Section 1: 10-K/A (10-K/A)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 1
(Mark One)
☒☒☒☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐☐☐☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
or
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
(State or other jurisdiction of
incorporation or organization)
3600 Horizon Boulevard
Trevose, Pennsylvania
(Address of principal executive offices)
80-0103159
(I.R.S. Employer
Identification No.)
19053
(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
Common Units
Name of each exchange on which registered
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Securities registered pursuant to Section 12(g) of the Act: None
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’ s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K/A or any amendment to this Form 10-K/A. ☒
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
Non-accelerated filer
☐
☐
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 ☒
The aggregate market value of the common units held by non-affiliates of the registrant was approximately $90.5 million as of June 30, 2018 based on $6.03, the closing price per common unit as reported on
the New York Stock Exchange on June 29, 2018.
The number of the registrant’ s outstanding common units at March 29, 2019 was 38,260,471.
EXPLANATORY NOTE
This Amendment No. 1 on Form 10-K/A (the “Amendment”) is being filed to amend the Annual Report on Form 10-K for the fiscal year ended
December 31, 2018 (the “Original 10-K”), filed by StoneMor Partners L.P. (the “Partnership”) with the U.S. Securities and Exchange Commission on
April 3, 2019 (the “Original Filing Date”), in two respects. First, we amended Note 1 in Part II, Item 8. Financial Statements and Supplementary Data
to add a tabular presentation of the reclassification adjustments discussed in the paragraph captioned “Reclassifications and Adjustments to Prior
Period Financial Statements.” Second, the Report of Independent Registered Public Accounting Firm issued by Grant Thornton LLP ("Grant
Thornton") and included in such Item 8 has been amended to add a new second paragraph regarding Grant Thornton’s audit of the reclassification
adjustments described in such Note 1 and to specify that the date of its report as to such Note 1 is August 28, 2019. This change to Grant
Thornton’s report does not affect Grant Thornton's unqualified opinion on the Partnership's consolidated financial statements included in the
Original 10-K or the Amendment or Grant Thornton’s qualified opinion on the effectiveness of the Partnership’s internal control over financial
reporting as of December 31, 2018.
Except as described above, no changes have been made to the Original 10-K and the Amendment does not modify, amend or update in any way any
of the financial or other information contained in the Original 10-K. The Amendment does not reflect events that may have occurred subsequent to
the Original Filing Date.
Pursuant to Rule 12b-15 under the Securities Exchange Act of 1934, as amended, the Amendment also contains new certifications pursuant to
Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002, which are filed and furnished herewith, respectively. Because the Amendment does
not contain or amend any disclosure with respect to Items 307 and 308 of Regulation S-K, paragraphs 4 and 5 of the certifications pursuant to
Section 302 have been omitted.
2
FORM 10-K/A OF STONEMOR PARTNERS L.P.
TABLE OF CONTENTS
Item 8.
Financial Statements and Supplementary Data
Item 15.
Exhibits and Financial Statement Schedules
Signatures
PART II
PART IV
3
4
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ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PART II
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Unitholders
StoneMor Partners L.P.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheet of StoneMor Partners L.P. (a Delaware Partnership) and subsidiaries (the
“Partnership”) as of December 31, 2018, and the related consolidated statements of operations, partners’ capital, and cash flows for the year ended
December 31, 2018, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present
fairly, in all material respects, the financial position of the Partnership as of December 31, 2018, and the results of its operations and its cash flows
for the year ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.
We also have audited the reclassification adjustments to the 2017 financial statements to conform the presentation of consolidated results of
operations to the current year presentation, as described in Note 1 under the caption Reclassifications and Adjustments to Prior Period Financial
Statements. In our opinion, such reclassification adjustments are appropriate and have been properly applied. We were not engaged to audit,
review, or apply any procedures to the 2017 financial statements of the Company other than with respect to such reclassification adjustments and,
accordingly, we do not express an opinion or any other form of assurance on the 2017 financial statements taken as a whole.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the
Partnership’s internal control over financial reporting as of December 31, 2018, based on criteria established in the 2013 Internal Control—
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated April 2,
2019 expressed an adverse opinion.
Change in accounting principle
As discussed in Note 1 to the consolidated financial statements, the Partnership has changed its method of accounting for revenue recognition for
the year ended December 31, 2018 due to the adoption of Financial Accounting Standards Board Accounting Standards Codification (Topic 606),
Revenue from Contracts with Customers.
Basis for opinion
These financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on the Partnership’s
financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included
performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ Grant Thornton LLP
We have served as the Partnership’s auditor since 2018.
Philadelphia, Pennsylvania
April 2, 2019 (except for Note 1, as to which the date is August 28, 2019)
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of StoneMor GP LLC and Unitholders of StoneMor Partners L.P.
Opinion on the Financial Statements
We have audited, before the effects of the retrospective adjustments to reflect the impact of adoption of Accounting Standards Update 2014-09,
Revenue from Contracts with Customers (Topic 606), as disclosed in Note 1 under captions Reclassifications and Adjustments to Prior Period
Financial Statements and Recently Issued Accounting Standard Updates - Adopted in the Current Period (“Note 1”) to the consolidated financial
statements, the consolidated balance sheet of StoneMor Partners L.P. and subsidiaries (the "Partnership") as of December 31, 2017, the related
consolidated statements of operations, partners’ capital, and cash flows, for the year ended December 31, 2017, and the related notes (collectively
referred to as the "financial statements") (the 2017 financial statements before the effects of the retrospective adjustments discussed in Note 1 to
the financial statements are not presented herein). In our opinion, the 2017 financial statements, before the effects of the adjustments to
retrospectively apply the change in accounting discussed in Note 1 to the financial statements, present fairly, in all material respects, the financial
position of the Partnership as of December 31, 2017, and the results of its operations and its cash flows for the year ended December 31, 2017, in
conformity with accounting principles generally accepted in the United States of America.
We were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively apply the change in accounting discussed in
Note 1 to the financial statements, and accordingly, we do not express an opinion or any other form of assurance about whether such retrospective
adjustments are appropriate and have been properly applied. Those retrospective adjustments were audited by other auditors.
Basis for Opinion
These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on the Partnership's
financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included
performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
July 16, 2018
We began serving as the Partnership’s auditor in 1999. In 2018 we became the predecessor auditor.
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STONEMOR PARTNERS L.P.
CONSOLIDATED BALANCE SHEETS
(in thousands)
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net of allowance
Prepaid expenses
Assets held for sale
Other current assets
Total current assets
Long-term accounts receivable, net of allowance
Cemetery property
Property and equipment, net of accumulated depreciation
Merchandise trusts, restricted, at fair value
Perpetual care trusts, restricted, at fair value
Deferred selling and obtaining costs
Deferred tax assets
Goodwill
Intangible assets
Other assets
Total assets
Liabilities and Partners’ Capital
Current liabilities:
Accounts payable and accrued liabilities
Accrued interest
Current portion, long-term debt
Total current liabilities
Long-term debt, net of deferred financing costs
Deferred revenues
Deferred tax liabilities
Perpetual care trust corpus
Other long-term liabilities
Total liabilities
Commitments and contingencies
Partners’ (deficit) capital :
General partner interest
Common limited partners’ interest
Total partners’ (deficit) capital
Total liabilities and partners’ capital
December 31,
2018
2017
$
$
$
$
18,147 $
57,928
4,475
757
17,009
98,316
87,148
330,841
112,716
488,248
330,562
112,660
86
24,862
61,421
22,241
1,669,101 $
59,035 $
1,967
798
61,800
320,248
914,286
6,675
330,562
42,108
1,675,679
(4,008 )
(2,570 )
(6,578 )
1,669,101 $
6,821
79,116
4,580
1,016
21,453
112,986
105,935
333,404
114,090
515,456
339,928
126,398
84
24,862
63,244
19,695
1,756,082
43,023
1,781
1,002
45,806
317,693
912,626
9,638
339,928
38,695
1,664,386
(2,959 )
94,655
91,696
1,756,082
See Accompanying Notes to Consolidated Financial Statements.
7
STONEMOR PARTNERS L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per unit data)
Years Ended December 31,
2017
2018
Table of Contents
Revenues:
Cemetery:
Interments
Merchandise
Services
Investment and other
Funeral home:
Merchandise
Services
Total revenues
Costs and Expenses:
Cost of goods sold
Cemetery expense
Selling expense
General and administrative expense
Corporate overhead
Depreciation and amortization
Funeral home expenses:
Merchandise
Services
Other
Total costs and expenses
Gain on acquisitions and divestitures
Loss on goodwill impairment
Other losses, net
Operating loss
Interest expense
Loss from operations before income taxes
Income tax benefit
Net loss
General partner’s interest
Limited partners’ interest
Net loss per limited partner unit (basic and diluted)
Weighted average number of limited partners’ units outstanding
(basic and diluted)
See Accompanying Notes to Consolidated Financial Statements.
8
$
$
$
$
$
76,902 $
75,412
67,278
42,343
25,652
28,539
316,126
54,647
78,708
62,538
43,081
53,281
11,736
6,579
22,159
15,787
348,516
691
—
(12,195 )
(43,894 )
(30,602 )
(74,496 )
1,797
(72,699 ) $
(757 ) $
(71,942 ) $
(1.90 ) $
75,077
75,602
70,704
55,313
27,767
33,764
338,227
51,899
76,857
66,083
39,111
51,964
13,183
7,131
22,929
19,743
348,900
858
(45,574 )
(2,045 )
(57,434 )
(27,345 )
(84,779 )
9,621
(75,158 )
(782 )
(74,376 )
(1.96 )
37,959
37,948
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STONEMOR PARTNERS L.P.
CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL
(dollars in thousands)
December 31, 2016
Issuance of common units
Common unit awards under incentive plans
Net loss
Cash distributions
Unit distributions paid in kind
December 31, 2017
Cumulative effect of accounting change
January 1, 2018
Common unit awards under incentive plans
Net loss
December 31, 2018
Outstanding
Common
Common Units
Limited Partners
General
Partner
Total
Partners’ Capital
37,863,496 $
—
16,098
—
—
78,342
37,957,936 $
—
37,957,936 $
709
—
37,958,645 $
192,268 $
744
1,045
(74,376 )
(24,282 )
(744 )
94,655 $
(27,805 )
66,850 $
2,522
(71,942 )
(2,570 ) $
(1,914 ) $
—
—
(782 )
(263 )
—
(2,959 ) $
(292 )
(3,251 ) $
—
(757 )
(4,008 ) $
190,354
744
1,045
(75,158 )
(24,545 )
(744 )
91,696
(28,097 )
63,599
2,522
(72,699 )
(6,578 )
See Accompanying Notes to Consolidated Financial Statements.
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STONEMOR PARTNERS L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash Flows From Operating Activities:
Net loss
Adjustments to reconcile net loss to net cash provided by operating
activities:
Years Ended December 31,
2017
2018
$
(72,699 ) $
(75,158 )
Cost of lots sold
Depreciation and amortization
Provision for cancellations
Non-cash compensation expense
Non-cash interest expense
Gain on acquisitions and divestitures
Loss on goodwill impairment
Other losses, net
Changes in assets and liabilities:
Accounts receivable, net of allowance
Merchandise trust fund
Other assets
Deferred selling and obtaining costs
Deferred revenues
Deferred taxes, net
Payables and other liabilities
Net cash provided by operating activities
Cash Flows From Investing Activities:
Cash paid for capital expenditures
Cash paid for acquisitions
Proceeds from divestitures
Proceeds from asset sales
Net cash used in investing activities
Cash Flows From Financing Activities:
Cash distributions
Proceeds from borrowings
Repayments of debt
Cost of financing activities
Net cash used in financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents—Beginning of period
Cash and cash equivalents—End of period
Supplemental disclosure of cash flow information:
Cash paid during the period for interest
Cash paid during the period for income taxes
Non-cash investing and financing activities:
Acquisition of assets by financing
Classification of assets as held for sale
7,808
11,736
7,358
2,523
5,985
(691 )
—
12,195
4,498
4,295
2,618
(4,819 )
37,405
(2,591 )
10,836
26,457
(12,172 )
(1,667 )
—
1,276
(12,563 )
—
29,880
(28,493 )
(3,955 )
(2,568 )
11,326
6,821
18,147 $
25,606 $
1,725 $
2,673 $
543 $
10,525
13,183
6,244
1,045
4,479
(858 )
45,574
1,843
(17,074 )
46,695
1,410
(9,508 )
(9,049 )
(10,439 )
6,064
14,976
(10,789 )
—
1,241
627
(8,921 )
(24,545 )
103,292
(88,951 )
(1,600 )
(11,804 )
(5,749 )
12,570
6,821
22,901
2,756
2,705
1,016
$
$
$
$
$
See Accompanying Notes to Consolidated Financial Statements.
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1. GENERAL
Nature of Operations
STONEMOR PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 December 31, 2018, the Partnership operated 322 cemeteries in 27 states and Puerto Rico, of which 291 were owned and 31 were
operated under lease, management or operating agreements. The Partnership also owned and operated 90 funeral homes, including 42 located on
the grounds of cemetery properties that we own, in 17 states and Puerto Rico.
Basis of Presentation
The consolidated financial statements included in this Annual Report on Form 10-K/A have been prepared in accordance with accounting
principles generally accepted in the United States of America ("GAAP").
Principles of Consolidation
The 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 31 cemeteries under long-term lease, operating or management agreements. The operations of 16 of these managed cemeteries
have been consolidated.
The Partnership operates 15 cemeteries under long-term leases and other agreements that do not qualify as acquisitions for accounting purposes.
As a result, the Partnership did not consolidate all of the existing assets and liabilities related to these cemeteries. The Partnership has consolidated
the existing assets and liabilities of the merchandise and perpetual care trusts associated with these cemeteries as variable interest entities since the
Partnership controls and receives the benefits and absorbs any losses from operating these trusts. Under the long-term leases, and other
agreements associated with these properties, which are subject to certain termination provisions, the Partnership is the exclusive operator of these
cemeteries and earns revenues related to sales of merchandise, services and interment rights, and incurs expenses related to such sales, including
the maintenance and upkeep of these cemeteries. Upon termination of these agreements, the Partnership will retain all of the benefits and related
contractual obligations incurred from sales generated during the agreement period. The Partnership has also recognized the existing customer
contract-related performance obligations that it assumed as part of these agreements.
Total revenues derived from the cemeteries under these agreements totaled approximately $52.3 million and $59.0 million for the years ended
December 31, 2018 and 2017, respectively.
Reclassifications and Adjustments to Prior Period Financial Statements
The following reclassifications outlined in the table below were made to the consolidated statement of operations for the year ended December 31,
2017 to conform the presentation of revenues for Cemetery Operations to the corresponding presentation in the consolidated statement of
operations for the year ended December 31, 2018. These reclassifications were made primarily to (1) present revenue related to interment rights
separately from Merchandise revenue and (2) to reclassify revenue related to the installation of certain cemetery merchandise items from
Merchandise revenue to Services revenue. These reclassifications had no further impact on the consolidated statement of operations for the year
ended December 31, 2017 and had no impact on the previously reported consolidated balance sheet as of December 31, 2017 and the consolidated
statement of cash flows for the year ended December 31, 2017.
Financial Statement Line Item
Revenues:
Cemetery:
Interments
Merchandise
Services
Investment and other
Total Cemetery Revenues
$
$
2017
As Previously Reported
Reclassifications
2017
As Adjusted
75,077 $
(83,944 )
8,269
598
— $
75,077
75,602
70,704
55,313
276,696
— $
159,546
62,435
54,715
276,696 $
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Merger and Reorganization Agreement
On September 27, 2018, the Partnership, StoneMor GP LLC, a Delaware limited liability company and the general partner of the Partnership (“GP”),
StoneMor GP Holdings LLC, a Delaware limited liability company and the sole member of GP (“GP Holdings”), and Hans Merger Sub, LLC, a
Delaware limited liability company and wholly-owned subsidiary of GP (“Merger Sub”), entered into a Merger and Reorganization Agreement (the
“Merger Agreement”) pursuant to which, among other things, GP will convert from a Delaware limited liability company into a Delaware corporation
to be named StoneMor Inc. (the “Company” when referring to StoneMor Inc. subsequent to such conversion), the Partnership will become a wholly
owned subsidiary of the Company and the unitholders of the Partnership will become stockholders in the Company.
Upon the terms and subject to the conditions set forth in the Merger Agreement, GP Holdings shall contribute the 2,332,878 common units
representing limited partner interests in the Partnership (the “Common Units”) owned by it (the “GP Holdings’ Common Units”) to GP and
immediately following receipt thereof, GP shall contribute the GP Holdings’ Common Units to StoneMor LP Holdings, LLC, a Delaware limited
liability company and wholly owned subsidiary of GP (“LP Sub”) and LP Sub shall be admitted as a limited partner of the Partnership; (ii) GP shall
convert into the Company (the “Conversion”) and all of the limited liability company interests of GP held by GP Holdings prior to the Conversion
shall be canceled; (iii) as part of the Conversion and before giving effect to the Merger (as defined below), GP Holdings will be the sole stockholder
of StoneMor Inc. and, as consideration for the Conversion and the Merger, will receive 2,332,878 shares of common stock, par value $0.01 per share,
of StoneMor Inc. (the “Company Shares”) (subject to adjustment as provided in the Merger Agreement) with respect to the 2,332,878 Common
Units held by LP Sub immediately prior to the Conversion, and 2,950,000 Company Shares (the “General Partner Shares”) (also subject to adjustment
as provided in the Merger Agreement) with respect to the 1.04% general partner interest, the incentive distribution rights and the governance and
all other economic and other rights associated with the general partner interest held indirectly by GP Holdings through the GP immediately prior to
the Conversion.
Pursuant to the Merger Agreement, (i) any then outstanding awards of phantom units granted to a member of the GP Board under the StoneMor
Partners L.P. Long-Term Incentive Plan(as amended April 19, 2010) (the “2004 Partnership Equity Plan”), (ii) any then outstanding award of Phantom
Units granted to a member of the GP Board under the StoneMor Partners L.P. 2014 Long-Term Incentive Plan (the “2014 Partnership Equity Plan”),
which was also renamed the StoneMor Amended and Restated 2018 Long-Term Incentive Plan (the “Restated Plan”), (iii) any then outstanding
award of Phantom Units that is not a 2004 Director Deferred Phantom Unit Award or a 2014 Director Deferred Phantom Unit Award granted under
either the 2004 Partnership Equity Plan or the 2014 Partnership Equity Plan (a “Phantom Award”), (iv) any then outstanding award of restricted units
(“Restricted Units”) granted under the 2014 Partnership Equity Plan, (v) any then outstanding award of unit appreciation rights (“UARs”) granted
under the 2004 Partnership Equity Plan (a “UAR Award”) shall, without any required action on the part of the holder thereof, be assumed by the
Company and converted into an award denominated in Company Shares.
At the Effective Time, Merger Sub shall be merged with and into the Partnership (the “Merger”), with the Partnership surviving and with the
Company as its sole general partner and LP Sub as its sole holder of Common Units and each outstanding Common Unit, including certain phantom
units granted to members of the GP Board under the 2004 Partnership Equity Plan but excluding any Common Units held by LP Sub, being
converted into the right to receive one Company Share. All of the limited liability company interests in Merger Sub outstanding immediately prior to
the Effective Time shall be converted into and become limited partner interests in the surviving entity. Following the Effective Time, the general
partnership interests in the Partnership issued and outstanding immediately prior to the Effective Time shall remain outstanding and unchanged
subject to such changes as are set forth in the Second Amended and Restated Agreement of Limited Partnership of the Partnership, dated as of
September 9, 2008, as amended as of November 3, 2017 (the “LPA”), and the Company shall continue to be the sole general partner of the
Partnership.
Per the terms of the Merger Agreement each Party shall bear its own expenses, costs and fees (including attorneys’, auditors’ and financing fees, if
any) in connection with the preparation and delivery of the Merger Agreement and compliance therewith, whether or not the transactions
contemplated by the Merger Agreement are effected. The Partnership has incurred $2.1 million in legal and other expenses for the transactions
contemplated by the Merger Agreement through December 31, 2018.
Uses and Sources of Liquidity
The Partnership’s primary sources of liquidity are cash generated from operations and borrowings under its revolving credit facility. As a master
limited partnership (“MLP”), the Partnership's primary cash requirements, in addition to normal operating
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expenses, are for capital expenditures, net contributions to the merchandise and perpetual care trust funds, debt service and cash distributions. In
general, as part of its operating strategy, the Partnership expects to fund:
• working capital deficits through cash generated from operations, additional borrowings, and sales of underperforming properties;
•
expansion capital expenditures, net contributions to the merchandise and perpetual care trust funds and debt service obligations through
available cash, cash generated from operations, additional borrowings or asset sales. Amounts contributed to the merchandise trust funds
will be withdrawn at the time of the delivery of the product or service sold to which the contribution relates (see "Summary of Significant
Accounting Policies" section below regarding revenue recognition), which will reduce the amount of additional borrowings or asset sales
needed; and
•
any cash distributions the Partnership is permitted and determines to pay in accordance with its partnership agreement and maintenance
capital expenditures through available cash and cash flows from operating activities.
