UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

~~FORM10-Q~~

(Mark One)

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

For the quarterly period ended June 30, ~~2018~~2019

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

For the transition period fromto.

Commission File Number:001-32270

STONEMOR PARTNERS L.P.

(Exact name of registrant as specified in its charter)

Delaware


~~Delaware~~		80-0103159
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

3600 Horizon Boulevard

Trevose, Pennsylvania

19053

(Address of principal executive offices)

(Zip Code)

~~(215) 826-2800~~

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

~~Not Applicable~~

~~(Former name, former address and former fiscal year, if changed since last report)~~

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common units	STON	NYSE

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of ~~“large~~"large accelerated filer,~~” “accelerated~~" "accelerated filer,~~” “smaller~~" "smaller reporting ~~company”~~company," and ~~“emerging~~"emerging growth ~~company”~~company" in Rule12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if ~~either~~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~~ Act. ☐

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

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

The number of the registrant’s outstanding common units at ~~February 8,~~August 6, 2019 was ~~37,958,645.~~39,582,542.

FORM 10-Q OF STONEMOR PARTNERS L.P.

TABLE OF CONTENTS


			~~Page~~
~~Part~~PART I	Financial Information

Item 1.	Financial Statements (Unaudited)			1	3

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			49	39

Item 3.	Quantitative and Qualitative Disclosures About Market Risk			64	54

Item 4.	Controls and Procedures			66
		55
~~Part~~

PART II	Other Information

Item 1.	Legal Proceedings			68	58

Item 1A.	Risk Factors			68	58

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds			68	62

Item 3.	Defaults ~~Upon~~upon Senior Securities			68	62

Item 4.	Mine Safety Disclosures			68	62

Item 5.	Other Information			68	63

Item 6.	Exhibits			69	64

	Signatures			70	66

Table of Contents

PART I1 – FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

STONEMOR PARTNERS L.P.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands)

							June 30,			December 31,
	June 30, 2018			December 31, 2017			2019			2018
Assets
Current assets:
Cash and cash equivalents	$	14,979		$	6,821
Cash and cash equivalents, excluding restricted cash							$	41,859		$	18,147
Restricted cash								20,095			—
Accounts receivable, net of allowance		66,837			79,116			59,550			57,928
Prepaid expenses		9,180			4,580			8,942			4,475
Assets held for sale		1,343			1,016
Other current assets		17,930			21,453			17,231			17,766
Total current assets								147,677			98,316

Total current assets		110,269			112,986
Long-term accounts receivable, net of allowance		95,421			105,935			83,775			87,148
Cemetery property		335,037			333,404			329,760			330,841
Property and equipment, net of accumulated depreciation		113,229			114,090			110,655			112,716
Merchandise trusts, restricted, at fair value		511,852			515,456			519,382			488,248
Perpetual care trusts, restricted, at fair value		340,364			339,928			343,308			330,562
Deferred selling and obtaining costs		112,025			126,398			112,916			112,660
Deferred tax assets		92			84			67			86
Goodwill		24,862			24,862			24,862			24,862
Intangible assets, net		62,342			63,244
Intangible assets								56,877			61,421
Other assets		25,161			19,695			33,536			22,241

Total assets	$	1,730,654		$	1,756,082		$	1,762,815		$	1,669,101

Liabilities and Partners’ Capital
Liabilities, Redeemable Convertible Preferred Units and Partners’ Deficit
Current liabilities:
Accounts payable and accrued liabilities	$	51,926		$	43,023		$	55,063		$	59,035
Accrued interest		1,912			1,781			312			1,967
Current portion, long-term debt		2,139			1,002			591			798
Total current liabilities								55,966			61,800

Total current liabilities		55,977			45,806
Long-term debt, net of deferred financing costs		320,495			317,693			357,575			320,248
Deferred revenues, net		933,159			912,626
Deferred revenues								944,142			914,286
Deferred tax liabilities		6,623			9,638			12,883			6,675
Perpetual care trust corpus		340,364			339,928			343,308			330,562
Other long-term liabilities		43,464			38,695			52,385			42,108
Total liabilities								1,766,259			1,675,679
Commitments and contingencies

Total liabilities		1,700,082			1,664,386

Commitments and contingencies
Partners’ capital (deficit):
Redeemable convertible preferred units:
Series A								57,500			—
Total redeemable convertible preferred units								57,500			-
Partners’ deficit :
General partner interest		(3,615	)		(2,959	)		(4,597	)		(4,008	)
Common limited partners’ interest		34,187			94,655			(56,347	)		(2,570	)

Total partners’ capital		30,572			91,696

Total liabilities and partners’ capital	$	1,730,654		$	1,756,082

Total partners’ deficit								(60,944	)		(6,578	)
Total liabilities, redeemable convertible preferred units and partners’ deficit							$	1,762,815		$	1,669,101

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

Table of Contents

STONEMOR PARTNERS L.P.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands, except per unit data)

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Revenues:
Cemetery:
Interments	$	20,995		$	20,789		$	36,939		$	40,414
Merchandise		17,315			17,116			33,856			33,743
Services		17,365			17,737			33,332			34,228
Investment and other		9,953			12,038			19,411			21,538
Funeral home:
Merchandise		6,073			6,522			12,348			13,951
Services		6,794			7,369			14,078			15,642
Total revenues		78,495			81,571			149,964			159,516
Costs and Expenses:
Cost of goods sold		10,843			13,086			20,586			26,521
Cemetery expense		21,636			21,007			38,883			38,421
Selling expense		15,497			17,166			30,230			33,422
General and administrative expense		10,958			10,163			22,397			21,121
Corporate overhead		13,137			15,165			26,550			26,992
Depreciation and amortization		2,716			3,071			5,473			6,116
Funeral home expenses:
Merchandise		1,014			1,108			3,331			3,586
Services		5,459			5,582			11,012			11,100
Other		3,994			3,961			7,624			9,001
Total costs and expenses		85,254			90,309			166,086			176,280

Other losses		(3,429	)		—			(3,429	)		(5,205	)
Operating loss		(10,188	)		(8,738	)		(19,551	)		(21,969	)
Interest expense		(9,346	)		(8,107	)		(22,517	)		(15,220	)
Loss on debt extinguishment		(8,478	)		—			(8,478	)		—
Loss from operations before income taxes		(28,012	)		(16,845	)		(50,546	)		(37,189	)
Income tax benefit (expense)		(6,386	)		(172	)		(6,386	)		2,249
Net loss	$	(34,398	)	$	(17,017	)	$	(56,932	)	$	(34,940	)
Accretion of redeemable convertible preferred units		-			-			-			-
Net loss attributable to common unit holders	$	(34,398	)	$	(17,017	)	$	(56,932	)	$	(34,940	)
General partner’s interest	$	(357	)	$	(177	)	$	(592	)	$	(364	)
Limited partners’ interest	$	(34,041	)	$	(16,840	)	$	(56,340	)	$	(34,576	)
Net loss per limited partner unit (basic and diluted)	$	(1.44	)	$	(0.44	)	$	(1.44	)	$	(0.91	)
Weighted average number of limited partners’ units outstanding (basic and diluted)		39,329			37,958			39,115			37,958

   Three Months Ended June 30, Six Months Ended June 30,
   2018 2017 2018 2017
Revenues:

Cemetery:

Interments
   $ 20,789 $ 19,641 $ 40,414 $ 37,620
Merchandise
   17,116 18,834 33,743 37,131
Services
   17,737 18,619 34,228 35,132
Investment and other
   12,038 13,652 21,538 26,390
Funeral home:

Merchandise
   6,522 6,749 13,951 14,585
Services
   7,369 8,457 15,642 18,040


Total revenues
   81,571 85,952 159,516 168,898


Costs and Expenses:

Cost of goods sold
   13,086 12,043 26,521 25,562
Cemetery expense
   21,007 20,124 38,421 36,821
Selling expense
   17,166 15,623 33,422 32,082
General and administrative expense
   10,163 9,753 21,121 19,710
Corporate overhead
   15,165 16,067 26,992 27,171
Depreciation and amortization
   3,071 3,391 6,116 6,846
Funeral home expenses:

Merchandise
   1,108 1,623 3,586 3,383
Services
   5,582 5,454 11,100 11,153
Other
   3,961 4,987 9,001 10,332


Total costs and expenses
   90,309 89,065 176,280 173,060


Other losses
   —   (1,071 ) (5,205 ) (1,071 )
Interest expense
   (8,107 ) (6,741 ) (15,220 ) (13,447 )


Loss before income taxes
   (16,845 ) (10,925 ) (37,189 ) (18,680 )
Income tax benefit (expense)
   (172 ) (657 ) 2,249 (1,463 )


Net loss
   $ (17,017 ) $ (11,582 ) $ (34,940 ) $ (20,143 )


General partner’s interest
   $ (177 ) $ (121 ) $ (364 ) $ (210 )
Limited partners’ interest
   $ (16,840 ) $ (11,461 ) $ (34,576 ) $ (19,933 )
Net loss per limited partner unit (basic and diluted)
   $ (0.44 ) $ (0.30 ) $ (0.91 ) $ (0.53 )
Weighted average number of limited partners’ units outstanding (basic and diluted)
   37,958 37,957 37,958 37,938

Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

Table of Contents

STONEMOR PARTNERS L.P.

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

(dollars in thousands, except units)

	Redeemable Convertible Preferred Unit				Partners’ Deficit
	Series A
	Number of Outstanding Preferred Units		Value of Outstanding Preferred Units		Outstanding Common Units		Common Limited Partners			General Partner			Total
Three Months Ended March 31, 2019
December 31, 2018		—	$	—		37,958,645	$	(2,570	)	$	(4,008	)	$	(6,578	)
Common unit awards under incentive plans		—		—		301,826		277			—			277
Net loss		—		—		—		(22,300	)		(234	)		(22,534	)
March 31, 2019		—	$	—		38,260,471	$	(24,593	)	$	(4,242	)	$	(28,835	)
	.
Three Months Ended June 30, 2019
March 31, 2019		—	$	—		38,260,471	$	(24,593	)	$	(4,242	)	$	(28,835	)
Common unit awards under incentive plans		—		—		1,273,376		2,287			2			2,289
Issuance of Series A convertible preferred units, net of issuance		52,083,333		57,500		—		—			—			57,500
Net loss		—		—		—		(34,041	)		(357	)		(34,398	)
June 30, 2019		52,083,333	$	57,500		39,533,847	$	(56,347	)	$	(4,597	)	$	(3,444	)

	Redeemable Convertible Preferred Unit				Partners’ Earnings (Deficit)
	Series A
	Number of Outstanding Preferred Units		Value of Outstanding Preferred Units		Outstanding Common Units		Common Limited Partners			General Partner			Total
Three Months Ended March 31, 2018
December 31, 2017		—	$	—		37,957,936	$	94,655		$	(2,959	)	$	91,696
Cumulative effect of accounting change		—		—		—		(27,805	)		(292	)		(28,097	)
January 1, 2018		—	$	—		37,957,936	$	66,850		$	(3,251	)	$	63,599
Common unit awards under incentive plans		—		—		709		158			—			158
Net loss		—		—		—		(17,736	)		(187	)		(17,923	)
March 31, 2018		—	$	—		37,958,645	$	49,272		$	(3,438	)	$	45,834

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

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

Table of Contents

STONEMOR PARTNERS L.P.

~~CONDENSED CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL (UNAUDITED)~~

~~(dollars in thousands)~~

   Partners’ Capital
   Outstanding
Common Units    Common
Limited Partners General Partner Total
December 31, 2017
   37,957,936    $ 94,655 $ (2,959 ) $ 91,696
Cumulative effect of accounting change
      (27,805 ) (292 ) (28,097 )
Common unit awards under incentive plans
   709    1,913 —   1,913
Net loss
   —      (34,576 ) (364 ) (34,940 )




June 30, 2018
   37,958,645    $ 34,187 $ (3,615 ) $ 30,572

~~See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.~~

~~STONEMOR PARTNERS L.P.~~

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)


	Six Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2019			2018
Cash Flows From Operating Activities:
Net loss	$	(34,940	)	$	(20,143	)	$	(56,932	)	$	(34,940	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Cost of lots sold		3,489			5,661			3,718			3,489
Depreciation and amortization		6,116			6,846			5,473			6,116
Provision for bad debt		1,644			2,682			4,219			1,644
Non-cash compensation expense		1,913			488			2,566			1,913
Loss on debt extinguishment								8,478			—
Non-cash interest expense		3,215			2,195			6,684			3,215
Non-cash impairment charge and other losses		5,205			872
Other losses, net								3,433			5,205
Changes in assets and liabilities:
Accounts receivable, net of allowance		1,195			(4,946	)		(8,611	)		1,195
Merchandise trust fund		(4,181	)		43,915			(9,482	)		(4,181	)
Other assets		(1,395	)		(3,125	)		(4,522	)		(1,395	)
Deferred selling and obtaining costs		(4,184	)		(6,287	)		(1,165	)		(4,184	)
Deferred revenues, net		33,599			(17,633	)
Deferred revenues								15,126			33,599
Deferred taxes, net		(2,649	)		944			6,227			(2,649	)
Payables and other liabilities		6,377			4,031			(6,784	)		6,377

Net cash provided by operating activities		15,404			15,500

Net cash (used in) provided by operating activities								(31,572	)		15,404
Cash Flows From Investing Activities:
Cash paid for capital expenditures		(7,626	)		(3,311	)		(4,838	)		(7,626	)
Cash paid for acquisitions		(833	)		—			—			(833	)
Proceeds from divestitures		—			451			1,250			—
Proceeds from asset sales		—			401

Net cash used in investing activities		(8,459	)		(2,459	)		(3,588	)		(8,459	)

Cash Flows From Financing Activities:
Cash distributions		—			(24,545	)
Proceeds from issuance of redeemable convertible preferred units, net								57,500			—
Proceeds from borrowings		16,880			62,792			406,087			16,880
Repayments of debt		(12,896	)		(56,256	)		(366,470	)		(12,896	)
Principal payment on finance leases								(713	)		—
Cost of financing activities		(2,771	)		(776	)		(17,437	)		(2,771	)

Net cash provided by (used in) financing activities		1,213			(18,785	)

Net increase (decrease) in cash and cash equivalents		8,158			(5,744	)
Cash and cash equivalents—Beginning of period		6,821			12,570

Cash and cash equivalents—End of period	$	14,979		$	6,826

Net cash provided by financing activities								78,967			1,213
Net increase in cash, cash equivalents and restricted cash								43,807			8,158
Cash, cash equivalents and restricted cash—Beginning of period								18,147			6,821
Cash, cash equivalents and restricted cash—End of period							$	61,954		$	14,979
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	12,865		$	11,118		$	16,981		$	12,865
Cash paid during the period for income taxes	$	709		$	2,630			1,402			709
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases							$	1,858		$	—
Operating cash flows from finance leases								238			—
Financing cash flows from finance leases								713			—
Non-cash investing and financing activities:
Acquisition of assets by financing	$	688		$	1,384		$	1,731		$	688
Classification of assets as held for sale	$	543		$	1,169			(408	)		543

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

Table of Contents

STONEMOR PARTNERS L.P.

NOTES TO ~~CONDENSED~~ CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

GENERAL

~~June 30, 2018~~

~~1. GENERAL~~

Nature of Operations

StoneMor Partners L.P. (the ~~“Partnership”~~"Partnership") is a provider of funeral and cemetery products and services in the death care industry in the United States. As of June 30, ~~2018,~~2019, the Partnership operated ~~322~~321 cemeteries in 27 states and Puerto Rico, of which 291 were owned and 3130 were operated under lease, management or operating agreements. The Partnership also owned and operated 9290 funeral homes, including 4442 located on the grounds of cemetery properties that the Partnership owns, in 17 states and Puerto Rico. As a percentage of revenue and assets, the Partnership’s major operations consist of its cemetery operations.

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

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

Basis of Presentation

The accompanying condensed consolidated financial statements, which are unaudited except for the balance sheet at December 31, ~~2017,~~2018 which has been ~~derived from~~ audited, ~~financial statements,~~ have been prepared in accordance with the requirements of the Quarterly Report on Form10-Q and accounting principles generally accepted in the United States (“GAAP”) for interim reporting. They do not include all disclosures normally made in financial statements contained in the Annual Reports on Form10-K. In management’s opinion, all adjustments necessary for a fair presentation of the Partnership’s financial position, results of operations and cash flows for the periods disclosed have been made. These interim unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and the related notes thereto presented in the Partnership’s Annual Report on Form10-K for the year ended December 31, ~~2017.~~2018. The results of operations for the three ~~and six~~ months ended June 30, ~~2018~~2019 may not necessarily be indicative of the results of operations for the full year ended December 31, ~~2018.~~2019.

Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of each of the Partnership’s 100% owned subsidiaries. These statements also include the accounts of the merchandise and perpetual care trusts in which the Partnership has a variable interest and is the primary beneficiary. The Partnership operates 3130 cemeteries under long-term ~~lease,~~leases, operating oragreements and management ~~contracts.~~agreements. The operations of 16 of these managed cemeteries have been ~~consolidated.~~consolidated. On May 10, 2019, the Partnership terminated one of the management agreements and recorded a $2.1 million loss upon the termination, which is included in Other losses, net in the accompanying unaudited condensed consolidated statements of operations for the three and six months ended June 30, 2019.

The Partnership operates 1514 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 ~~contracts,~~agreements, the Partnership will retain all of the benefits and related contractual obligations incurred from sales generated during the ~~contract~~agreement period. The Partnership has also recognized the existing customer ~~contract related~~contract-related performance obligations that it assumed as part of these agreements.

~~Reclassifications~~7

Table of Contents

Recapitalization Transactions

Series A Preferred Offering

On June 27, 2019, funds and ~~Adjustments~~accounts affiliated with Axar Capital, a related party and the largest holder of the Partnership’s outstanding common units of record, and certain other investors (individually a “Purchaser” and collectively the “Purchasers”) and the Partnership entered into the Series A Preferred Unit Purchase Agreement (the “Series A Purchase Agreement” and the transactions contemplated thereby, the “Preferred Offering”) pursuant to ~~Prior Period Financial Statements~~

~~Certain reclassifications have been made to prior period amounts to conform~~which the Partnership sold to the ~~current period financial statement presentation,~~Purchasers an aggregate of 52,083,333 of the Partnership’s Series A Preferred Units (the “preferred units”) representing limited partner interests in the ~~consolidated results of operations, primarily to present interment~~Partnership with certain rights, ~~separately from merchandise revenues~~preferences and ~~to reclassify items that were previously recorded in Merchandise Revenues that represented the installation of certain merchandise items which~~privileges as are ~~now presented in Services. There was no effect on the previously reported consolidated results of operations, consolidated financial position or cash flows, except as described below under “~~~~Recently Issued Accounting Standard Updates—Adopted~~set forth in the ~~Current Period.~~”

Partnership’s Third Amended and Restated Agreement of Limited Partnership dated as of June 27, 2019 (the “Third Amended Partnership Agreement”). The purchase price for the preferred units sold pursuant to the Series A Purchase Agreement was $1.1040 per preferred unit, reflecting an 8% discount to the liquidation preference of each preferred unit, for an aggregate purchase price of $57.5 million.

