)		—			—			(6,386	)
Net income (loss)	$	(56,932	)	$	(54,188	)	$	(33,070	)	$	(5,778	)	$	93,036		$	(56,932	)
Six Months Ended June 30, 2018	Parent			Subsidiary Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Total revenues	$	—		$	3,050		$	135,384		$	26,274		$	(5,192	)	$	159,516
Total costs and expenses		—			(7,086	)		(145,824	)		(28,562	)		5,192			(176,280	)
Other loss		—			—			(5,205	)		—			—			(5,205	)
Net loss from equity investment in subsidiaries		(32,222	)		(27,102	)		—			—			59,324			—
Interest expense		(2,717	)		(4,174	)		(7,820	)		(509	)		—			(15,220	)
Income (loss) from continuing operations before income taxes		(34,939	)		(35,312	)		(23,465	)		(2,797	)		59,324			(37,189	)
Income tax benefit		—			—			2,249			—			—			2,249
Net income (loss)	$	(34,939	)	$	(35,312	)	$	(21,216	)	$	(2,797	)	$	59,324		$	(34,940	)

Table of Contents

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (UNAUDITED)

Nine Months Ended September 30, 2019	Parent			Subsidiary Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Total revenues	$	—		$	4,260		$	187,021		$	36,354		$	(4,520	)	$	223,115
Total costs and expenses		—			(11,894	)		(197,511	)		(40,793	)		4,520			(245,678	)
Other loss		—			—			(1,475	)		(2,083	)		—			(3,558	)
Net loss from equity investment in subsidiaries		(94,405	)		(74,333	)		—			—			168,738			—
Interest expense		(4,241	)		(5,909	)		(24,311	)		(821	)		—			(35,282	)
Loss on debt extinguishment		(938	)		(1,441	)		(6,099	)		—			—			(8,478	)
Loss on impairment of goodwill		—			—			(24,206	)		(656	)		—			(24,862	)
Income (loss) from continuing operations before income taxes		(99,584	)		(89,317	)		(66,581	)		(7,999	)		168,738			(94,743	)
Income tax expense		—			—			(4,841	)		—			—			(4,841	)
Net income (loss)	$	(99,584	)	$	(89,317	)	$	(71,422	)	$	(7,999	)	$	168,738		$	(99,584	)

Nine Months Ended September 30, 2018

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