While the Partnership relies heavily on its cash flows from operating activities and borrowings under its credit facility to execute its operational
strategy and meet its financial commitments and other short-term financial needs, the Partnership cannot be certain that sufficient capital will be
generated through operations or available to the Partnership to the extent required and on acceptable terms. Moreover, although the Partnership's
cash flows from operating activities have been positive, the Partnership has experienced negative financial trends which, when considered in the
aggregate, raise substantial doubt about the Partnership’s ability to continue as a going concern. These negative financial trends include:
•
•
•
•
the Partnership has continued to incur net losses for the years ended December 31, 2018 and 2017 and has an accumulated deficit as of
December 31, 2018, due to an increased competitive environment, an increase in professional fees and compliance costs and an increase in
consulting fees associated with the Partnership's adoption and implementation of the Accounting Standard Codification (“ASC”) 606,
Revenue from Contracts with Customers incurred in the year ended December 31, 2018 and 2017;
decline in billings coupled with
the
Partnership's liquidity position and increased reliance on long-term financial obligations, which, in turn, eliminated the Partnership's ability
to pay distributions;
in professional, compliance and consulting expenses,
tightened
increase
the
the Partnership's failure to comply with certain debt covenants required by the Partnership’s credit facility due to the Partnership's inability
to complete a timely filing of its Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q, as well as exceeding of the maximum
consolidated leverage ratio financial covenant for the quarters ended December 31, 2017 and March 31, 2018, exceeding the maximum
consolidated secured net leverage ratio financial covenant for the periods ended June 30, 2018, September 30, 2018 and December 31, 2018
and not being able to achieve the minimum consolidated fixed charge coverage ratio for the periods ended June 30, 2018, September 30,
2018 and December 31, 2018. As further disclosed in the credit facility subsection in Note 10 Long-Term Debt, these failures constituted
defaults that the Partnership's lenders agreed to waive; and
the provision for ticking fees assessed on the amount of outstanding loans made under the Tranche A Revolving Credit Facility (the
“Tranche A Revolving Loans”) and payable to the Tranche A Revolving Lenders (i) in-kind, by increasing the outstanding principal
amount of such Lender’s Tranche A Revolving Loans (“PIK”) or (ii) in cash in the following amounts and on the following dates:
•
•
•
•
3.00% on July 1, 2019, of which (x) 2.00% shall PIK and (y) 1.00% shall be payable in cash, unless Required Lenders agree to
PIK;
1.00% on August 1, 2019, payable in cash, unless the Required Lenders agree to PIK;
1.00% on September 1, 2019, payable in cash, unless the Required Lenders agree to PIK; and
1.00% on October 1, 2019, PIK;
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During 2018 and to date in 2019, the Partnership has implemented (and will continue to implement) various actions to improve profitability and cash
flows to fund operations. A summary of these actions is as follows:
•
•
•
•
continue to manage recurring operating expenses and seek to limit non-recurring operating expenses over the next twelve-month period,
which includes the January 2019 Restructuring actions as further discussed in Note 19 Subsequent Events;
the Partnership engaged a financial advisor to advise the Partnership in the arrangement of the refinancing in full of the obligations with
respect to the Tranche A Revolving Credit Facility including debt and equity financing vehicles, however, at this time the Partnership has
no commitments to obtain any additional funds, and there can be no such assurance such funds will be available on acceptable terms or at
all;
complete sales of certain assets and businesses to provide supplemental liquidity; and
for the reasons disclosed above, the Partnership was not in compliance with certain of its amended credit facility covenants as of
December 31, 2017, March 31, 2018, June 30, 2018, September 30, 2018 and December 31, 2018. These failures constituted defaults that the
lenders agreed to waive pursuant to the Sixth Amendment and Waiver, the Seventh Amendment and Waiver and the Eighth Amendment
and Waiver to the Partnership's credit facility on June 12, 2018, July 13, 2018 and February 4, 2019, respectively, as disclosed in the credit
facility subsection in Note 10 Long-Term Debt and in Note 19 Subsequent Events. Moreover, based on the Partnership's forecasted
operating performance, cash flows and projected plans to file financial statements on a timely basis consistent with the debt covenants,
the Partnership does not believe it is probable that the Partnership will further breach the covenants under its amended credit facility for
the next twelve-month period. However, there is no certainty that the Partnership's actual operating performance and cash flows will not be
substantially different from forecasted results, and no certainty the Partnership will not need further amendments to its credit facility in the
future. Factors that could impact the significant assumptions used by the Partnership in assessing its ability to satisfy its financial
covenants include the following:
•
•
•
•
•
•
operating performance not meeting reasonably expected forecasts;
failing to generate profitable sales;
investments in the Partnership's trust funds experiencing significant declines due to factors outside its control;
being unable to compete successfully with other cemeteries and funeral homes in the Partnership's markets;
the number of deaths in the Partnership's markets declining; and
the mix of funeral and cemetery revenues between burials and cremations.
If the Partnership's planned and implemented actions are not completed and cash savings realized and the Partnership fails to improve its operating
performance and cash flows, or the Partnership is not able to comply with the covenants under its amended credit facility, the Partnership may be
forced to limit its business activities, implement further modifications to its operations, further amend its credit facility and/or seek other sources of
capital, and the Partnership may be unable to continue as a going concern. Additionally, a failure to generate additional liquidity could negatively
impact the Partnership's access to inventory or services that are important to the operation of the Partnership's business. Given the Partnership's
level of cash and cash equivalents, to preserve capital resources and liquidity, the Board of Directors of the General Partner concluded that it was
not in the best interest of unitholders to pay distributions to unitholders after the first quarter of 2017. In addition, the Partnership's revolving credit
facility prohibits the Partnership from making distributions to unitholders. Any of these events may have a material adverse effect on the
Partnership's results of operations and financial condition. The ability of the Partnership to meets its obligations at December 31, 2018, and to
continue as a going concern is dependent upon achieving the action plans noted above. The consolidated financial statements for the year ended
December 31, 2018 were prepared on the basis of a going concern which contemplates that the Partnership will be able to realize assets and
discharge liabilities in the normal course of business. Accordingly, they do not give effect to adjustments, if any, that would be necessary should
the Partnership be required to liquidate its assets. The ability of the Partnership to meet its obligations at December 31, 2018, and to continue as a
going concern is dependent upon the availability of a refinancing in full of the obligations with respect to the Tranche A Revolving Credit Facility,
continued ability to manage expenses and increased sales. As such, the consolidated financial statements included in this Annual Report on Form
10-K/A do not include any adjustments that might result from the outcome of these uncertainties.
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Summary of Significant Accounting Policies
Use of Estimates
The preparation of the Partnership’s consolidated financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the
consolidated financial statements, as well as the reported amounts of revenue and expense during the reporting periods. The Partnership’s
consolidated financial statements are based on a number of significant estimates, including revenue and expense accruals, depreciation and
amortization, merchandise trust and perpetual care trust asset valuation, allowance for cancellations, unit-based compensation, deferred revenues,
deferred merchandise trust investment earnings, deferred selling and obtaining costs, assets and liabilities obtained through business
combinations, income taxes, hurricane-related losses and goodwill including any interim assessment for impairment. As a result, actual results could
differ from those estimates.
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”), classified on the Statements of Operations as Interments, Merchandise and Services and (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 and required to be maintained in the trust by state law as well as interest earned on pre-need
installment contracts. Investment income is presented within Investment and other for Cemetery revenue and Services for Funeral home revenue
Cemetery and Funeral Home Operations
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.
Any shipping and handling costs that are incurred after control over a product has transferred to a customer are accounted for as a fulfillment cost
and are included in cost of goods sold.
Investment income is earned on certain payments received from the customer on pre-need contracts, which are required by law to be deposited into
the merchandise and service trusts. Amounts are withdrawn from the merchandise trusts when the Partnership fulfills the performance obligations.
Earnings on these trust funds, which are specifically identifiable for each performance obligation, are also included in total transaction price. Pre-
need contracts are generally subject to financing arrangements on an installment basis, with a contractual term not to exceed 60 months. Interest
income is recognized utilizing the effective interest method. For those contracts that do not bear a market rate of interest, the Partnership imputes
such interest based upon the prime rate at the time of origination plus 375 basis points in order to segregate the principal and interest component of
the total contract value. The Partnership has elected to not adjust the transaction price for the effects of a significant financing component for
contracts that have payment terms under one year.
At the time of a non-cancellable pre-need sale, the Partnership records an account receivable in an amount equal to the total contract value less
unearned finance income and any cash deposit paid. The revenue from both the sales and interest income from trusted funds are deferred until the
merchandise is delivered or the services are performed. For a sale in a cancellable state, an account receivable is only recorded to the extent control
has transferred to the customer for interment rights, merchandise or services for which the Partnership has not collected cash. The amounts
collected from customers in states in which pre-need contracts are cancellable may be subject to refund provisions. The Partnership estimates the
fair value of its refund obligation under such contracts on a quarterly basis and records such obligations within the other long-term liabilities line
item on its Condensed Consolidated Balance Sheet.
Nature of Goods and Services
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The following is a description of the principal activities, separated by reportable segments, from which the Partnership generates its revenue. As
discussed more fully in Note 18 Segment Information, the Partnership operates two reportable segments: Cemetery Operations and Funeral Home
Operations.
Cemetery Operations
The Cemetery Operations segment principally generates revenue from (1) providing rights to inter remains in a specific cemetery property inventory
space such as burial lots and constructed mausoleum crypts (“Interments”), (2) sales of cemetery merchandise which includes markers (i.e., method
of identifying a deceased person in a burial space, crypt or niche), base (i.e., the substrate upon which a marker is placed), vault (i.e., a container
installed in the burial lot in which the casket is placed), caskets, cremation niches and other cemetery related items (“Merchandise”) and (3) service
revenues, including opening and closing (“O&C”), a service of digging and refilling burial spaces to install the burial vault and place the casket into
the vault, cremation services and fees for installation of cemetery merchandise (“Services”). Products and services may be sold separately or in
packages. For packages, the Partnership accounts for individual products and services separately as they are distinct (i.e., the product or service is
separately identifiable from other items in the package and the customer can benefit from it on its own or with other resources that are readily
available to the customer). The consideration (including any discounts) is allocated among separate products and services in a package based on
their relative stand-alone selling prices. The stand-alone selling price is determined by management based upon local market conditions and
reasonable ranges for both merchandise and services which is the best estimate of the stand-alone price. For items that are not sold separately
(e.g., second interment rights), the Partnership estimates stand-alone selling prices using the best estimate of market value. The Partnership
estimated the stand-alone selling price using inputs such as average selling price and list price broken down by each geographic location.
Additionally the Partnership considered typical sales promotions that could have impacted the stand-alone selling price estimates.
Interments revenue is recognized when control transfers, which is when the property is available for use by the customer. For pre-construction
mausoleum contracts, the Partnership will only recognize revenue once the property is constructed and the customer has obtained substantially all
of the remaining benefits of the property. Sales taxes collected are recognized on a net basis in our condensed consolidated financial statements.
Merchandise revenue and deferred investment earnings on merchandise trusts are recognized when a customer obtains control of the product. This
usually occurs when the customer takes possession of the product (title has transferred to the customer and the merchandise is either installed or
stored, at the direction of the customer, at the vendor’s warehouse or a third-party warehouse at no additional cost to the Partnership). The amount
of revenue recognized is adjusted for expected refunds, which are estimated based on applicable law, general business practices and historical
experience observed specific to the respective performance obligation. The estimate of the refund obligation is reevaluated on a quarterly basis. In
addition, we are entitled to retain, in certain jurisdictions, a portion of collected customer payments when a customer cancels a pre-need contract;
these amounts are also recognized in revenue at the time the contract is cancelled.
Service revenue is recognized when the services are performed and the performance obligation is thereby satisfied.
The cost of goods sold related to merchandise and services reflects the actual cost of purchasing products and performing services and the value
of cemetery property depleted through the recognized sales of interment rights. The costs related to the sales of lots and crypts are determined
systematically using a specific identification method under which the total value of the underlying cemetery property and the lots available to be
sold at the location are used to determine the cost per lot.
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Funeral Home Operations
Our Funeral Home Operations segment principally generates revenue from (1) sales of funeral home merchandise which includes caskets and other
funeral related items (“Merchandise”) and (2) service revenues, including services such as family consultation, the removal of and preparation of
remains and the use of funeral home facilities for visitation and services of remembrance (“Services”). Our funeral home operations also include
revenues related to the sale of term and whole life insurance on an agency basis, in which we earn a commission from the sales of these policies.
Insurance commission revenue is reported within service revenues. Products and services may be sold separately or in packages. For packages, the
Partnership accounts for individual products and services separately as they are distinct (i.e., the product or service is separately identifiable from
other items in the package and the customer can benefit from it on its own or with other resources that are readily available to the customer). The
consideration (including any discounts) is allocated among separate products and services based on their relative stand-alone selling prices. The
relative stand-alone selling price is determined by management's best estimate of the stand-alone price based upon the list price at each location.
Funeral Home Operations primarily generate revenues from at-need sales.
Merchandise revenue is recognized when a customer obtains control of the product. This usually occurs when the customer takes possession of
the product (title has transferred to the customer and the merchandise is either installed or stored, at the direction of the customer, at the vendor’s
warehouse or a third-party warehouse). The amount of revenue recognized is adjusted for expected refunds, which are estimated based on
applicable law, general business practices and historical experience observed specific to the respective performance obligations. The estimate of the
refund obligation is reevaluated on a quarterly basis.
Service revenue is recognized when the services are performed and the performance obligation is thereby satisfied.
Costs related to the delivery or performance of merchandise and services are charged to expense when merchandise is delivered or services are
performed.
Deferred Selling and Obtaining Costs
The Partnership defers certain costs (i.e., commissions and bonuses) that are incremental to obtaining pre-need cemetery and funeral contracts. The
Partnership calculates the deferred selling costs asset by dividing total deferred selling and obtaining expenses by total deferrable revenues and
multiplying such percentage by the periodic change in gross deferred revenues. Such costs are recognized when the associated performance
obligation is fulfilled based upon the net change in deferred revenues. All other selling costs are expensed as incurred. 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.
As of December 31, 2018, we had $112.7 million in deferred incremental direct selling costs included in Deferred charges and other assets. These
deferred costs are classified as long-term on our Condensed Consolidated Balance Sheet because the Partnership does not control the timing of the
delivery of the merchandise or performance of the services as they are generally provided at the time of need. During the year ended December 31,
2018, the Partnership recognized $4.8 million from deferred incremental direct selling costs.
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.
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 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.
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Assets Held for Sale
We classify our assets or entities as held for sale in the period in which all of the following criteria are met:
• management, having the authority to approve the action, commits to a plan to sell the asset or entity;
•
•
•
•
•
the asset or entity is available for immediate sale in its present condition;
an active program to locate a buyer and other actions required to complete the plan to sell have been initiated;
the sale is probable and transfer is expected to be completed within one year;
the asset or entity is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and
actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be
withdrawn.
When the disposals of an entity or components of an entity that are classified as held for sale represent a strategic shift that has, or will have, a
major effect on an entity's operations and financial results, we account for such disposals as discontinued operations. Otherwise, when the held for
sale criteria is met but the disposal does not meet the criteria to be treated as discontinued operations, the assets or disposal group are reclassified
from the corresponding balance sheet line items to held for sale. Assets classified as held for sale are carried at the lower of cost or market, with any
gain or loss recorded in "Other losses, net" in the condensed consolidated statement of operations.
The Partnership classified certain assets of two cemeteries and two funeral homes at December 31, 2018 and two cemeteries and three funeral homes
at December 31, 2017 as held for sale. The contributions of revenues and earnings by these assets in 2018 and 2017 were not material. Assets held
for sale consisted of the following at the date indicated (in thousands):
Cemetery property
Buildings and improvements
Funeral home land
Assets held for sale
Cemetery Property
$
$
2018
2017
350 $
407
-
757 $
128
718
170
1,016
Cemetery property consists of developed and undeveloped cemetery land, constructed mausoleum crypts and lawn crypts and other cemetery
property. Cemetery property is stated at cost or, upon acquisition of a business, at the fair value of the assets acquired.
Property and Equipment
Property and equipment is stated at cost or, upon acquisition of a business, at the fair value of the assets acquired and depreciated on a straight-
line basis. Maintenance and repairs are charged to expense as incurred, whereas additions and major replacements are capitalized and depreciation
is recorded over their estimated useful lives as follows:
Buildings and improvements
Furniture and equipment
Leasehold improvements
Merchandise Trusts
10 to 40 years
3 to 10 years
over the shorter of the term of the lease or the life of the asset
Pursuant to state law, a portion of the proceeds from pre-need sales of merchandise and services is put into trust (the "merchandise trust") until
such time that the Partnership meets the requirements for releasing trust principal, which is generally delivery of merchandise or performance of
services. All investment earnings generated by the assets in the merchandise trusts (including realized gains and losses) are deferred until the
associated merchandise is delivered or the services are performed (see Note 7).
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Perpetual Care Trusts
Pursuant to state law, a portion of the proceeds from the sale of cemetery property is required to be paid into perpetual care trusts. The perpetual
care trust principal does not belong to the Partnership and must remain in this trust in perpetuity, while interest and dividends may be released and
used to defray cemetery maintenance costs, which are expensed as incurred. The Partnership consolidates the trust into its financial statements
because the trust is considered a variable interest entity for which the Partnership is the primary beneficiary. Earnings from the perpetual care trusts
are recognized in current cemetery revenues (see Note 8).
Fair Value Measurements
The Partnership measures the available-for-sale securities held by its merchandise and perpetual care trusts at fair value on a recurring basis. Fair
value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. The Partnership utilizes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is
based upon the transparency of inputs to the valuation of the asset or liability as of the measurement date. The three levels are defined as follows:
•
•
Level 1—inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets;
Level 2—inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets, and inputs that are
observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument; and
•
Level 3—inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The categorization of the asset or liability within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value
measurement. For additional disclosures for all of our available-for-sale securities, see Note 7 and Note 8.
Inventories
Inventories are classified within other current assets on the Partnership’s consolidated balance sheets and include cemetery and funeral home
merchandise valued at the lower of cost or net realizable value. Cost is determined primarily on a specific identification basis using a first-in, first-out
method. Inventories were approximately $7.5 million and $12.1 million at December 31, 2018 and 2017, respectively. Refer to Note 3 Impairment and
Other Losses, for further information regarding impairment of inventories.
Impairment of Long-Lived Assets
The Partnership monitors the recoverability of long-lived assets, including cemetery property, property and equipment and other assets, based on
estimates using factors such as current market value, future asset utilization, business and regulatory climate and future undiscounted cash flows
expected to result from the use of the related assets, at a location level. The Partnership’s policy is to evaluate an asset for impairment when events
or circumstances indicate that a long-lived asset’s carrying value may not be recovered. An impairment charge is recorded to write-down the asset
to its fair value if the sum of future undiscounted cash flows is less than the carrying value of the asset.
Other-Than-Temporary Impairment of Trust Assets
The Partnership determines whether or not the impairment of a fixed maturity debt security is other-than-temporary by evaluating each of the
following:
• Whether it is the Partnership’s intent to sell the security. If there is intent to sell, the impairment is considered to be other-than-temporary.
•
If there is no intent to sell, the Partnership evaluates if it is not more likely than not that it will be required to sell the debt security before its
anticipated recovery. If the Partnership determines that it is more likely than not that it will be required to sell an impaired investment before
its anticipated recovery, the impairment is considered to be other-than-temporary.
The Partnership further evaluates whether or not all assets in the trusts have other-than-temporary impairments based upon a number of criteria
including the severity of the impairment, length of time a security has been in a loss position, changes in market conditions and concerns related to
the specific issuer.
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If an impairment is considered to be other-than-temporary, the cost basis of the security is adjusted downward to its fair value.
For assets held in the perpetual care trusts, any reduction in the cost basis due to an other-than-temporary impairment is offset with an equal and
opposite reduction in the perpetual care trust corpus and has no impact on earnings.
For assets held in the merchandise trusts, any reduction in the cost basis due to an other-than-temporary impairment is recorded in deferred
revenue.
Goodwill
The Partnership tests goodwill for impairment at least annually or if impairment indicators arise by comparing its reporting units’ estimated fair
values to carrying values. Because quoted market prices for the reporting units are not available, the Partnership’s management must apply
judgment in determining the estimated fair value of these reporting units.
The Partnership’s management uses all available information to make these fair value determinations, including the present values of expected
future cash flows using discount rates commensurate with the risks involved in the Partnership’s assets and the available market data of the
industry group. A key component of these fair value determinations is a reconciliation of the sum of the fair value calculations to the Partnership’s
market capitalization. The observed market prices of individual trades of an entity’s equity securities (and thus its computed market capitalization)
may not be representative of the fair value of the entity as a whole. Management will continue to evaluate goodwill at least annually, or more
frequently if events or circumstances indicate that the carrying value of a reporting unit exceeds its fair value.
In the fourth quarter of 2017, the Partnership early adopted ASU 2017-04, Intangibles-Goodwill and Other (Topic 350) which simplifies the
subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. Instead, impairment is defined as the amount by
which the carrying value of the reporting unit exceeds its fair value, up to the total amount of goodwill. Additionally, during the fourth quarter of
2018, we changed our annual goodwill impairment test date from December 31st to October 1st, which necessitated completing a test as of October 1,
2018 so that no more than 12 months elapsed between annual tests.
Intangible Assets
The Partnership has other acquired intangible assets, most of which have been recognized as a result of acquisitions and long-term lease,
management and operating agreements. The Partnership amortizes these intangible assets over their estimated useful lives and periodically tests
them for impairment.
Accounts Payable and Accrued Liabilities
The Partnership records liabilities for expenses incurred related to the current period in accounts payable and accrued liabilities on the Partnership’s
consolidated balance sheets. At December 31, 2018 and 2017, accounts payable and accrued liabilities was comprised of accounts payable of $29.8
million and $18.5 million, respectively, accrued expenses of $21.7 million and $15.9 million, respectively, benefits and payroll liabilities of $6.9 million
and $5.7 million, respectively, and tax liabilities of $3.1 million and $2.9 million, respectively. The $5.6 million increase in accrued expenses related to
professional fee expenses.
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 to 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 consolidated
statements of operations.
Income Taxes
The Partnership is not subject to U.S. federal and most state income taxes. The partners of the Partnership are liable for income tax in regard to their
distributive share of the Partnership’s taxable income. Such taxable income may vary substantially from net income reported in the accompanying
consolidated financial statements. Certain corporate subsidiaries are subject to federal and state income tax. Deferred tax assets and liabilities are
recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax basis and tax carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which
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those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. The Partnership records a valuation allowance against its deferred tax assets if
it deems that it is more likely than not that some portion or all of the recorded deferred tax assets will not be realizable in future periods.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the "Tax Act") was signed into law. The Tax Act made broad and complex changes to the
U.S. tax code by, among other things, reducing the federal corporate income tax rate, creating a new limitation on deductible interest expense,
creating bonus depreciation that will allow for full expensing on qualified property, changing the lives of post-2017 net operating loss carryovers
and imposing limitations on deductibility of certain executive compensation.
Net Loss per Common Unit
Basic net income (loss) attributable to common limited partners per unit is computed by dividing net income (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 income (loss) attributable to common limited partners is determined by deducting net income (loss) attributable
to participating securities, if applicable, and net income (loss) attributable to the general partner’s units. The general partner’s interest in net income
(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 income
(loss) allocated with respect to the general partner’s and limited partners’ ownership interests.
The Partnership presents net income (loss) per unit under the two-class method for master limited partnerships, which considers whether the
incentive distributions of a master limited partnership represent a participating security when considered in the calculation of earnings per unit
under the two-class method. The two-class method considers whether the partnership agreement contains any contractual limitations concerning
distributions to the incentive distribution rights that would impact the amount of earnings to allocate to the incentive distribution rights for each
reporting period. If distributions are contractually limited to the incentive distribution rights’ share of currently designated available cash for
distributions as defined under the partnership agreement, undistributed earnings in excess of available cash should not be allocated to the incentive
distribution rights. Under the two-class method, management of the Partnership believes the partnership agreement contractually limits cash
distributions to available cash; therefore, undistributed earnings in excess of available cash are not allocated to the incentive distribution rights.