Senior Secured Notes

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

Proposed C-Corporation Conversion

On September 27, 2018, StoneMor GP LLC (the “general partner”) and the Partnership publicly announced a plan to convert from a master limited partnership structure to a more traditional C-Corporation structure. Accordingly, the general partner and the Partnership entered into a Merger and Reorganization Agreement (as amended to date, the “Merger Agreement”) with StoneMor GP Holdings and Hans Merger Sub, LLC, a Delaware limited liability company and wholly-owned subsidiary of the general partner, providing for a series of transactions and resulting in (i) the general partner converting into a Delaware corporation to be named “StoneMor Inc.,” and (ii) Hans Merger Sub merging with and into the Partnership (the “Merger”) with the Partnership surviving and with StoneMor Inc. as its sole general partner, in each case, pursuant to the terms of the Merger Agreement (collectively, the “C-Corporation Conversion”). At the consummation of the Merger, which is anticipated by the end of the first quarter of 2020, the general partner will complete its transition to a new publicly traded Delaware corporation, StoneMor Inc.

Uses and Sources of Liquidity

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

working capital deficits through available cash, including the remaining balance of the proceeds from the sale of the Senior Secured Notes, cash generated from operations ~~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~~"Summary of Significant Accounting ~~Policies”~~Policies" section below regarding revenue recognition), which will reduce the amount of additional borrowings or asset sales needed; and

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

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While the Partnership relies heavily on its available cash and cash flows from operating activities ~~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 be 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~~The Partnership has experienced negative financial trends, including use of cash in operating activities, which, when considered in the aggregate, raise substantial doubt about the Partnership’s ability to continue as a going concern. These negative financial trends include:

the Partnership has continued to incur net losses for the six months ended June 30, 2019 and has an accumulated deficit and negative cash flow from operating activities as of June 30, 2019, due to an increased competitive environment, increased expenses due to the proposed C-Corporation Conversion and increases in professional fees and compliance costs; and

•

net losses from operations 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 of the Accounting Standard Codification (“ASC”) 606,~~Revenue from Contracts with Customers~~~~incurred in the year ended December 31, 2017 and the three and six months ended June 30, 2018;~~

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

the Partnership’s failure to comply with certain debt covenants required by the Partnership’s credit facility due to the Partnership’s inability to complete a timely filing of our Annual Reports on Form~~10-K~~ ~~and Quarterly Reports on Form10-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,During 2018 and ~~December 31, 2018 and not being able to achieve~~2019, 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 9, these failures constituted defaults that the Partnership’s lenders agreed to waive.

~~During 2017 and to date in 2018, 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:

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

continue to manage recurring operating expenses and seek to limitnon-recurring operating expenses over the next twelve-month ~~period, which includes the January 2019 Researching Actions as further discussed in Note 17 Subsequent Events;~~period; and

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

for the reasons disclosed above, the Partnership was not in compliance with certain of its amended credit facility covenants as of December 31, 2017, March 31, 2018, June 30, 2018, September 30, 2018 and December 31, 2018. These failures constituted defaults that the lenders agreed to waive pursuant to the Sixth Amendment and Waiver, the Seventh Amendment and Waiver and the Eighth Amendment and Waiver to the Partnership’s credit facility on June 12, 2018, July 13, 2018 and February 4, 2019, respectively, as disclosed in the credit facility subsection in Note 9 Long-Term Debt and in Note 17 Subsequent Events. Moreover, basedBased on the ~~Partnership’s~~Partnership's forecasted operating performance, planned actions to improve profitability, cash flows and projected plans to file financial statements on a timely basis consistent with the debt covenants, the Partnership does not believe it is probable that the Partnership will ~~further~~ breach the covenants under ~~its amended credit facility~~the Indenture for the next twelve-month period. However, there is no certainty that the ~~Partnership’s~~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~~the Indenture in the ~~future.~~future and such amendments will be granted. Factors that could impact the significant assumptions used by the Partnership in assessing its ability to satisfy its financial covenants include the following:

operating performance not meeting reasonably expected forecasts;

failing to generate profitable sales;

investments in the ~~Partnership’s~~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~~Partnership's markets;

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

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

If the ~~Partnership’s~~Partnership's planned, implemented and not yet implemented actions are not completed or implemented and cash savings are not realized, ~~and~~or 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 Indenture, the Partnership may be forced to limit its business activities, limit its ability to implement further modifications to its operations ~~further~~or limit the effectiveness of some actions that are included in its forecasts, amend its ~~credit facility~~Indenture and/or seek other sources of capital, and the Partnership may be unable to continue as a going concern. Additionally, a failure to generate additional liquidity could negatively impact the ~~Partnership’s~~Partnership's access to inventory or services that are important to the operation of the ~~Partnership’s~~Partnership's business. Given the ~~Partnership’s~~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~~Indenture effectively prohibits the Partnership from making distributions to unitholders. Any of these events may have a material adverse effect on the ~~Partnership’s~~Partnership's results of operations and financial condition. The ability of the Partnership to continue as a going concern is dependent upon achieving the action plans noted above. The unaudited condensed consolidated financial statements ~~included~~for the three and six months ended June 30, 2019 were prepared on the basis of a going concern, which contemplates that the

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Partnership will be able to realize assets and discharge liabilities in ~~this Quarterly Report on Form10-Q~~the normal course of business. Accordingly, they do not ~~include~~give effect to adjustments, if any, ~~adjustments~~ that ~~might result from~~would be necessary should the ~~outcome of these uncertainties.~~

Partnership be required to liquidate its assets.

Summary of Significant Accounting Policies

Refer to Note 1 to the Partnership’s audited consolidated financial statements included in Item 8 of its Annual Report on Form10-K for the year ended December 31, ~~2017~~ 2018, which was filed with Securities and Exchange Commission ("SEC") on April 3, 2019, for the complete summary of significant accounting policies.

~~As of June 30, 2018, with the exception of the items noted in the section captioned “~~~~Recently Issued Accounting Standard Updates—Adopted in the Current Period”~~~~below, there have been no significant changes to the Partnership’s accounting policies as disclosed in the Annual Report on Form10-K~~ ~~for the year ended December 31, 2017.~~

Use of Estimates

The preparation of the Partnership’s unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions as described in its Annual Report on Form10-K for the year ended December 31, ~~2017.~~2018. These estimates and assumptions may affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. As a result, actual results could differ from those estimates.

~~Revenues~~

~~A. Significant Accounting Policy~~Cash and Cash Equivalents

The Partnership considers all highly liquid investments purchased with an original maturity of three months or less from the time they are acquired to be cash equivalents. Cash and Cash Equivalents was $41.9 million and $18.1 million as of June 30, 2019 and December 31, 2018, respectively.

Restricted Cash

Cash that is restricted from withdrawal or use under the terms of certain contractual agreement is recorded as restricted cash. Restricted cash was $20.1 million as of June 30, 2019, related to cash collateralization of letters of credit that were existing under the Partnership’s retired credit facilities and that were issued to secure the Partnership’s credit card program. There was no restricted cash as of December 31, 2018.

Revenues

The Partnership's revenues are derived from contracts with customers through sale and delivery of death care products and services. Primary sources of revenue are derived from (1) cemetery and funeral home operations generated both at the time of death(“at-need”) and prior to the time of death(“pre-need”), which are classified on the ~~Statements~~unaudited condensed consolidated statements of ~~Operations~~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~~that are required to be maintained in the trust by state law ~~as well as~~and (3) interest earned onpre-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. 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.~~Deferred Revenues

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

Accounts Receivable, Net of Allowance

The Partnership ~~fulfills~~sells pre-need cemetery contracts whereby the ~~performance obligations. Earnings on these trust funds, which~~customer enters into arrangements for future merchandise and services prior to the time of need. These sales are ~~specifically identifiable for each performance obligation, are also included in total transaction price.Pre-need~~usually made using interest-bearing installment contracts ~~are generally subject to financing arrangements on an installment basis, with a contractual term~~ not to exceed 60

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months. The interest income is recorded as revenue when the interest amount is considered realizable and collectible, which typically coincides with cash payment. Interest income is not recognized ~~utilizing~~until payments are collected in accordance with 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.

contract. At the time of a~~non-cancellablepre-need~~ 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.~~paid, net of an estimated allowance for customer cancellations. The ~~revenue~~Partnership recognizes an allowance for cancellation of these receivables based upon its historical experience, which is recorded as a reduction in accounts receivable and a corresponding offset to deferred revenues. The Partnership recognizes an allowance for cancellation of receivables related to recognized contracts as an offset to revenue. Management evaluates customer receivables for impairment based upon its historical experience, including the age of the receivables and the customers’ payment histories

Leases

The Partnership leases a variety of assets throughout its organization, such as office space, funeral homes, warehouses and equipment. The Partnership has both operating and finance leases. The Partnership’s operating leases primarily include office space, funeral homes and equipment. The Partnership’s finance leases primarily consist of vehicles and certain IT equipment. The Partnership determines whether an arrangement is or contains a lease at the inception of the arrangement based on the facts and circumstances in each contract. Leases with an initial term of 12 months or less are not recorded on the balance sheet and the Partnership recognizes lease expense for these leases on a straight-line basis over the lease term. For lease agreements with an initial term in excess of 12 months, the Partnership records the lease liability and Right of Use (“ROU”) asset at commencement date based upon the present value of the sum of the remaining minimum rental payments, which exclude executory costs. Certain adjustments to the ROU asset may be required for items such as initial direct costs paid or incentives received.

Certain leases provide the Partnership with the option to renew for additional periods, with renewal terms that can extend the lease term for periods ranging from ~~both~~1 to 30 years. Where leases contain escalation clauses, rent abatements and/or concessions, the ~~sales~~Partnership applies them in the determination of lease expense. The exercise of lease renewal options is at the Partnership’s sole discretion, 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~~Partnership is only ~~recorded to~~including the ~~extent control has transferred to~~renewal option in the ~~customer for interment rights, merchandise or services for which~~lease term when the Partnership ~~has not collected cash. The amounts collected from customers in states in whichpre-need~~ ~~contracts are cancellable may~~can 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.

~~B. Nature of Goods and Services~~

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 15 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.; concrete lining for the bottom of the burial plot), 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 resourcesreasonably certain 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. Forpre-construction~~ ~~mausoleum contracts,~~ the Partnership will ~~only recognize revenue once~~exercise the ~~property is constructed and the customer has obtained substantially all~~additional options.

As most of the ~~remaining benefits~~Partnership’s leases do not provide an implicit rate, the Partnership uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The Partnership evaluates the term of the ~~property. Sales taxes collected are recognized on a net basis in our condensed consolidated financial statements.~~

~~Merchandise revenue~~lease, type of asset 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~~its weighted average cost of ~~goods sold related~~capital 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 aredetermine its incremental borrowing rate used to ~~determine~~measure the ~~cost per lot.~~

~~Funeral Home Operations~~

~~Our Funeral Home Operations segment principally generates revenue from (1) sales of funeral home merchandise which includes caskets~~ROU asset 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 prayer services (“Services”)lease liability. 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 generates 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 that are incremental to obtainingpre-need~~ ~~cemetery and funeral contracts.~~calculates operating lease expense ratably over the lease term plus any reasonably assured renewal periods. The Partnership ~~calculates~~considers reasonably assured renewal options, fixed escalation provisions and residual value guarantees in its calculation. Leasehold improvements are amortized over the ~~deferred selling costs~~shorter of the lease term or asset ~~by dividing total incremental expenses by total deferrable revenues~~life, which may include renewal periods where the renewal is reasonably assured, and ~~multiplying such percentage~~are included in the determination of straight-line rent expense. The depreciable life of assets and leasehold improvements are generally limited by the ~~periodic change~~expected lease term.

The Partnership’s leases also typically have lease and non-lease components, which are generally accounted for separately and not included in ~~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 June 30, 2018, we had $112.0 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~~measurement of the ~~delivery of the merchandise or performance of the services as they are generally provided at the time of need. During the three~~ROU asset and ~~six months ended June 30, 2018, the Partnership recognized $2.3 million and $4.2 million, respectively from deferred incremental direct selling costs.~~lease liability.

~~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 carry forwards.

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.

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 primary driver of the change in the income tax provision for the three and six months ended June 30, 2018 related to the reduction of tax rates and the benefit related to 2018 net operating loss carryovers which have an unlimited carry forward life and can be used to offset long life deferred tax liabilities.

Net Loss per Common Unit

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

The Partnership presents net loss per unit under thetwo-class method for ~~master limited partnerships,~~MLP, which considers whether the incentive distributions of ~~a master limited partnership~~an MLP represent a participating security when considered in the calculation of earnings per unit under thetwo-class method. Thetwo-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

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earnings in excess of available cash should not be allocated to the incentive distribution rights. Under thetwo-class method, management ~~of the Partnership~~ believes the partnership agreement contractually limits cash distributions to available cash; therefore, undistributed earnings in excess of available cash are not allocated to the incentive distribution rights.

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


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Net loss	$	(17,017	)	$	(11,582	)	$	(34,940	)	$	(20,143	)	$	(34,398	)	$	(17,017	)	$	(56,932	)	$	(34,940	)
Less: Incentive distribution right (“IDR”) payments to general partner		—			—			—			—			—			—			—			—

Net loss to allocate to general and common limited partners		(17,017	)		(11,582	)		(34,940	)		(20,143	)
Net loss to allocate to general and limited partners														(34,398	)		(17,017	)		(56,932	)		(34,940	)
General partner’s interest excluding IDRs		(177	)		(121	)		(364	)		(210	)		(357	)		(177	)		(592	)		(364	)

Net loss attributable to common limited partners	$	(16,840	)	$	(11,461	)	$	(34,576	)	$	(19,933	)	$	(34,041	)	$	(16,840	)	$	(56,340	)	$	(34,576	)

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

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Weighted average number of common limited partner units—basic		39,329		37,958		39,115		37,958
Plus effect of dilutive incentive awards⁽¹⁾		—		—		—		—
Weighted average number of common limited partner units—diluted		39,329		37,958		39,115		37,958

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Weighted average number of common limited partner units—basic and diluted⁽¹⁾
37,959 37,957 37,959 37,938

⁽¹⁾

~~The~~For the three and six months ended June 30, 2019, the diluted weighted average number of limited ~~partners’~~partner units outstanding presented on the unaudited condensed consolidated statement of operations does not include 201,995 and 203,433 units, respectively, as their effects would be anti-dilutive. In addition, all outstanding Preferred Units are exempt for purposes of calculating the diluted weighted average number of common limited partner units, as their conversion is not based on meeting a contingency derived from the Partnership’s unit price. The Preferred Units are convertible upon the completion of the Rights Offering, which is anticipated to occur early in the fourth quarter of 2019. For the three and six months ended June 30, 2018, the diluted weighted average number of limited partner units outstanding presented on the unaudited condensed consolidated statement of operations does not include 560,839 units, ~~and 334,942 units for the three months ended June 30, 2018 and 2017, respectively, and 560,839 units and 328,914 units for the six months ended June 30, 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~~

Leases

The Partnership adopted Accounting Standards Update (“ASU”) No. 2016-02, ~~2014-09,~~~~Revenue from Contracts with Customers~~Leases (Topic ~~606)~~~~. ASUNo. 2014-09~~842) ~~outlines a single comprehensive model for companies to use in accounting for revenue arising from contracts with customers~~(“ASU 2016-02”), and ~~supersedes most current revenue recognition guidance, including industry-specific guidance. In addition, these updates enhance~~subsequently-issued related ASUs, using 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~~modified retrospective approach, 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 for those periods. 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 nonrefundableup-front~~ ~~fees and (b) incremental costs to acquirepre-need~~ ~~andat-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 cancellablepre-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.~~

~~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
   Balance as of
December 31, 2017    Impact of Adoption
of FASB ASC 606    Balance as of
January 1, 2018
Assets

Current Assets:

Cash and cash equivalents
   $ 6,821    $ —      $ 6,821
Accounts receivable, net of allowance
   79,116    (6,122 )    72,994
Prepaid expenses
   4,580    —      4,580
Assets held for sale
   1,016    —      1,016
Other current assets
   21,453    —      21,453






Total current assets
   112,986    (6,122 )    106,864
Long-term accounts receivable—net of allowance
   105,935    (6,527 )    99,408
Cemetery property
   333,404    (2,020 )    331,384
Property and equipment, net of accumulated depreciation
   114,090    —      114,090
Merchandise trusts, restricted, at fair value
   515,456    —      515,456
Perpetual care trusts, restricted, at fair value
   339,928    —      339,928
Deferred selling and obtaining costs
   126,398    (18,557 )    107,841
Deferred tax assets
   84    7    91
Goodwill
   24,862    —      24,862
Intangible assets
   63,244    —      63,244
Other assets
   19,695    —      19,695






Total assets
   $ 1,756,082    $ (33,219 )    $ 1,722,863






Liabilities and partners’ capital

Current liabilities

Accounts payable and accrued liabilities
   $ 43,023    $ 1,329    $ 44,352
Accrued interest
   1,781    —      1,781
Current portion, long-term debt
   1,002    —      1,002






Total current liabilities
   45,806    1,329    47,135
Long-term debt, net of deferred financing costs
   317,693    —      317,693
Deferred revenues, net
   912,626    (9,558 )    903,068
Deferred tax liabilities
   9,638    (367 )    9,271
Perpetual care trust corpus
   339,928    —      339,928
Other long term liabilities
   38,695    3,474    42,169






Total liabilities
   1,664,386    (5,122 )    1,659,264






Partners’ capital

General partner
   (2,959 )    (292 )    (3,251 )
Common partner
   94,655    (27,805 )    66,850






Total partners’ equity
   91,696    (28,097 )    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 three and six months ended June 30, 2018 is as follows:

   Three Months Ended June 30, 2018 Six Months Ended June 30, 2018
Statement of Operations
   As Reported
Under FASB
ASC 606 Balances if
Reported Under
FASB ASC 605 Impact of
Adoption As Reported
Under FASB
ASC 606 Balances if
Reported Under
FASB ASC 605 Impact of
Adoption
Revenues:

Cemetery:

Interments
   $ 20,789 $ 18,568 $ 2,221 $ 40,414 $ 35,679 $ 4,735
Merchandise
   17,116 16,568 548 33,743 32,236 1,507
Services
   17,737 17,212 525 34,228 32,806 1,422
Investment and other
   12,038 15,162 (3,124 ) 21,538 27,635 (6,097 )
Funeral home:

Merchandise
   6,522 6,424 98 13,951 13,843 108
Services
   7,369 7,396 (27 ) 15,642 15,866 (224 )


Total revenues
   81,571 81,330 241 159,516 158,065 1,451


Costs and Expenses:

Cost of goods sold
   $ 13,086 $ 13,200 $ (114 ) $ 26,521 $ 26,959 $ (438 )
Cemetery expenses
   21,007 21,007 —   38,421 38,421 —
Selling expense
   17,166 16,092 1,074 33,422 31,103 2,319
General and administrative expense
   10,163 10,163 —   21,121 21,121 —
Corporate overhead
   15,165 15,165 —   26,992 26,992 —
Depreciation and amortization
   3,071 3,071 —   6,116 6,116 —
Funeral home expenses:

Merchandise
   1,108 1,108 —   3,586 3,586 —
Services
   5,582 5,588 (6 ) 11,100 11,124 (24 )
Other
   3,961 3,961 —   9,001 9,001 —


Total costs and expenses
   90,309 89,355 954 176,280 174,423 1,857


Other losses
   —   —   —   (5,205 ) (5,205 ) —
Interest expense
   (8,107 ) (8,107 ) —   (15,220 ) (15,220 ) —


Loss before income taxes
   (16,845 ) (16,132 ) (713 ) (37,189 ) (36,783 ) (406 )
Income tax benefit (expense)
   (172 ) (204 ) 32 2,249 2,172 77


Net loss
   $ (17,017 ) $ (16,336 ) $ (681 ) $ (34,940 ) $ (34,611 ) $ (329 )

The impact of the adoption on the June 30, 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, as net loss of $(0.7) million and $(0.3) million, for the three and six months ended June 30, 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 issuedUpdate No. 2016-01,~~ ~~Financial Instruments (Subtopic~~ ~~825-10)~~ ~~(“ASU 2016-01”). The~~ ~~core principle ofASU 2016-01 is~~ that all equity investments should be measured at fair value with changes in the fair value recognized through net 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 UpdateNo. 2018-03,~~ ~~Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic825-10):~~ ~~Recognition and Measurement of Financial Assets and Financial Liabilities~~~~(“ASU2018-03”).~~ ~~The amendments clarify certain aspects of the guidance in Update2016-01.~~ ~~The adoption ofASU 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 issuedUpdate No. 2016-15,~~ ~~Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments~~ ~~(“ASU 2016-15”). The~~ ~~core principle ofASU 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 issuedUpdate No. 2016-18,~~ ~~Statement of Cash Flows (Topic 230): Restricted Cash~~ ~~(“ASU 2016-18”). The~~ ~~core principle of ASU2016-18 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 issuedUpdate 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 UpdateNo. 2018-05,~~~~Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No.~~ ~~118~~~~(“ASU2018-05”).~~ ~~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 ASU2018-05~~ ~~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~~

~~Leases~~

~~In the first quarter of 2016, the FASB issued UpdateNo. 2016-02,~~~~Leases (Topic 842)~~ ~~(“ASU2016-02”).~~2019. The core principle of ASU2016-02 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~~

Table of Contents

ASU 2016-02 provides for certain practical expedients when adopting the guidance. The Partnership elected the package of practical expedients allowing the Partnership ~~on January 1, 2019.~~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 ~~is in~~did not apply the ~~process of reviewing its existing leases and has selected a software solution.~~

Inhindsight practical expedient. The Partnership applied the ~~first quarter of 2018, the FASB issued UpdateNo. 2018-01,~~~~Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842~~~~(“ASU2018-01”).~~ ~~The amendments in this update provide an optional transition~~land easements practical expedient allowing the Partnership to not ~~evaluate under Topic 842~~assess whether any expired or existing ~~or expired~~ land easements ~~that~~are or contain leases, if they were not previously accounted for as leases under ~~Topic 840,~~~~Leases.~~~~An entity that elects~~ the ~~practical expedient must evaluate new~~existing leasing guidance. Instead, the Partnership will continue to apply its existing accounting policies to historical land easements. The Partnership elected to apply the short-term lease exception; therefore, the Partnership did not record a ROU asset or ~~modified land easements under Topic 842 beginning at~~corresponding lease liability for leases with a term of twelve months or less and instead recognized a single lease cost allocated over the ~~date that the entity adopts Topic 842. An entity that does~~lease term, generally on a straight-line basis. The Partnership is separating lease components from non-lease components, as it did not elect ~~this~~the applicable practical ~~expedient must evaluate all existing or expired land easements~~expedient. The Partnership has excluded maintenance, taxes and insurance costs from the calculation of the initial lease liability in the transition. Non-lease components are accounted for separately from the lease, recorded as maintenance, taxes and insurance and expensed as incurred.

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

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

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

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

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

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

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

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

Stock Compensation

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

Presentation

In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements on the analysis of partners’ deficit for interim financial statements. Under the amendments, an analysis of changes in each caption of shareholders’ equity presented in the balance sheet must be provided in a note or separate statement. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive income is required to be filed. The final rule was effective on November 5, 2018; as such, the Partnership used the new ~~lease requirements in Topic 842 to assess whether they meet the definition~~presentation of a ~~lease. The amendments~~condensed consolidated statement of Partners' deficit within its interim financial statements in this ~~Update affect the amendments in Update2016-02,~~ ~~which are not yet effective but may be early adopted. The effective date and transition requirements~~Quarterly Report on Form 10-Q for the ~~amendments are the same as the effective date and transition requirements in Update2016-02.~~ ~~An entity that early adopted Topic 842 should apply the amendments in this Update upon issuance. The Partnership is in the process~~six months ended June 30, 2019.

Table of reviewing its existing leases and has selected a software solution. The Partnership is still evaluating the impact of adoption on its consolidated financial position, results of operations and related disclosures.Contents

~~In July 2018, the FASB issued UpdateNo. 2018-10~~~~Codification Improvements to Topic 842, Leases~~ ~~(“ASU2018-10”)~~ ~~and issued UpdateNo. 2018-11~~~~Leases (Topic 842) Targeted Improvements~~ ~~(“ASU2018-11”).~~ ~~ASU2018-10~~ ~~provides certain amendments that affect narrow aspects of the guidance issued in ASU2016-02.~~ ~~ASU2018-11~~ ~~provides companies an option to apply the transition provisions of ASU2016-02~~ 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.~~

Recently Issued Accounting Standard Updates - Not Yet Effective

Credit Losses

In ~~the second quarter of~~June 2016, ~~the~~ FASB issued ~~Update~~ASU No. 2016-13,Credit Losses (Topic 326) (“ ("ASU~~2016-13”~~ 2016-13"). The core principle of ASU2016-13 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~~In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses (“ASU 2018-09”), which clarified that receivables arising from operating leases are not within the scope of Accounting Standards Codification (“ASC”) 326-20, Financial Instruments-Credit Losses-Measured at Amortized Cost, and should be accounted for in accordance with ASC 842. In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments (“ASU 2019-04”), which include clarifications to the amendments issued in ASU 2016-13. In May 2019, the FASB issued ASU No. 2019-05, Financial Instruments-Credit Losses (Topic 326), which provides entities that have certain instruments within the scope of ASC 326-20 with an option to irrevocably elect the fair value option in ASC 825, Financial Instruments, upon adoption of ASU 2016-13. Each of these amendments are effective for ~~annual reporting periods~~fiscal years beginning after December 15, ~~2019, including interim periods within those fiscal years.~~2019. Early application is permitted. The Partnership plans to adopt the requirements of ~~ASU2016-13~~these amendments upon ~~its~~their effective date of January 1, 2020, using the modified-retrospective method, and is evaluating the potential impact of the adoption ~~if any,~~ on its ~~consolidated~~ financial position, results of operations and related disclosures.

~~2. ACQUISITIONS~~Variable Interest Entities

~~On January 19,~~In October 2018, the ~~Partnership acquired six cemetery properties~~FASB issued ASU No. 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities (“ASU 2018-17”). The core principle of ASU 2018-17 is that indirect interests held through related parties in ~~Wisconsin~~common control arrangements should be considered on a proportional basis for determining whether fees paid to decision makers and ~~their related assets, net of certain assumed liabilities,~~service providers are variable interests. ASU 2018-17 is effective 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.~~fiscal years beginning after December 15, 2019. The Partnership ~~has accounted for~~plans to adopt the ~~purchase~~requirements of these ~~properties,~~amendments upon their effective date of January 1, 2020 retrospectively and is evaluating the potential impact of the adoption on its financial position, results of operations and related disclosures.

Fair Value Measurement

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). This standard removed, modified and added disclosure requirements from ASC 820, Fair Value Measurements. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019. The Partnership does not expect the adoption of this standard to have a significant impact on its consolidated financial statements, as this standard primarily addresses disclosure requirements for Level 3 fair value measurements. Currently, the Partnership’s only Level 3 fair value instruments are its assets held for sale, which ~~were~~do not represent a material ~~individually or in the aggregate under the acquisition method of accounting.~~

amount on its consolidated balance sheets.

3. 2.IMPAIRMENT & OTHER LOSSES

~~Merchandise is sold to bothat-need~~ ~~andpre-need~~ ~~customers. Merchandise allocated to servicepre-need~~ ~~contractual obligations is~~Impairment of Long-Lived Assets

The Partnership recorded at cost and managed and stored by the Partnership until the Partnership services the underlying customer contract. Merchandise stored at certain locations may exposed to changes in weather conditions. Primarilyan impairment of cemetery property due to ~~weather related deterioration over a number of years,~~circumstances that indicated the assets’ carrying value may not be recovered. The Partnership recorded ~~inventory~~a $1.3 million impairment ~~charges of approximately $1.9 million during the first quarter of 2018. This impairment loss related to damaged and excess inventory and is~~charge included in ~~cost of goods sold for the six months ended June 30, 2018~~Other losses, net in the accompanying ~~consolidated statements of operations as this merchandise was utilized to fulfill the Partnership’s contractual obligations toat-need~~ ~~andpre-need~~ ~~customers.~~

~~Due to enhanced inventory control procedures implemented in late 2018, the Partnership determined that certain merchandise inventory allocated topre-need~~ customers has 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 first quarter of 2018, the Partnership recorded an estimated impairment loss of approximately $5.0 million related to this damaged and unusable merchandise. The impairment loss is included in other losses in the accompanyingunaudited condensed consolidated statement of operations for the six months ended June 30, ~~2018. While~~2019, as the sum of future undiscounted cash flows were less than the carrying value of the assets.

Termination of Management Agreement

The Partnership operates certain of its cemeteries under long-term leases, operating agreements and management agreements. On May 10, 2019, the Partnership ~~is still in the process of evaluating the complete magnitude~~terminated one of the ~~impairment~~management agreements and recorded a $2.1 million loss, related to allocated merchandise inventory, 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. The Partnership continues to evaluate the remaining $5.0 million of merchandise inventory allocated to~~pre-need~~ ~~customers~~which is included in ~~other assets as~~Other losses, net on the unaudited condensed consolidated statement of operations for the six months ended June 30, ~~2018. It is possible that as a result~~2019.

Table of changes in estimates or assumptions and the continued evaluation there could be further impairment. As this impairment likely originated in prior periods, the Company assessed the materiality of this correction to prior periods financial statements in accordance with SEC Staff Accounting Bulletin No. (SAB) 99, ~~Materiality~~~~, and SAB 108,~~~~Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in the Current Year Financial Statements,~~and concluded that the corrections were not material to prior periods or the current period, either individually or in the aggregate, and therefore, amendments of previously filed reports were not required.Contents

~~4. ACCOUNTS RECEIVABLE, NET OF ALLOWANCE~~

3.	ACCOUNTS RECEIVABLE, NET OF ALLOWANCE

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

							June 30, 2019			December 31, 2018
	June 30, 2018			December 31, 2017
Customer receivables⁽¹⁾	$	187,002		$	225,380
Unearned finance income⁽¹⁾		(19,442	)		(20,534	)
Allowance for bad debt⁽¹⁾		(5,302	)		(19,795	)

Customer receivables							$	166,970		$	167,017
Unearned finance income								(17,343	)		(17,000	)
Allowance for bad debt								(6,302	)		(4,941	)
Accounts receivable, net of allowance		162,258			185,051			143,325			145,076
Less: Current portion, net of allowance		66,837			79,116			59,550			57,928

Long-term portion, net of allowance	$	95,421		$	105,935		$	83,775		$	87,148

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

   Six Months Ended June 30,
   2018    2017
Balance, beginning of period⁽¹⁾
   $ 19,795    $ 26,153
Cumulative effect of accounting changes
   (12,876 )    —
Provision for bad debt⁽¹⁾
   1,644    2,682
Charge offs, net⁽¹⁾
   (3,261 )    (1,445 )




Balance, end of period
   $ 5,302    $ 27,390

	June 30, 2019			December 31, 2018
Balance, beginning of period	$	4,941		$	19,795
Cumulative effect of accounting changes		—			(12,876	)
Provision for bad debt		4,219			7,358
Charge-offs, net		(2,858	)		(9,336	)
Balance, end of period	$	6,302		$	4,941

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

⁽¹⁾

~~Upon adoption of ASC 606, the Partnership reclassified amounts due from customers for unfulfilled performance obligations on cancellablepre-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.CEMETERY PROPERTY


5.~~CEMETERY PROPERTY~~

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


	June 30, 2018		December 31, 2017 ⁽¹⁾		June 30, 2019		December 31, 2018
Cemetery land	$	258,252	$	256,856	$	256,052	$	255,708
Mausoleum crypts and lawn crypts		76,785		76,548		73,708		75,133

Cemetery property	$	335,037	$	333,404	$	329,760	$	330,841

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

⁽¹⁾

~~The information at December 31, 2017 has not been adjusted for the impact of the Partnership’s adoption of ASC 606 on January 1, 2018.~~


6. PROPERTY AND EQUIPMENT

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


	June 30, 2018			December 31, 2017			June 30, 2019			December 31, 2018
Buildings and improvements	$	128,248		$	125,337		$	131,769		$	129,971
Furniture and equipment		57,582			57,514			59,891			58,706
Funeral home land		14,185			14,185			14,355			14,185

Property and equipment, gross		200,015			197,036			206,015			202,862
Less: Accumulated depreciation		(86,786	)		(82,946	)		(95,360	)		(90,146	)

Property and equipment, net of accumulated depreciation	$	113,229		$	114,090		$	110,655		$	112,716

Table of Contents

Depreciation expense was ~~$2.6~~$2.4 million and ~~$2.7~~$2.6 million for the three months ended June 30, 2019 and 2018, respectively, and ~~2017, respectively,~~$4.8 million and $5.2 ~~million and $5.6~~ million for the six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, respectively.

6.
7. MERCHANDISE TRUSTS

At June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the Partnership’s merchandise trusts consisted of investments in debt and equity marketable securities and cash equivalents, both directly ~~as well as~~and through mutual and investment funds.

All of these investments are carried at fair value. All of ~~the~~these investments are subject to the fair value hierarchy ~~are~~and considered either Level 1 or Level 2 assets pursuant to the three-level hierarchy described in Note ~~13.~~13 Fair Value of Financial Instruments. There were no Level 3 assets.

~~As discussed in Note 1, when we receive payments~~ When the Partnership receives a payment from a pre-need customer, the ~~customer, we deposit~~Partnership deposits the amount required by law into the merchandise trusts that may be subject to cancellation on demand by ~~our~~the pre-need customer. The Partnership’s merchandise trusts related to states in which pre-need customers may cancel contracts with ~~us comprise 53.1%~~the Partnership comprises 53.6% of the total merchandise trust as of June 30, ~~2018.~~

2019. The merchandise trusts are variable interest entities (“VIE”) of which the Partnership is deemed the primary beneficiary. The assets held in the merchandise trusts are required to be used to purchase the merchandise and provide the services to which they relate. If the value of these assets falls below the cost of purchasing such merchandise and providing such services, the Partnership may be required to fund this shortfall.

The Partnership included ~~$8.9~~$9.3 million and ~~$9.1~~$8.7 million of investments held in trust as required by law by the West Virginia Funeral Directors Association at June 30, ~~2018~~2019 and December 31, ~~2017,~~2018 respectively, in its merchandise trust assets. ~~As required by law, the Partnership deposits a portion of certain funeral merchandise sales in West Virginia into a trust that is held by the West Virginia Funeral Directors Association.~~ These trusts are recognized at their account value, which approximates fair value.

A reconciliation of the Partnership’s merchandise trust activities for the six months ended June 30, ~~2018~~2019 and ~~2017~~2018 is presented below (in thousands):

							Six months ended June 30,
	Six Months Ended June 30,						2019			2018
	2018			2017
Balance, beginning of period	$	515,456		$	507,079
Balance—beginning of period							$	488,248		$	515,456
Contributions		31,510			29,579			27,075			31,510
Distributions		(33,658	)		(45,134	)		(30,938	)		(33,658	)
Interest and dividends		13,261			12,600			15,479			13,261
Capital gain distributions		79			365			168			79
Realized gains and losses		(941	)		14,570
Realized gains and losses, net								593			(941	)
Other than temporary impairment		(11,154	)		—			(2,314	)		(11,154	)
Taxes		(355	)		(1,358	)		(716	)		(355	)
Fees		(2,014	)		(1,628	)		(1,978	)		(2,014	)
Unrealized change in fair value		(332	)		(3,650	)		23,765			(332	)

Balance, end of period	$	511,852		$	512,423

Balance—end of period							$	519,382		$	511,852

During the six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, purchases of ~~investments~~available for sale securities were approximately $29.1 million and $44.5 million, respectively. During the six months ended June 30, 2019 and ~~$269.2 million, respectively, while~~2018, sales, maturities and paydowns of ~~investments~~available for sale securities were ~~$35.7~~approximately $19.9 million and ~~$285.1~~$35.7 million, respectively. Cash flowsfrom pre-need ~~customer~~ contracts are presented as operating cash flows in the ~~Partnerships~~Partnership’s unaudited condensed consolidated statement of cash flows.

Table of Contents

The cost and market value associated with the assets held in the merchandise trusts as of June 30, ~~2018~~2019 and December 31, ~~2017~~2018 were as follows (in thousands):


June 30, 2018	Fair Value Hierarchy Level	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
June 30, 2019											Fair Value Hierarchy Level	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Short-term investments	1	$	11,188	$	—	$	—		$	11,188	1	$	16,211	$	—	$	—		$	16,211
Fixed maturities:
U.S. governmental securities	2		348		—		(138	)		210	2		525		7		(132	)		400
Corporate debt securities	2		1,482		48		(416	)		1,114	2		867		16		(154	)		729

Total fixed maturities			1,830		48		(554	)		1,324			1,392		23		(286	)		1,129

Mutual funds—debt securities	1		215,986		64		(5,219	)		210,831	1		179,111		6,508		(17	)		185,602
Mutual funds—equity securities	1		62,924		1,559		—			64,483	1		47,149		6,448		—			53,597
Other investment funds⁽¹⁾			181,472		151		(656	)		180,967			229,256		2,326		(2,083	)		229,499
Equity securities	1		22,806		3,192		(195	)		25,803	1		13,708		1,900		(88	)		15,520
Other invested assets	2		8,395		—		—			8,395	2		8,502		—		—			8,502

Total investments		$	504,601	$	5,014	$	(6,624	)	$	502,991		$	495,329	$	17,205	$	(2,474	)	$	510,060

West Virginia Trust Receivable			8,861							8,861			9,322		—		—			9,322

Total		$	513,462	$	5,014	$	(6,624	)	$	511,852		$	504,651	$	17,205	$	(2,474	)	$	519,382

⁽¹⁾

Other investment funds are measured at fair value using the net asset value per share practical expedient and have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the balance sheet. This asset class is composed of fixed income funds and equity funds, which have redemption periods ranging from 1 to 30 days, and private credit funds, which have lockup periods of one to seven years with three potential one year extensions at the discretion of the funds’ general partners. As of June 30, 2019, there were $51.1 million in unfunded investment commitments to the private credit funds, which are callable at any time.