The following is a reconciliation of net income (loss) allocated to the common limited partners for purposes of calculating net income (loss)
attributable to common limited partners per unit (in thousands):
Net loss
Less: Incentive distribution right (“IDR”) payments to general partner
Net loss to allocate to general and limited partners
General partner’s interest excluding IDRs
Net loss attributable to common limited partners
Years Ended December 31,
2017
2018
$
$
(72,699 ) $
—
(72,699 )
(757 )
(71,942 ) $
(75,158 )
—
(75,158 )
(782 )
(74,376 )
Diluted net income (loss) attributable to common limited partners per unit is calculated by dividing net income (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 (see Note 13).
The following table sets forth the reconciliation of the Partnership’s weighted average number of common limited partner units used to compute
basic net income (loss) attributable to common limited partners per unit with those used to compute diluted net income (loss) attributable to
common limited partners per unit (in thousands):
Weighted average number of common limited partner units—basic
Add effect of dilutive incentive awards (1)
Weighted average number of common limited partner units—diluted
21
Years Ended December 31,
2017
2018
37,959
—
37,959
37,948
—
37,948
Table of Contents
(1) The diluted weighted average number of limited partners’ units outstanding presented on the consolidated statement of operations does not
include 1,333,572 units and 289,937 units for the years ended December 31, 2018 and 2017, respectively, as their effects would be anti-dilutive.
Recently Issued Accounting Standard Updates - Adopted in the Current Period
Revenue
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts
with Customers (Topic 606). ASU No. 2014-09 outlines a single comprehensive model for companies to use in accounting for revenue arising from
contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. In addition, these
updates enhance the disclosure requirements relating to revenue recognition and related cash flows. Additionally, the new revenue standard (“ASC
606”) requires the deferral of incremental direct selling costs to the period in which the related revenue is recognized. ASC 606, the new revenue
standard, was effective for annual reporting periods (including interim reporting periods within those periods) beginning January 1, 2018.
The Partnership adopted the new revenue standard as of January 1, 2018 using the modified retrospective method and applying the new standard to
all contracts with customers. Therefore, the comparative financial information has not been restated and continues to be reported under the
accounting standards in effect that period. The Partnership elected to aggregate the effects of all contract modifications that occurred prior to the
date of adoption when (i) identifying the satisfied and unsatisfied performance obligations, (ii) determining the transaction price and (iii) allocating
the transaction price to the satisfied and unsatisfied performance obligations, rather than retrospectively restating the contracts for those
modifications.
The new revenue standard, as amended, requires that we recognize revenue in the amount to which we expect to be entitled for delivery of promised
goods and services to our customers. The new revenue standard also resulted in enhanced revenue-related disclosures, including any significant
judgments and changes in judgments. Additionally, the new revenue standard requires the deferral of incremental direct selling costs to the period
in which the related revenue is recognized.
The standard primarily impacts the manner in which we recognize (a) certain nonrefundable up-front fees and (b) incremental costs to acquire pre-
need and at-need contracts (i.e., selling costs). The nonrefundable fees will be deferred and recognized as revenue when the underlying goods and
services are delivered to the customer. The incremental direct selling costs will be deferred and recognized by specific identification upon the
delivery of the underlying goods and services. The Partnership recorded a total net impact of $28.1 million decrease to the opening balance sheet of
partners’ capital which was comprised of the adjustment to deferred revenue, the adjustment to deferred selling expense, establishment of the
refund liability and the corresponding tax impact. Further, under the new revenue standard, the amounts due from customers for unfulfilled
performance obligations on cancellable pre-need contracts may only be recognized to the extent that control has transferred to the customer for
interments, merchandise or services for which the Partnership has not collected cash. Accordingly, we reclassified approximately $11.4 million of
accounts receivable, net of allowance and $14.1 million of long-term receivables, net of allowance for a total of $25.5 million for unfulfilled
performance obligations on cancelable preneed contracts to deferred revenue, net. As a result of adoption of the new revenue standard, we have
also eliminated our previous cancellation reserve on these performance obligations in the amount of $12.9 million, which resulted in an increase in
deferred revenue and accounts receivable.
As noted above, due to the adoption of ASC 606, the Partnership recorded a $6.4 million decrease to the opening balance of partners’ capital
primarily related to the timing of the recognition of nonrefundable upfront fees partially offset by an increase to the opening balance of partners’
capital due to the timing of revenue recognition for interment rights which are now recognized when the property is available for use by the
customer.
The Partnership recorded an $18.6 million decrease to the opening balance of partners’ capital due to the write-down of certain recoverable selling
and obtaining costs that were determined not to be incremental costs to acquire under ASC 606.
In addition, the Partnership established a $2.1 million reserve representing the fair value of the refund obligation that may arise due to state law
provisions that include a guarantee of customer funds collected on unfulfilled performance obligations and maintained in trust, which may be
refundable due to the exercise of customer cancellation rights. As a result, the Partnership recorded a $3.5 million decrease to the opening balance
of partners’ capital and an increase in Other Long-Term Liabilities.
Additionally, the Partnership recognized a tax benefit of $0.4 million as a result of adoption, which was an increase to the opening balance of
partners’ capital.
The information presented for the period prior to January 1, 2018 has not been restated and is reported under FASB ASC 605.
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The cumulative effect of adopting the new revenue standard impacted the Partnership’s consolidated January 1, 2018 balance sheet as follows (in
thousands):
Balance Sheet
Assets
Current Assets:
Cash and cash equivalents
Accounts receivable, net of allowance
Prepaid expenses
Assets held for sale
Other current assets
Total current assets
Long-term accounts receivable - net of allowance
Cemetery property
Property and equipment, net of accumulated
depreciation
Merchandise trusts, restricted, at fair value
Perpetual care trusts, restricted, at fair value
Deferred selling and obtaining costs
Deferred tax assets
Goodwill
Intangible assets
Other assets
Total assets
Liabilities and partners' capital
Current liabilities
Accounts payable and accrued liabilities
Accrued interest
Current portion, long-term debt
Total current liabilities
Long-term debt, net of deferred financing costs
Deferred revenues, net
Deferred tax liabilities
Perpetual care trust corpus
Other long term liabilities
Total liabilities
Partners' capital
General partner
Common partner
Total partners' equity
Balance as of
December 31, 2017
Impact of Adoption of
FASB ASC 606
Balance as of January
1, 2018
$
$
$
$
$
$
6,821
79,116
4,580
1,016
21,453
112,986
105,935
333,404
114,090
515,456
339,928
126,398
84
24,862
63,244
19,695
1,756,082
43,023
1,781
1,002
45,806
317,693
912,626
9,638
339,928
38,695
1,664,386
(2,959 )
94,655
91,696
$
$
$
-
(6,122 )
-
-
-
(6,122 )
(6,527 )
(2,020 )
-
-
-
(18,557 )
7
-
-
-
(33,219 )
1,329
-
-
1,329
-
(9,558 )
(367 )
-
3,474
(5,122 )
(292 )
(27,805 )
(28,097 )
6,821
72,994
4,580
1,016
21,453
106,864
99,408
331,384
114,090
515,456
339,928
107,841
91
24,862
63,244
19,695
1,722,863
44,352
1,781
1,002
47,135
317,693
903,068
9,271
339,928
42,169
1,659,264
(3,251 )
66,850
63,599
Total liabilities and partners' equity
$
1,756,082
$
(33,219 )
$
1,722,863
In accordance with FASB ASC 606 under the modified retrospective approach, the Partnership is required to disclose the impact of the new revenue
standard by comparing the results of the current reporting period under FASB ASC 605. The impact of adopting ASC 606 on the Partnership’s
condensed consolidated statement of operations for the year ended December 31, 2018 is as follows:
23
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Statement of Operations
Revenues:
Cemetery:
Interments
Merchandise
Services
Investment and other
Funeral home:
Merchandise
Services
Total revenues
Costs and Expenses:
Cost of goods sold
Cemetery expenses
Selling expense
General and administrative expense
Corporate overhead
Depreciation and amortization
Funeral home expenses:
Merchandise
Services
Other
Total costs and expenses
Gain on acquisitions and divestitures
Other losses, net
Interest expense
Loss before income taxes
Income tax benefit (expense)
Net loss
Year Ended December 31, 2018
As Reported Under
FASB ASC 606
Balances if Reported
Under FASB ASC
605
Impact of Adoption
$
$
$
$
$
$
76,902 $
75,412
67,278
42,343
-
25,652
28,539
316,126 $
54,647 $
78,708
62,538
43,081
53,281
11,736
-
6,579
22,159
15,787
348,516 $
691 $
(12,195 )
(30,602 )
(74,496 )
1,797
(72,699 ) $
69,111 $
69,578
68,642
53,787
25,540
28,998
315,656 $
55,934 $
78,708
60,763
42,720
53,281
11,736
6,579
22,201
15,755
347,677 $
691
(12,195 )
(30,602 )
(74,127 )
1,314
(72,813 ) $
7,791
5,834
(1,364 )
(11,444 )
112
(459 )
470
(1,287 )
-
1,775
361
-
-
-
(42 )
32
839
-
-
(369 )
483
114
The impact of the adoption on the December 31, 2018 balance sheet was not material. The cumulative impact of the adoption on the statement of
cash flows only impacted certain line items in cash flows from operating activities. Total net cash provided by operating activities did not change as
a result of the adoption. The decreased net loss of $0.1 million for the year ended
24
Table of Contents
December 31, 2018, respectively, was offset by changes in costs of lots sold, provision for bad debt, and changes in the balances of accounts
receivable, deferred selling and obtaining cost, deferred revenues and deferred taxes, net.
Financial Instruments
In the first quarter of 2016, the FASB issued Update No. 2016-01, Financial Instruments (Subtopic 825-10) (“ASU 2016-01”). The core principle of
ASU 2016-01 is that all equity investments should be measured at fair value with changes in the fair value recognized through operations. The
amendment was effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period.
Early application was not permitted for the key aspects of the amendment. The adoption of ASU 2016-01 on January 1, 2018 did not have a material
impact on the Partnership's financial position, results of operations and related disclosures. These changes in fair value will be offset by a
corresponding change in deferred merchandise trust gains (losses) within "Deferred revenues, net" and in "Perpetual care trust corpus" on the
Partnership's condensed consolidated balance sheet.
In the first quarter of 2018, the FASB issued Update No. 2018-03, Technical Corrections and Improvements to Financial Instruments—Overall
(Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2018-03"). The amendments clarify certain
aspects of the guidance in Update 2016-01. The adoption of ASU 2018-03 on January 1, 2018 did not have a material impact on the Partnership's
financial position, results of operations and related disclosures.
Cash Flows
In the third quarter of 2016, the FASB issued Update No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts
and Cash Payments ("ASU 2016-15"). The core principle of ASU 2016-15 is to provide cash flow statement classification guidance. The amendment
was effective for annual reporting periods beginning after December 15, 2017, including interim periods within those fiscal years. The adoption of
this standard on January 1, 2018 did not have a material impact on the Partnership’s financial position, results of operations and related disclosures.
In the fourth quarter of 2016, the FASB issued Update No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”). The
core principle of ASU 2016-18 is to provide guidance on the presentation of restricted cash or restricted cash equivalents in the statement of cash
flows. The amendment was effective for annual reporting periods beginning after December 15, 2017, including interim periods within those fiscal
years. The adoption of this standard on January 1, 2018 did not have a material impact on the Partnership's financial position, results of operations
and related disclosures.
Business Combinations
In the first quarter of 2017, the FASB issued Update No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business,
which clarifies the definition of a business. The amendments affect all companies and other reporting organizations that must determine whether
they have acquired or sold a business. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill,
and consolidation. The amendments are intended to help companies and other organizations evaluate whether transactions should be accounted
for as acquisitions (or disposals) of assets or businesses. The amendments were effective for annual periods beginning after December 15, 2017,
including interim periods within those periods. The adoption of this standard on January 1, 2018 did not have a material impact on the Partnership’s
financial position, results of operations and related disclosures.
Income Taxes
In the first quarter of 2018, the FASB issued Update No. 2018-05, Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC
Staff Accounting Bulletin No. 118 (“ASU 2018-05”). The amendments in this update added various SEC paragraphs pursuant to the issuance of
SEC Staff Accounting Bulletin No. 118. The amendment was effective upon issuance. The adoption of ASU 2018-05 on January 1, 2018, did not
have a material impact on the Partnership’s financial position, results of operations and related disclosures.
Recently Issued Accounting Standard Updates - Not Yet Effective as of December 31, 2018
Presentation
In August 2018, the Securities and Exchange Commission ("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 shareholders’ equity 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
25
Table of Contents
required to be filed. The final rule was effective on November 5, 2018, as such, the Partnership plans to use the new presentation of a condensed
consolidated statement of shareholders' equity within its interim financial statements beginning in its Form 10-Q for the quarter ending March 31,
2019. Other than the new presentation, the Partnership does not anticipate any material impact to its consolidated financial statements and related
disclosures upon adoption.
Leases
In the first quarter of 2016, the FASB issued Update No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). 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. This new standard will be effective for the Partnership on January 1,
2019.
In the first quarter of 2018, the FASB issued Update No. 2018-01, Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842
(“ASU 2018-01”). The amendments in this update provide an optional transition practical expedient to not evaluate under Topic 842 existing or
expired land easements that were not previously accounted for as leases under Topic 840, Leases. An entity that elects the practical expedient must
evaluate new or modified land easements under Topic 842 beginning at the date that the entity adopts Topic 842. An entity that does not elect this
practical expedient must evaluate all existing or expired land easements in connection with the adoption of the new lease requirements in Topic 842
to assess whether they meet the definition of a lease. The amendments in this Update affect the amendments in Update 2016-02, which are not yet
effective but may be early adopted. The effective date and transition requirements for the amendments are the same as the effective date and
transition requirements in Update 2016-02. An entity that early adopted Topic 842 should apply the amendments in this Update upon issuance.
In July 2018, the FASB issued Update No. 2018-10 Codification Improvements to Topic 842, Leases (“ASU 2018-10”) and issued Update No. 2018-11
Leases (Topic 842) Targeted Improvements (“ASU 2018-11”). ASU 2018-10 provides certain amendments that affect narrow aspects of the guidance
issued in ASU 2016-02. ASU 2018-11 provides companies an option to apply the transition provisions of ASU 2016-02 at its adoption date instead
of at the earliest comparative period presented in its financial statements and to provide lessors with a practical expedient to reduce the cost and
complexity of implementing ASU 2016-02.
ASU 2016-02 provides for certain practical expedients when adopting the guidance. The Partnership plans to elect 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 does not plan to apply the hindsight practical
expedient allowing the Partnership to use hindsight when determining the lease term (i.e., evaluating the Partnership’s option to renew or terminate
the lease or to purchase the underlying asset) and assessing impairment of expired or existing leases. The Partnership plans to apply 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 elects to apply the short-term lease exception; therefore, the Partnership will not
record a right-of-use asset or corresponding lease liability for leases with a term of twelve months or less and instead recognize a single lease cost
allocated over the lease term, generally on a straight-line basis. The Partnership plans to elect the practical expedient to not separate lease
components from non-lease components and instead account for both as a single lease component for all asset classes.
The Partnership plans to adopt this guidance in the first quarter of 2019 using the optional transition method. Consequently, the Partnership's
reporting for the comparative periods presented in the consolidated financial statements will continue to be in accordance with ASC Topic
840, Leases. The Partnership has reviewed its existing leases and has begun the implementation of a lease module that interfaces with our current
general ledger system. This module will serve as our lease repository and ensure completeness of our lease population. The Partnership is
completing our valuation of the right of use asset and lease liability based on the present value of the lease payments. The adoption of this
guidance will result in the addition of right-of-use assets and corresponding lease obligations to the consolidated balance sheet and will not have a
material impact on the Partnership’s results of operations or cash flows.
Credit Losses
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Table of Contents
In the second quarter of 2016, the FASB issued Update No. 2016-13, Credit Losses (Topic 326) ("ASU 2016-13"). The core principle of ASU 2016-13
is that all assets measured at amortized cost basis should be presented at the net amount expected to be collected using historical experience,
current conditions and reasonable and supportable forecasts as a basis for credit loss estimates, instead of the probable initial recognition
threshold used under current GAAP. The amendment is effective for annual reporting periods beginning after December 15, 2019. Early application
is permitted. The Partnership plans to adopt the requirements of ASU 2016-13 upon its effective date of January 1, 2020, and is evaluating the
potential impact of the adoption on its financial position, results of operations and related disclosures.
2. ACQUISITIONS
On January 19, 2018, the Partnership acquired six cemetery properties in Wisconsin and their related assets, net of certain assumed liabilities, for
cash consideration of $2.5 million, of which $0.8 million was paid at closing. These properties had been managed by the Partnership since August
2016. The Partnership has accounted for the purchase of these properties, which were not material individually or in the aggregate, under the
acquisition method of accounting. The Partnership did not complete any acquisitions during the year ended December 31, 2017.
3.
IMPAIRMENT & OTHER LOSSES
Inventory
Merchandise is sold to both at-need and pre-need customers. Merchandise allocated to service pre-need contractual obligations is recorded at cost
and managed and stored by the Partnership until the Partnership services the underlying customer contract.
Merchandise stored at certain locations may be exposed to changes in weather conditions. Primarily due to weather related deterioration over a
number of years, the Partnership recorded inventory impairment charges of approximately $3.4 million for the year ended December 31, 2018. This
impairment loss related to damaged and excess inventory and is included in cost of goods sold for the year ended December 31, 2018 in the
accompanying consolidated statements of operations as this merchandise was utilized to fulfill the Partnership’s contractual obligations to at-
need and pre-need customers.
Due to enhanced inventory control procedures implemented in late 2018, the Partnership determined that certain merchandise inventory allocated
to pre-need customers had been damaged due to weather related deterioration occurring over a number of years or had otherwise been deemed
impractical for use by management as a result of past operating practices relating to inventory. During the 2018, the Partnership recorded
an estimated impairment loss of approximately $8.9 million related to this damaged and unusable merchandise. The impairment loss is included in
other losses in the accompanying consolidated statement of operations for the year ended December 31, 2018. The loss recorded represents
management’s best estimate. This impairment was based on estimates and assumptions that have been deemed reasonable by management and
included percentages of merchandise deemed unusable. Management’s assessment process relied on estimates and assumptions that are inherently
uncertain, and unanticipated events or circumstances may occur that might cause the Partnership to change those estimates and assumptions.
Impairment of Long-Lived Assets
The Partnership recorded an impairment of cemetery property due to circumstances which indicated that the assets carrying value may not be
recovered. The Partnership recorded a $2.8 million impairment charge included in “Other losses, net on the consolidated statement of operations
during the year ended December 31, 2018, as the sum of future undiscounted cash flows were less than the carrying value of the asset.
Assets Held for Sale
The Partnership recorded a loss on impairment of $0.2 million and $1.0 million in "Other losses, net" in December 31, 2018 and 2017 respectively
because the net book value of the assets of two of these funeral home properties exceeded their estimated fair value.
In addition, for those assets that do not currently meet the classification as discontinued operations or held for sale but where, as a result of
strategic discussions with third parties, information is identified that an asset may be impaired, an interim assessment of impairment is performed to
determine whether the carrying value is impaired. During 2018 and 2017, the Partnership conducted an interim assessment with regards to certain
assets held for use. As a result of 2017 assessment of two funeral homes
27
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with a net book value of $0.9 million and recognized a loss on impairment of $0.4 million in "Other losses, net" on the consolidated statement of
operations during the year ended December 31, 2017, resulting in an updated net book value of $0.5 million. During the year ended December 31,
2018, there was no loss on impairment recognized by Partnership.
4.
ACCOUNTS RECEIVABLE, NET OF ALLOWANCE
Long-term accounts receivable, net, consisted of the following at the dates indicated (in thousands):
Customer receivables (1)
Unearned finance income (1)
Allowance for contract cancellations (1)
Accounts receivable, net of allowance
Less: Current portion, net of allowance
Long-term portion, net of allowance
Activity in the allowance for contract cancellations was as follows (in thousands):
Balance, beginning of period (1)
Cumulative effect of accounting changes
Provision for bad debt (1)
Charge-offs, net
Balance, end of period
December 31,
2018
2017
167,017 $
(17,000 )
(4,941 )
145,076
57,928
87,148 $
225,380
(20,534 )
(19,795 )
185,051
79,116
105,935
$
$
Years Ended December 31,
2017
2018
$
$
19,795 $
(12,876 )
7,358
(9,336 )
4,941 $
26,153
—
6,244
(12,602 )
19,795
(1) Upon adoption of ASC 606, the Partnership reclassified amounts due from customers for unfulfilled performance obligations on
cancellable pre-need contracts to deferred revenue, net. As a result, the Partnership also eliminated the allowance for cancellation of these
performance obligations. As the Partnership is now presenting the accounts receivable net of cancellable contracts, the allowance for
cancellations was removed and the allowance on accounts receivable is represented by the provision for bad debt.
5.
CEMETERY PROPERTY
Cemetery property consisted of the following at the dates indicated (in thousands):
Cemetery land
Mausoleum crypts and lawn crypts
Cemetery property
December 31,
2018
2017
255,708 $
75,133
330,841 $
256,856
76,548
333,404
$
$
Due to the hurricanes in Florida and Puerto Rico during September 2017, the Partnership incurred damages at certain locations of $0.8 million, which
was substantially covered by insurance proceeds.
28
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6.
PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at the dates indicated (in thousands):
Buildings and improvements
Furniture and equipment
Funeral home land
Property and equipment, gross
Less: Accumulated depreciation
Property and equipment, net of accumulated depreciation
December 31,
2018
2017
129,971 $
58,706
14,185
202,862
(90,146 )
112,716 $
125,337
57,514
14,185
197,036
(82,946 )
114,090
$
$
Depreciation expense was $9.9 million and $10.9 million for the years ended December 31, 2018 and 2017, respectively.
7. MERCHANDISE TRUSTS
At December 31, 2018 and 2017, the Partnership’s merchandise trusts consisted of investments in debt and equity marketable securities and cash
equivalents, both directly as well as through mutual and investment funds.
All of these investments are carried at fair value. All of these investments subject to the fair value hierarchy are considered either Level 1 or Level 2
assets pursuant to the three-level hierarchy described in Note 15. There were no Level 3 assets.
As discussed in Note 1, when we receive a payment from a customer, we deposit the amount required by law into the merchandise trusts that may
be subject to cancellation on demand by the customer. The Partnership’s merchandise trusts related to states in which customers may cancel
contracts with us comprise 53.3% of the total merchandise trust as of December 31, 2018.