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

⁽¹⁾

Other investment funds are measured at fair value using the net asset value per share practical expedient and have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the balance sheet. This asset class is composed of fixed income funds and equity funds, which have redemption periods ranging from 1 to 30 days, and private credit funds, which have lockup periods of two to ~~eight~~seven years with three potential~~one-year~~ one year extensions at the discretion of the funds’ general partners. As of ~~June 30,~~December 31, 2018, there were ~~$93.2~~$71.0 million in unfunded investment commitments to the private credit funds, which are callable at any ~~time and would be funded by assets of the trusts.~~time.

Table of Contents

December 31, 2017
   Fair Value
Hierarchy Level    Cost    Gross
Unrealized
Gains    Gross
Unrealized
Losses Fair
Value
Short-term investments
   1    $ 10,421    $ —      $ —   $ 10,421
Fixed maturities:

U.S. governmental securities
   2    196    1    (65 ) 132
Corporate debt securities
   2    1,204    52    (242 ) 1,014






Total fixed maturities
      1,400    53    (307 ) 1,146






Mutual funds—debt securities
   1    222,450    1,522    (1,211 ) 222,761
Mutual funds—equity securities
   1    71,500    2,399    (6,292 ) 67,607
Other investment funds⁽¹⁾
      171,044    522    (401 ) 171,165
Equity securities
   1    21,808    2,715    (277 ) 24,246
Other invested assets
   2    9,013    —      —   9,013






Total investments
      $ 507,636    $ 7,211    (8,488 ) $ 506,359






West Virginia Trust Receivable
      9,097    —      —   9,097






Total
      $ 516,733    $ 7,211    $ (8,488 ) $ 515,456

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

June 30, 2019	Less than 1 year		1 year through 5 years		6 years through 10 years		More than 10 years
U.S. governmental securities	$	112	$	30	$	243	$	15
Corporate debt securities		85		606		38		—
Total fixed maturities	$	197	$	636	$	281	$	15

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

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

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

	Less than 12 months				12 months or more				Total
June 30, 2019	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Fixed maturities:
U.S. governmental securities	$	—	$	—	$	604	$	132	$	604	$	132
Corporate debt securities		85		9		706		145		791		154
Total fixed maturities		85		9		1,310		277		1,395		286
Mutual funds—debt securities		149		5		174		12		323		17
Mutual funds—equity securities		7		—		—				7		-
Other investment funds		94,501		2,083		—		—		94,501		2,083
Equity securities		2,043		88		-		—		2,043		88
Other invested assets		—	.			—		—		—		-
Total	$	96,785	$	2,185	$	1,484	$	289	$	98,269	$	2,474

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

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

Table of Contents

Other-Than-Temporary Impairment of Trust Assets

The Partnership assesses its merchandise trust assets for other-than-temporary declines in fair value on a quarterly basis. During the six months ended June 30, 2019, the Partnership determined, based on its review, that there were 89 securities with an aggregate cost basis of approximately $91.9 million and an aggregate fair value of approximately $89.6 million, resulting in an impairment of $2.3 million, with such impairment considered to be other-than-temporary due to credit indicators. During the six months ended June 30, 2018, the Partnership determined, based on its review, that there were 94 securities with an aggregate cost basis of approximately $165.8 million and an aggregate fair value of approximately $154.6 million, resulting in an impairment of $11.2 million, with such impairment considered to be other-than-temporary due to credit indicators. Accordingly, the Partnership adjusted the cost basis of these assets to their current value and offset these changes against deferred merchandise trust revenue. These adjustments to deferred revenue will be reflected within the Partnership’s unaudited condensed consolidated statements of operations in future periods as the underlying merchandise is delivered or the underlying service is performed. During the three months ended June 30, 2019 and 2018, the Partnership determined that there were no other than temporary impairments to the investment portfolio in the merchandise trusts.

7.	PERPETUAL CARE TRUSTS

At June 30, 2019 and December 31, 2018, the Partnership’s perpetual care trusts consisted of investments in debt and equity marketable securities and cash equivalents, both directly as well as through mutual and investment funds.

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

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

	Six months ended June 30,
	2019			2018
Balance—beginning of period	$	330,562		$	339,928
Contributions		3,668			7,442
Distributions		(12,461	)		(9,314	)
Interest and dividends		10,480			12,097
Capital gain distributions		250			173
Realized gains and losses, net		1,019			(323	)
Other than temporary impairment		(713	)		(6,834	)
Taxes		(555	)		(242	)
Fees		(1,574	)		(3,293	)
Unrealized change in fair value		12,632			730
Balance—end of period	$	343,308		$	340,364

During the six months ended June 30, 2019 and 2018, purchases of available for sale securities were approximately $37.2 million and $22.5 million, respectively. During the six months ended June 30, 2019 and 2018, sales, maturities and paydowns of available for sale securities were approximately $25.9 million and $19.1 million, respectively. Cash flows from perpetual care trust related contracts are presented as operating cash flows in Partnership’s unaudited condensed consolidated statements of cash flows.

Table of Contents

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

June 30, 2019	Fair Value Hierarchy Level	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Short-term investments	1	$	6,564	$	—	$	—		$	6,564
Fixed maturities:
U.S. governmental securities	2		1,117		35		(89	)		1,063
Corporate debt securities	2		2,022		17		(221	)		1,818
Total fixed maturities			3,139		52		(310	)		2,881
Mutual funds—debt securities	1		106,095		3,673		(15	)		109,753
Mutual funds—equity securities	1		16,894		2,483		(24	)		19,353
Other investment funds⁽¹⁾			184,121		7,597		(4,313	)		187,405
Equity securities	1		15,436		2,001		(104	)		17,333
Other invested assets	2		19		—		—			19
Total investments		$	332,268	$	15,806	$	(4,766	)	$	343,308

⁽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 ~~periods~~period ranging from 1 to 9030 days, and private credit funds, which have lockup periods ~~of four~~ranging from one to ~~eight~~seven years with ~~two~~three potential~~one-year~~ one year extensions at the discretion of the funds’ general partners. As of ~~December 31, 2017,~~June 30, 2019 there were ~~$52.1~~$71.3 million in unfunded investment commitments to the private credit funds, which are callable at any ~~time and would be funded by assets of the trusts.~~time.

~~The contractual maturities of debt securities as of June 30, 2018 were as follows (in thousands):~~


	Less than 1 year		1 year through 5 years		6 years through 10 years		More than 10 years
December 31, 2018									Fair Value Hierarchy Level	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Short-term investments									1	$	12,835	$	—	$	—		$	12,835
Fixed maturities:
U.S. governmental securities	$	—	$	127	$	84	$	—	2		960		4		(121	)		843
Corporate debt securities		25		969		101		17	2		4,883		161		(321	)		4,723

Total fixed maturities	$	25	$	1,096	$	185	$	17			5,843		165		(442	)		5,566

Mutual funds—debt securities									1		108,451		227		(837	)		107,841
Mutual funds—equity securities									1		19,660		304		(142	)		19,822
Other investment funds⁽¹⁾											165,284		3,039		(4,607	)		163,716
Equity securities									1		20,025		826		(145	)		20,706
Other invested assets									2		56		20		—			76
Total investments										$	332,154	$	4,581	$	(6,173	)	$	330,562

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

An aging of unrealized losses on the Partnership’s investments in debt and equity securities within the merchandise trusts as of June 30, 2018 and December 31, 2017 is presented below (in thousands):

   Less than 12 months    12 months or more    Total
June 30, 2018
   Fair
Value    Unrealized
Losses    Fair
Value    Unrealized
Losses    Fair
Value    Unrealized
Losses
Fixed maturities:

U.S. governmental securities
   $ —      $ —      $ 208    $ 138    $ 208    $ 138
Corporate debt securities
   158    52    578    364    736    416












Total fixed maturities
   158    52    786    502    944    554












Mutual funds—debt securities
   145,498    4,731    874    488    146,372    5,219
Mutual funds—equity securities
   —      —      —      —      —      —
Other investment funds
   72,875    572    6,079    84    78,954    656
Equity securities
   —      —      858    195    858    195












Total
   $ 218,531    $ 5,355    $ 8,597    $ 1,269    $ 227,128    $ 6,624












   Less than 12 months    12 months or more    Total
December 31, 2017
   Fair
Value    Unrealized
Losses    Fair
Value    Unrealized
Losses    Fair
Value    Unrealized
Losses
Fixed maturities:

U.S. governmental securities
   $ —      $ —      $ 112    $ 65    $ 112    $ 65
Corporate debt securities
   150    50    361    192    511    242












Total fixed maturities
   150    50    473    257    623    307












Mutual funds—debt securities
   102,526    912    1,462    299    103,988    1,211
Mutual funds—equity securities
   51,196    6,292    —      —      51,196    6,292
Other investment funds
   48,140    401    —      —      48,140    401
Equity securities
   2,906    255    390    22    3,296    277












Total
   $ 204,918    $ 7,910    $ 2,325    $ 578    $ 207,243    $ 8,488

~~Other-Than-Temporary Impairment of Trust Assets~~

The Partnership assesses its merchandise trust assets for other-than-temporary declines in fair value on a quarterly basis. During the six months ended June 30, 2018, the Partnership determined, based on its review, that there were 94 securities with an aggregate cost basis of approximately $165.8 million and an aggregate fair value of approximately $154.6 million, resulting in an impairment of $11.2 million, with such impairment considered to be other-than-temporary due to credit indicators. Accordingly, the Partnership adjusted the cost basis of these assets to their current value and offset this change against deferred merchandise trust revenue. During the three months ended June 30, 2018 and 2017 and the six months ended June 30, 2017, the Partnership determined that there were no other than temporary impairments to the investment portfolio in the merchandise trusts.

~~8. PERPETUAL CARE TRUSTS~~

At June 30, 2018 and December 31, 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 13. There were no Level 3 assets. The perpetual care trusts are VIEs of which the Partnership is deemed the primary beneficiary.

~~A reconciliation of the Partnership’s perpetual care trust activities for the six months ended June 30, 2018 and 2017 is presented below (in thousands):~~

   Six Months Ended June 30,
   2018    2017
Balance, beginning of period
   $ 339,928    $ 333,780
Contributions
   7,442    4,214
Distributions
   (9,314 )    (8,056 )
Interest and dividends
   12,097    7,816
Capital gain distributions
   173    240
Realized gains and losses
   (323 )    1,439
Other than temporary impairment
   (6,834 )    —
Taxes
   (242 )    (430 )
Fees
   (3,293 )    (602 )
Unrealized change in fair value
   730    (717 )




Balance, end of period
   $ 340,364    $ 337,684

During the six months ended June 30, 2018 and 2017, purchases of investments were $22.5 million and $74.8 million, respectively, while sales, maturities and paydowns of investments were $19.1 million and $64 million, respectively. Cash flows from perpetual care trust related contracts are presented as operating cash flows in our condensed consolidated statement of cash flows.

~~The cost and market value associated with the assets held in the perpetual care trusts as of June 30, 2018 and December 31, 2017 were as follows (in thousands):~~

June 30, 2018
   Fair Value
Hierarchy Level    Cost    Gross
Unrealized
Gains    Gross
Unrealized
Losses Fair
Value
Short-term investments
   1    $ 10,393    $ —      $ —   $ 10,393
Fixed maturities:

U.S. governmental securities
   2    918    4    (117 ) 805
Corporate debt securities
   2    4,845    195    (57 ) 4,983






Total fixed maturities
      5,763    199    (174 ) 5,788






Mutual funds—debt securities
   1    130,225    145    (1,788 ) 128,582
Mutual funds—equity securities
   1    29,677    1,803    (364 ) 31,116
Other investment funds⁽¹⁾
      138,473    2,811    (353 ) 140,931
Equity securities
   1    21,731    1,864    (74 ) 23,521
Other invested assets
   2    33    —      —   33






Total investments
      $ 336,295    $ 6,822    $ (2,753 ) $ 340,364

⁽¹⁾

Other investment funds are measured at fair value using the net asset value per share practical expedient and have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the balance sheet. This asset class is composed of fixed income funds and equity funds, which have a redemption period ranging from 1 to 30 days, and private credit funds, which have lockup periods ranging from two to eight years with three potential~~one-year~~ extensions at the discretion of the funds’ general partners. As of June 30, 2018, there were $120.6 million in unfunded commitments to the private credit funds, which are callable at any time and would be funded by assets of the trusts.

December 31, 2017
   Fair Value
Hierarchy Level    Cost    Gross
Unrealized
Gains    Gross
Unrealized
Losses Fair
Value
Short-term investments
   1    $ 9,456    $ —      $ —   $ 9,456
Fixed maturities:

U.S. governmental securities
   2    506    4    (46 ) 464
Corporate debt securities
   2    5,365    148    (191 ) 5,322






Total fixed maturities
      5,871    152    (237 ) 5,786






Mutual funds—debt securities
   1    141,511    1,974    (712 ) 142,773
Mutual funds—equity securities
   1    32,707    1,757    (1,771 ) 32,693
Other investment funds⁽¹⁾
      124,722    2,630    (533 ) 126,819
Equity securities
   1    22,076    1,648    (1,570 ) 22,154
Other invested assets
   2    247    —      —   247






Total investments
      $ 336,590    $ 8,161    $ (4,823 ) $ 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~~ one year extensions at the discretion of the funds’ general partners. As of December 31, ~~2017,~~2018 there were ~~$92.2~~$94.5 million in unfunded investment commitments to the private credit funds, which are callable at any ~~time and would be funded by assets of the trusts.~~time.

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


	Less than 1 year		1 year through 5 years		6 years through 10 years		More than 10 years
June 30, 2019									Less than 1 year		1 year through 5 years		6 years through 10 years		More than 10 years
U.S. governmental securities	$	—	$	404	$	366	$	34	$	60	$	70	$	812	$	121
Corporate debt securities		334		4,109		445		95		148		1,498		172		-

Total fixed maturities	$	334	$	4,513	$	811	$	129	$	208	$	1,568	$	984	$	121

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

Temporary Declines in Fair Value

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

An aging of unrealized losses on the Partnership’s investments in debt and equity securities within the perpetual care trusts as of June 30, ~~2018~~2019 and December 31, ~~2017~~2018 is presented below (in thousands):

													Less than 12 months				12 months or more				Total
	Less than 12 months				12 months or more				Total
June 30, 2018	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
June 30, 2019													Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Fixed maturities:
U.S. governmental securities	$	—	$	—	$	743	$	117	$	743	$	117	$	—	$	—	$	1,327	$	89	$	1,327	$	89
Corporate debt securities		557		22		1,140		35		1,697		57		66		43		2,631		178		2,697		221

Total fixed maturities		557		22		1,883		152		2,440		174		66		43		3,958		267		4,024		310

Mutual funds— debt securities		59,991		1,189		3,007		599		62,998		1,788
Mutual funds— equity securities		4,162		364		—		—		4,162		364
Mutual funds—debt securities														706		14		34		1		740		15
Mutual funds—equity securities														188		5		280		19		468		24
Other investment funds		47,158		345		578		8,000		47,736		353		60,385		4,313		—		—		60,385		4,313
Equity securities		184		18		540		56		724		74		2,485		104		-		-		2,485		104

Total	$	112,052	$	1,938	$	6,008	$	815	$	118,060	$	2,753	$	63,830	$	4,479	$	4,272	$	287	$	68,102	$	4,766


	Less than 12 months				12 months or more				Total
December 31, 2017	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Fixed maturities:
U.S. governmental securities	$	—	$	—	$	399	$	46	$	399	$	46
Corporate debt securities		994		20		2,271		171		3,265		191

Total fixed maturities		994		20		2,670		217		3,664		237

Mutual funds— debt securities		37,090		289		12,793		423		49,883		712
Mutual funds— equity securities		16,668		1,754		36		17		16,704		1,771
Other investment funds		42,606		533		—		—		42,606		533
Equity securities		9,516		1,510		112		60		9,628		1,570

Total	$	106,874	$	4,106	$	15,611	$	717	$	122,485	$	4,823

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

Other-Than-Temporary Impairment of Trust Assets

The Partnership assesses its perpetual care trust assets for other-than-temporary declines in fair value on a quarterly basis. During the six months ended June 30, 2019, the Partnership determined that there were 66 securities with an aggregate cost basis of approximately $29.2 million and an aggregate fair value of approximately $28.5 million, resulting in an impairment of $0.7 million, with such impairment considered to be other-than-temporary. During the six months ended June 30, 2018, the Partnership determined that there were 105 securities with an aggregate cost basis of approximately $118.0 million and an aggregate fair value of approximately $111.2 million, resulting in an impairment of $6.8 million, with such impairment considered to be other-than-temporary. Accordingly, the Partnership adjusted the cost basis of these assets to their current value ~~and~~with the offset ~~this change~~going against the liability for perpetual care trust corpus. During the three months ended June 30, ~~2018~~2019 and ~~2017 and six months ended June 30, 2017,~~2018, the Partnership determined that there were no other-than-temporary impairments to the investment portfolio in the perpetual care trusts.

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~~9. LONG-TERM DEBT~~
8.
LONG-TERM DEBT

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

							June 30, 2019			December 31, 2018
	June 30, 2018			December 31, 2017
9.875%/11.500% Senior Secured PIK Toggle Notes, due June 2024							$	371,547		$	-
7.875% Senior Notes, due June 2021								-			173,613
Credit facility	$	156,923		$	153,423			-			155,739
7.875% Senior Notes, due June 2021		173,350			173,098
Notes payable—acquisition debt		200			304			—			92
Notes payable—acquisitionnon-competes		388			378
Insurance and vehicle financing		2,067			1,280			964			1,294
Less deferred financing costs, net of accumulated amortization		(10,294	)		(9,788	)		(14,345	)		(9,692	)

Total debt		322,634			318,695			358,166			321,046
Less current maturities		(2,139	)		(1,002	)		(591	)		(798	)

Total long-term debt	$	320,495		$	317,693		$	357,575	��	$	320,248

~~Credit Facility~~

Senior Secured Notes

On ~~August 4, 2016, our 100% owned subsidiary,~~June 27, 2019, StoneMor ~~Operating LLC~~Partners L.P. (the ~~“Operating Company”~~“Partnership”), Cornerstone Family Services of West Virginia Subsidiary, Inc. (“Cornerstone” and, collectively with the Partnership, the “Issuers”), certain direct and indirect subsidiaries of the Partnership (the “Guarantors”), the initial purchasers party thereto (the “Initial Purchasers”) and Wilmington Trust, National Association, as trustee (in such capacity, the “Trustee”) and as collateral agent (in such capacity, the “Collateral Agent”) entered into ~~a Credit Agreement~~an indenture (the ~~“Original Credit Agreement”~~“Indenture”) ~~among each~~with respect to the 9.875%/11.500% Senior Secured PIK Toggle Notes due 2024.

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

The Issuers can elect to pay interest at either a fixed rate of 9.875% per annum in cash or, at their option through January 30, 2022, a fixed rate of 7.50% per annum in cash plus a fixed rate of 4.00% per annum payable in kind by increasing the principal amount of the Senior Secured Notes or by issuing additional Senior Secured Notes. The Senior Secured Notes will require cash interest payments at 9.875% for all interest periods after January 30, 2022. Interest is payable quarterly in arrears on the 30th day of each March, June, September and ~~Swingline Lender, Citizens Bank N.A., as Syndication Agent,~~December, commencing September 30, 2019. The Senior Secured Notes mature on June 30, 2024.

The Senior Secured Notes are senior secured obligations of the Issuers. The Issuers’ joint and ~~TD Bank, N.A.~~several obligations under the Senior Secured Notes and ~~Raymond James Bank, N.A., asCo-Documentation~~ ~~Agents.~~the Indenture are jointly and severally guaranteed (the “Note Guarantees”) by each subsidiary of the Partnership (other than Cornerstone) that the Partnership has caused or will cause to become a Guarantor pursuant to the terms of the Indenture. In addition, on the ~~same date,~~Issuers, the ~~Partnership,~~Guarantors and the ~~Borrowers and Capital One, as Administrative~~Collateral Agent entered into ~~the Guaranty and~~a Collateral Agreement (the ~~“Guaranty Agreement,” and together with the Credit Agreement, “New Agreements”~~“Collateral Agreement”). ~~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. We referPursuant to the Original Credit Agreement, as so amended, as the “Original Amended Agreement.” On June 12, 2018 and July 13, 2018, those parties also entered into a Sixth Amendment and Waiver to Credit Agreement and a Seventh Amendment and Waiver, to the Credit Agreement, respectively (collectively, the “2018 Amendments”). On February 4, 2019, the Partnership, the Borrowers, Capital One, as Administrative AgentIndenture and the ~~Lenders entered into an Eighth Amendment and Waiver to Credit~~Collateral Agreement, ~~(the “Eighth Amendment”). See Note 17 Subsequent Events for a detailed discussion of~~ the ~~changes to the Original Amended Agreement effected by the 2018 Amendments and the Eighth Amendment.~~

Prior to the 2018 Amendments, the Original Amended Agreement provided for up to $200.0 million initial aggregate amount of Revolving Commitments, which could have been increased, from time to time, in minimum increments of $5.0 million so long as the aggregate amount of such increases does not exceed $100.0 million. 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 June 30, 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 June 30, 2018, the outstanding amount of borrowings under the Original Amended Agreement was $156.9 million, which was used to pay down outstanding~~Issuers’ 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 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,Indenture and the ~~Loans comprising each Eurodollar Borrowing bear interest at the Eurodollar Rate plus the Applicable Rate.~~

~~Prior to the 2018 Amendments~~Senior Secured Notes and the Eighth Amendment, the Applicable Rate was determined based on the Consolidated Leverage Ratio of the Partnership and its Subsidiaries and ranged from 1.75% to 3.75% for Eurodollar Rate Loans, 0.75% to 2.75% for Base Rate Loans and between 0.30% and 0.50% for unused commitment fee. As of June 30, 2018, the Applicable Rate for Eurodollar Rate Loans was 3.75% and for Base Rate Loans was 2.75%. 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 June 30, 2018, the weighted average interest rate on outstanding borrowings under the Original Amended Agreement was 6.7%.

~~Prior to the 2018 Amendments and the Eighth Amendment, the Original Amended Agreement contained financial covenants, pursuant to which the Partnership will not permit:~~

the ratio of Consolidated Funded Indebtedness 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 June 30, 2018 through December 31, 2018, and 4:00 to 1:00 for periods thereafter, which could be increased after January 1, 2019 to 4:25 to 1:00 (in case of a Designated Acquisition made subsequent to the last day of the immediately preceding fiscal quarter) as of the last day of the fiscal quarter in which such Designated Acquisition occurs and as of the last day of the immediately succeeding fiscal quarter;

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 by the amount of maintenance and growth capital expenditures not financed with debt other than Revolving Commitments taxes and 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 1.20 to 1.00 for any Measurement Period.

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 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 AgreementGuarantors’ Note Guarantees are secured by a first priority lien and security interest (subject to permitted liens and security interests) in substantially all of the ~~Partnership’s~~Issuers’ and ~~Borrowers’~~the Guarantors’ assets, whether ~~then~~now owned or ~~thereafter~~hereafter acquired, excluding certain ~~excluded~~ assets which include, among others: ~~(i) Trust Accounts, certain proceeds~~(a) trust and other fiduciary accounts and amounts required ~~by law~~ to be ~~placed into such Trust Accounts~~deposited or held therein and ~~funds held in such Trust Accounts; and (ii) Excluded Real Property, including~~(b) unless encumbered by a mortgage existing on the date of the Indenture, owned and leased real property that (i) may not be pledged as a matter of ~~law.~~law or without governmental approvals, (ii) is not operated or intended to be operated as a cemetery, crematory or funeral home or (iii) is the subject of specified immaterial leases.

The ~~Partnership was not~~Issuers may redeem the Senior Secured Notes at their option, in ~~compliance with the facility’s maximum Consolidated Leverage Ratio~~whole or in part, at any time for ~~the periods ended March 31, 2018 and December 31, 2017, which constituted defaults that the lenders agreed to waive pursuant~~a redemption price equal to the ~~Sixth Amendment~~principal balance thereof, accrued and ~~Waiver. In addition,~~unpaid interest thereon and, if applicable, a premium (the “Applicable Premium”) calculated as follows:

If redeemed before June 27, 2021, the ~~Partnership’s failure to timely file its 2017 Annual Report on Form10-K~~ ~~and its Quarterly Report on Form 10-Q for~~sum of 4% of 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, 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 and 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 17 in this Item 1. Financial Statements, for further detail regarding the extended filing deadlines for the Annual Report on Form~~10-K~~ ~~and our Quarterly Reports on Form10-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 so redeemed plus the excess of ~~7.875% Senior Notes due 2021 (the “Senior Notes”). The Partnership pays 7.875%~~(i) the interest ~~per annum~~that would have accrued on the principal amount of the redeemed Senior Secured Notes from the redemption date through June 27, 2021 assuming an interest rate of 11.500% per annum over (ii) the interest that would have accrued on the principal amount of the redeemed Senior Secured Notes from the redemption date through June 27,

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2021 at an interest rate equal to the then-applicable rate on United States Treasury securities for the period most nearly equaling that time period plus 0.50%;

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

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

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

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

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

All interest payable in ~~cash semi-annually~~connection with the redemption of any the Senior Secured Notes is payable in ~~arrears on June 1~~cash.

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

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

the Operating Cash Flow Amount for the six months ending December 131, 2019 to be less than $20.0 million;

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

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

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

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

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

The ~~net~~Indenture requires the Issuers and the Guarantors, as applicable, to comply with certain other covenants including, but not limited to, covenants that, subject to certain exceptions, limit the Issuers’ and the Guarantors’ ability to: (i) incur additional indebtedness; (ii) grant liens; (iii) engage in certain sale/leaseback, merger, consolidation or asset sale transactions; (iv) make

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

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

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

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

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

failure by the Issuers to ~~retire~~comply with any other agreement or covenant contained in the Indenture, the Collateral Agreement or any other Note Document that remains uncured for a ~~$150.0 million~~period of 15 days after the earlier of written notice and request for cure from the Trustee or holders of at least 25% of the aggregate principal amount of ~~10.25%~~the Senior Secured Notes;

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

the occurrence of a Change in Control;

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

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

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

At the option of holders holding a majority of the outstanding principal amount of the Senior Secured Notes (and automatically upon any default for failure to pay principal of the Senior Secured Notes when due ~~2017~~and payable or certain bankruptcy or insolvency proceedings involving an Issuer), the interest rate on the Senior Secured Notes will increase to 13.50% per annum, payable in cash.

Registration Rights Agreement

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

If the Issuers fail to comply with their obligations under the Notes Registration Rights Agreement, additional interest will accrue on the Notes at ~~97.832%~~a rate of ~~par resulting~~0.25% per annum (increasing by an additional 0.25% per annum with respect to each subsequent 90-day period that occurs after the date on which such default occurs, up to a maximum additional interest rate of 1.00%) from and including the date on which any such default shall occur to but excluding the earlier of (x) the date on which all such defaults have been cured and (y) the date on which the Notes are freely tradeable by persons other than affiliates of the Issuers pursuant to Rule 144 under the Securities Act.

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Deferred Financing Costs

In connection with the Tranche B revolving credit facility established in ~~gross proceeds of $171.2 million with an original issue discount of approximately $3.8 million. The~~February 2019, the Partnership incurred debt issuance costs and fees of approximately ~~$4.6 million. These~~$3.0 million during the three months ended March 31, 2019, which was being amortized over the life of the Tranche B revolving credit facility, using the effective interest method. In connection with the issuance of its Senior Secured Notes, the Partnership incurred debt issuance costs and fees ~~are~~of approximately $14.3 million, during the three months ended June 30, 2019, which have been deferred and are being amortized over the life of the Senior ~~Notes.~~Secured Notes, using the effective interest method.

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

9.	REDEEMABLE CONVERTIBLE PREFERRED UNITS AND PARTNERS’ DEFICIT

Redeemable Convertible Preferred Units

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

Pursuant to the Series A Purchase Agreement, the Partnership agreed to file a registration statement on ~~June 1, 2021.~~Form S-1 with the SEC as promptly as practicable to effect a $40.2 million rights offering of common units representing limited partnership interests in the Partnership (“Common Units”) to all holders of Common Units (other than the Purchasers, American Infrastructure Funds LP and their respective affiliates) with a purchase price of $1.20 per Common Unit (the “Rights Offering”), and agreed to use its reasonable best efforts to complete the Rights Offering within 100 days after the Closing Date. The proceeds from the Rights Offering will be used to redeem certain of the Preferred Units as described below.

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

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

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

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

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

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

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

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

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

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

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

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

The Partnership ~~may redeem~~offered and sold the ~~Senior Notes at any time,~~Purchased Units in ~~whole or~~reliance upon the exemption from the registration requirements of the Securities Act pursuant to Section 4(a)(2) thereof. The Partnership relied on this exemption from registration based in part on representations made by the Purchasers in the Series A Purchase Agreement.

Contingent Beneficial Conversion Feature

The Partnership accounts for potential beneficial conversion features under FASB ASC Topic 470-20, Debt – Debt with conversion and Other Options (“ASC 470-20”), which states that conversion terms of preferred units triggered by future events not controlled by the issuer shall be accounted for as contingent conversion options. Accordingly, the conversion feature of the Preferred Units is not considered an embedded derivative that requires bifurcation. The Partnership determined that its commitment in connection with the sale of the Preferred Units to use its best efforts to complete the Rights Offering is analogous to an initial public offering and considered to be a contingency outside the control of the holder. The guidance in ASC 470 states that a contingent beneficial conversion feature in an instrument shall not be recognized in earnings until the contingency is resolved. The beneficial conversion will be measured using the intrinsic value calculated at the ~~redemption prices (expressed as percentages~~date the contingency is resolved using the conversion price and trading value of the ~~principal amount) set forth below, together with accrued~~Partnership’s Common Units at the date the Preferred Units were issued. Accordingly, the Partnership will evaluate any discounts and ~~unpaid interest, if~~ any tobeneficial conversion features upon the ~~redemption date, if redeemed during the12-month~~ ~~period beginning June 1~~resolution of the ~~years indicated:~~

Year
   Percentage
2018
   101.969 %
2019 and thereafter
   100.000 %

~~Subject to certain exceptions,~~contingency. The Series A Preferred is convertible upon the ~~occurrence~~completion of ~~a Change of Control (as defined~~the Rights Offering, which is anticipated to occur early in the ~~Indenture), each holder~~fourth quarter of ~~the Senior Notes will have~~2019.

The Partnership has the right to ~~require~~redeem the ~~Partnership to purchase that holder’s Senior Notes for a cash price equal to 101%~~Series A Preferred from the net proceeds of the ~~principal amounts to be purchased, plus accrued and unpaid interest.~~

~~The Senior Notes are jointly and severally guaranteed by certain~~Rights Offering. Upon exercise of the ~~Partnership’s subsidiaries. The Indenture governing~~redemption right, any previously recognized accretion of deemed dividends will be reversed in the ~~Senior Notes contains covenants, including limitations~~period of redemption and reflected as income attributable to common unitholders in the Partnership’s ~~ability to incur certain additional indebtedness and liens, make certain dividends, distributions, redemptions or investments, enter into certain transactions~~consolidated statements of operations, along with ~~affiliates, make certain asset sales, and engage in certain mergers, consolidations or sales~~the related per unit amounts.

Table of ~~all or substantially all of the Partnership’s assets, among other items. As of June 30, 2018, the Partnership was in compliance with these covenants.~~Contents

~~10. DEFERRED REVENUES AND COSTS~~

10.	DEFERRED REVENUES AND COSTS

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

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

							June 30, 2019		December 31, 2018
	June 30, 2018			December 31, 2017
Deferred contract revenues ⁽¹⁾	$	832,476		$	808,549		$	829,082	$	830,602
Deferred merchandise trust investment income		102,293			105,354
Deferred merchandise trust revenue								100,329		92,718
Deferred merchandise trust unrealized gains (losses)		(1,610	)		(1,277	)		14,731		(9,034	)

Deferred revenues	$	933,159		$	912,626		$	944,142	$	914,286

Deferred selling and obtaining costs							$	112,916	$	112,660

⁽¹⁾	~~Upon the adoption of ASC 606, the Partnership eliminated the allowance for cancellation of these performance obligations.~~

~~The activity in deferred selling and obtaining costs was as follows (in thousands):~~

   June 30, 2018
Deferred selling and obtaining costs, beginning of period
   $ 126,398
Cumulative effect of accounting change
   (18,557 )
Change in deferred selling and obtaining costs
   4,184


Deferred selling and obtaining costs, end of period
   $ 112,025

For the three ~~months~~ and six months ended June 30, ~~2018,~~2019, the Partnership recognized ~~$20.3~~$18.4 million and ~~$40.0~~$41.0 million, respectively, of the ~~deferred revenue~~customer contract liabilities balance that existed at December 31, ~~2017,~~2018 as revenue. ~~Also during the three months and six months ended June 30, 2018, the Partnership recognized $2.3 million and $4.2 million, respectively, from deferred incremental direct selling costs.~~

The components of ~~Deferred revenues,~~the customer contract liabilities, net in the Partnership’s ~~unaudited Condensed Consolidated Balance Sheet~~consolidated balance sheets at June 30, ~~2018~~2019 and December 31, ~~2017~~2018 were as follows (in thousands):

   June 30, 2018 December 31, 2017
Deferred revenue
   $ 957,827 $ 912,626
Amounts due from customers for unfulfilled performance obligations on cancellablepre-need contracts⁽¹⁾
   (24,668 ) —


Deferred revenue, net
   $ 933,159 $ 912,626

	June 30, 2019			December 31, 2018

Customer contract liabilities	$	968,455		$	937,708
Amounts due from customers for unfulfilled performance obligations on cancellable pre-need contracts		(24,313	)		(23,422	)
Customer contract liabilities, net	$	944,142		$	914,286

⁽¹⁾	~~Prior to the adoption of “~~~~Revenue from Contracts with Customers”~~~~on January 1, 2018, amounts due from customers for unfulfilled performance obligations on cancellablepre-need~~ ~~contracts were included in “Accounts Receivable and Long-term accounts receivable, net of allowance.”~~

The Partnership expects to service 55% of its deferred revenue in the first 4-5 years and approximately 80% of its deferred revenue within 18 years. The Partnership cannot estimate the period when it expects its remaining performance obligations will be recognized, because certain performance obligations will only be satisfied at the time of death. ~~The Partnership expects to service 55% of its deferred revenue in the first4-5 years~~ ~~and approximately 80% of its deferred revenue within 18 years.~~

11. ~~LONG-TERM~~LONG-TERM INCENTIVE ~~AND RETIREMENT PLANS~~PLAN

On ~~March 19, 2018, an aggregate~~April 15, 2019, the Compensation and Nominating and Governance Committee (the “Committee”) of ~~236,234~~the Board approved the award of 1,015,047 phantom ~~units were awarded under the Partnership’s 2014 LTIP,~~unit awards consisting of ~~which an aggregate of 127,229 were~~494,421 phantom units subject to time-based vesting (“TVUs”) and ~~an aggregate of 109,005 were~~520,626 phantom units subject to performance-based ~~vesting.~~ vesting (“PVUs”) to certain members of the general partner’s senior management. The awards of phantom units were made under the Partnership’s Amended and Restated 2019 Long-Term Incentive Plan (“LTIP”).

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

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

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

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

Also on ~~March 19, 2018, 14,556~~April 15, 2019, an additional 275,000 restricted units were awarded to an officer of the ~~General Partner~~general partner pursuant to his employment agreement, which units vest in 24 equal ~~monthly~~quarterly installments over a four year period commencing ~~one~~July 15, 2019, the three month ~~after~~anniversary of the grant date.

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

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

12.COMMITMENTS AND CONTINGENCIES

Legal

The Partnership is currently subject to class or collective actions under the Securities Exchange Act of 1934 and for related state law claims that certain of ~~the Partnership’s~~our officers and directors breached their fiduciary duty to the Partnership and its unitholders. The Partnership could also become subject to additional claims and legal proceedings relating to the factual allegations made in these actions. While management cannot reasonably estimate the potential exposure in these matters at this time, if the Partnership does not prevail in any such proceedings, the Partnership could be required to pay substantial damages or settlement costs, subject to certain insurance coverages. Management has determined that, based on the status of the claims and legal proceedings against ~~the Partnership,~~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-06111~~ ~~pending~~16-cv-6111, filed on November 21, 2016, in the United States District Court for the Eastern District of ~~Pennsylvania, and filed on November 21, 2016.~~Pennsylvania. The plaintiffs in this case (as well as Klein v. StoneMor Partners, LP, et al., No.2:~~16-cv-06275,~~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’~~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~~On June 20, 2019, the ~~court~~Third Circuit affirmed the dismissal of plaintiffs’ case. On July 11, 2019, the plaintiffs filed a petition to ~~render a decision within90-120~~ ~~days of~~have the ~~argument, but there can be no assurance as to when~~appeal reheard by the ~~court will issue its ruling.~~entire Third Circuit; this petition is currently before the Third Circuit for decision.

Bunim v. Miller, et al., No.2:~~17-cv-00519-ER,~~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~~the officers and directors of the Partnership’s general partner aided and abetted in breaches of ~~StoneMor GP’s~~the general partner’s purported fiduciary duties by, among other things and in general, allegedly making misrepresentations through the use ofnon-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~~

Table 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 the resolution of the motion to dismiss filed in the Anderson case, provided that either party may terminate the stay on 30 days’ notice.

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distributions. The plaintiff also claims that these actions and misrepresentations give rise to causes of action for gross mismanagement, unjust enrichment, and (in connection with a purportedly misleading proxy statement filed in 2014) violations of Section 14(a) of the Securities Exchange Act of 1934. The derivative plaintiff seeks an award of damages, attorneys’ fees and costs in favor of the Partnership as nominal plaintiff, as well as general compliance and governance changes. This case has been stayed, by the agreement of the parties, pending final resolution of the motion to dismiss filed in the Anderson case, provided that either party may terminate the stay on 30 days' notice.