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 $8.7 million and $9.1 million of investments held in trust as required by law by the West Virginia Funeral Directors
Association at December 31, 2018 and December 31, 2017, 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 years ended December 31, 2018 and 2017 is presented below (in thousands):
Balance—beginning of period
Contributions
Distributions
Interest and dividends
Capital gain distributions
Realized gains and losses, net
Other than temporary impairment
Taxes
Fees
Unrealized change in fair value
Balance—end of period
Years Ended December 31,
2018
2017
515,456 $
66,408
(79,862 )
27,228
543
(1,012 )
(28,555 )
(347 )
(3,855 )
(7,756 )
488,248 $
507,079
59,983
(81,634 )
24,762
1,149
17,762
—
(1,272 )
(3,095 )
(9,278 )
515,456
$
$
During the years ended December 31, 2018 and 2017, purchases of available for sale securities were approximately $117.7 million and $374.5 million,
respectively. During the years ended December 31, 2018 and 2017, sales, maturities and paydowns of available for sale securities were approximately
$109.5 million and $368.1 million, respectively. Cash flows from pre-need contracts are presented as operating cash flows in our consolidated
statement of cash flows.
29
Table of Contents
The cost and market value associated with the assets held in the merchandise trusts as of December 31, 2018 and 2017 were as follows (in
thousands):
December 31, 2018
Short-term investments
Fixed maturities:
U.S. governmental securities
Corporate debt securities
Total fixed maturities
Mutual funds—debt securities
Mutual funds—equity securities
Other investment funds (1)
Equity securities
Other invested assets
Total investments
West Virginia Trust Receivable
Total
Fair Value
Hierarchy
Level
1
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
$
16,903 $
— $
— $
16,903
2
2
1
1
1
2
$
$
392
1,311
1,703
187,840
45,023
210,655
18,097
8,398
488,619 $
8,663
497,282 $
-
29
29
262
110
388
1,327
2
2,118 $
—
2,118 $
(147 )
(328 )
(475 )
(2,645 )
(18 )
(7,784 )
(213 )
(17 )
(11,152 ) $
—
(11,152 ) $
245
1,012
1,257
185,457
45,115
203,259
19,211
8,383
479,585
8,663
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 commitments to the
private credit funds, which are callable at any time.
December 31, 2017
Short-term investments
Fixed maturities:
U.S. governmental securities
Corporate debt securities
Total fixed maturities
Mutual funds—debt securities
Mutual funds—equity securities
Other investment funds (1)
Equity securities
Other invested assets
Total investments
West Virginia Trust Receivable
Total
Fair Value
Hierarchy
Level
1
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Cost
$
10,421 $
— $
— $
10,421
2
2
1
1
1
2
196
1,204
1,400
222,450
71,500
171,044
21,808
9,013
507,636 $
9,097
516,733 $
1
52
53
1,522
2,399
522
2,715
—
7,211 $
—
7,211 $
(65 )
(242 )
(307 )
(1,211 )
(6,292 )
(401 )
(277 )
—
(8,488 ) $
—
(8,488 ) $
132
1,014
1,146
222,761
67,607
171,165
24,246
9,013
506,359
9,097
515,456
$
$
(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 90 days, and private credit funds, which have lockup periods of four to eight years with two potential one year extensions at
the discretion of the funds’ general partners. As of December 31, 2017, there were $52.1 million in unfunded commitments to the private credit
funds, which are callable at any time.
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The contractual maturities of debt securities as of December 31, 2018 and 2017 were as follows below (in thousands):
December 31, 2018
U.S. governmental securities
Corporate debt securities
Total fixed maturities
December 31, 2017
U.S. governmental securities
Corporate debt securities
Total fixed maturities
Temporary Declines in Fair Value
Less than
1 year
1 year
through
5 years
6 years
through
10 years
More than
10 years
$
$
— $
68
68 $
137 $
873
1,010 $
108 $
55
163 $
—
16
16
Less than
1 year
1 year
through
5 years
6 years
through
10 years
More than
10 years
$
$
— $
76
76 $
78 $
801
879 $
54 $
125
179 $
—
11
11
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 December 31, 2018
and 2017 is presented below (in thousands):
December 31, 2018
Fixed maturities:
U.S. governmental securities
Corporate debt securities
Total fixed maturities
Mutual funds—debt securities
Mutual funds—equity securities
Other investment funds
Equity securities
Other invested assets
Total
December 31, 2017
Fixed maturities:
U.S. governmental securities
Corporate debt securities
Total fixed maturities
Mutual funds—debt securities
Mutual funds—equity securities
Other investment funds
Equity securities
Total
Less than 12 months
Fair
Value
Unrealized
Losses
12 months or more
Fair
Value
Unrealized
Losses
Total
Fair
Value
Unrealized
Losses
$
— $
103
103
46,005
131
169,929
-
-
$ 216,168 $
— $
2
2
2,011
18
7,784
-
4
9,819 $
243 $
549
792
1,195
—
—
597
790
3,374 $
243 $
147 $
652
326
895
473
47,200
634
—
131
— 169,929
597
213
790
13
1,333 $ 219,542 $
147
328
475
2,645
18
7,784
213
17
11,152
Less than 12 months
Fair
Value
Unrealized
Losses
12 months or more
Fair
Value
Unrealized
Losses
Total
Fair
Value
Unrealized
Losses
$
— $
150
150
102,526
51,196
48,140
2,906
$ 204,918 $
— $
50
50
912
6,292
401
255
7,910 $
112 $
361
473
1,462
—
—
390
2,325 $
112 $
65 $
511
192
257
623
299 103,988
51,196
—
48,140
—
22
3,296
578 $ 207,243 $
65
242
307
1,211
6,292
401
277
8,488
For all securities in an unrealized loss position, the Partnership evaluated the severity of the impairment and length of time that a security has been
in a loss position and concluded the decline in fair value below the asset’s cost was temporary in nature. In addition, the Partnership is not aware of
any circumstances that would prevent the future market value recovery for these securities.
Other-Than-Temporary Impairment of Trust Assets
The Partnership assesses its merchandise trust assets for other-than-temporary declines in fair value on a quarterly basis. During the year ended
December 31, 2018, the Partnership determined, based on its review, that there were 214 securities with an aggregate cost basis of approximately
$285.5 million and an aggregate fair value of approximately $256.9 million, resulting in
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an impairment of $28.6 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 this change against deferred merchandise trust revenue. This adjustment to
deferred revenue will be reflected within the Partnership’s consolidated statement of operations in future periods as the underlying merchandise is
delivered or the underlying service is performed. During the year ended December 31, 2017, the Partnership determined that there were no other
than temporary impairments to the investment portfolio in the merchandise trust.
8.
PERPETUAL CARE TRUSTS
At December 31, 2018 and 2017, 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 15. 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 years ended December 31, 2018 and 2017 is presented below (in
thousands):
Balance—beginning of period
Contributions
Distributions
Interest and dividends
Capital gain distributions
Realized gains and losses, net
Other than temporary impairment
Taxes
Fees
Unrealized change in fair value
Balance—end of period
Years Ended December 31,
2018
2017
339,928 $
13,162
(18,390 )
22,198
808
473
(18,038 )
(237 )
(4,412 )
(4,930 )
330,562 $
333,780
9,505
(17,491 )
17,978
708
1,061
—
(252 )
(2,280 )
(3,081 )
339,928
$
$
During the years ended December 31, 2018 and 2017, purchases of available for sale securities were approximately $59.4 million and $86.0 million,
respectively. During the years ended December 31, 2018 and 2017, sales, maturities and paydowns of available for sale securities were approximately
$51.1 million and $69.2 million, respectively. Cash flows from perpetual care trust related contracts are presented as operating cash flows in our
consolidated statement of cash flows.
The cost and market value associated with the assets held in the perpetual care trusts as of December 31, 2018 and 2017 were as follows (in
thousands):
December 31, 2018
Short-term investments
Fixed maturities:
U.S. governmental securities
Corporate debt securities
Total fixed maturities
Mutual funds—debt securities
Mutual funds—equity securities
Other investment funds (1)
Equity securities
Other invested assets
Total investments
Fair Value
Hierarchy
Level
1
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
$
12,835 $
— $
— $
12,835
2
2
1
1
1
2
960
4,883
5,843
108,451
19,660
165,284
20,025
56
332,154 $
4
161
165
227
304
3,039
826
20
4,581 $
(121 )
(321 )
(442 )
(837 )
(142 )
(4,607 )
(145 )
—
(6,173 ) $
843
4,723
5,566
107,841
19,822
163,716
20,706
76
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
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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 commitments to the private credit funds, which are callable at any time.
December 31, 2017
Short-term investments
Fixed maturities:
U.S. governmental securities
Corporate debt securities
Total fixed maturities
Mutual funds—debt securities
Mutual funds—equity securities
Other investment funds (1)
Equity securities
Other invested assets
Total investments
Fair Value
Hierarchy
Level
1
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Cost
$
9,456 $
— $
— $
9,456
2
2
1
1
1
2
506
5,365
5,871
141,511
32,707
124,722
22,076
247
336,590 $
4
148
152
1,974
1,757
2,630
1,648
—
8,161 $
(46 )
(191 )
(237 )
(712 )
(1,771 )
(533 )
(1,570 )
—
(4,823 ) $
464
5,322
5,786
142,773
32,693
126,819
22,154
247
339,928
$
(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 90 days, and private credit funds, which have lockup periods ranging from four to ten years with three potential one year
extensions at the discretion of the funds’ general partners. As of December 31, 2017 there were $92.2 million in unfunded commitments to the
private credit funds, which are callable at any time.
The contractual maturities of debt securities as of December 31, 2018 and 2017, were as follows below (in thousands):
December 31, 2018
U.S. governmental securities
Corporate debt securities
Total fixed maturities
December 31, 2017
U.S. governmental securities
Corporate debt securities
Total fixed maturities
Temporary Declines in Fair Value
Less than
1 year
1 year through
5 years
6 years through
10 years
More than
10 years
$
$
— $
705
705 $
416 $
3,702
4,118 $
395 $
265
660 $
32
51
83
Less than
1 year
1 year through
5 years
6 years through
10 years
More than
10 years
$
$
— $
708
708 $
263 $
4,280
4,543 $
163 $
338
501 $
38
97
135
The Partnership evaluates declines in fair value below cost of each individual asset held in the perpetual care trusts on a quarterly basis.
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An aging of unrealized losses on the Partnership’s investments in debt and equity securities within the perpetual care trusts as of December 31,
2018 and 2017 is presented below (in thousands):
December 31, 2018
Fixed maturities:
U.S. governmental securities
Corporate debt securities
Total fixed maturities
Mutual funds—debt securities
Mutual funds—equity securities
Other investment funds
Equity securities
Total
December 31, 2017
Fixed maturities:
U.S. governmental securities
Corporate debt securities
Total fixed maturities
Mutual funds—debt securities
Mutual funds—equity securities
Other investment funds
Equity securities
Total
Less than 12 months
Fair
Value
Unrealized
Losses
12 months or more
Fair
Value
Unrealized
Losses
Total
Fair
Value
Unrealized
Losses
$
$
— $
405
405
21,867
1,382
101,536
241
125,431 $
— $
15
15
591
141
4,607
16
5,370 $
790 $
2,902
3,692
2,814
—
—
583
7,089 $
121 $
306
427
246
1
—
129
803 $
790 $
3,307
4,097
24,681
1,382
101,536
824
132,520 $
121
321
442
837
142
4,607
145
6,173
Less than 12 months
Fair
Value
Unrealized
Losses
12 months or more
Fair
Value
Unrealized
Losses
Total
Fair
Value
Unrealized
Losses
$
— $
994
994
37,090
16,668
42,606
9,516
$ 106,874 $
— $
20
20
289
1,754
533
1,510
4,106 $
399 $
2,271
2,670
12,793
36
—
112
15,611 $
399 $
46 $
3,265
171
3,664
217
49,883
423
16,704
17
42,606
—
60
9,628
717 $ 122,485 $
46
191
237
712
1,771
533
1,570
4,823
For all securities in an unrealized loss position, the Partnership evaluated the severity of the impairment and length of time that a security has been
in a loss position and concluded the decline in fair value below the asset’s cost was temporary in nature. In addition, the Partnership is not aware of
any circumstances that would prevent the future market value recovery for these securities.
Other-Than-Temporary Impairment of Trust Assets
The Partnership assesses its perpetual care trust assets for other-than-temporary declines in fair value on a quarterly basis. During the year ended
December 31, 2018, the Partnership determined that there were 176 securities with an aggregate cost basis of approximately $181.4 million and an
aggregate fair value of approximately $163.3 million, resulting in an impairment of $18.1 million, with such impairment considered to be other-than-
temporary. Accordingly, the Partnership adjusted the cost basis of these assets to their current value and offset this change against the liability for
perpetual care trust corpus. During the year ended December 31, 2017, the Partnership determined that there were no other-than-temporary
impairments to the investment portfolio in the perpetual care trusts.
9. GOODWILL AND INTANGIBLE ASSETS
Goodwill
The Partnership has recorded goodwill of approximately $24.9 million as of December 31, 2018 and 2017. This amount represents the excess of the
purchase price over the fair value of identifiable net assets acquired.
The changes in the carrying amounts of goodwill by reportable segment were as follows (in thousands):
December 31, 2016
Impairment of goodwill
December 31, 2017
Activity
December 31, 2018
Cemetery
Operations
Funeral Home
Operations
Total
24,862
—
24,862 $
—
24,862 $
45,574
(45,574 )
— $
—
— $
70,436
(45,574 )
24,862
—
24,862
$
$
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The Partnership tests goodwill for impairment at each year end by comparing its reporting units’ estimated fair values to carrying values. The
Partnership completed its annual goodwill impairment assessment as of October 1, 2018 and concluded that goodwill was not impaired. The
Partnership will continue to evaluate the goodwill at least annually or more frequently if impairment indicators arise.
As a result of such assessment during 2017, management concluded that the carrying amount of the goodwill related to the Funeral Home
Operations reporting unit was greater than its fair value. Based on the discounted cash flow method of the income approach to valuation,
management and the audit committee determined the fair value of the Funeral Home Operations reporting unit and concluded that the goodwill was
fully impaired. This impairment charge will not result in any current or future cash expenditures. Consideration was given within the valuation of the
Funeral Home Operations reporting unit to the changes made during 2017 to the pre-need sales funding structure, erosion of market capitalization
and achievability of the reporting unit's forecasted EBITDA margin relative to its historical operating performance.
Intangible Assets
The Partnership has intangible assets with finite lives recognized in connection with acquisitions and long-term lease, management and operating
agreements. The Partnership amortizes these intangible assets over their estimated useful lives.
The following table reflects the components of intangible assets at December 31, 2018 and 2017 (in thousands):
Lease and management agreements
Underlying contract value
Non-compete agreements
Other intangible assets
Total intangible assets
December 31, 2018
December 31, 2017
Gross
Carrying
Amount
Accumulated
Amortization
Net
Intangible
Assets
Gross
Carrying
Amount
Accumulated
Amortization
Net
Intangible
Assets
$
$
59,758 $
6,239
2,853
1,577
70,427 $
(4,565 ) $
(1,482 ) $
(2,603 ) $
(356 ) $
(9,006 ) $
55,193 $
4,757
250
1,221
61,421 $
59,758 $
6,239
5,016
1,777
72,790 $
(3,569 ) $
(1,326 )
(4,156 )
(495 )
(9,546 ) $
56,189
4,913
860
1,282
63,244
Amortization expense for intangible assets was $1.8 million and $2.2 million for the years ended December 31, 2018 and 2017, respectively. The
following is estimated amortization expense related to intangible assets with finite lives for the periods noted below (in thousands):
2019
2020
2021
2022
2023
10. LONG-TERM DEBT
Total debt consisted of the following at the dates indicated (in thousands):
Credit facility
7.875% Senior Notes, due June 2021
Notes payable—acquisition debt
Notes payable—acquisition non-competes
Insurance and vehicle financing
Less deferred financing costs, net of accumulated amortization
Total debt
Less current maturities
Total long-term debt
Credit Facility
$
$
$
$
$
1,398
1,278
1,213
1,210
1,206
December 31,
2018
2017
155,739 $
173,613
92
-
1,294
(9,692 )
321,046
(798 )
320,248 $
153,423
173,098
304
378
1,280
(9,788 )
318,695
(1,002 )
317,693
$
$
On August 4, 2016, our 100% owned subsidiary, StoneMor Operating LLC (the “Operating Company”) entered into a Credit Agreement (the
“Original Credit Agreement”) among each of the Subsidiaries of the Operating Company (together with the
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Operating Company, “Borrowers”), the Lenders identified therein, Capital One, National Association (“Capital One”), as Administrative Agent,
Issuing Bank and Swingline Lender, Citizens Bank N.A., as Syndication Agent, and TD Bank, N.A. and Raymond James Bank, N.A., as Co-
Documentation Agents. In addition, on the same date, the Partnership, the Borrowers and Capital One, as Administrative Agent, entered into the
Guaranty and Collateral Agreement (the “Guaranty Agreement,” and together with the Credit Agreement, “New Agreements”). Capitalized terms
which are not defined in the following description of the New Agreements shall have the meaning assigned to such terms in the New Agreements,
as amended.
On March 15, 2017, the Borrowers, Capital One, as Administrative Agent and acting in accordance with the written consent of the Required
Lenders, entered into the First Amendment to Credit Agreement. Those parties subsequently entered into a Second Amendment and Limited
Waiver on July 26, 2017, a Third Amendment and Limited Waiver effective as of August 15, 2017, a Fourth Amendment to Credit Agreement dated
September 29, 2017, a Fifth Amendment to Credit Agreement dated as of December 22, 2017 but effective as of September 29, 2017, a Sixth
Amendment and Waiver to Credit Agreement dated June 12, 2018 and a Seventh Amendment and Waiver to the Credit Agreement dated July 13,
2018. We refer to the Original Credit Agreement, as so amended, as the “Original Amended Agreement.” On February 4, 2019, the Partnership, the
Borrowers, Capital One, as Administrative Agent and the Lenders entered into an Eighth Amendment and Waiver to Credit Agreement (the “Eighth
Amendment”). See Note 19 for a detailed discussion of the changes to the Original Amended Agreement effected by the Eighth Amendment.
The Original Amended Agreement provided for up to $175.0 million initial aggregate amount of Revolving Commitments, which were subject to
borrowing base limitations. Prior to the Eighth Amendment, the Operating Company could also request the issuance of Letters of Credit for up to
$15.0 million in the aggregate, of which there were $9.4 million outstanding at December 31, 2018 and $7.5 million outstanding at December 31, 2017.
Prior to the Eighth Amendment, the Maturity Date under the Original Amended Agreement was the earlier of (i) August 4, 2021 and (ii) the date that
is six months prior to the earliest scheduled maturity date of any outstanding Permitted Unsecured Indebtedness (at present, such date is
December 1, 2020, which is six months prior to the June 1, 2021 maturity date of outstanding 7.875% senior notes).
As of December 31, 2018, the outstanding amount of borrowings under the Original Amended Agreement was $155.7 million, which was used to pay
down outstanding obligations under the Partnership’s prior credit agreement, to pay fees, costs and expenses related to the New Agreements and
to fund working capital needs. Prior to the Eighth Amendment, proceeds of the Loans under the Original Amended Agreement could be used to
finance the working capital needs and for other general corporate purposes of the Borrowers and Guarantors, including acquisitions and
distributions permitted under the Original Amended Agreement.
Each Borrowing under the Original Amended Credit Agreement is comprised of Base Rate Loans or Eurodollar Loans. The Loans comprising each
Base Rate Borrowing (including each Swingline Loan) bear interest at the Base Rate plus the Applicable Rate, and the Loans comprising each
Eurodollar Borrowing bear interest at the Eurodollar Rate plus the Applicable Rate.
Prior to the Sixth Amendment and Waiver, the Applicable Rate was determined based on the Consolidated Leverage Ratio of the Partnership and its
Subsidiaries and ranged from 1.75% to 3.75% for Eurodollar Rate Loans and 0.75% to 2.75% for Base Rate Loans and between 0.30% and 0.50% for
unused commitment fee. The Sixth Amendment and Waiver redetermined the Applicable Rate based on the Consolidated Secured Net Leverage
Ratio of the Partnership and its Subsidiaries and increased the minimum and maximum Applicable Rate by 0.50% to be in the range between 2.25%
to 4.25% for Eurodollar Rate Loans and 1.25% to 3.75% for Base Rate Loans (but in no event less that the Applicable Rate that would be in effect if
calculated as set forth in the Original Amended Agreement not giving effect to the Sixth Amendment and Waiver and the Seventh Amendment and
Waiver). As of December 31, 2018, the Applicable Rate for Eurodollar Rate Loans was 4.25% and for Base Rate Loans was 3.25%. Prior to the
Eighth Amendment, the Original Amended Agreement also required the Borrowers to pay a quarterly unused commitment fee, which accrued at the
Applicable Rate on the amount by which the commitments under the Original Amended Agreement exceeded the usage of such commitments, and
which is included within interest expense on the Partnership’s condensed consolidated statements of operations. On December 31, 2018, the
weighted average interest rate on outstanding borrowings under the Original Amended Agreement was 7.2%
Prior to the Eighth Amendment, the Original Amended Agreement contained financial covenants, pursuant to which the Partnership will not permit:
•
until June 12, 2018, the ratio of Consolidated Funded Indebtedness (net of unrestricted cash and cash equivalents in an of up to $5.0
million) to Consolidated EBITDA, or the Consolidated Leverage Ratio, as of the last day of any fiscal quarter, commencing on September
30, 2016, determined for the period of four consecutive fiscal quarters ending on such date (the “Measurement Period”), to be greater than
4.25 to 1.00 for periods ended in 2018 and 4.00 to 1:00 for the period ended March 31, 2018;
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•
•
•
after June 12, 2018, the ratio of Consolidated Secured Funded Indebtedness to Consolidated EBITDA, or the Consolidated Secured Net
Leverage Ratio, to be greater than 5.75:1.00 for the period ended June 30, 2018 and the period ended September 30, 2018, 5.50:1.00 for the
period ended December 31, 2018, 5.00:1.00 for periods ending in fiscal 2019 and 4.50:1.00 for periods ending in fiscal 2020;
until June 12, 2018, the ratio of Consolidated EBITDA to Consolidated Debt Service, or the Consolidated Debt Service Coverage Ratio, as
of the last day of any fiscal quarter, commencing on September 30, 2016 to be less than 2.50 to 1.00 for any Measurement Period; and
the ratio of Consolidated EBITDA (reduced, among other things, by the amount of maintenance and growth capital expenditures not
financed with debt (other than Revolving Commitments), taxes and certain restricted payments including distributions paid in cash) to
Consolidated Fixed Charges, or the Consolidated Fixed Charge Coverage Ratio, as of the last day of any fiscal quarter, commencing on
December 31, 2017, to be less than 1:00 to 1:00 for any Measurement Period in 2018, 1:10 to 1:00 for any Measurement Period in 2019 and
1.20 to 1.00 for any Measurement Period in 2020.
Additional covenants include customary limitations, subject to certain exceptions, on, among others: (i) the incurrence of Indebtedness;
(ii) granting of Liens; (iii) fundamental changes and dispositions; (iv) investments, loans, advances, guarantees and acquisitions; (v) swap
agreements; (vi) transactions with Affiliates; (vii) Restricted Payments; (viii) restrictive agreements; (ix) amendments to organizational documents
and indebtedness; (x) prepayment of indebtedness; and (xi) Sale and Leaseback Transactions. The Original Amended Agreement also prohibited
distributions to the Partnership’s partners unless the Consolidated Leverage Ratio (determined based on Consolidated EBITDA calculated giving
effect to amendments under the Sixth Amendment) was not greater than 7.50:1.00 and the Revolving Credit Availability was at least $25.0 million.
The Borrowers’ obligations under the Original Amended Agreement are guaranteed by the Partnership and the Borrowers. Pursuant to the Guaranty
Agreement, the Borrowers’ obligations under the Original Amended Agreement are secured by a first priority lien and security interest (subject to
permitted liens and security interests) in substantially all of the Partnership’s and Borrowers’ assets, whether then owned or thereafter acquired,
excluding certain excluded assets, which include, among others: (i) Trust Accounts, certain proceeds required by law to be placed into such Trust
Accounts and funds held in such Trust Accounts; and (ii) Excluded Real Property, including owned and leased real property that may not be
pledged as a matter of law.
The Partnership was not in compliance with the facility’s maximum Consolidated Leverage Ratio for the periods ended March 31, 2018 and
December 31, 2017, which constituted defaults that the lenders agreed to waive pursuant to the Sixth Amendment and Waiver. In addition, the
Partnership’s failure to timely file its 2017 Annual Report on Form 10-K and its Quarterly Report on Form 10-Q for the period ended March 31, 2018
constituted defaults under its revolving credit facility. Under the Sixth Amendment and Waiver, the lenders agreed to waive such defaults and
extend the dates by which certain reports were required to be filed, and under the Seventh Amendment and Waiver, the lenders agreed to waive our
failure to timely file the 2017 Annual Report on Form 10-K on or before the previously extended filing deadline and agreed to further extend the
dates by which certain reports were required to be filed. Under the Eighth Amendment and Waiver, the lenders agreed to waive defaults resulting
from our failure to comply with the facility’s maximum Consolidated Secured Net Leverage Ratio and minimum Consolidated Fixed Charge Coverage
Ratio for the periods ended June 30, September 30 and December 31, 2018 and our failure to timely file the Quarterly Reports on Form 10-Q for the
quarters ended March 31, 2018, June 30, 2018 and September 30, 2018 on or before the previously extended filing deadlines and agreed to further
extend the dates by which these reports were required to be filed. See Note 19 in Part II, Item 8. Financial Statements and Supplementary Data, for
further detail regarding the extended filing deadlines for our Quarterly Reports on Form 10-Q for the quarters ended June 30, 2018 and September 30,
2018.
Senior Notes
On May 28, 2013, the Partnership issued $175.0 million aggregate principal amount of 7.875% Senior Notes due 2021 (the "Senior Notes"). The
Partnership pays 7.875% interest per annum on the principal amount of the Senior Notes, payable in cash semi-annually in arrears on June 1 and
December 1 of each year. The net proceeds from the offering of the Senior Notes were used to retire a $150.0 million aggregate principal amount of
10.25% Senior Notes due 2017 and the remaining proceeds were used for general corporate purposes. The Senior Notes were issued at 97.832% of
par resulting in gross proceeds of $171.2 million with an original issue discount of approximately $3.8 million. The Partnership incurred debt
issuance costs and fees of approximately $4.6 million. These costs and fees are deferred and will be amortized over the life of the Senior Notes. The
Senior Notes mature on June 1, 2021.
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The Partnership may redeem the Senior Notes at any time, in whole or in part, at the redemption prices (expressed as percentages of the principal
amount) set forth below, together with accrued and unpaid interest, if any, to the redemption date, if redeemed during the 12-month period
beginning June 1 of the years indicated:
Year
2018
2019 and thereafter
Percentage
101.969 %
100.000 %
Subject to certain exceptions, upon the occurrence of a Change of Control (as defined in the Indenture), each holder of the Senior Notes will have
the right to require the Partnership to purchase that holder’s Senior Notes for a cash price equal to 101% of the principal amounts to be purchased,
plus accrued and unpaid interest.
The Senior Notes are jointly and severally guaranteed by certain of the Partnership’s subsidiaries. The Indenture governing the Senior Notes
contains covenants, including limitations of the Partnership’s ability to incur additional indebtedness and liens, make certain dividends,
distributions, redemptions or investments, enter into certain transactions with affiliates, make certain asset sales, and engage in certain mergers,
consolidations or sales of all or substantially all of the Partnership’s assets, among other items. As of December 31, 2018, the Partnership was in
compliance with these covenants.
11.
INCOME TAXES
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the "Tax Act") was signed into law. The Tax Act made broad and complex changes to the
U.S. tax code by, among other things, reducing the federal corporate income tax rate, creating a new limitation on deductible interest expense,
creating bonus depreciation that will allow for full expensing on qualified property, changing the lives of post-2017 net operating loss carryovers
and imposing limitations on deductibility of certain executive compensation.
The Tax Act reduced the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018. As a result of the
reduction in the U.S. corporate income tax rate, the Partnership re-measured its ending net deferred tax liabilities at December 31, 2017 at the rate at
which they are expected to reverse in the future and recognized a non-cash tax benefit of $6.5 million, in 2017. As of December 31, 2018, the re-
measurement of the ending net deferred tax liabilities are completed in accordance with SAB 118 and no material adjustment related to the re-
measurement were noted. In 2018 the partnership recognized a benefit for post 2017 federal net operating losses and deferred tax assets which offset
long life deferred tax liabilities of approximately of $3.1 million.
The Partnership is not subject to U.S. federal and most state income taxes. The partners of the Partnership are liable for income tax in regard to their
distributive share of the Partnership’s taxable income. Such taxable income may vary substantially from net income reported in the accompanying
consolidated financial statements. Certain corporate subsidiaries are subject to federal and state income tax. Deferred tax assets and liabilities are
recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax basis and tax carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Partnership records a valuation
allowance against its deferred tax assets if it deems that it is more likely than not that some portion or all of the recorded deferred tax assets will not
be realizable in future periods.
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Income tax benefit for the years ended December 31, 2018 and 2017 consisted of the following (in thousands):
Current provision:
State
Federal
Foreign
Total
Deferred provision:
State
Federal
Foreign
Total
Total income tax benefit
A reconciliation of the federal statutory tax rate to the Partnership’s effective tax rate is as follows:
Computed tax provision (benefit) at the applicable statutory tax rate
State and local taxes net of federal income tax benefit
Tax exempt (income) loss
Change in current year valuation allowance
Partnership earnings not subject to tax
Changes in tax due to Tax Act and ASC 606 retroactive impact
Changes in valuation allowance due to Tax Act
Permanent differences
Other
Effective tax rate
Years Ended December 31,
2017
2018
$
$
(693 ) $
—
(101 )
(794 )
(23 )
2,725
(111 )
2,591
1,797 $
Years Ended December 31,
2017
2018
21.0 %
(1.1 )%
(1.5 )%
(18.3 )%
2.0 %
0.5 %
— %
(0.1 )%
— %
2.5 %
(681 )
—
(137 )
(818 )
(373 )
10,898
(86 )
10,439
9,621
35.0 %
(1.1 )%
(1.2 )%
(24.1 )%
6.3 %
(7.7 )%
15.1 %
(10.9 )%
— %
11.4 %
The rate adjustment related to the change in valuation allowance due to the Tax Act was caused by changes in the federal tax rate and effective
state rates and the creation of future unlimited-life deferred tax assets that are available to offset existing long-term deferred tax liabilities.
Significant components of the deferred tax assets and liabilities were as follows (in thousands):
Deferred tax assets:
Prepaid expenses
State net operating loss
Federal net operating loss
Foreign net operating loss
Other
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Property, plant and equipment
Deferred revenue related to future revenues and accounts receivable
Deferred revenue related to cemetery property
Total deferred tax liabilities
Net deferred tax liabilities
39
December 31,
2018
2017
5,102 $
24,162
84,017
2,106
55
(89,066 )
26,376
2,119
25,021
5,825
32,965
6,589 $
5,538
19,305
74,109
2,306
55
(73,759 )
27,554
4,104
27,175
5,829
37,108
9,554
$
$
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Net deferred tax assets and liabilities were classified on the consolidated balance sheets as follows (in thousands):
Deferred tax assets
Noncurrent assets
Deferred tax assets
Deferred tax liabilities
Noncurrent liabilities
Net deferred tax liabilities
December 31,
2018
2017
$
$
86 $
86
26,290
32,965
6,675
6,589 $
84
84
27,470
37,108
9,638
9,554
At December 31, 2018, the Partnership had available approximately $0.1 million of alternative minimum tax credit carryforwards and approximately
$396.6 million and $500.7 million of federal and state net operating loss carryforwards, respectively, a portion of which expires annually.
Management periodically evaluates all evidence both positive and negative in determining whether a valuation allowance to reduce the carrying
value of deferred tax assets is required. The vast majority of the Partnership’s taxable subsidiaries continue to accumulate deferred tax assets that
on a more likely than not basis will not be realized. A full valuation allowance continues to be maintained on these taxable subsidiaries. The
valuation allowance decreased in 2017 primarily due to a decrease in deferred tax liabilities that will reverse outside the carryforward period for our
deferred tax assets, partially offset by an increase in net deferred tax assets that are not more likely than not to be realized. The valuation allowance
increased in 2018 due to increases in deferred tax assets that are not more likely than not expected to be realized.
At December 31, 2018, based on the level of historical taxable income and projections for future taxable income over the periods in which the
deferred tax assets are deductible, management believed it was more likely than not that the Partnership will realize the benefits of these deductible
differences. The amount of deferred tax assets considered realizable could be reduced in the future if estimates of future taxable income during the
carryforward period are reduced.
In accordance with applicable accounting standards, the Partnership recognizes only the impact of income tax positions that, based upon their
merits, are more likely than not to be sustained upon audit by a taxing authority. To evaluate its current tax positions in order to identify any
material uncertain tax positions, the Partnership developed a policy of identifying and evaluating uncertain tax positions that considers support for
each tax position, industry standards, tax return disclosures and schedules and the significance of each position. It is the Partnership’s policy to
recognize interest and penalties, if any, related to unrecognized tax benefits in income tax expense. At December 31, 2018 and 2017, the Partnership
had no material uncertain tax positions.
The Partnership is not currently under examination by any federal or state jurisdictions. The federal statute of limitations and certain state statutes
of limitations are open from 2013 forward.
12. DEFERRED REVENUES AND COSTS
The Partnership defers revenues and all direct costs associated with the sale of pre-need cemetery merchandise and services until the merchandise
is delivered or the services are performed. The Partnership recognizes deferred merchandise and service revenues as deferred revenues within long-
term liabilities on its consolidated balance sheets. The Partnership recognizes deferred direct costs associated with pre-need cemetery merchandise
and service revenues as deferred selling and obtaining costs within long-term assets on its consolidated balance sheets. The Partnership also
defers the costs to obtain new pre-need cemetery and new prearranged funeral business as well as the investment earnings on the prearranged
services and merchandise trusts.
Deferred revenues and related costs consisted of the following at the dates indicated (in thousands):
Deferred contract revenues
Deferred merchandise trust revenue
Deferred merchandise trust unrealized gains (losses)
Deferred revenues
Deferred selling and obtaining costs
December 31,
2018
2017
$
$
$
830,602 $
92,718
(9,034 )
914,286 $
112,660 $
808,549
105,354
(1,277 )
912,626
126,398
Deferred revenues presented in the table above are net of the allowance for contract cancellations disclosed in Note 4.
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The activity in deferred selling and obtaining costs was as follows (in thousands):
Deferred selling and obtaining costs, beginning of period
Cumulative effect of accounting change
Change in deferred selling and obtaining costs
Deferred selling and obtaining costs, end of period
December 31,
2018
126,398
(18,557 )
4,819
112,660
$
$
For the year ended December 31, 2018, the Partnership recognized $58.7 million of the deferred revenue balance at December 31, 2017 as revenue.
Also during the year ended December 31, 2018, the Partnership recognized $4.8 million from deferred incremental direct selling costs.
The components of deferred revenues, net in the Partnership’s Condensed Consolidated Balance Sheet at December 31, 2018 and December 31,
2017 were as follows (in thousands):
Deferred revenue
Amounts due from customers for unfulfilled performance obligations on cancellable pre-need
contracts (1)
Deferred revenue, net
$
$
December 31,
2018
December 31,
2017
937,708 $
912,626
(23,422 )
914,286 $
—
912,626
(1)
Prior to the adoption of “Revenue from Contracts with Customers” on January 1, 2018, amounts due from customers for unfulfilled
performance obligations on cancellable pre-need contracts were included in “Accounts Receivable and Long-term accounts receivable, net of
allowance.”
The Partnership cannot estimate the period when it expects its remaining performance obligations will be recognized because certain performance
obligations will only be satisfied at the time of death. The Partnership expects to service 55% of its deferred revenue in the first 4-5 years and
approximately 80% of its deferred revenue within 18 years.
13. LONG-TERM INCENTIVE AND RETIREMENT PLANS
2018 Long-Term Incentive Plan
Effective August 22, 2018, the General Partner’s Board of Directors (the "Board") adopted the Stonemor Amended and Restated 2018 Long-Term
Incentive Plan (“2018 LTIP”), which amended and restated the Stonemor Partners L.P. 2014 Long-Term Incentive Plan ("2014 LTIP") that had been
approved by the Board and the Partnership’s unitholders in 2014. The 2018 LTIP increased the number of units that may be delivered with respect
to awards from 1,500,000 common units plan to 2,000,000 common units. The Compensation and Nominating and Governance Committee of the
Board (the "Compensation Committee") administers the 2018 LTIP.
The 2018 LTIP permits the grant of awards, which may be in the form of phantom units, restricted units, unit appreciation rights ("UAR"), options,
performance awards, cash awards, distribution equivalent rights or other equity awards, including performance factors for each, covering an
aggregate of 2,000,000 common units, a number that the Board may increase by up to 100,000 common units per year. At December 31, 2018, the
estimated number of common units to be issued upon vesting of outstanding awards under this plan, assuming the satisfaction of the maximum
conditions for performance factors, was 1,122,601. As of December 31, 2018, a cumulative number of 34,036 common units had been issued, leaving
843,363 common units available for future grants under the plan, assuming no increases by the Board.
Phantom Unit Awards
Phantom units represent contingent rights to receive a common unit or an amount of cash, or a combination of both, based upon the value of a
common unit. Phantom units become payable, in cash or common units, at the Partnership’s election, upon the separation of directors and
executives from service or upon the occurrence of certain other events specified in the underlying agreements. Phantom units are subject to terms
and conditions determined by the Compensation Committee. In tandem with phantom unit grants, the Compensation Committee may grant
distribution equivalent rights ("DERs"), which are the right to receive an amount in cash or common units equal to the cash distributions made by
the Partnership with respect to common unit
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during the period that the underlying phantom unit is outstanding. All phantom units outstanding under the 2018 LTIP at December 31, 2018
contain tandem DERs to the extent there were distributions.
The following table sets forth the 2018 LTIP phantom unit award activity for the years ended December 31, 2018 and 2017, respectively:
Outstanding, beginning of period
Granted (1)
Settled in common units or cash (1)
Forfeiture
Performance vesting forfeiture
Outstanding, end of period (2)
Years Ended December 31,
2017
2018
108,602
354,104
(709 )
(87,536 )
(29,512 )
344,949
117,630
41,732
(16,098 )
(34,662 )
108,602
(1) The weighted-average grant date fair value for the unit awards on the date of grant was $6.72 and $8.11 for the years ended December 31, 2018
and 2017, respectively. The intrinsic values of unit awards vested during the years ended December 31, 2018 and 2017 were $2.4 million and
$0.4 million, respectively.
(2) Based on the closing price of the common units on December 31, 2018, the estimated intrinsic value of the outstanding unit awards was $2.4
million at December 31, 2018.
Restricted Unit Awards
A restricted unit is a common unit that is subject to a restricted period established by the Compensation Committee, during which the award remains
subject to forfeiture or is either not exercisable by or payable to the recipient of the award. The Compensation Committee determines the number of
restricted units to be granted, the period of time when the restricted units are subject to vesting or forfeiture conditions, which may include
accelerated vesting upon the achievement of certain performance goals, and such other terms and conditions the Compensation Committee may
establish. Upon or as soon as reasonably practical following the vesting of a restricted unit, the participant is entitled to receive a certificate
evidencing ownership of the unit or to have the restrictions removed from any certificate that may have previously been delivered so that the unit
will be unrestricted. Recipients of restricted unit awards are entitled to unit distributions rights (“UDRs”), representing the right to receive
distributions made with respect to the Partnership’s common units. Such UDRs may be payable in cash or as additional restricted units and may be
subject to forfeiture and withheld until the restricted units to which they relate cease to be subject to forfeiture, all as determined by the
Compensation Committee. All restricted units outstanding under the 2018 LTIP at December 31, 2018 provided for current payment of UDRs in cash
at the time the related distributions were paid to the Partnership’s unitholders.
The following table sets forth the 2018 LTIP restricted unit award activity for the years ended December 31, 2018 and 2017, respectively:
Years Ended December 31,
2017
2018
—
780,949
—
—
780,949
—
—
—
—
—
Outstanding, beginning of period
Granted (1)
Settled in common units or cash (1)
Performance vesting forfeiture
Outstanding, end of period (2)
(1)
The weighted-average grant date fair value for the unit awards on the date of grant was $3.98 for the year ended December 31, 2018.
2004 Long-Term Incentive Plan
The Compensation Committee administers the Partnership’s 2004 Long-Term Incentive Plan ("2004 LTIP"). The 2004 LTIP permitted the grant of
awards, which were permitted to be in the form of phantom units, restricted units, unit appreciation rights ("UAR") or other equity awards. At
December 31, 2018, the estimated number of common units to be issued upon vesting and exercise of outstanding awards under this plan was
219,306, based upon the closing price of our common units at December 31, 2018. A cumulative number of 626,188 common units had been issued
under the 2004 LTIP as of December 31, 2018. There
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were no awards available for grant under the 2004 LTIP at December 31, 2017 because no new awards were permitted to be made after its expiration
on September 10, 2014.
Phantom Unit Awards
Phantom units were credited to participants’ mandatory deferred compensation accounts in connection with DERs accruing on phantom units
received under the 2004 LTIP. These DERs continue to accrue until the underlying securities are issued. The following table sets forth the 2004
LTIP activity related to DERs credited as phantom units to the participant’s accounts for the years ended December 31, 2018 and 2017, respectively:
Outstanding, beginning of period
Granted (1)
Settled in common units or cash
Outstanding, end of period (2)
Years Ended December 31,
2017
2018
219,306
—
—
219,306
205,510
13,796
—
219,306
(1) The weighted-average grant date fair value for the phantom unit awards on the date of grant was $9.70 for the year ended December 31, 2017.
(2) Based on the closing price of the common units on December 31, 2018, the estimated intrinsic value of the outstanding restricted phantom
units was $0.5 million.
Unit Appreciation Rights Awards
UAR awards represent a right to receive an amount equal to the closing price of the Partnership’s common units on the date preceding the exercise
date less the exercise price of the UARs, to the extent the closing price of the Partnership’s common units on the date preceding the exercise date is
in excess of the exercise price. This amount is then divided by the closing price of the Partnership’s common units on the date preceding the
exercise date to determine the number of common units to be issued to the participant. UAR awards are subject to terms and conditions determined
by the Compensation Committee, which may include vesting restrictions. UAR awards granted through December 31, 2018 have a five-year
contractual term beginning on the grant date and vest ratably over a period of 48 months beginning on the grant date. All of the UARs outstanding
at December 31, 2018 are vested. The following table sets forth the UAR award activity for the years ended December 31, 2018 and 2017,
respectively:
Outstanding, beginning of period
Granted
Exercised
Forfeited
Outstanding, end of period (1)
Exercisable, end of period
Years Ended December 31,
2018
2017
58,646
—
—
(43,646 )
15,000
15,000
66,355
—
—
(7,709 )
58,646
57,081
Based on the closing price of the common units on December 31, 2018 the outstanding UARs had no intrinsic value and the weighted average
remaining contractual life for outstanding UAR awards at December 31, 2018 was 0.1 years.
Total compensation expense for restricted unit award activity for the year ended December 31, 2018, was approximately $0.4 million. Total
compensation expense for phantom unit awards under both the 2004 LTIP and the 2018 LTIP was approximately $2.0 million and $0.4 million for the
years ended December 31, 2018 and 2017, respectively
At December 31, 2018, the Partnership had no unrecognized compensation expense related to unvested UAR awards. The Partnership recognized
total compensation expense for UAR awards of $0.1 million for each of the years ended December 31, 2018 and 2017.
COMMITMENTS AND CONTINGENCIES
14.
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
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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. The Partnership expects the court to render
a decision in the near future, but there can be no assurance as to when the court will issue its ruling.
• Bunim v. Miller, et al., No. 2:17-cv-519-ER, pending in the United States District Court for the Eastern District of Pennsylvania, and filed on
February 6, 2017. The plaintiff in this case brought, derivatively on behalf of the Partnership, claims that StoneMor GP’s officers and
directors aided and abetted in breaches of StoneMor GP’s purported fiduciary duties by, among other things and in general, allegedly
making misrepresentations through the use of non-GAAP accounting standards in its public filings, by allegedly failing to clearly disclose
the use of proceeds from debt and equity offerings, and by allegedly approving unsustainable distributions. The plaintiff also claims that
these actions and misrepresentations give rise to causes of action for gross mismanagement, unjust enrichment, and (in connection with a
purportedly misleading proxy statement filed in 2014) violations of Section 14(a) of the Securities Exchange Act of 1934. The derivative
plaintiff seeks an award of damages, attorneys’ fees and costs in favor of the Partnership as nominal plaintiff, as well as general compliance
and governance changes. This case has been stayed, by the agreement of the parties, pending final resolution of the motion to dismiss
filed in the Anderson case, provided that either party may terminate the stay on 30 days' notice.
• Muth v. StoneMor G.P. LLC, et al., December Term, 2016, No. 1196 and Binder v. StoneMor G.P. LLC, et al., January Term, 2017, No. 4872,
both pending in the Court of Common Pleas for Philadelphia County, Pennsylvania, and filed on December 20, 2016 and February 3, 2017,
respectively. In these cases, the plaintiffs brought, derivatively on behalf of the Partnership, claims that StoneMor GP’s officers and
directors aided and abetted in breaches of StoneMor GP’s purported fiduciary duties by, among other things and in general, allegedly
making misrepresentations through the use of non-GAAP accounting standards in its public filings and by failing to clearly disclose the
use of proceeds from debt and equity offerings, as well as approving unsustainable distributions. The plaintiffs also claim that these
actions and misrepresentations give rise to a cause of action for unjust enrichment. The derivative plaintiffs seek an award of damages,
attorneys’ fees and costs in favor of the Partnership as nominal plaintiff, as well as alterations to the procedures for electing members to
the board of StoneMor GP, and other compliance and governance changes. These cases have been consolidated and stayed, by the
agreement of the parties, pending final resolution of the motion to dismiss filed in the Anderson case, provided that either party may
terminate the stay on 30 days' notice.