Muth v. StoneMor G.P. LLC, et al., December Term, 2016, No. ~~01196~~1196 and Binder v. StoneMor G.P. LLC, et al., January Term, 2017, No. ~~04872,~~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~~the officers and directors of the Partnership’s general partner aided and abetted in breaches of ~~StoneMor GP’s~~the general partner’s purported fiduciary duties by, among other things and in general, allegedly making misrepresentations through the use ofnon-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,~~the Partnership’s general partner, and other compliance and governance changes. These cases have been consolidated and stayed, by the agreement of the parties, pending ~~the~~final resolution of the motion to dismiss filed in the Anderson case, provided that either party may terminate the stay on 30 ~~days’~~days' notice.

The Philadelphia Regional Office of the ~~Securities and Exchange Commission,~~SEC, Enforcement Division, is continuing its investigation of the Partnership as to whether violations of federal securities laws have occurred. The investigation relates to, among other things, ~~the Partnership’s~~our prior restatements, financial statements, internal control over financial reporting, public disclosures, use ofnon-GAAP financial measures, matters pertaining to unitholder distributions and the sources of funds therefor and information relating to protection of ~~the Partnership’s~~our confidential information and ~~its~~our policies regarding insider trading. ~~The Partnership is~~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 ~~such~~ proceedings, individually or in the aggregate, to have a material adverse effect on its financial position, results of operations or cash flows. The Partnership carries insurance with coverage and coverage limits that it believes to be customary in the cemetery and funeral home industry. Although there can be no assurance that such insurance will be sufficient to protect the Partnership against all contingencies, management believes that the insurance protection is reasonable in view of the nature and scope of the operations.

Other

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

Lease Years 1-5 (May 28, 2014-May 31, 2019)		None
Lease Years~~1-5~~ ~~(May 28, 2014 - May~~ 6-20 (June 1, 2019-May 31, ~~2019)~~2034)	~~None~~	$1,000,000 per Lease Year
Lease Years~~6-20~~ 21-25 (June 1, ~~2019 - May~~2034-May 31, ~~2034)~~2039)	$~~1,000,000~~1,200,000 per Lease Year
Lease Years~~21-25~~ 26-35 (June 1, ~~2034 - May~~2039-May 31, ~~2039)~~2049)	$~~1,200,000~~1,500,000 per Lease Year
Lease Years~~26-35~~ 36-60 (June 1, ~~2039 - May 31, 2049)~~	~~$1,500,000 per Lease Year~~
~~Lease Years36-60~~ ~~(June 1, 2049 - May~~2049-May 31, 2074)	None

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

13.

LEASES

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

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

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

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

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

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

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

~~13.~~ As most of the Partnership’s leases do not provide an implicit rate, the Partnership uses its incremental borrowing rate, based on the information available at commencement date, in determining the present value of lease payments. The Partnership used the incremental borrowing rate on January 1, 2019 for operating leases that commenced prior to that date. The weighted average borrowing rates for operating and finance leases were 9.9% and 8.2%, respectively as of June 30, 2019.

The components of lease expense were as follows:

		Six months ended June 30, 2019
Lease cost	Classification
Operating lease costs	General and administrative expense	$	1,831
Finance lease costs
Amortization of leased assets	Depreciation and Amortization		640
Interest on lease liabilities	Interest expense		238
Variable lease costs	General and administrative expense		-
Short-term lease costs	General and administrative expense		-
Net Lease costs		$	2,709

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

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

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

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

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

Operating and finance lease payments include $3.5 million related to options to extend lease terms that are reasonably certain of being exercised and $2.0 million related to residual value guarantees. The weighted average remaining lease term for operating and finance leases was 7.4 years and 3.2 years, respectively as of June 30, 2019.

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

14.	FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

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

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

The carrying value of the Partnership’s current assets and current liabilities ~~and customer receivables~~ on its ~~condensed~~ consolidated balance sheets ~~are similar to cash basis financial instruments, and~~approximated or equaled their estimated fair ~~values approximate their carrying~~ values due to their short-term nature or imputed interest rates.

Recurring Fair Value Measurement

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

Where quoted prices are available in an active ~~markets,~~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, andtax-exempt status. These securities are classified as Level 2 investments pursuant to the fair value ~~measurement~~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 as of June 30, 2018 and December 31, 2017 consisted of its Senior Notes and outstanding borrowings under its revolving credit facility (see Note 9). The estimated fair values of the Partnership’s Senior Notes as of June 30, 2018 and December 31, 2017 were $174.2 million and $173.3 million, respectively, based on trades made on those dates, compared with the carrying amounts of $173.4 million and $173.1 million, respectively. As of June 30, 2018 and December 31, 2017, the carrying values of outstanding borrowings under the Partnership’s revolving credit facility (see Note 9), 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.Non-Recurring Fair Value Measurement

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

Other Financial Instruments

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

At June 30, 2019, the ~~application~~carrying value of ~~lower of cost or~~the Senior Secured Notes approximated their fair value ~~accounting~~due to the timing of the sale of the Senior Secured Notes on ~~assets held for sale. The lower of cost or~~June 27, 2019.

At December 31, 2018, the estimated fair value of ~~assets held for sale~~the Partnership’s Senior Notes was ~~$1.3~~$162.5 million, with an original net book value of $2.4 million prior to adjustments of $0.2 million for the six months ended June 30, 2018 and $0.9 million for the year ended December 31, 2017. Assets held for sale are valued at lower of cost or estimated fair value based on ~~broker comps and estimates at~~trades made on that date, compared with 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.~~carrying amount of $173.6 million.

15.	~~14.~~ SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION

The Partnership’s Senior Secured Notes are guaranteed by ~~StoneMor Operating LLC and its~~the Partnership’s 100% owned subsidiaries, other than theco-issuer, as described ~~below.~~in Note 8 Long-Term Debt. The guarantees are full, unconditional, joint and several. The Partnership, or the ~~“Parent”,~~"Parent," and its 100% owned subsidiary, Cornerstone Family Services of West Virginia Subsidiary Inc., are theco-issuers of the Senior Secured Notes. The Partnership’s unaudited condensed consolidated financial statements as of June 30, ~~2018~~2019 and December 31, ~~2017~~2018 and for the three and six months ended June 30, ~~2018~~2019 and ~~2017~~2018 include the accounts of cemeteries ~~owned by other entities but which the Partnership operates~~operated under long-term ~~lease,~~leases, operating oragreements and management agreements. For the purposes of this note, these entities are deemednon-guarantor subsidiaries, as they are not 100% owned by the Partnership. The Partnership’s unaudited condensed consolidated financial statements also contain merchandise and perpetual care trusts that are alsonon-guarantor subsidiaries for the purposes of this note.

Table of Contents

The financial information presented below reflects the Partnership’s standalone accounts, the combined accounts of the subsidiaryco-issuer, the combined accounts of the guarantor subsidiaries, the combined accounts of thenon-guarantor subsidiaries, the consolidating adjustments and eliminations and the Partnership’s consolidated accounts as of June 30, ~~2018~~2019 and December 31, ~~2017~~2018 and for the three and six months ended June 30, ~~2018~~2019 and ~~2017.~~2018. For the purpose of the following financial information, the Partnership’s investments in its subsidiaries and the guarantor subsidiaries’ investments in their respective subsidiaries are presented in accordance with the equity method of accounting (in thousands):

CONDENSED CONSOLIDATING BALANCE SHEETS (UNAUDITED)


June 30, 2018	Parent		Subsidiary Issuer			Guarantor Subsidiaries		Non- Guarantor Subsidiaries			Eliminations			Consolidated
June 30, 2019																Parent			Subsidiary Issuer			Guarantor Subsidiaries		Non- Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	—	$	—		$	12,828	$	2,151					$	14,979
Assets held for sale		—		—			1,343		—						1,343
Cash and cash equivalents, excluding restricted cash																$	—		$	—		$	40,329	$	1,530		$	—		$	41,859
Restricted cash																	—			—			20,095		—			—			20,095
Other current assets		—		4,090			73,287		16,570						93,947		—			3,774			70,794		11,155			—			85,723

Total current assets		—		4,090			87,458		18,721			—			110,269		—			3,774			131,218		12,685			—			147,677
Long-term accounts receivable		—		3,094			79,047		13,280						95,421		—			2,747			70,002		11,026			—			83,775
Cemetery and funeral home property and equipment		—		648			413,738		33,880						448,266		—			713			407,511		32,191			—			440,415
Merchandise trusts		—		—			—		511,852						511,852		—			—			—		519,382			—			519,382
Perpetual care trusts		—		—			—		340,364						340,364		—			—			—		343,308			—			343,308
Deferred selling and obtaining costs		—		5,487			88,175		18,363						112,025		—			5,553			89,673		17,690			—			112,916
Goodwill and intangible assets		—		—			26,021		61,183						87,204		—			—			24,443		57,296			—			81,739
Other assets		—		—			21,250		4,003						25,253		—			—			30,960		2,643			—			33,603
Investments in and amounts due from affiliates eliminated upon consolidation		98,921		36,694			556,788		—			(692,403	)		—		—			—			648,063		—			(648,063	)		—

Total assets	$	98,921	$	50,013		$	1,272,477	$	1,001,646		$	(692,403	)	$	1,730,654	$	—		$	12,787		$	1,401,870	$	996,221		$	(648,063	)	$	1,762,815

Liabilities and Partners’ Capital
Liabilities, Redeemable Convertible Preferred Units and Partners’ Capital (Deficit)
Current liabilities			$	72		$	54,529	$	1,376					$	55,977		—			173			54,551		1,242			—			55,966
Long-term debt, net of deferred financing costs		68,349		105,001			147,145		—						320,495		—			—			357,575		—			—			357,575
Deferred revenues				32,853			787,117		113,189						933,159		—			32,966			798,618		112,558			—			944,142
Perpetual care trust corpus							—		340,364						340,364		—			—			—		343,308			—			343,308
Other long-term liabilities							34,969		15,118						50,087		—			—			49,397		15,871			—			65,268
Due to affiliates							173,350		568,870			(742,220	)		—

Investments in and amounts due to affiliates eliminated upon consolidation																	3,444			224,749			—		570,605			(798,798	)		—
Total liabilities		68,349		137,926			1,197,110		1,038,917			(742,220	)		1,700,082		3,444			257,888			1,260,141		1,043,584			(798,798	)		1,766,259

Partners’ capital		30,572		(87,913	)		75,367		(37,271	)		49,817			30,572

Total liabilities and partners’ capital	$	98,921	$	50,013		$	1,272,477	$	1,001,646		$	(692,403	)	$	1,730,654

Redeemable convertible preferred units																	57,500			—			—		—			—			57,500
Partners’ capital (deficit)																	(60,944	)		(245,101	)		141,729		(47,363	)		150,735			(60,944	)
Total liabilities, redeemable convertible preferred units and partners’ capital (deficit)																$	—		$	12,787		$	1,401,870	$	996,221		$	(648,063	)	$	1,762,815

December 31, 2017⁽¹⁾
   Parent    Subsidiary
Issuer Guarantor
Subsidiaries    Non-
Guarantor
Subsidiaries Eliminations Consolidated
Assets

Current assets:

Cash and cash equivalents
   $ —      $ —   $ 4,216    $ 2,605 $ —   $ 6,821
Assets held for sale
      1,016    1,016
Other current assets
   —      3,882 83,901    17,366 —   105,149






Total current assets
   —      3,882 89,133    19,971 —   112,986
Long-term accounts receivable
   —      2,179 89,275    14,481 —   105,935
Cemetery and funeral home property and equipment
   —      738 411,936    34,820 —   447,494
Merchandise trusts
   —      —   —      515,456 —   515,456
Perpetual care trusts
   —      —   —      339,928 —   339,928
Deferred selling and obtaining costs
   —      6,171 98,639    21,588 —   126,398
Goodwill and intangible assets
   —      —   26,347    61,759 —   88,106
Other assets
   —      —   16,995    2,784 —   19,779
Investments in and amounts due from affiliates eliminated upon consolidation
   159,946    82,836 556,783    —   (799,565 ) —






Total assets
   $ 159,946    $ 95,806 $ 1,289,108    $ 1,010,787 $ (799,565 ) $ 1,756,082






Liabilities and Partners’ Capital

Current liabilities
   $ —      $ 72 $ 44,380    $ 1,354 $ —   $ 45,806
Long-term debt, net of deferred financing costs
   68,250    104,848 144,595    —   —   317,693
Deferred revenues
   —      33,469 773,516    105,641 —   912,626
Perpetual care trust corpus
   —      —   —      339,928 —   339,928
Other long-term liabilities
   —      —   34,149    14,184 —   48,333
Due to affiliates
   —      —   173,098    576,025 (749,123 ) —






Total liabilities
   68,250    138,389 1,169,738    1,037,132 (749,123 ) 1,664,386






Partners’ capital
   91,696    (42,583 ) 119,370    (26,345 ) (50,442 ) 91,696






Total liabilities and partners’ capital
   $ 159,946    $ 95,806 $ 1,289,108    $ 1,010,787 $ (799,565 ) $ 1,756,082

⁽¹⁾	~~The information at December 31, 2017 has not been adjusted for the impact of the Partnership’s adoption of ASC 606 on January 1, 2018.~~

Table of Contents

CONSOLIDATING BALANCE SHEET

December 31, 2018	Parent			Subsidiary Issuer			Guarantor Subsidiaries		Non- Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents, excluding restricted cash	$	—		$	—		$	16,298	$	1,849		$	—		$	18,147
Restricted cash		—			—			—		—			—			—
Other current assets		—			3,718			64,924		11,527			—			80,169
Total current assets		—			3,718			81,222		13,376			—			98,316
Long-term accounts receivable		—			3,118			71,708		12,322			—			87,148
Cemetery and funeral home property and equipment		—			806			409,201		33,550			—			443,557
Merchandise trusts		—			—			—		488,248			—			488,248
Perpetual care trusts		—			—			—		330,562			—			330,562
Deferred selling and obtaining costs		—			5,511			88,705		18,444			—			112,660
Goodwill and intangible assets		—			—			25,676		60,607			—			86,283
Other assets		—			—			19,403		2,924			—			22,327
Investments in and amounts due from affiliates eliminated upon consolidation		61,875			(586	)		539,997		—			(601,286	)		—
Total assets	$	61,875		$	12,567		$	1,235,912	$	960,033		$	(601,286	)	$	1,669,101
Liabilities, Redeemable Convertible Preferred Units and Partners’ Capital (Deficit)
Current liabilities	$	—		$	184		$	60,216	$	1,400		$	—		$	61,800
Long-term debt, net of deferred financing costs		68,453			105,160			146,635		—			—			320,248
Deferred revenues		—			32,147			770,337		111,802			—			914,286
Perpetual care trust corpus		—			—			—		330,562			—			330,562
Other long-term liabilities		—			—			33,553		15,230			—			48,783
Due to affiliates		—			—			173,613		543,543			(717,156	)		—
Total liabilities		68,453			137,491			1,184,354		1,002,537			(717,156	)		1,675,679
Redeemable convertible preferred units		—			—			—		—			—			—
Partners’ capital (deficit)		(6,578	)		(124,924	)		51,556		(42,502	)		115,870			(6,578	)
Total liabilities, redeemable convertible preferred units and partners’ capital (deficit)	$	61,875		$	12,567		$	1,235,910	$	960,035		$	(601,286	)	$	1,669,101

Table of Contents

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS (UNAUDITED)

Three Months Ended June 30, 2019	Parent			Subsidiary Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Total revenues	$	—		$	1,439		$	65,749		$	13,068		$	(1,761	)	$	78,495
Total costs and expenses		—			(4,038	)		(66,980	)		(15,997	)		1,761			(85,254	)
Other loss		—			—			(1,346	)		(2,083	)		—			(3,429	)
Net loss from equity investment in subsidiaries		(30,577	)		(22,358	)		—			—			52,935			—
Interest expense		(2,883	)		(3,822	)		(2,369	)		(272	)		—			(9,346	)
Loss on debt extinguishment		(938	)		(1,441	)		(6,099	)		—			—			(8,478	)
Income (loss) from continuing operations before income taxes		(34,398	)		(30,220	)		(11,045	)		(5,284	)		52,935			(28,012	)
Income tax benefit		—			—			(6,386	)		—			—			(6,386	)
Net income (loss)	$	(34,398	)	$	(30,220	)	$	(17,431	)	$	(5,284	)	$	52,935		$	(34,398	)

Three Months Ended June 30, 2018	Parent			Subsidiary Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Total revenues	$	—		$	1,425		$	69,595		$	13,414		$	(2,863	)	$	81,571
Total costs and expenses		—			(3,776	)		(74,911	)		(14,485	)		2,863			(90,309	)
Other loss		—			—			—			—			—			—
Net loss from equity investment in subsidiaries		(15,657	)		(12,309	)		—			—			27,966			—
Interest expense		(1,359	)		(2,087	)		(4,404	)		(257	)		—			(8,107	)
Income (loss) from continuing operations before income taxes		(17,016	)		(16,747	)		(9,720	)		(1,328	)		27,966			(16,845	)
Income tax benefit		—			—			(172	)		—			—			(172	)
Net income (loss)	$	(17,016	)	$	(16,747	)	$	(9,892	)	$	(1,328	)	$	27,966		$	(17,017	)

Three Months Ended June 30, 2018    Parent Subsidiary
Issuer Guarantor
Subsidiaries Non-
Guarantor
Subsidiaries Eliminations Consolidated
Total revenues
   $ —   $ 1,425 $ 69,595 $ 13,414 $ (2,863 ) $ 81,571
Total costs and expenses
   —   (3,776 ) (74,911 ) (14,484 ) 2,863 (90,309 )
Other income (loss)
   —   —   —   —   —   —
Net loss from equity investment in subsidiaries
   (15,657 ) (12,309 ) —   —   27,966 —
Interest expense
   (1,359 ) (2,087 ) (4,404 ) (257 ) —   (8,107 )


Net income (loss) from continuing operations before income taxes
   (17,016 ) (16,747 ) (9,720 ) (1,327 ) 27,966 (16,845 )
Income tax benefit (expense)
   —   —   (172 ) —   —   (172 )


Net income (loss)
   $ (17,016 ) $ (16,747 ) $ (9,892 ) $ (1,327 ) $ 27,966 $ (17,017 )


Three Months Ended June 30, 2017⁽¹⁾    Parent Subsidiary
Issuer Guarantor
Subsidiaries Non-
Guarantor
Subsidiaries Eliminations Consolidated
Total revenues
   $ —   $ 1,494 $ 71,266 $ 15,195 $ (2,003 ) $ 85,952
Total costs and expenses
   —   (3,803 ) (74,139 ) (13,126 ) 2,003 (89,065 )
Other income (loss)
   —   —   (1,071 ) —   —   (1,071 )
Net loss from equity investment in subsidiaries
   (8,877 ) (8,901 ) —   —   17,778 —
Interest expense
   (1,359 ) (2,087 ) (3,066 ) (229 ) —   (6,741 )


Net income (loss) from continuing operations before income taxes
   (10,236 ) (13,297 ) (7,010 ) 1,840 17,778 (10,925 )
Income tax benefit (expense)
   —   —   (657 ) —   —   (657 )


Net income (loss)
   $ (10,236 ) $ (13,297 ) $ (7,667 ) $ 1,840 $ 17,778 $ (11,582 )