The Philadelphia Regional Office of the Securities and Exchange Commission, Enforcement Division, is continuing its investigation of the
Partnership as to whether violations of federal securities laws have occurred. The investigation relates to, among other things, our prior
restatements, financial statements, internal control over financial reporting, public disclosures, use of non-GAAP financial measures, matters
pertaining to unitholder distributions and the sources of funds therefor and information relating to protection of our confidential information and
our policies regarding insider trading. We are continuing to cooperate with the SEC staff.
The Partnership is party to other legal proceedings in the ordinary course of its business but does not expect the outcome of any proceedings,
individually or in the aggregate, to have a material adverse effect on its financial position, results of operations or cash flows. The Partnership
carries insurance with coverage and coverage limits that it believes to be customary in the cemetery and funeral home industry. Although there can
be no assurance that such insurance will be sufficient to protect the Partnership against all contingencies, management believes that the insurance
protection is reasonable in view of the nature and scope of the operations.
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Leases
In 2017, the Partnership entered into capital leases that had aggregate gross and net asset values of $1.9 million and $1.8 million, respectively, at
December 31, 2018. The Partnership has noncancelable leases for equipment and office space that expire at various dates with initial terms ranging
from one to twenty-four years. Certain leases provide the Partnership with the option to renew for additional periods. Where leases contain
escalation clauses, rent abatements, and/or concessions, the Partnership applies them in the determination of straight-line rent expense over the
lease term. 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 is included in the determination of straight-line rent expense. Rent expense for operating leases for the years
ended December 31, 2018 and 2017 was $4.9 million and $4.5, respectively. The aggregate amount of remaining future minimum lease payments as of
December 31, 2018 is as follows (in thousands):
2019
2020
2021
2022
2023
Thereafter
Total
Less: Interest on capital leases
Total principal payable on capital leases
Other
Operating
Capital
$
$
4,349 $
2,765
2,130
1,539
1,184
5,737
17,704 $
$
1,499
1,196
949
558
89
—
4,291
(875 )
3,416
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)
Lease Years 6-20 (June 1, 2019-May 31, 2034)
Lease Years 21-25 (June 1, 2034-May 31, 2039)
Lease Years 26-35 (June 1, 2039-May 31, 2049)
Lease Years 36-60 (June 1, 2049-May 31, 2074)
None
$1,000,000 per Lease Year
$1,200,000 per Lease Year
$1,500,000 per Lease Year
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.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
Management has established a hierarchy to measure the Partnership’s financial instruments at fair value, which requires it to maximize the use of
observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs represent market data obtained from
independent sources; whereas, unobservable inputs reflect the Partnership’s own market assumptions, which are used if observable inputs are not
reasonably available without undue cost and effort. The hierarchy defines three levels of inputs that may be used to measure fair value:
•
•
•
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 that the entity’s own assumptions about the assumptions market participants would use in the pricing of
the asset or liability and are consequently not based on market activity but rather through particular valuation techniques.
The Partnership’s current assets and liabilities and customer receivables on its consolidated balance sheets are similar to cash basis financial
instruments, and their estimated fair values approximate their carrying values due to their short-term nature and
45
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thus are categorized as Level 1. The Partnership’s merchandise and perpetual care trusts consist of investments in debt and equity marketable
securities and cash equivalents, are carried at fair value, and are considered either Level 1 or Level 2 (see Note 7 and Note 8). Where quoted prices
are available in an active market, securities are classified as Level 1 investments pursuant to the fair value measurement hierarchy.
Where quoted market prices are not available for the specific security, fair values are estimated by using either quoted prices of securities with
similar characteristics or an income approach fair value model with observable inputs that include a combination of interest rates, yield curves,
credit risks, prepayment speeds, rating, and tax-exempt status. These securities are classified as Level 2 investments pursuant to the fair value
measurements hierarchy. Certain investments in the merchandise and perpetual care trusts are excluded from the fair value leveling hierarchy in
accordance with GAAP. These funds are measured at fair value using the net asset value per share practical expedient and have not been
categorized in the fair value hierarchy.
The Partnership’s other financial instruments at December 31, 2018 and 2017 consist of its Senior Notes and outstanding borrowings under its
revolving credit facility (see Note 10). The estimated fair values of the Partnership’s Senior Notes at December 31, 2018 and 2017 were $162.50
million and $173.30 million, respectively, based on trades made on those dates, compared with the carrying amounts of $173.6 million and $173.1
million, respectively. At December 31, 2018 and 2017 , the carrying values of outstanding borrowings under the Partnership’s revolving credit
facility (see Note 10), which bears interest at variable interest rates with maturities of 90 days or less, approximated their estimated fair values. The
Senior Notes and the credit facility are valued using Level 2 inputs.
The Partnership may be required to measure certain assets and liabilities at fair value on a nonrecurring basis in accordance with GAAP from time to
time. These adjustments to fair value usually result from impairment charges. In 2017, as discussed in Note 9, in connection with its
annual goodwill impairment assessment, the Partnership recorded a loss on goodwill impairment of $45.6 million related to our Funeral Home
Operations reporting unit. This impairment was recorded by comparing the estimated fair value of the reporting unit to its carrying value. The fair
value of the reporting unit was derived using discounted cash flow analyses based on Level 3 inputs.
The lower of cost or estimated fair value of assets held for sale at December 31, 2018 and 2017 were $0.8 million and $1.0 million respectively with an
original net book value of $1.9 million prior to an adjustment of $0.2 million and $0.9 million during December 31, 2018 and 2017 respectively. Assets
held for sale are valued at lower of cost or estimated fair value based on broker comparables and estimates at the time the assets are classified as
held for sale. These assets held for sale are classified as Level 3 pursuant to the fair value measurement hierarchy. In addition, the Partnership
had $0.9 million of assets held for use that were impaired by $0.4 million during 2017, resulting in an updated net book value of $0.5 million.
16. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The Partnership’s Senior Notes are guaranteed by StoneMor Operating LLC and its 100% owned subsidiaries, other than the co-issuer, as
described below. The guarantees are full, unconditional, joint and several. The Partnership, or the "Parent," and its 100% owned subsidiary,
Cornerstone Family Services of West Virginia Subsidiary Inc., are the co-issuers of the Senior Notes. The Partnership’s consolidated financial
statements as of and for the years ended December 31, 2018 and 2017 include the accounts of cemeteries operated under long-term lease, operating
or management agreements. For the purposes of this note, these entities are deemed non-guarantor subsidiaries, as they are not 100% owned by the
Partnership. The Partnership’s consolidated financial statements also contain merchandise and perpetual care trusts that are also non-guarantor
subsidiaries for the purposes of this note.
The financial information presented below reflects the Partnership’s standalone accounts, the combined accounts of the subsidiary co-issuer, the
combined accounts of the guarantor subsidiaries, the combined accounts of the non-guarantor subsidiaries, the consolidating adjustments and
eliminations and the Partnership’s consolidated accounts as of and for the years ended December 31, 2018 and 2017 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):
46
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CONDENSED CONSOLIDATING BALANCE SHEETS
December 31, 2018
Assets
Current assets:
Cash and cash equivalents
Assets held for sale
Other current assets
Total current assets
Long-term accounts receivable
Cemetery and funeral home property and
equipment
Merchandise trusts
Perpetual care trusts
Deferred selling and obtaining costs
Goodwill and intangible assets
Other assets
Investments in and amounts due from affiliates
eliminated upon consolidation
Total assets
Liabilities and Partners’ Capital
Current liabilities
Long-term debt, net of deferred financing costs
Deferred revenues
Perpetual care trust corpus
Other long-term liabilities
Due to affiliates
Total liabilities
Partners’ capital
Total liabilities and partners’ capital
Parent
Subsidiary
Issuer
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries Eliminations Consolidated
$
— $
—
—
—
—
—
—
—
—
—
—
— $
—
3,718
3,718
3,118
806
—
—
5,511
—
—
16,298 $
757
64,167
81,222
71,708
1,849 $
—
11,527
13,376
12,322
409,201
—
—
88,705
25,676
19,403
33,550
488,248
330,562
18,444
60,607
2,924
— $
—
—
-
—
—
—
—
—
—
—
18,147
757
79,412
98,316
87,148
443,557
488,248
330,562
112,660
86,283
22,327
61,875
$ 61,875 $
(586 )
539,997
12,567 $ 1,235,912 $
—
960,033 $
-
(601,286 )
(601,286 ) $ 1,669,101
— $
—
—
—
—
$
184 $
68,453 105,160
32,147
—
—
—
1,400 $
—
111,802
330,562
15,230
543,543
68,453 137,491 1,184,354 1,002,537
(42,502 )
960,035 $
60,216 $
146,635
770,337
—
33,553
173,613
51,556
12,567 $ 1,235,910 $
(6,578 ) (124,924 )
$ 61,875 $
61,800
— $
320,248
—
914,286
—
330,562
—
48,783
—
-
(717,156 )
1,675,679
(717,156 )
115,870
(6,578 )
(601,286 ) $ 1,669,101
47
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CONDENSED CONSOLIDATING BALANCE SHEETS (continued)
December 31, 2017
Assets
Current assets:
Cash and cash equivalents
Assets held for sale
Other current assets
Total current assets
Long-term accounts receivable
Cemetery and funeral home property and
equipment
Merchandise trusts
Perpetual care trusts
Deferred selling and obtaining costs
Goodwill and intangible assets
Other assets
Investments in and amounts due from affiliates
eliminated upon consolidation
Total assets
Liabilities and Partners’ Capital
Current liabilities
Long-term debt, net of deferred financing costs
Deferred revenues
Perpetual care trust corpus
Other long-term liabilities
Due to affiliates
Total liabilities
Partners’ capital
Total liabilities and partners’ capital
Parent
Subsidiary
Issuer
Guarantor
Subsidiaries
Non-
Guarantor
Subsidiaries Eliminations Consolidated
$
— $
—
—
—
—
—
—
—
—
—
—
— $
—
3,882
3,882
2,179
738
—
—
6,171
—
—
4,216 $
1,016
83,901
89,133
89,275
2,605 $
—
17,366
19,971
14,481
411,936
—
—
98,639
26,347
16,995
34,820
515,456
339,928
21,588
61,759
2,784
— $
—
—
—
—
—
—
—
—
—
—
6,821
1,016
105,149
112,986
105,935
447,494
515,456
339,928
126,398
88,106
19,779
159,946
$ 159,946 $
—
556,783
82,836
95,806 $ 1,289,108 $ 1,010,787 $
-
(799,565 )
(799,565 ) $ 1,756,082
— $
—
—
—
—
$
72 $
68,250 104,848
33,469
—
—
—
1,354 $
—
105,641
339,928
14,184
576,025
68,250 138,389 1,169,738 1,037,132
(42,583 )
91,696
(26,345 )
119,370
95,806 $ 1,289,108 $ 1,010,787 $
$ 159,946 $
44,380 $
144,595
773,516
—
34,149
173,098
45,806
— $
317,693
—
912,626
—
339,928
—
48,333
—
-
(749,123 )
1,664,386
(749,123 )
(50,442 )
91,696
(799,565 ) $ 1,756,082
48
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CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Year Ended December 31, 2018
Total revenues
Total costs and expenses
Other loss
Net loss from equity investment in
subsidiaries
Interest expense
Income (loss) from continuing operations
before income taxes
Income tax benefit
Net income (loss)
Year Ended December 31, 2017
Total revenues
Total costs and expenses
Other loss
Net loss from equity investment in
subsidiaries
Interest expense
Income (loss) from continuing operations
before income taxes
Income tax benefit
Net income (loss)
Parent
$
Subsidiary
Issuer
Guarantor
Subsidiaries
— $
—
—
6,382 $
(13,666 )
(445 )
266,550 $
(285,578 )
(9,510 )
Non-
Guarantor
Subsidiaries Eliminations Consolidated
316,126
(348,516 )
(11,504 )
52,271 $
(58,349 )
(1,549 )
(9,077 ) $
9,077
—
(63,084 )
(5,434 )
(54,573 )
(8,348 )
—
(15,787 )
—
(1,033 )
117,657
—
—
(30,602 )
(68,518 )
—
(68,518 ) $
(70,650 )
—
(70,650 ) $
(44,325 )
1,797
(42,528 ) $
(8,660 )
—
(8,660 ) $
117,657
—
117,657 $
(74,496 )
1,797
(72,699 )
Parent
Subsidiary
Issuer
Guarantor
Subsidiaries
— $
—
—
7,788 $
(12,306 )
—
279,399 $
(290,850 )
(46,761 )
Non-
Guarantor
Subsidiaries Eliminations Consolidated
338,227
(348,900 )
(46,761 )
58,981 $
(53,685 )
—
(7,941 ) $
7,941
—
$
$
(69,724 )
(5,434 )
(71,281 )
(8,348 )
—
(12,623 )
—
(940 )
141,005
—
—
(27,345 )
(75,158 )
—
(75,158 ) $
(84,147 )
—
(84,147 ) $
(70,835 )
9,621
(61,214 ) $
$
4,356
—
4,356 $
141,005
—
141,005 $
(84,779 )
9,621
(75,158 )
49
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CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Year Ended December 31, 2018
Net cash provided by operating activities
Cash Flows From Investing Activities:
Cash paid for acquisitions and capital
expenditures, net of proceeds from
divestitures and asset sales
Net cash used in investing activities
Cash Flows From Financing Activities:
Cash distributions
Payments to affiliates
Net borrowings and repayments of debt
Other financing activities
Net cash used in financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents—Beginning of
period
Cash and cash equivalents—End of period
Year Ended December 31, 2017
Net cash provided by operating activities
Cash Flows From Investing Activities:
Cash paid for acquisitions and capital
expenditures, net of proceeds from
divestitures and asset sales
Net cash used in investing activities
Cash Flows From Financing Activities:
Cash distributions
Payments to affiliates
Net borrowings and repayments of debt
Other financing activities
Net cash used in financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents—Beginning of
period
Cash and cash equivalents—End of period
Parent
$
— $
Subsidiary
Issuer
Guarantor
Subsidiaries
370 $
39,943 $
Non-
Guarantor
Subsidiaries Eliminations Consolidated
26,457
(13,783 ) $
(73 ) $
—
—
(12,563 )
(12,563 )
—
—
—
—
—
—
-
—
(370 )
(370 )
(11,510 )
(11,510 )
—
—
—
—
—
—
—
(13,782 )
1,387
(3,955 )
(16,350 )
12,082
(683 )
(683 )
—
—
—
—
—
(756 )
—
13,782
—
—
13,782
—
—
—
1,387
(3,955 )
(2,568 )
11,326
6,821
18,147
—
— $
—
— $
4,216
16,298 $
2,605
1,849 $
$
—
— $
Parent
$ 24,545 $
Subsidiary
Issuer
Guarantor
Subsidiaries
103 $
28,488 $
Non-
Guarantor
Subsidiaries Eliminations Consolidated
14,976
(38,327 ) $
167 $
—
—
(103 )
(103 )
(7,831 )
(7,831 )
(24,545 )
—
—
—
(24,545 )
—
—
—
—
—
—
—
—
(38,327 )
14,341
(1,600 )
(25,586 )
(4,929 )
(987 )
(987 )
—
—
—
—
—
(820 )
—
—
(8,921 )
(8,921 )
—
38,327
—
—
38,327
—
(24,545 )
—
14,341
(1,600 )
(11,804 )
(5,749 )
—
— $
—
— $
9,145
4,216 $
3,425
2,605 $
$
—
— $
12,570
6,821
17.
ISSUANCES OF LIMITED PARTNER UNITS
On November 19, 2015, the Partnership entered into an equity distribution agreement ("ATM Equity Program") with a group of banks (the
"Agents") whereby it may sell, from time to time, common units representing limited partner interests having an aggregate offering price of up to
$100,000,000. No common units were issued under the ATM Equity Program during the year ended December 31, 2018 or 2017.
Pursuant to a Common Unit Purchase Agreement, dated May 19, 2014, by and between the Partnership and American Cemeteries Infrastructure
Investors, LLC, a Delaware limited liability company ("ACII"), the Partnership issued 78,342 paid-in-kind units to ACII in lieu of cash distributions
of $0.7 million during the year ended December 31, 2017.
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18. SEGMENT INFORMATION
The Partnership’s operations include two reportable operating segments, Cemetery Operations and Funeral Home Operations. These operating
segments reflect the way the Partnership manages its operations and makes business decisions as of December 31, 2018. Operating segment data
for the periods indicated was as follows (in thousands):
STATEMENT OF OPERATIONS DATA:
Cemetery Operations:
Revenues
Operating costs and expenses
Depreciation and amortization
Segment income
Funeral Home Operations:
Revenues
Operating costs and expenses
Depreciation and amortization
Segment income
Reconciliation of segment income to net loss:
Cemetery Operations
Funeral Home Operations
Total segment income
Corporate overhead
Corporate depreciation and amortization
Loss on goodwill impairment
Other losses, net
Interest expense
Income tax benefit (expense)
Net loss
CASH FLOW DATA:
Capital expenditures:
Cemetery Operations
Funeral Home Operations
Corporate
Total capital expenditures
BALANCE SHEET DATA:
Assets:
Cemetery Operations
Funeral Home Operations
Corporate
Total assets
Goodwill:
Cemetery Operations
Funeral Home Operations
Total goodwill
51
Years Ended December 31,
2017
2018
$
$
$
$
$
$
$
$
$
261,935 $
(238,974 )
(8,037 )
14,924 $
54,191 $
(44,525 )
(2,744 )
6,922 $
14,924 $
6,922
21,846
(53,281 )
(955 )
—
(11,504 )
(30,602 )
1,797
(72,699 ) $
9,025 $
2,839
308
12,172 $
276,696
(233,950 )
(8,909 )
33,837
61,531
(49,803 )
(3,080 )
8,648
33,837
8,648
42,485
(51,964 )
(1,194 )
(45,574 )
(1,187 )
(27,345 )
9,621
(75,158 )
10,048
426
315
10,789
December 31,
2018
2017
$
$
$
$
1,508,667 $
136,064
24,370
1,669,101 $
24,862 $
—
24,862 $
1,594,091
152,934
9,057
1,756,082
24,862
—
24,862
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19. SUBSEQUENT EVENTS
Credit Agreements
On February 4, 2019, StoneMor Operating LLC (the “Operating Company”), a wholly-owned subsidiary of the Partnership, the Subsidiaries (as
defined in the Amended Credit Agreement) of the Operating Company (together with the Operating Company, “Borrowers”), the Lenders party
thereto and Capital One, National Association (“Capital One”), as Administrative Agent (in such capacity, the “Administrative Agent”), entered
into the Eighth Amendment and Waiver to Credit Agreement (the “Eighth Amendment” and the Original Amended Agreement, as further amended
by the Eighth Amendment, the “Amended Credit Agreement”) which further amended the Credit Agreement dated August 4, 2016 (as previously
amended by that certain First Amendment to Credit Agreement dated as of March 15, 2017, Second Amendment and Limited Waiver dated July 26,
2017, Third Amendment and Limited Waiver effective August 15, 2017, Fourth Amendment to Credit Agreement dated as of September 29, 2017,
Fifth Amendment to Credit Agreement dated as of December 22, 2017 but effective as of September 29, 2017, Sixth Amendment and Waiver to Credit
Agreement dated June 12, 2018 and Seventh Amendment and Waiver to Credit Agreement dated July 13, 2018, the “Original Amended Agreement”),
dated as of August 4, 2016, among the Borrowers, the Lenders, Capital One, as Administrative Agent, Issuing Bank and Swingline Lender, Citizens
Bank N.A., as Syndication Agent, and TD Bank, N.A. and Raymond James Bank, N.A., as Co-Documentation Agents. Capitalized terms not
otherwise defined herein have the same meanings as specified in the Amended Credit Agreement.
The Eighth Amendment added to the Amended Credit Agreement a separate last out revolving credit facility (the “Tranche B Revolving Credit
Facility”) in the aggregate amount of $35.0 million to be provided by certain affiliates of Axar Capital Management as the initial lenders under the
Tranche B Revolving Credit Facility (the “Tranche B Revolving Lenders”) on the following terms (as further detailed in the Eighth Amendment):
•
the aggregate amount of the Tranche B Revolving Commitments is $35.0 million; such Commitments were utilized in the amount of
$15.0 million, which is reduced by a $0.7 million Original Issue Discount on the Eighth Amendment effective date. The remaining $20 million
in commitments may be utilized in the amount of $5.0 million (or any integral multiple thereof) from time to time until April 30, 2019, provided
that any borrowings resulting in the outstanding principal amount of the Tranche B Revolving Credit Facility being in excess of
$25.0 million require, as a condition to such borrowings, that the Partnership receive a fairness opinion with respect to the Tranche B
Revolving Credit Facility;
• Tranche B Revolving Credit Facility Maturity Date is one business day after the maturity date of the original revolving credit facility (the
“Tranche A Revolving Credit Facility”);
•
•
•
the interest rate applicable to the loans made under the Tranche B Revolving Credit Facility is 8.00% per annum, payable quarterly in
arrears;
borrowings under the Tranche B Revolving Credit Facility on the effective date of the Eighth Amendment (the “Eighth Amendment
Effective Date”) were subject to an original issue discount in the amount of $0.7 million; and
upon the repayment or prepayment of the Tranche B Revolving Credit Facility in full, the Tranche B Revolving Lenders will receive
additional interest in the amount of $0.7 million.