Six Months Ended June 30, 2019	Parent			Subsidiary Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Total revenues	$	—		$	3,003		$	125,501		$	24,200		$	(2,740	)	$	149,964
Total costs and expenses		—			(8,558	)		(132,915	)		(27,353	)		2,740			(166,086	)
Other loss		—			—			(1,346	)		(2,083	)		—			(3,429	)
Net loss from equity investment in subsidiaries		(51,753	)		(41,283	)		—			—			93,036			—
Interest expense		(4,241	)		(5,909	)		(11,825	)		(542	)		—			(22,517	)
Loss on debt extinguishment		(938	)		(1,441	)		(6,099	)					—			(8,478	)
Income (loss) from continuing operations before income taxes		(56,932	)		(54,188	)		(26,684	)		(5,778	)		93,036			(50,546	)
Income tax benefit		—			—			(6,386	)		—			—			(6,386	)
Net income (loss)	$	(56,932	)	$	(54,188	)	$	(33,070	)	$	(5,778	)	$	93,036		$	(56,932	)

Six Months Ended June 30, 2018	Parent			Subsidiary Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Total revenues	$	—		$	3,050		$	135,384		$	26,274		$	(5,192	)	$	159,516
Total costs and expenses		—			(7,086	)		(145,824	)		(28,562	)		5,192			(176,280	)
Other loss		—			—			(5,205	)		—			—			(5,205	)
Net loss from equity investment in subsidiaries		(32,222	)		(27,102	)		—			—			59,324			—
Interest expense		(2,717	)		(4,174	)		(7,820	)		(509	)		—			(15,220	)
Income (loss) from continuing operations before income taxes		(34,939	)		(35,312	)		(23,465	)		(2,797	)		59,324			(37,189	)
Income tax benefit		—			—			2,249			—			—			2,249
Net income (loss)	$	(34,939	)	$	(35,312	)	$	(21,216	)	$	(2,797	)	$	59,324		$	(34,940	)

Table of Contents

⁽¹⁾	~~The information for the three months ended June 30, 2017 has not been adjusted for the impact of the Partnership’s adoption of ASC 606 on January 1, 2018.~~

Six Months Ended June 30, 2018    Parent Subsidiary
Issuer Guarantor
Subsidiaries Non-
Guarantor
Subsidiaries Eliminations Consolidated
Total revenues
   $ —   $ 3,050 $ 135,384 $ 26,274 $ (5,192 ) $ 159,516
Total costs and expenses
   —   (7,086 ) (145,824 ) (28,561 ) 5,192 (176,280 )
Other loss
   —   —   (5,205 ) —   —   (5,205 )
Net loss from equity investment in subsidiaries
   (32,222 ) (27,102 ) —   —   59,324 —
Interest expense
   (2,717 ) (4,174 ) (7,820 ) (509 ) —   (15,220 )


Net income (loss) from continuing operations before income taxes
   (34,939 ) (35,312 ) (23,465 ) (2,796 ) 59,324 (37,189 )
Income tax benefit
   —   —   2,249 —   —   2,249


Net income (loss)
   $ (34,939 ) $ (35,312 ) $ (21,216 ) $ (2,796 ) $ 59,324 $ (34,940 )


Six Months Ended June 30, 2017⁽¹⁾    Parent Subsidiary
Issuer Guarantor
Subsidiaries Non-
Guarantor
Subsidiaries Eliminations Consolidated
Total revenues
   $ —   $ 3,539 $ 139,908 $ 30,137 $ (4,686 ) $ 168,898
Total costs and expenses
   —   (7,207 ) (143,621 ) (26,918 ) 4,686 (173,060 )
Other loss
   —   —   (1,071 ) —   —   (1,071 )
Net loss from equity investment in subsidiaries
   (16,080 ) (17,115 ) —   —   33,195 —
Interest expense
   (2,717 ) (4,174 ) (6,102 ) (454 ) —   (13,447 )


Net income (loss) from continuing operations before income taxes
   (18,797 ) (24,957 ) (10,886 ) 2,765 33,195 (18,680 )
Income tax expense
   —   —   (1,463 ) —   —   (1,463 )


Net income (loss)
   $ (18,797 ) $ (24,957 ) $ (12,349 ) $ 2,765 $ 33,195 $ (20,143 )

⁽¹⁾	~~The information for the six months ended June 30, 2017 has not been adjusted for the impact of the Partnership’s adoption of ASC 606 on January 1, 2018.~~

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS (UNAUDITED)

Six Months Ended June 30, 2018    Parent Subsidiary
Issuer Guarantor
Subsidiaries Non-
Guarantor
Subsidiaries Eliminations Consolidated
Net cash provided by (used in) operating activities
   $ —   $ 283 $ 21,981 $ 31 $ (6,891 ) $ 15,404
Cash Flows From Investing Activities:

Cash paid for acquisitions and capital expenditures
   —   (283 ) (7,691 ) (485 ) —   (8,459 )


Net cash used in investing activities
   —   (283 ) (7,691 ) (485 ) —   (8,459 )


Cash Flows From Financing Activities:

Cash distributions
   —   —   —   —   —   —
Payments to affiliates
   —   —   (6,891 ) —   6,891 —
Net borrowings of debt
   —   —   3,984 —   —   3,984
Other financing activities
   —   —   (2,771 ) —   —   (2,771 )


Net cash provided by (used in) financing activities
   —   —   (5,678 ) —   6,891 1,213


Net increase (decrease) in cash and cash equivalents
   —   —   8,612 (454 ) —   8,158
Cash and cash equivalents— Beginning of period
   —   —   4,216 2,605 6,821


Cash and cash equivalents— End of period
   $ —   $ —   $ 12,828 $ 2,151 $ —   $ 14,979


Six Months Ended June 30, 2017⁽¹⁾    Parent Subsidiary
Issuer Guarantor
Subsidiaries Non-
Guarantor
Subsidiaries Eliminations Consolidated
Net cash provided by (used in) operating activities
   $ 24,545 $ 53 $ 22,722 $ (384 ) $ (31,436 ) $ 15,500
Cash Flows From Investing Activities:

Cash paid for acquisitions and capital expenditures
   —   (53 ) (1,857 ) (549 ) —   (2,459 )


Net cash used in investing activities
   —   (53 ) (1,857 ) (549 ) —   (2,459 )


Cash Flows From Financing Activities:

Cash distributions
   (24,545 ) —   —   —   —   (24,545 )
Payments to affiliates
   —   —   (31,436 ) —   31,436 —   ��
Net borrowings of debt
   —   —   6,536 —   —   6,536
Proceeds from issuance of common units
   —   —   —   —   —   —
Other financing activities
   —   —   (776 ) —   —   (776 )


Net cash provided by (used in) financing activities
   (24,545 ) —   (25,676 ) —   31,436 (18,785 )


Net increase (decrease) in cash and cash equivalents
   —   —   (4,811 ) (933 ) —   (5,744 )
Cash and cash equivalents - Beginning of period
   —   —   9,145 3,425 —   12,570


Cash and cash equivalents - End of period
   $ —   $ —   $ 4,334 $ 2,492 $ —   $ 6,826

Six Months Ended June 30, 2019	Parent			Subsidiary Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net cash provided by operating activities	$	—		$	197		$	(21,647	)	$	28		$	(10,150	)	$	(31,572	)
Cash Flows From Investing Activities:
Cash paid for acquisitions and capital expenditures, net of proceeds from divestitures and asset sales		—			(173	)		(3,216	)		(199	)		—			(3,588	)
Payments to affiliates		(57,500	)		—			—			—			57,500			—
Net cash used in investing activities		(57,500	)		(173	)		(3,216	)		(199	)		57,500			(3,588	)
Cash Flows From Financing Activities:									��
Cash distributions		—			—			—			—			—			—
Payments from affiliates		—			—			47,350			—			(47,350	)		—
Proceeds from issuance of redeemable convertible preferred units, net		57,500			—			—			—			—			57,500
Net borrowings and repayments of debt		—			(24	)		39,076			(148	)		—			38,904
Other financing activities		—			—			(17,437	)		—			—			(17,437	)
Net cash used in financing activities		57,500			(24	)		68,989			(148	)		(47,350	)		78,967
Net increase (decrease) in cash and cash equivalents and restricted cash		—			—			44,126			(319	)		—			43,807
Cash and cash equivalents and restricted cash— Beginning of period		—			—			16,298			1,849			—			18,147
Cash and cash equivalents and restricted cash— End of period	$	—		$	—		$	60,424		$	1,530		$	—		$	61,954

Six Months Ended June 30, 2018	Parent		Subsidiary Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net cash provided by operating activities	$	—	$	283		$	21,981		$	31		$	(6,891	)	$	15,404
Cash Flows From Investing Activities:
Cash paid for acquisitions and capital expenditures, net of proceeds from divestitures and asset sales		—		(283	)		(7,691	)		(485	)		—			(8,459	)
Net cash used in investing activities		—		(283	)		(7,691	)		(485	)		—			(8,459	)
Cash Flows From Financing Activities:
Cash distributions		—		—			—			—			—			—
Payments to affiliates		—		—			(6,891	)		—			6,891			—
Proceeds from issuance of redeemable convertible preferred units, net		—		—			—			—			—			—
Net borrowings and repayments of debt		—		—			3,984			—			—			3,984
Other financing activities		—		—			(2,771	)		—			—			(2,771	)
Net cash used in financing activities		—		—			(5,678	)		—			6,891			1,213
Net decrease in cash and cash equivalents		—		—			8,612			(454	)		—			8,158
Cash and cash equivalents—Beginning of period		—		—			4,216			2,605			—			6,821
Cash and cash equivalents—End of period	$	—	$	—		$	12,828		$	2,151		$	—		$	14,979

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⁽¹⁾

16.

~~The information for the six months ended June 30, 2017 has not been adjusted for the impact of the Partnership’s adoption of ASC 606 on January 1, 2018.~~SEGMENT INFORMATION

~~15 SEGMENT INFORMATION~~

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

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


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017⁽¹⁾			2018			2017⁽¹⁾			2019			2018			2019			2018
STATEMENT OF OPERATIONS DATA:
Cemetery Operations:
Revenues	$	67,680		$	70,746		$	129,923		$	136,273		$	65,628		$	67,680		$	123,538		$	129,923
Operating costs and expenses		(61,422	)		(57,543	)		(119,485	)		(114,175	)		(58,934	)		(61,422	)		(112,096	)		(119,485	)
Depreciation and amortization		(2,111	)		(2,298	)		(4,185	)		(4,559	)		(1,920	)		(2,111	)		(3,882	)		(4,185	)

Segment income	$	4,147		$	10,905		$	6,253		$	17,539

Segment operating profit													$	4,774		$	4,147		$	7,560		$	6,253
Funeral Home Operations:
Revenues	$	13,891		$	15,206		$	29,593		$	32,625		$	12,867		$	13,891		$	26,426		$	29,593
Operating costs and expenses		(10,651	)		(12,064	)		(23,687	)		(24,868	)		(10,467	)		(10,651	)		(21,967	)		(23,687	)
Depreciation and amortization		(701	)		(810	)		(1,414	)		(1,616	)		(598	)		(701	)		(1,186	)		(1,414	)

Segment income	$	2,539		$	2,332		$	4,492		$	6,141

Reconciliation of segment income to net loss:
Segment operating profit													$	1,802		$	2,539		$	3,273		$	4,492
Reconciliation of segment operating profit to net loss:
Cemetery Operations	$	4,147		$	10,905		$	6,253		$	17,539		$	4,774		$	4,147		$	7,560		$	6,253
Funeral Home Operations		2,539			2,332			4,492			6,141			1,802			2,539			3,273			4,492

Total segment income		6,686			13,237			10,745			23,680

Total segment profit														6,576			6,686			10,833			10,745
Corporate overhead		(15,165	)		(16,067	)		(26,992	)		(27,171	)		(13,137	)		(15,165	)		(26,550	)		(26,992	)
Corporate depreciation and amortization		(259	)		(283	)		(517	)		(671	)		(198	)		(259	)		(405	)		(517	)
Other gains (losses), net		—			(1,071	)		(5,205	)		(1,071	)
Other losses, net														(3,429	)		—			(3,429	)		(5,205	)
Loss on debt extinguishment														(8,478	)		—			(8,478	)		—
Interest expense		(8,107	)		(6,741	)		(15,220	)		(13,447	)		(9,346	)		(8,107	)		(22,517	)		(15,220	)
Income tax benefit (expense)		(172	)		(657	)		2,249			(1,463	)		(6,386	)		(172	)		(6,386	)		2,249

Net loss	$	(17,017	)	$	(11,582	)	$	(34,940	)	$	(20,143	)	$	(34,398	)	$	(17,017	)	$	(56,932	)	$	(34,940	)

CASH FLOW DATA:
Capital expenditures:
Cemetery Operations	$	2,974		$	1,667		$	7,273		$	2,976		$	2,921		$	2,974		$	3,811		$	7,273
Funeral Home Operations		175			80			219			127			6			175			982			219
Corporate		108			68			134			208			8			108			45			134

Total capital expenditures	$	3,257		$	1,815		$	7,626		$	3,311		$	2,935		$	3,257		$	4,838		$	7,626

					June 30, 2019		December 31, 2018

BALANCE SHEET DATA	June 30, 2018		December 31, 2017
BALANCE SHEET DATA:
Assets:
Cemetery Operations	$	1,568,180	$	1,594,091	$	1,542,402	$	1,508,667
Funeral Home Operations		140,966		152,934		143,132		136,064
Corporate		21,508		9,057		77,281		24,370

Total assets	$	1,730,654	$	1,756,082	$	1,762,815	$	1,669,101

Goodwill:
Cemetery Operations	$	24,862	$	24,862	$	24,862	$	24,862
Funeral Home Operations		—		—

Total goodwill	$	24,862	$	24,862

Table of Contents

⁽¹⁾

17.

~~The results for the three and six months ended June 30, 2017 have not been adjusted for the impact of the Partnership’s adoption of ASC 606 on January 1, 2018.~~SUPPLEMENTAL CONSOLIDATED CASH FLOW INFORMATION

~~16. SUPPLEMENTAL CONDENSED CONSOLIDATED CASH FLOW INFORMATION~~

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

   Six Months Ended June 30,
   2018 2017
Pre-need/at-need contract originations (sales on credit)
   $ (71,254 ) $ (54,229 )
Cash receipts from sales on credit (post-origination)
   72,449 49,283


Changes in Accounts receivable, net of allowance
   $ 1,195 $ (4,946 )


Deferrals:

Cash receipts from customer deposits at origination, net of refunds
   $ 76,450 $ 76,686
Withdrawals of realized income from merchandise trusts during the period
   9,475 5,947
Pre-need/at-need contract originations (sales on credit)
   71,254 54,229
Undistributed merchandise trust investment earnings, net
   564 (32,938 )
Recognition:

Merchandise trust investment income, net withdrawn as of end of period
   (4,929 ) (4,756 )
Recognized maturities of customer contracts collected as of end of period
   (91,108 ) (101,750 )
Recognized maturities of customer contracts uncollected as of end of period
   (28,107 ) (15,051 )


Changes in Deferred revenues
   $ 33,599 $ (17,633 )

~~17. SUBSEQUENT EVENTS~~

~~Credit Agreements~~

On June 12, 2018, 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 Sixth Amendment and Waiver to Credit Agreement (the “Sixth Amendment”) 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 and Fifth Amendment to Credit Agreement dated as of December 22, 2017 but effective as of September 29, 2017, 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. On July 13, 2018, those same parties entered into a Seventh Amendment and Waiver to Credit Agreement (the “Seventh Amendment”) and, collectively with the Sixth Amendment, the “2018 Amendments). On February 4, 2019, the Borrowers, the Lenders and the Administrative Agent entered into an Eighth Amendment and Waiver to the Credit Agreement (the “Eighth Amendment” and the Original Amended Agreement, as further amended by the Sixth Amendment, the Seventh Amendment, and the Eighth Amendment, the “Amended Credit Agreement”). Capitalized terms not otherwise defined herein have the same meanings as specified in the Amended Credit Agreement.

~~The Sixth Amendment included covenants pursuant to which the Partnership agreed to deliver to the Administrative Agent (a) the consolidated financial statements included in this Annual Report on Form10-K~~ ~~for the Year Ended December 31, 2017 (the “2017 Form10-K”)~~ ~~on or before June 30, 2018 and (b) the consolidated financial statements to be included in its Quarterly~~

~~Reports on Form10-Q~~ ~~for the periods ended March 31, 2018 and June 30, 2018 within 60 and 105 days, respectively, after the 2017 Form10-K~~ was filed. The Partnership also agreed to use commercially reasonable efforts to consummate the disposition of assets with Net Cash Proceeds of at least $12.0 million by June 30, 2019. The Sixth Amendment also amended certain terms of the Original Amended Agreement to:

~~reduce the amount of the Revolving Commitments from $200.0 million to $175.0 million and eliminate the Borrowers’ ability to increase the Revolving Commitments;~~

	Six months ended June 30,
	2019			2018
Accounts Receivable
Pre-need/at-need contract originations (sales on credit)	$	(51,323	)	$	(71,254	)
Cash receipts from sales on credit (post-origination)		42,712			72,449
Changes in accounts receivable, net of allowance	$	(8,611	)	$	1,195
Customer Contract Liabilities
Deferrals:
Cash receipts from customer deposits at origination, net of refunds	$	72,283		$	76,450
Withdrawals of realized income from merchandise trusts during the period		4,596			9,475
Pre-need/at-need contract originations (sales on credit)		51,323			71,254
Undistributed merchandise trust investment earnings, net		7,924			564
Recognition:
Merchandise trust investment income, net withdrawn as of end of period		(4,405	)		(4,929	)
Recognized maturities of customer contracts collected as of end of period		(93,466	)		(91,108	)
Recognized maturities of customer contracts uncollected as of end of period		(23,129	)		(28,107	)
Changes in customer contract liabilities	$	15,126		$	33,599

add a further limitation on Revolving Credit Availability at any time prior to the date on which the Partnership shall have achieved (i) as of the last day of any fiscal quarter after the effective date of the Fourth Amendment, a Consolidated Leverage Ratio (determined based on Consolidated EBITDA calculated without regard to the amendments under the Sixth Amendment) of less than 4.00:1.00 for the four consecutive fiscal quarters ending on such date and (ii) as of the last day of any fiscal quarter after the Sixth Amendment Effective Date, a Consolidated Secured Net Leverage Ratio of less than 3.00:1.00 for the four consecutive fiscal quarters ending on such date by establishing a Secured Leverage Borrowing Base, which is equal to the sum of 80% of accounts receivable outstanding less than 120 days (without giving effect to the application of the Financial Accounting Standards Board’s Accounting Standards Codification Topic 606) plus 40% of the book value, net of depreciation, of property, plant and equipment;
18.
SUBSEQUENT EVENTS

amend the definition of “Consolidated EBITDA” for purposes of calculating the various financial covenants to (A) (i) permit the Partnership to add back goodwill impairment charges; (ii) permit the Partnership to add back~~non-cash~~ ~~deferred financing fees written off~~Reduction in ~~an aggregate amount for all periods after the Sixth Amendment Effective Date not to exceed $9.8 million; (iii) adjust the limit on add backs fornon-recurring~~ cash expenses, losses, costs and charges to $13.9 million for the period ended June 30, 2017, $13.6 million for the period ended September 30, 2017, $17.0 million for the period ended December 31, 2017 and $16.3 million for the period ended March 31, 2018; (iv) remove the add back for~~non-cash~~ ~~items determined in good faith by the Partnership’s Financial Officer; (v) remove the add back for unrealized losses (less unrealized gains) andnon-cash~~ expenses arising from or attributable to the early termination of any Swap Agreement; (vi) remove the add back for fees incurred in unsuccessful acquisition efforts and cap the add back for fees incurred in successful acquisition efforts at $3.0 million; and (vii) remove the add back for realized losses in the trust account’s investment portfolio in an aggregate amount for all periods not to exceed $53.0 million; (B) eliminate the deduction for~~non-cash~~ items increasing Consolidated Net Income for the applicable period; and (C) eliminate the adjustment for “Change in Deferred Selling and Obtaining Costs” and “Change In Deferred Revenue, net” as presented in the Partnership’s consolidated financial statements;