The Eighth Amendment also amended certain terms of the Original Amended Agreement to:
•
•
reduce the Tranche A Revolving Credit Availability Period to end on the Eighth Amendment Effective Date, which precludes borrowings
under the Tranche A Revolving Credit Facility after such date;
reduce the amount of the Letter of Credit Sublimit from $15.0 million to $9.4 million, plus the principal amount of loans under the Tranche A
Revolving Credit Facility that become subject to optional prepayment after the Eighth Amendment Effective Date, and permit the issuance
of letters of credit under the Tranche A Revolving Credit Facility after the Eight Amendment Effective Date;
• modify the Tranche A Revolving Credit Facility Maturity Date to be the earlier of (i) May 1, 2020 and (ii) the date that is six months prior to
the earliest scheduled maturity date of any outstanding Permitted Unsecured Indebtedness;
•
redetermine the Applicable Rate to be 4.50% for Eurodollar Rate Loans and 3.50% for Base Rate Loans from the Eighth Amendment
Effective Date to February 28, 2019; 4.75% and 3.75%, respectively, from March 1, 2019 to March 31, 2019; 5.50% and 4.50%, respectively,
from April 1, 2019 to April 30, 2019; 5.75% and 4.75%, respectively, from May 1, 2019 to May 31, 2019; and 6.00% and 5.00%, respectively,
from June 1, 2019;
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Table of Contents
•
•
•
•
•
•
•
•
•
discontinue the accrual of the commitment fee after the Eighth Amendment Effective Date;
provide for ticking fees assessed on the amount of outstanding loans made under the Tranche A Revolving Credit Facility (the “Tranche
A Revolving Loans”) and payable to the Tranche A Revolving Lenders (i) in-kind, by increasing the outstanding principal amount of such
Lender’s Tranche A Revolving Loans (“PIK”) or (ii) in cash, in the following amounts and on the following dates:
o 3.00% on July 1, 2019, of which (x) 2.00% shall PIK and (y) 1.00% shall be payable in cash, unless the Required Lenders agree to
PIK;
o 1.00% on August 1, 2019, payable in cash, unless the Required Lenders agree to PIK;
o 1.00% on September 1, 2019, payable in cash, unless the Required Lenders agree to PIK; and
o 1.00% on October 1, 2019, PIK;
amend the definition of “Consolidated Net Income” for purposes of calculating the Consolidated EBITDA to exclude, for the time period
from January 1, 2018 to January 1, 2019, (i) any non-recurring charges for adjustments made to cost of goods sold for merchandise
inventory impairment related to excess and damaged inventory of the Partnership or a subsidiary of the Partnership (and any reversal
thereof) incurred during the Fiscal Year ended December 31, 2018 in an aggregate amount not to exceed $5.0 million and (ii) any non-
recurring charges for the establishment of liability reserves required for future obligations of the Partnership or a Subsidiary of the
Partnership to deliver allocated merchandise to customers (and any reversal thereof) incurred during the Fiscal Year ended December 2018
in an aggregate amount not to exceed $15.0 million;
amend the definition of “Consolidated EBITDA” for purposes of calculating the financial covenant to (i) adjust the limit on add backs
for non-recurring cash expenses, losses, costs and charges to $17.0 million for each Measurement Period ended on or after April 1, 2018
and (ii) remove a separate add back for non-recurring cash expenses, costs and charges relating to “non-ordinary course of business” legal
matters;
remove the Consolidated Secured Net Leverage Ratio and Consolidated Fixed Charge Coverage Ratio and replace them with a covenant
requiring the Partnership to ensure that its Consolidated EBITDA is not less than the following amounts for the four quarters ending on
the following dates: (i) $18.0 million for the period ended March 31, 2018; (ii) $13.0 million for the period ended June 30, 2018; (iii)
$2.5 million for the period ended September 30, 2018; (iv) ($3.0 million) for the period ended December 31, 2018; (v) $1.0 million for the
period ending March 31, 2019; (vi) $3.5 million for the period ending June 30, 2019; (vii) $8.0 million for the period ending September 30,
2019; (viii) $8.25 million for the period ending December 31, 2019; and (ix) $9.25 million for the period ending March 31, 2020;
provide for mandatory prepayments in an amount equal to 100% of the net cash proceeds from (i) sale/leaseback transactions and certain
other permitted dispositions of assets and (ii) incurrence of certain indebtedness (including any indebtedness not permitted under the
Amended Credit Agreement) in an amount exceeding $5.0 million;
extend the deadline for filing the Partnership’s Form 10-Q for the period ended March 31, 2018 to the later of February 6, 2019 and the date
that is two Business Days following the Eighth Amendment Effective Date and for the periods ended June 30, 2018 and September 30, 2018
to February 15, 2019;
add a covenant requiring the Partnership and the Administrative Borrower to use their reasonable best efforts to consummate the
transactions contemplated under the Merger Agreement (as defined below) by May 15, 2019 (the “C-Corporation Conversion”); modify the
definition of “Change in Control” and several covenants, including but not limited to reporting covenants and covenants restricting
fundamental changes, dispositions, investments, acquisitions and transactions with affiliates to permit the C-Corporation Conversion and
to permit the Partnership to be a wholly-owned subsidiary of StoneMor Inc. (as defined below);
add a covenant requiring the Administrative Borrower to engage Houlihan Lokey or any other acceptable financial advisor by no later than
the second business day after the Eighth Amendment Effective Date to advise it in the arrangement of the refinancing in full of the
obligations with respect to the Tranche A Revolving Credit Facility (such refinancing, the “Refinancing”);
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•
add a covenant requiring the Administrative Borrower to retain Carl Marks & Co. or another acceptable consultant of recognized national
standing on or prior to the Eighth Amendment Effective Date, who shall (i) assist the Administrative Borrower in further developing its
financial planning and analysis function; (ii) prepare a detailed analysis of G&A expenses and other overhead and develop cost savings
initiatives and (iii) present a monthly written update to the Administrative Agent and the Lenders on progress; and
•
amend other provisions of the Original Amended Agreement in connection with the foregoing.
In addition, in the Eighth Amendment, the Administrative Agent and Lenders party thereto waived existing defaults under the Original Amended
Agreement as a result of the Partnership’s failure to (i) deliver the financial statements for the periods ended March 31, 2018, June 30, 2018 and
September 30, 2018 and the related compliance certificates; (ii) comply with the facility’s maximum Consolidated Secured Net Leverage Ratio for
each period ended June 30, 2018, September 30, 2018 and December 31, 2018 (iii) comply with the facility’s minimum Fixed Charge Coverage Ratio for
each period ended June 30, 2018, September 30, 2018 and December 31, 2018; and (iv) inaccuracies in representations and warranties resulting from
such defaults. The effectiveness of the Eighth Amendment was subject to the satisfaction of certain conditions, including the payment to the
Tranche A Revolving Lenders of a fee in the aggregate amount of $0.8 million.
Loan Agreement with a Related Party
On February 4, 2019, the Partnership entered into the Eighth Amendment with, among other parties, certain affiliates of Axar Capital Management
(collectively, “Axar”) to provide an up to $35.0 million bridge financing in the form of the Tranche B Revolving Credit Facility, of which $15.0 million
was drawn down immediately. Borrowings under the financing arrangement are collateralized by a perfected first priority security interest in
substantially all assets of the Partnership and the Borrowers held for the benefit of the existing Tranche A Revolving Lenders and bear interest at a
fixed rate of 8.0%. Borrowings under Tranche B Revolving Credit Facility “Eighth Amendment Effective Date” are subject to an original issue
discount in the amount of $0.7 million, which was recorded as original issue discount and will pay additional interest in the amount $0.7 million at
the termination and payment in full of the financing arrangement, which will be accreted to interest expense over the term of the financing
arrangement, As of March 15, 2019, Axar beneficially owned approximately 20.2% of the Partnership’s outstanding common units. Axar also has
exposure to an additional 1,520,149 Common Units pursuant to certain cash-settled equity swaps which mature on June 20, 2022 in accordance with
information included in Axar’s filing on Form 4 which was filed with the SEC on March 18, 2019. In addition, the Partnership’s board of directors has
separately approved an amendment to the voting and standstill agreement and director voting agreement with Axar to permit Axar to acquire up to
27.5% of the Partnership common units outstanding.
On March 29, 2019, the Partnership had additional borrowing of $10.0 million under the Tranche B Revolving Credit Facility.
January 2019 Restructuring
On January 31, 2019, the Partnership announced a restructuring initiative implemented as part of its ongoing organizational review. This
restructuring is intended to further integrate, streamline and optimize the Partnership’s operations.
As part of this restructuring, the Partnership will undertake certain cost reduction initiatives, including a reduction of approximately 45 positions of
its workforce, primarily related to corporate functions in Trevose, a streamlining of general and administrative expenses and an optimization of
location spend. The Partnership expects to incur cash charges of approximately $0.5 million to $0.7 million of employee separation and other benefit-
related costs in connection with the January 2019 restructuring initiative. Substantially all of these cash payments are anticipated to be made by the
end of 2019 and the Partnership anticipates that substantially all of the actions associated with this restructuring will be completed by the end of
2019. Under this restructuring, separation costs are expensed over the requisite service period, if any. There were no expenses recorded for
the year ended December 31, 2018 related to the January 2019 restructuring initiative.
Amendment and Restatement of 2018 LTIP
On March 27, 2019, the Board of Directors of our General Partner approved the amendment and restatement of the 2018 LTIP, which was renamed
the StoneMor Amended and Restated 2019 Long-Term Incentive Plan (“2019 Plan”). The amendments were made to (i) increase the number of
common units of the Partnership reserved for delivery under the plan from 2,000,000 to 4,000,000 and (ii) make certain other clarifying changes and
updates to the 2018 LTIP.
The 2019 LTIP provides for the grant, from time to time, at the discretion of the board of directors of the General Partner or the Compensation,
Nominating and Governance and Compliance Committee of the board of directors, of equity-based incentive compensation awards. Subject to
adjustments in the event of certain transactions or changes in capitalization in accordance
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with 2019 LTIP, 4,000,000 common units of the Partnership have been reserved for delivery pursuant to awards under the 2019 LTIP. Common units
that have been forfeited, cancelled, exercised, settled in cash, or otherwise terminated or expired without deliver will be available for future deliver.
20. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following summarizes certain quarterly results of operations:
Year Ended December 31, 2018
Revenues
Gross loss
Net loss
General partner’s interest in net loss for the period
Limited partners’ interest in net loss for the period
Net loss per limited partner unit (basic and diluted)
Year Ended December 31, 2017
Revenues
Gross profit (loss)
Net loss (1)
General partner’s interest in net income (loss) for the period
Limited partners’ interest in net loss for the period
Net loss per limited partner unit (basic and diluted)
First Quarter Second Quarter Third Quarter Fourth Quarter
(in thousands, except per unit data)
$
$
$
$
77,945 $
(8,026 )
(17,923 )
(187 )
(17,736 )
(0.47 ) $
82,946 $
(1,049 )
(8,561 )
(89 )
(8,472 )
(0.22 ) $
81,571 $
(8,738 )
(17,017 )
(177 )
(16,840 )
(0.44 ) $
85,952 $
(3,113 )
(11,582 )
(121 )
(11,461 )
(0.30 ) $
73,185 $
(10,016 )
(17,225 )
(179 )
(17,046 )
(0.45 ) $
84,034 $
(2,348 )
(9,576 )
(99 )
(9,477 )
(0.25 ) $
83,425
(5,610 )
(20,534 )
(214 )
(20,320 )
(0.54 )
85,295
(4,163 )
(45,439 )
(473 )
(44,966 )
(1.18 )
(1)
Net loss in the fourth quarter of 2017 includes loss on goodwill impairment of $45.6 million.
Gross profit (loss) is computed based upon total revenues less total costs and expenses per the consolidated statements of operations for each
quarter.
Net income (loss) per limited partner unit is computed independently for each quarter and the full year based upon respective average units
outstanding. Therefore, the sum of the quarterly per unit amounts may not equal the annual per share amounts.
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21. SUPPLEMENTAL CONSOLIDATED CASH FLOW INFORMATION
The tables presented below provide supplemental information to the consolidated statements of cash flows regarding contract origination and
maturity activity included in the pertinent captions on the Partnership’s consolidated statements of cash flows (in thousands):
Pre-need/at-need contract originations (sales on credit)
Cash receipts from sales on credit (post-origination)
Changes in Accounts receivable, net of allowance
Deferrals:
Cash receipts from customer deposits at origination, net of refunds
Withdrawals of realized income from merchandise trusts during the
period
Pre-need/at-need contract originations (sales on credit)
Undistributed merchandise trust investment earnings, net
Recognition:
Merchandise trust investment income, net withdrawn as of end
of period
Recognized maturities of customer contracts collected as of end
of period
Recognized maturities of customer contracts uncollected as of end
of period
Changes in Deferred revenues
56
$
$
$
Years Ended December 31,
2018
2017
(126,199 ) $
130,697
4,498 $
146,279 $
15,582
126,199
(2,725 )
(104,896 )
87,822
(17,074 )
146,624
12,551
104,896
(36,461 )
(9,618 )
(11,738 )
(188,897 )
(199,074 )
(49,415 )
$
37,405 $
(25,847 )
(9,049 )
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ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Financial Statements
PART IV
(1) The following financial statements of StoneMor Partners L.P. are included in Part II, Item 8. Financial Statements and Supplementary
Data:
Reports of Independent Registered Public Accounting Firms
Consolidated Balance Sheets as of December 31, 2018 and 2017
Consolidated Statements of Operations for the years ended December 31, 2018 and 2017
Consolidated Statements of Partners’ Capital for the years ended December 31, 2018 and 2017
Consolidated Statements of Cash Flows for the years ended December 31, 2018 and 2017
Notes to Consolidated Financial Statements
(2) Other schedules have not been included either because they are not applicable or because the information is included elsewhere in
this Annual Report on Form 10-K.
(b) Exhibits are listed in the Exhibit Index, which is included below.
Exhibit
Number
Exhibit Index
Description
3.1*
Certificate of Limited Partnership of StoneMor Partners L.P. (incorporated by reference to the Registration Statement on Form S-1 filed
with the Securities and Exchange Commission on April 9, 2004 (Exhibit 3.1)).
3.2*
Second Amended and Restated Agreement of Limited Partnership of StoneMor Partners L.P. dated as of September 9, 2008, as amended
by Amendment No. 1 to Second Amended Agreement of Limited Partnership of StoneMor Partners L.P. dated as of November 3, 2017
(incorporated by reference to Exhibit 3.1 of Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2017).
4.1.1* Indenture, dated as of May 28, 2013, by and among StoneMor Partners L.P., Cornerstone Family Services of West Virginia Subsidiary,
Inc., the guarantors named therein and Wilmington Trust, National Association, including Form of 7 7/8% Senior Note due 2021
(incorporated by reference to Exhibit 4.2 of Registrant’s Current Report on Form 8-K filed on May 28, 2013).
4.1.2* Registration Rights Agreement, dated as of May 28, 2013, by and among StoneMor Partners L.P., Cornerstone Family Services of West
Virginia Subsidiary, Inc., the Initial Guarantors party thereto, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representative
of the initial purchasers listed on Schedule A to the Purchase Agreement (incorporated by reference to Exhibit 4.4 of Registrant’s Current
Report on Form 8-K filed on May 28, 2013).
4.1.3* Supplemental Indenture No. 1, dated as of August 8, 2014, by and among Kirk & Nice, Inc., Kirk & Nice Suburban Chapel, Inc.,
StoneMor Operating LLC, and Osiris Holding of Maryland Subsidiary, Inc., subsidiaries of StoneMor Partners L.P. (or its successor), and
Cornerstone Family Services of West Virginia Subsidiary, Inc., the Guarantors under the Indenture, dated as of May 28, 2013, and
Wilmington Trust, National Association, as trustee (incorporated by reference to Exhibit 4.1 of Registrant’s Quarterly Report on Form 10-
Q for the quarter ended September 30, 2014).
4.1.4* Supplemental Indenture No. 2, dated as of September 1, 2016, by and among StoneMor Wisconsin LLC, StoneMor Wisconsin Subsidiary
LLC, subsidiaries of StoneMor Partners L.P., and Cornerstone Family Services of West Virginia Subsidiary, Inc., the Guarantors under the
Indenture, dated as of May 28, 2013, and Wilmington Trust, National Association, as trustee (incorporated by reference to Exhibit 4.1 of
Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2016).
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4.2*
Registration Rights Agreement, dated as of May 21, 2014, by and between StoneMor Partners L.P. and American Cemeteries
Infrastructure Investors, LLC (incorporated by reference to Exhibit 4.1 of Registrant’s Current Report on Form 8-K filed on May 23, 2014).
10.1*† StoneMor Partners L.P. Long-Term Incentive Plan, as amended April 19, 2010 (incorporated by reference to Appendix A to Registrant’s
Definitive Proxy Statement filed on June 4, 2010).
10.2*† Form of the Director Restricted Phantom Unit Agreement Under the StoneMor Partners L.P. Long-Term Incentive Plan, dated November
8, 2006 (incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K filed on November 15, 2006).
10.3*† Form of the Key Employee Restricted Phantom Unit Agreement Under the StoneMor Partners L.P. Long-Term Incentive Plan, dated
November 8, 2006 (incorporated by reference to Exhibit 10.2 of Registrant’s Current Report on Form 8-K filed on November 15, 2006).
10.4*† Form of the Unit Appreciation Rights Agreement Under the StoneMor Partners L.P. Long-Term Incentive Plan, dated as of November 27,
2006 (incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K filed on December 1, 2006).
10.5*† Director Restricted Phantom Unit Agreement by and between StoneMor GP LLC and Robert Hellman dated June 23, 2009 (incorporated
by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K filed on June 23, 2009).
10.6*† Form of the Unit Appreciation Rights Agreement Under the StoneMor Partners L.P. Long-Term Incentive Plan, dated as of December 16,
2009 (incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K filed on December 22, 2009).
10.7*† Form of the Executive Restricted Phantom Unit Agreement Under the StoneMor Partners L.P. Long-Term Incentive Plan, dated as of
December 16, 2009 (incorporated by reference to Exhibit 10.2 of Registrant’s Current Report on Form 8-K filed on December 22, 2009).
10.8*† Director Unit Appreciation Rights Agreement Under the StoneMor Partners L.P. Long-Term Incentive Plan (incorporated by reference to
Exhibit 10.2.8 of Registrant’s Annual Report on Form 10-K for the year ended December 31, 2009).
10.9*† Form of the Unit Appreciation Rights Agreement Under the StoneMor Partners L.P. Long-Term Incentive Plan, dated as of April 2, 2012
(incorporated by reference to Exhibit 10.2 of Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012).
10.10*† Executive Restricted Phantom Unit Agreement Under the StoneMor Partners L.P. Long-Term Incentive Plan, dated as of November 7,
2012 (incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K filed on November 13, 2012).
10.11*† Unit Appreciation Rights Agreement Under the StoneMor Partners L.P. Long-Term Incentive Plan, dated as of October 22, 2013
(incorporated by reference to Exhibit 10.7.11 of Registrant’s Annual Report on Form 10-K for the year ended December 31, 2013).
10.12*† Form of Director Restricted Phantom Unit Agreement under the StoneMor Partners L.P. 2014 Long-Term Incentive Plan, dated as of
November 11, 2014 (incorporated by reference to Exhibit 10.7.12 of Registrant’s Annual Report on Form 10-K for the year ended
December 31, 2014).
10.13*† Employee Unit Agreement under the StoneMor Partners L.P. 2014 Long-Term Incentive Plan, dated as of December 31, 2015 by and
between StoneMor GP LLC and David L. Meyers (incorporated by reference to Exhibit 10.7.15 of Registrant’s Annual Report on Form 10-
K for the year ended December 31, 2015).
10.14*† Amended and Restated Employment Agreement, executed July 22, 2013 and retroactive to January 1, 2013, by and between StoneMor GP,
LLC and Lawrence Miller (incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K filed on July 26, 2013).
10.15*† Form of Indemnification Agreement by and between StoneMor GP LLC and Lawrence Miller, Robert B. Hellman, Jr., Fenton R. Talbott,
Martin R. Lautman, William Shane, Allen R. Freedman, effective September 20, 2004 (incorporated by reference to Exhibit 10.9 of
Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004).
10.16*† Form of Indemnification Agreement by and between StoneMor GP LLC and Howard Carver and Peter Grunebaum, effective February 16,
2007 (incorporated by reference to Exhibit 10.9 of Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004).
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10.17*† Form of Indemnification Agreement by and between StoneMor GP LLC and Leo J. Pound and Jonathan Contos, dated February 26, 2015
(incorporated by reference to Exhibit 10.1 of Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015).
10.18*† Settlement Agreement by and among StoneMor Indiana LLC, StoneMor Operating LLC, StoneMor Partners L.P., Chapel Hill Associates,
Inc., Chapel Hill Funeral Home, Inc., Covington Memorial Funeral Home, Inc., Covington Memorial Gardens, Inc., Forest Lawn Memorial
Chapel Inc., Forest Lawn Memory Gardens Inc., Fred W. Meyer, Jr. by James R. Meyer as Special Administrator to the Estate of Fred W.
Meyer, Jr., James R. Meyer, Thomas E. Meyer, Nancy Cade, and F.T.J. Meyer Associates, LLC dated June 21, 2010 (incorporated by
reference to Exhibit 10.2 of Registrant’s Current Report on Form 8-K filed on June 25, 2010).
10.19*† Omnibus Agreement by and among McCown De Leeuw & Co. IV, L.P., McCown De Leeuw & Co. IV Associates, L.P., MDC Management
Company IV, LLC, Delta Fund LLC, Cornerstone Family Services LLC, CFSI LLC, StoneMor Partners L.P., StoneMor GP LLC, StoneMor
Operating LLC, dated as of September 20, 2004 (incorporated by reference to Exhibit 10.4 of Registrant’s Quarterly Report on Form 10-Q
for the quarter ended September 30, 2004).
10.20*† Amendment No. 1 to Omnibus Agreement entered into on, and effective as of, January 24, 2011 by and among MDC IV Trust U/T/A
November 30, 2010, MDC IV Associates Trust U/T/A November 30, 2010, Delta Trust U/T/A November 30, 2010 (successors respectively
to McCown De Leeuw & Co. IV, L.P., a California limited partnership, McCown De Leeuw IV Associates, L.P., a California limited
partnership, Delta Fund LLC, a California limited liability company, and MDC Management Company IV, LLC, a California limited liability
company), Cornerstone Family Services LLC, a Delaware limited liability company, CFSI LLC, a Delaware limited liability company,
StoneMor Partners L.P., a Delaware limited partnership, StoneMor GP LLC, a Delaware limited liability company, for itself and on behalf of
the Partnership in its capacity as general partner of the Partnership, and StoneMor Operating LLC, a Delaware limited liability company
(incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed on January 28, 2011).
10.21*† Contribution, Conveyance and Assumption Agreement by and among StoneMor Partners L.P., StoneMor GP LLC, CFSI LLC, StoneMor
Operating LLC, dated as of September 20, 2004 (incorporated by reference to Exhibit 10.2 of Registrant’s Quarterly Report on Form 10-Q
for the quarter ended September 30, 2004).
10.22*† Letter Agreement by and between Austin So and StoneMor GP LLC, dated January 28, 2017 (incorporated by reference to Exhibit 10.36 to
Registrant’s Annual Report on Form 10-K for the year ended December 31, 2016).
10.23* Lease Agreement, dated as of September 26, 2013, by and among StoneMor Operating, LLC, StoneMor Pennsylvania LLC and StoneMor
Pennsylvania Subsidiary LLC, the Archdiocese of Philadelphia, and StoneMor Partners L.P., solely in its capacity as guarantor
(incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K filed on October 2, 2013).
10.24* Amendment No. 1 to Lease Agreement, dated as of March 20, 2014, by and among StoneMor Operating, LLC, StoneMor Pennsylvania
LLC and StoneMor Pennsylvania Subsidiary LLC, the Archdiocese of Philadelphia, and StoneMor Partners L.P., solely in its capacity as
guarantor (incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K filed on March 26, 2014).
10.25* Amendment No. 2 to Lease Agreement, dated as of May 28, 2014, by and among StoneMor Operating, LLC, StoneMor Pennsylvania
LLC, StoneMor Pennsylvania Subsidiary LLC, the Archdiocese of Philadelphia, and StoneMor Partners L.P. (incorporated by reference to
Exhibit 10.3 of Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014).
10.26* Asset Sale Agreement dated April 2, 2014, by and among StoneMor Operating LLC, StoneMor Florida LLC, StoneMor Florida Subsidiary
LLC, StoneMor North Carolina LLC, StoneMor North Carolina Subsidiary LLC, StoneMor North Carolina Funeral Services, Inc., Loewen
[Virginia] LLC, Loewen [Virginia] Subsidiary, Inc., Rose Lawn Cemeteries LLC, Rose Lawn Cemeteries Subsidiary, Incorporated,
StoneMor Pennsylvania LLC, StoneMor Pennsylvania Subsidiary LLC, CMS West Subsidiary LLC, S.E. Funeral Homes of Florida, LLC,
S.E. Cemeteries of Florida, LLC, S.E. Combined Services of Florida, LLC, S.E. Cemeteries of North Carolina, Inc., S.E. Funeral Homes of
North Carolina, Inc., Montlawn Memorial Park, Inc., S.E. Cemeteries of Virginia, LLC, SCI Virginia Funeral Services, Inc., George
Washington Memorial Park, Inc., Sunset Memorial Park Company and S.E. Mid- Atlantic Inc. (incorporated by reference to Exhibit 2.1 of
Registrant’s Current Report on Form 8-K filed on April 8, 2014).
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10.27*† Asset Sale Agreement dated April 2, 2014, by and among StoneMor Operating LLC, StoneMor North Carolina LLC, StoneMor North
Carolina Subsidiary LLC, Laurel Hill Memorial Park LLC, Laurel Hill Memorial Park Subsidiary, Inc., StoneMor Pennsylvania LLC,
StoneMor Pennsylvania Subsidiary LLC, S.E. Cemeteries of North Carolina, Inc., Clinch Valley Memorial Cemetery, Inc., and S.E.
Acquisition of Pennsylvania, Inc. (incorporated by reference to Exhibit 2.2 of Registrant’s Current Report on Form 8-K filed on April 8,
2014).
10.28* Common Unit Purchase Agreement, dated as of May 19, 2014, by and between StoneMor Partners L.P. and American Cemeteries
Infrastructure Investors, LLC (incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K filed on May 23,
2014).
10.29* Underwriting Agreement, dated April 15, 2016, by and among StoneMor Partners L.P., StoneMor GP LLC, StoneMor Operating LLC, and
Raymond James & Associates, Inc., as representative of the underwriters named therein (incorporated by reference to Exhibit 1.1 of
Registrant’s Current Report on Form 8-K filed on April 20, 2016).
10.30* Letter Agreement by and between Austin So and StoneMor GP LLC, dated May 26, 2016 (incorporated by reference to Exhibit 10.2 of
Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016).
10.31* Confidentiality, Nondisclosure and Restrictive Covenant Agreement by and between Austin So and StoneMor GP LLC, dated May 26,
2016 (incorporated by reference to Exhibit 10.3 of Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016).
10.32* Key Employee Unit Agreement under the StoneMor Partners L.P. 2014 Long-Term Incentive Plan, entered into as of July 5, 2016, by and
between StoneMor GP LLC and Lawrence Miller (incorporated by reference to Exhibit 10.2 of Registrant’s Quarterly Report on Form 10-Q
for the quarter ended September 30, 2016).
10.33* Key Employee Unit Agreement under the StoneMor Partners L.P. 2014 Long-Term Incentive Plan, entered into as of July 5, 2016, by and
between StoneMor GP LLC and Austin So (incorporated by reference to Exhibit 10.3 of Registrant’s Quarterly Report on Form 10-Q for
the quarter ended September 30, 2016).
10.34* Credit Agreement, dated as of August 4, 2016, by and among StoneMor Operating LLC, the other Borrowers party thereto, the Lenders
party thereto, Capital One, National Association, as Administrative Agent, Issuing Bank and Swingline Lender, Citizens Bank of
Pennsylvania, as Syndication Agent, and TD Bank, N.A. and Raymond James Bank, N.A., as Co-Documentation Agents (incorporated
by reference to Exhibit 10.5 of Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2016).
10.35* First Amendment to Credit Agreement, dated as of March 15, 2017, by and among StoneMor Operating LLC, the other Borrowers party
thereto, Capital One, National Association, as Administrative Agent, and the Required Lenders party thereto (incorporated by reference
to Exhibit 10.1 of Registrant’s Current Report on Form 8-K filed on March 16, 2017).
10.36* Second Amendment and Limited Waiver to Credit Agreement, dated as of July 26, 2017, by and among StoneMor Operating LLC, the
other Borrowers party thereto, Capital One, National Association, as Administrative Agent, and the Required Lenders party thereto
(incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K filed on July 28, 2017).
10.37* Third Amendment and Limited Waiver to Credit Agreement, effective as of August 15, 2017, by and among StoneMor Operating LLC, the
other Borrowers party thereto, Capital One, National Association, as Administrative Agent, and the Required Lenders party thereto
(incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K filed on August 17, 2017).
10.38* Fourth Amendment to Credit Agreement dated as of September 29, 2017, by and among StoneMor Operating LLC, a Delaware limited
liability company, the other Borrowers party thereto, Capital One, National Association, as Administrative Agent and the Lenders party
thereto (incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K filed on October 5, 2017).
10.39* Fifth Amendment to Credit Agreement, dated as of December 22, 2017 but effective as of September 29, 2017, by and among StoneMor
Operating LLC, a Delaware limited liability company, the other Borrowers party thereto, Capital One, National Association, as
Administrative Agent and the Lenders party thereto (incorporated by reference to Exhibit 10.2 of Registrant's Current Report on Form 8-K
filed on June 18, 2018).
10.40* Sixth Amendment and Waiver to Credit Agreement, effective as of June 12, 2018, by and among StoneMor Operating LLC, the other
Borrowers party thereto, Capital One, National Association, as Administrative Agent, and the Required Lenders party thereto
(incorporated by reference to Exhibit 10.1 of Registrant's Current Report on Form 8-K filed on June 18, 2018).
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10.41* Seventh Amendment and Waiver to Credit Agreement, effective as of July 13, 2018, by and among StoneMor Operating LLC, the other
Borrowers party thereto, Capital One, National Association, as Administrative Agent, and the Required Lenders party thereto
(incorporated by reference to Exhibit 10.49 of Registrant’s Annual Report on Form 10-K filed on July 17, 2018).
10.42* Eighth Amendment and Waiver to Credit Agreement, effective as of February 4, 2019, by and among StoneMor Partners L.P., StoneMor
Operating LLC, the other Borrowers party thereto, Capital One, National Association, as Administrative Agent, and the Required Lenders
party thereto (incorporated by reference to Exhibit 10.2 of Registrant's Current Report on Form 8-K filed on February 4, 2018).
10.43* Guaranty and Collateral Agreement, dated as of August 4, 2016, by and among StoneMor Partners L.P., StoneMor Operating LLC, the
other Grantors party thereto and Capital One, National Association, as Administrative Agent (incorporated by reference to Exhibit 10.6 of
Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2016).
10.44* Common Unit Purchase Agreement, dated as of December 30, 2016, by and between StoneMor Partners L.P. and StoneMor GP Holdings
LLC (incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K filed on January 4, 2017).
10.45*† Separation Agreement and General Release, dated as of March 27, 2017, by and between StoneMor GP Holdings LLC and Lawrence
Miller (incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K filed on March 28, 2017).
10.46*† Summary of Oral Agreement between StoneMor GP LLC and Leo J. Pound (incorporated by reference to Exhibit 10.1 of Registrant’s
Current Report on Form 8-K filed on April 17, 2017).
10.47*† Employment Agreement dated May 16, 2017, by and between StoneMor GP LLC and R. Paul Grady (incorporated by reference to Exhibit
10.1 of Registrant’s Current Report on Form 8-K filed on May 22, 2017).
10.48*† Indemnification Agreement, dated May 16, 2017, by and between StoneMor GP LLC and R. Paul Grady (incorporated by reference to
Exhibit 10.2 of Registrant’s Current Report on Form 8-K filed on May 22, 2017).
10.49*† Employment Agreement, effective May 16, 2017, by and between StoneMor GP LLC and Mark Miller (incorporated by reference to Exhibit
10.3 of Registrant’s Current Report on Form 8-K filed on May 22, 2017).
10.50*† Indemnification Agreement, effective May 16, 2017, by and between StoneMor GP LLC and Mark Miller (incorporated by reference to
Exhibit 10.4 of Registrant’s Current Report on Form 8-K filed on May 22, 2017).
10.51*† Indemnification Agreement, effective May 16, 2017, by and between StoneMor GP LLC and Robert A. Sick (incorporated by reference to
Exhibit 10.5 of Registrant’s Current Report on Form 8-K filed on May 22, 2017).
10.52*† Employment Agreement dated March 1, 2018 by and between StoneMor GP LLC and James Ford (incorporated by reference to Exhibit
10.1 of Registrant’s Current Report on Form 8-K filed on March 2, 2018).
10.53*† Executive Restricted Unit Agreement under the StoneMor Partners L.P. 2014 Long-Term Incentive Plan, entered into as of March 1, 2018,
by and between StoneMor GP LLC and James Ford (incorporated by reference to Exhibit 10.2 of Registrant’s Current Report on Form 8-K
filed on March 2, 2018)
10.54*† Key Employee Unit Agreement under the StoneMor Partners L.P. 2014 Long-Term Incentive Plan, dated as of March 19, 2018 by and
between StoneMor GP LLC and Mark L. Miller (2017 Award) (incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on
Form 8-K filed on March 23, 2018).
10.55*† Key Employee Unit Agreement under the StoneMor Partners L.P. 2014 Long-Term Incentive Plan, dated as of March 19, 2018 by and
between StoneMor GP LLC and Mark L. Miller (2018 Award) (incorporated by reference to Exhibit 10.2 of Registrant’s Current Report on
Form 8-K filed on March 23, 2018).
10.56*† Key Employee Unit Agreement under the StoneMor Partners L.P. 2014 Long-Term Incentive Plan, dated as of March 19, 2018 by and
between StoneMor GP LLC and Austin K. So (2017 Award) (incorporated by reference to Exhibit 10.3 of Registrant’s Current Report on
Form 8-K filed on March 23, 2018).
10.57*† Key Employee Unit Agreement under the StoneMor Partners L.P. 2014 Long-Term Incentive Plan, dated as of March 19, 2018 by and
between StoneMor GP LLC and Austin K. So (2018 Award) (incorporated by reference to Exhibit 10.4 of Registrant’s Current Report on
Form 8-K filed on March 23, 2018).
10.58*† Executive Restricted Unit Agreement under the StoneMor Partners L.P. 2014 Long-Term Incentive Plan, entered into as of March 19,
2018, by and between StoneMor GP LLC and Mark L. Miller (incorporated by reference to Exhibit 10.5 of Registrant’s Current Report on
Form 8-K filed on March 23, 2018).
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10.59*† Form of 2017 Key Employee Unit Award Agreement under StoneMor Partners L.P. 2014 Long-Term Incentive Plan (incorporated by
reference to Exhibit 10.6 of Registrant’s Current Report on Form 8-K filed on March 23, 2018).
10.60*† Form of Key Employee Unit Award Agreement under StoneMor Partners L.P. 2014 Long-Term Incentive Plan (incorporated by reference
to Exhibit 10.7 of Registrant’s Current Report on Form 8-K filed on March 23, 2018).
10.61*† Director Restricted Phantom Unit Agreement effective June 15, 2018 by and between StoneMor GP LLC and Patricia D. Wellenbach
(incorporated by reference to Exhibit 10.4 of Registrant’s Current Report on Form 8-K filed on June 18, 2018).
10.62*† Director Restricted Phantom Unit Agreement effective June 15, 2018 by and between StoneMor GP LLC and Stephen J. Negrotti
(incorporated by reference to Exhibit 10.5 of Registrant’s Current Report on Form 8-K filed on June 18, 2018).
10.63*† Indemnification Agreement effective June 15, 2018 by and between StoneMor GP LLC and Patricia D. Wellenbach (incorporated by
reference to Exhibit 10.6 of Registrant’s Current Report on Form 8-K filed on June 18, 2018).
10.64*† Indemnification Agreement effective June 15, 2018 by and between StoneMor GP LLC and Stephen J. Negrotti (incorporated by reference
to Exhibit 10.7 of Registrant’s Current Report on Form 8-K filed on June 18, 2018).
10.65*† Employment Agreement by and between Austin K. So and StoneMor GP LLC, dated June 15, 2018 (incorporated by reference to Exhibit
10.3 of Registrant’s Current Report on Form 8-K filed on June 18, 2018).
10.66*† Employment Agreement by and between Joseph M. Redling and StoneMor GP LLC, dated June 29, 2018 (incorporated by reference to
Exhibit 10.1 of Registrant’s Current Report on Form 8-K filed on July 3, 2018).
10.67*† Executive Restricted Unit Award Agreement dated July 18, 2018 by and between StoneMor GP LLC and Joseph M. Redling (incorporated
by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K filed on July 24, 2018).
10.68*† Agreement dated July 26, 2018 by and between StoneMor GP LLC and Leo J. Pound (incorporated by reference to Exhibit 10.1 of
Registrant’s Current Report on Form 8-K filed on July 30, 2018).
10.69*† Letter Agreement, dated September 5, 2018, by and between StoneMor GP LLC and Jeffrey DiGiovanni (incorporated by reference to
Exhibit 10.1 of Registrant’s Current Report on Form 8-K filed on September 11, 2018).
10.70*† StoneMor Amended and Restated 2018 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 of Registrant’s Current
Report on Form 8-K filed on September 21, 2018).
10.71* Voting and Support Agreement, dated September 27, 2018, by and among StoneMor Partners L.P., StoneMor GP LLC, and the unitholders
of StoneMor Partners L.P. named therein (incorporated by reference to Exhibit 10.1 of Registrant’s Current Report on Form 8-K filed on
September 28, 2018).
10.72*† Summary of Oral Agreement between StoneMor GP LLC and Leo J. Pound (incorporated by reference to Exhibit 10.1 of Registrant’s
Current Report on Form 8-K filed on October 12, 2018).
10.73*† Letter Agreement dated October 12, 2018 between StoneMor Partners L.P. and Lawrence Miller (incorporated by reference to Exhibit 10.2
of Registrant’s Current Report on Form 8-K filed on October 12, 2018).
10.74* First Amendment to Voting and Support Agreement, dated February 4, 2019, by and among StoneMor Partners L.P., StoneMor GP LLC,
and the unitholders of StoneMor Partners L.P. named therein (incorporated by reference to exhibit 10.1 of Registrant’s Current Report on
Form 8-K filed on February 4, 2019).
10.75* Merger and Reorganization Agreement, dated September 27, 2018, by and among StoneMor Partners L.P., StoneMor GP Holdings LLC,
StoneMor GP LLC and Hans Merger Sub, LLC (incorporated by reference to Exhibit 10.75 of Registrant’s Annual Report on Form 10-K
filed on April 3, 2019).
10.76*† StoneMor Amended and Restated 2019 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 of Registrant’s Current
Report on Form 8-K filed on April 2, 2019).
16.1*
Letter from Deloitte & Touche LLP date December 6, 2018 (incorporated by reference to Exhibit 16.1 of Registrant’s Current Report on
Form 8-K filed on December 6, 2018).
21.1*
Subsidiaries of Registrant (incorporated by reference to Exhibit 21.1 of Registrant’s Annual Report on Form 10-K filed on April 3, 2019).
23.1
Consent of Grant Thornton LLP.
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23.2
Consent of Deloitte & Touche LLP.
31.1
Certification pursuant to Exchange Act Rule 13a-14(a) of Joseph M. Redling, President and Chief Executive Officer.
31.2
Certification pursuant to Exchange Act Rule 13a-14(a) of Garry P. Herdler, Chief Financial Officer and Senior Vice President.
32.1
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350) and Exchange Act Rule 13a-14(b) of Joseph M.
Redling, President and Chief Executive Officer (furnished herewith).
32.2
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350) and Exchange Act Rule 13a-14(b) of Garry P.
Herdler, Chief Financial Officer and Senior Vice President (furnished herewith).
99.1*
Second Amended and Restated Limited Liability Company Agreement of StoneMor GP LLC, dated as of May 21, 2014, entered into by
StoneMor GP Holdings, LLC (incorporated by reference to Exhibit 99.1 of Registrant’s Current Report on Form 8-K filed on May 23, 2014).
99.2*
Amendment No. 1, dated as of November 17, 2015, to the Second Amended and Restated Limited Liability Company Agreement of
StoneMor GP LLC, dated as of May 21, 2014, entered into by StoneMor GP Holdings, LLC (incorporated by reference to Exhibit 99.2 of
Registrant’s Annual Report on Form 10-K for the year ended December 31, 2015).
99.3*
Amendment No. 2, dated as of May 17, 2017, to the Second Amended and Restated Limited Liability Company Agreement of StoneMor
GP Holdings, LLC (incorporated by reference to Exhibit 99.3 of Registrant’s Annual Report on Form 10-K filed on July 17, 2018).
99.4*
Amendment No. 3, dated as of March 19, 2018, to the Second Amended and Restated Limited Liability Company Agreement of StoneMor
GP Holdings, LLC (incorporated by reference to Exhibit 99.4 of Registrant’s Annual Report on Form 10-K filed on July 17, 2018).
101
Attached as Exhibit 101 to this report are the following Interactive Data Files formatted in XBRL (eXtensible Business Reporting
Language): (i) Consolidated Balance Sheets as of December 31, 2018 and 2017; (ii) Consolidated Statements of Operations for the years
ended December 31, 2018, 2017 and 2016; (iii) Consolidated Statements of Partners’ Capital; (iv) Consolidated Statements of Cash Flows
for the years ended December 31, 2018, 2017 and 2016; and (v) Notes to the Consolidated Financial Statements. Users of this data are
advised pursuant to Rule 401 of Regulation S-T that the information contained in the XBRL documents is unaudited and these are not
the official publicly filed financial statements of StoneMor Partners L.P.
Incorporated by reference, as indicated
*
† Management contract, compensatory plan or arrangement
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
STONEMOR PARTNERS L.P.
By: StoneMor GP LLC, its General Partner
By: /s/ Joseph M. Redling
Joseph M. Redling
President and Chief Executive Officer
August 28, 2019
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Section 2: EX-23.1 (EX-23.1)
64
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have issued our reports dated April 2, 2019 (except for Note 1, as to which the date is August 28, 2019) with respect to the
consolidated financial statements and internal control over financial reporting of StoneMor Partners, L.P. included in Amendment No. 1
to the Annual Report on Form 10-K/A for the year ended December 31, 2018, which are incorporated by reference in this Registration
Statement. We consent to the incorporation by reference of the aforementioned report in the Registration Statements of StoneMor
Partners L.P. on Forms S-3 (File No. 333-192670, File No. 333-196913 and File No. 333-210264), Form S-4 (File No. 333-210265) and on
Forms S-8 (File No. 333-143863, File No. 333-176789 and File No. 333- 203018).
Exhibit 23.1
/s/ Grant Thornton LLP
Philadelphia, Pennsylvania
August 28, 2019
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Section 3: EX-23.2 (EX-23.2)
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-192670, 333-196913 and 333-210264 on Form S-3,
Registration Statement No. 333-210265 on Form S-4 and Registration Statement Nos. 333-143863, 333-176789 and 333- 203018 on Form S-
8 of our report dated July 16, 2018, relating to the 2017 financial statements (before retrospective adjustments to the financial statements
to reflect the impact of adoption of Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606), as
disclosed in Note 1 under captions Reclassifications and Adjustments to Prior Period Financial Statements and Recently Issued
Accounting Standard Updates - Adopted in the Current Period to the financial statements) of StoneMor Partners L.P. and subsidiaries,
(not presented herein) appearing in this Amendment No. 1 to Annual Report on Form 10-K/A of StoneMor Partners L.P. for the year
ended December 31, 2018.
Exhibit 23.2
/s/ Deloitte & Touche LLP
Philadelphia, Pennsylvania
August 28, 2019
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Section 4: EX-31.1 (EX-31.1)
Exhibit 31.1
I, Joseph M. Redling, certify that:
CERTIFICATION
1.
I have reviewed this Amendment No. 1 to Annual Report on Form 10-K/A, for the fiscal year ended December 31, 2018, of StoneMor
Partners L.P.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.
Date: August 28, 2019
By:
/s/ Joseph M. Redling
Joseph M. Redling
President and Chief Executive Officer
(Principal Executive Officer)
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Section 5: EX-31.2 (EX-31.2)
Exhibit 31.2
I, Garry P. Herdler, certify that:
CERTIFICATION
1.
I have reviewed this Amendment No. 1 to Annual Report on Form 10-K/A, for the fiscal year ended December 31, 2018, of StoneMor
Partners L.P.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.
Date: August 28, 2019
By:
/s/ Garry P. Herdler
Garry P. Herdler
Chief Financial Officer and Senior Vice President
(Principal Financial Officer)
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Section 6: EX-32.1 (EX-32.1)
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the United States Code), the undersigned
officer of StoneMor GP, LLC, the general partner of StoneMor Partners L.P. (the "Partnership"), does hereby certify with respect to Amendment No.
1 to the Annual Report of the Partnership on Form 10-K/A for the year ended December 31, 2018 (the "Report") that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Partnership.
Date: August 28, 2019
By:
/s/ Joseph M. Redling
Joseph M. Redling
President and Chief Executive Officer
(Principal Executive Officer)
The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title
18 of the United States Code) and is not being filed as part of the Report or as a separate disclosure document.
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Section 7: EX-32.2 (EX-32.2)
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of the United States Code), the undersigned
officer of StoneMor GP, LLC, the general partner of StoneMor Partners L.P. (the "Partnership"), does hereby certify with respect to Amendment No.
1 to the Annual Report of the Partnership on Form 10-K/A for the year ended December 31, 2018 (the "Report") that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Partnership.
Date: August 28, 2019
By:
/s/ Garry P. Herdler
Garry P. Herdler
Chief Financial Officer and Senior Vice President
(Principal Financial Officer)
The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title
18 of the United States Code) and is not being filed as part of the Report or as a separate disclosure document.
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