~~replace the Consolidated Leverage Ratio covenant with a Consolidated Secured Net Leverage Ratio covenant that:~~

defines Consolidated Secured Net Leverage Ratio as the ratio of (i) (x) Consolidated Secured Funded Indebtedness, which is Consolidated Funded Indebtedness secured by a lien, minus (y) unrestricted cash and cash equivalents subject to a first priority lien in favor of the Administrative Agent in an amount not to exceed $5.0 million, to (ii) Consolidated EBITDA; and

establishes limitations on the Partnership’s Consolidated Secured Net Leverage Ratio at 5.75:1.00 for the period ended June 30, 2018 and the period ended September 30, 2018, stepping down to 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;

prohibit 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) is not greater than 7.50:1.00 and the Revolving Credit Availability is at least $25.0 million;

increase the minimum and maximum Applicable Rate by 0.50%; redetermine the Applicable Rate based on the Consolidated Secured Net Leverage Ratio of the Partnership and its Subsidiaries to be in the range between 2.25% to 4.25% for Eurodollar Rate Loans and 1.25% to 3.75% 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);

revise the provisions relating to the Consolidated Fixed Charge Coverage Ratio by (A) reducing the minimum Consolidated Fixed Charge Coverage Ratio from 1.20:1.00 to 1.00:1.00 for fiscal 2018, stepping up to 1.10:1.00 for fiscal 2019 and returning to 1.20:1.00 for fiscal 2020 and (B) permitting the Partnership to include in calculating the ratio adjustments for “Change in Deferred Selling and Obtaining Costs,” “Change In Deferred Revenue” and “Change In Merchandise Trust Fund” as presented in the Partnership’s consolidated financial statements;

~~remove the Consolidated Debt Service Charge Ratio;~~

provide for mandatory prepayments in an amount equal to 100% of the net cash proceeds, subject to certain thresholds in certain cases, from sale/leaseback transactions and certain other permitted dispositions of assets;

further modify the Partnership’s and its subsidiaries’ ability to incur additional indebtedness by: (i) decreasing the capital equipment financing basket from $10.0 million to $5.0 million; (ii) decreasing the general basket for certain permitted debt from $10.0 million to $7.5 million; (iii) eliminating the Borrowers’ ability to incur subordinated debt to fund consideration payable for certain permitted acquisitions; (iv) eliminating the Borrowers’ ability to incur unsecured indebtedness; and (v) permitting the Partnership to incur indebtedness of up to an aggregate of $11.0 million in the form of deferred purchase price obligations payable pursuant to certain specified agreements entered into prior to the Sixth Amendment Effective Date;

eliminate the Partnership’s and its subsidiaries’ (A) right to consummate, subject to certain other conditions, acquisitions if, on a pro forma basis, the Consolidated Leverage Ratio was not greater than 3.75:1.00 and (B) ability to fund acquisitions with Borrowers’ own funds, except for an aggregate of up to $11.0 million of purchase price obligations pursuant to certain acquisitions for which agreements had been executed prior to the Sixth Amendment Effective Date;

modify the scope of permitted dispositions: (i) to decrease the general basket from $10.0 million annually to $5.0 million after the Sixth Amendment Effective Date; (ii) except with respect to certain existing sale/leaseback transactions, reduce the limit on dispositions involving sale/leaseback transactions from $10.0 million during the term of the facility to $3.0 million after the Sixth Amendment Effective Date; and (iii) for dispositions that would not otherwise be permitted dispositions, change the basket from an annual aggregate limit of $10.0 million to a limit of $12.0 million from the Sixth Amendment Effective Date until June 30, 2019 and a limit of $3.0 million from July 1, 2019 until December 31, 2019 and each year thereafter (provided that such limitations will not apply to certain specified dispositions);

~~reduce the amount that may be invested innon-guarantor~~ ~~subsidiaries from $1.0 million to $0.5 million and decrease the general basket on all other investments from $5.0 million to $2.5 million;~~

~~decrease the limit on loans to officers or employees from $0.5 million to $0.25 million; and~~

~~extend the deadline for filing the Partnership’s Forms10-Q~~ ~~for the periods ended March 31, 2018 and June 30, 2018 to 60 and 105 days, respectively, following the filing of the 2017 Form10-K.~~

In addition, in the Sixth 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 December 31, 2017 and March 31, 2018 and the related compliance certificates; (ii) comply with the facility’s maximum Consolidated Leverage Ratio for the quarters ended December 31, 2017 and March 31, 2018; and (iii) give notice of such defaults and inaccuracies in representations and warranties resulting from such defaults. This waiver was subject to the satisfaction of certain conditions, including the payment to the Lenders of a fee in the aggregate amount of $0.9 million.

The Seventh Amendment included covenants pursuant to which the Partnership agreed to deliver to the Administrative Agent: (a) the consolidated financial statements included in its Annual Report on Form~~10-K~~ ~~on or before August 31, 2018, (b) the consolidated financial statements included in its Quarterly Report on Form10-Q~~ ~~for the period ended March 31, 2018 (the “First Quarter10-Q”)~~ ~~within 90 days after the Annual Report on Form10-K~~ ~~was filed but not later than October 31, 2018, (c) the consolidated financial statements to be included in this Quarterly Report on Form10-Q~~ ~~(the “Second Quarter10-Q”)~~ ~~within 60 days after the First Quarter10-Q~~ ~~was filed (but not later than December 17, 2018) and (d) the consolidated financial statements to be included in its Quarterly Report on Form10-Q~~ ~~for the period ended September 30, 2018 within 45 days after the Second Quarter10-Q~~ is filed (but not later than January 31, 2019). The Seventh Amendment also increased the maximum Consolidated Secured Net Leverage Ratio for the period ended June 30, 2018 from 5.75:1.00 to 6.25:1.00. In addition, the Administrative Agent and the Lenders party to the Seventh Amendment also waived existing defaults under the Original Amended Agreement, as amended by the Sixth Amendment, arising from the Partnership’s failure to timely deliver the consolidated financial statements included in this Annual Report on Form~~10-K~~ on or before June 30, 2018. The Partnership prepaid $4.0 million of the outstanding balance of its revolving loans under the Amended Credit Facility as a condition to the foregoing waivers and amendments, and also paid the lenders a fee in the aggregate amount of $0.2 million.

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 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”) are 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 (as further amended by the 2018 Amendments) to:~~

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

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

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

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

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

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

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

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

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

~~1.00% on October 1, 2019, PIK;~~

~~amend the definition of “Consolidated Net Income” for purposes of calculating the Consolidated EBITDA to exclude, for the time period from January 1, 2018 to January 1, 2019, (i) anynon-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 2018 in an aggregate amount not to exceed $5.0 million shall be excluded from such determination 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 shall be excluded from such determination;

~~amend the definition of “Consolidated EBITDA” for purposes of calculating the financial covenant to (i) adjust the limit on add backs fornon-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 fornon-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 Form10-Q~~ for the period ended March 31, 2018 to the later of February 6, 2019 and the date that is two Business Days following the Eighth Amendment Effective Date and for the periods ended June 30, 2018 and September 30, 2018 to February 15, 2019;

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

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

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

~~amend other provisions of the Original Amended Agreement (as amended by the 2018 Amendments) 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 amended by the 2018 Amendments) 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.

~~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 Merger Agreement through December 31, 2018.

~~Extension of Interim Strategic Executive~~

On October 8, 2018, Leo J. Pound, Interim Strategic Executive, and StoneMor GP LLC (“StoneMor GP”), the general partner of StoneMor Partners L.P. (the “Partnership”), modified the terms of the agreement dated July 26, 2018 pursuant to which he served as Interim Strategic Executive of StoneMor GP by extending the term of his service in such capacity through October 31, 2018. The agreement outlined the specific strategic initiatives for which Mr. Pound was responsible in that capacity, which focused primarily on enhancing the Partnership’s financial management and improving its cash flow. StoneMor GP also delegated to Joseph M. Redling, its current President and Chief Executive Officer, the authority to extend such term for one additional month. During such additional period of service as Interim Strategic Executive, Mr. Pound continued to receive a monthly fee of $50,000.

~~Matters Pertaining to Former President and Chief Executive Officer~~

On October 12, 2018, the former President and Chief Executive Officer, Lawrence Miller and the Partnership entered into a letter agreement (the “Agreement”) that resolved the number of units that vested upon Mr. Miller’s retirement as President and Chief Executive Officer in May 2017 pursuant to awards made under the Partnership’s 2014 Long-Term Incentive Plan (the “Plan”). The parties agreed that a total of 22,644 time-based units and 63,836 performance-based units vested under such awards in accordance with the terms of the Separation Agreement dated March 27, 2017 between Mr. Miller and StoneMor GP. The parties also agreed that a total of $340,751.40 will be paid to Mr. Miller pursuant to distribution equivalent rights with respect to those units.

In connection with entering into the Agreement, Mr. Miller resigned as a director of StoneMor GP. The Partnership will pay Mr. Miller the distribution equivalent rights within five business days, and will issue the vested units within five business days after it has filed all reports it is required to file under the Securities Exchange Act of 1934, as amended. The Agreement also included a customary release by Mr. Miller of any further claims with respect to the Plan, including the referenced awards, and any right to appoint a “Founder Director” under the terms of StoneMor GP’s Second Amended and Restated Limited Liability Company Agreement, as amended.

~~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 on the effective date of the Eighth Amendment (the “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 February 5, 2019, Axar beneficially owned approximately 19.5% of the Partnership’s outstanding common units. Axar also has exposure to an additional 1,462,272 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 13D/A which was filed with the SEC on February 5, 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.

~~January 2019 Restructuring~~Workforce

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

As part of this ~~restructuring,~~profit improvement initiative, in July 2019, the Partnership ~~will undertake certain~~undertook a cost reduction ~~initiatives, including~~initiative, which resulted in a reduction of ~~approximately 45~~171 positions ofin its workforce, primarily related to ~~corporate functions in Trevose, a streamlining of general and administrative expenses and an optimization of location spend.~~its field operations. The Partnership expects to incur ~~cash~~ charges of ~~approximately $0.5~~$0.8 million ~~to $0.7 million of~~for employee separation and other benefit-related costs in connection with this reduction in 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 endthird quarter of 2019. Under this ~~restructuring,~~profit improvement initiative, 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.~~

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ITEM 2.

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

~~The management’s~~Management’s discussion and analysis presented below provides information to assist in understanding the Partnership’s financial condition and results of operations and should be read in conjunction with the Partnership’s unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form10-Q. Unless the context otherwise requires, references to “we,” “us,” “our,” “StoneMor,” the “Company,” or the “Partnership” are to StoneMor Partners L.P. and its subsidiaries.

Certain statements contained in this Quarterly Report on Form10-Q, including, but not limited to, information regarding our operating activities, the plans and objectives of our management and assumptions regarding our future performance and plans are forward-looking statements. When used in this Quarterly Report on Form10-Q, the words “believes,” “anticipates,” “expects” and similar expressions are intended to identify forward-looking statements. Forward-looking statements are based on management’s expectations and estimates. These statements are neither promises nor guarantees and are made subject to certain risks and uncertainties that could cause actual results to differ materially from the results stated or implied in this Quarterly Report on Form10-Q. We believe the assumptions underlying the unaudited condensed consolidated financial statements are reasonable.

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

Our additional risks and uncertainties include, but are not limited to, the following: uncertainties associated with future revenue and revenue growth; uncertainties associated with the integration or anticipated benefits of recent acquisitions or any future acquisitions; our ability to complete and fund additional acquisitions; the effect of economic downturns; the impact of our significant leverage on our operating plans; the decline in the fair value of certain equity and debt securities held in trusts; our ability to attract, train and retain an adequate number of sales people; uncertainties associated with the volume and timing of~~pre-need~~ sales of cemetery services and products; increased use of cremation; changes in the death rate; changes in the political or regulatory environments, including potential changes in tax accounting and trusting policies; our ability to successfully implement a strategic plan relating to achieving operating improvements, strong cash flows and further deleveraging; our ability to successfully compete in the cemetery and funeral home industry; litigation or legal proceedings that could expose us to significant liabilities and damage our reputation; the effects of cyber security attacks due to our significant reliance on information technology; requirements to replenish our trust funds to meet minimum funding requirements, which would have a negative effect on our earnings and cash flow; our ability to execute our strategic plan depends on many factors, some of which are beyond our control; declines in overall economic conditions beyond our control could reduce future potential earnings and cash flows and could result in future impairments to goodwill and/or other intangible assets; failure to maintain effective internal control over financial reporting could adversely affect our results of operations, investor confidence, and our stock price; uncertainties relating to the financial condition of third-party insurance companies that fund our~~pre-need~~ ~~funeral contracts; and various other uncertainties associated with the death care industry and our operations in particular.~~

~~Our risks and uncertainties are more particularly described in “Item 1A. Risk Factors” of our Annual Report on Form10-K~~ for the year ended December 31, 2017 and “Item 8.01. Other Events” of our Current Report on Form 8-K filed on February 4, 2019. Readers are cautioned not to place undue reliance on forward-looking statements included in this Form~~10-Q,~~ which speak only as of the date the statements were made. Except as required by applicable laws, we undertake no obligation to update or revise forward-looking statements, whether as a result of new information, future events or otherwise.

BUSINESS OVERVIEW

We are a publicly-traded Delaware master-limited partnership ~~(“MLP”~~("MLP") and provider of funeral and cemetery products and services in the death care industry in the United States. As of June 30, ~~2018,~~2019, we operated ~~322~~321 cemeteries in 27 states and Puerto Rico, of which 291 were owned and 3130 were operated under ~~lease,~~leases, operating agreements or management ~~or operating~~ agreements. We also owned, ~~and~~ operated 92or managed 90 funeral homes in 17 states and Puerto Rico. We are proposing to convert to a “C” Corporation which, if approved, will be effective during 2019. See ~~Note 17,~~ Part 1, 1. Item 1. Financial Statements ~~“Subsequent Events”~~(Unaudited)—Notes to the ~~financial statements~~Unaudited Condensed Consolidated Financial Statements—Note 1 General of this Quarterly Report on Form 10-Q for further information related to the Merger and Reorganization Agreement.

Our revenue is derived from our Cemetery Operations and Funeral Home ~~Operations.~~Operations segments. Our Cemetery Operations segment principally generates revenue from sales of interment rights, cemetery merchandise, which includes markers, bases, vaults, caskets and cremation niches and our cemetery services, ~~including~~which include opening and closing (“O&C”), services, cremation services and fees for the installation of cemetery merchandise. Our Funeral Home Operations segment principally generates revenue from sales of funeral home merchandise, which includes caskets and other funeral related items and service revenues, ~~including~~which include services such as family consultation, the removal of and preparation of remains and the use of funeral home facilities for visitation and prayer services. These sales occur both at the time of death, which we refer toas at-need, and prior to the time of death, which we refer toas pre-need. Our ~~funeral home operations~~ Funeral Home Operations segment also include revenues related to the sale of term and whole life insurance on an agency basis, in which we earn a commission from the sales of these insurance policies.

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

We also earn investment income on certain payments received from ~~the customer~~customers onpre-need contracts, which are required by law to be deposited into the merchandise and service trusts. Amounts are withdrawn from the merchandise and service trusts when the Partnership fulfills the performance obligations. Earnings on these trust funds, which are specifically identifiable for each performance obligation, are also included in the total transaction price. For sales of interment rights, a portion of the cash proceeds received are required to be deposited into a perpetual care trust. While the principal balance of the perpetual care trust must remain in the trust in perpetuity, we recognize investment income on such assets as revenue, excluding realized gains and losses from the sale of trust assets.Pre-need contracts are subject to financing arrangements on an installment basis, with a contractual term not to exceed 60 months. Interest income is recognized utilizing the effective interest method. For those contracts that do not bear a market rate of interest, the Partnership imputes such interest based upon the prime rate at the time of origination plus 150 basis points in order to segregate the principal and interest components of the total contract value.

Our revenue depends upon the demand for funeral and cemetery services and merchandise, which can be influenced by a variety of factors, some of which are beyond our control ~~including:~~including demographic trends, ~~including~~such as population growth, average age, death rates and number of deaths. Our operating results and cash flows could also be influenced by our ability to remain relevant to the ~~customer.~~customers. We provide a variety of unique product and service offerings to meet the needs of our ~~client~~ customers’

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families. The mix of services could influence operating results, as it influences the average revenue per contract. Expense management, ~~including~~which includes controlling salaries, merchandise costs, corporate overhead and other expense categories, could also impact operating results and cash flows. Lastly, economic conditions, legislative and regulatory changes and tax law changes, all of which are beyond our control, could impact our operating results ~~including~~and cash ~~flow.~~flows.

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

RECENT EVENTS

The following are key events and transactions that occurred during 2019 through the date of issuance of the unaudited condensed consolidated financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q:

Recapitalization Transactions. On June 27, 2019, we closed a $447.5 million recapitalization transaction, consisting of (i) a private placement (the “Preferred Offering”) of $62.5 million of liquidation value of Series A Convertible Preferred Units of the Partnership and (ii) a concurrent private placement of $385.0 million of 9.875%/11.500% Senior Secured PIK Toggle Notes due 2024 (the “Senior Secured Notes”) of the Partnership to certain financial institutions (the “Notes Offering” and together with the Preferred Offering, the “Recapitalization Transactions”). The net proceeds of the Recapitalization Transactions were used to fully repay our outstanding senior notes due in June 2021 and retire the revolving credit facility due in May 2020, as well as for associated transaction expenses, cash collateralization of existing letters of credit and other needs under the former credit facility, with the balance available for general corporate purposes;

Board Reconstitution. In connection with the closing of the Recapitalization Transactions, the board of directors of our general partner was reconstituted. Directors Martin R. Lautman, Ph.D., Leo J. Pound, Robert A Sick and Fenton R. Talbott resigned as directors and the authorized number of directors was reduced to seven. Andrew Axelrod, David Miller and Spencer Goldenberg were elected to the board of directors of the General Partner to fill the vacancies created by the resignations. The reconstituted board of directors is comprised of Messrs. Axelrod, Miller and Goldenberg, Robert B. Hellman, Jr., Stephen Negrotti, Patricia Wellenbach and Joseph M. Redling. Mr. Axelrod serves as the chairman of the board of directors of our general partner;

On June 27, 2019, also in connection with the closing of the Recapitalization Transactions, the general partner, StoneMor GP Holdings LLC, a Delaware limited liability company and formerly the sole member of GP (“GP Holdings”) and Axar Special Member LLC, a wholly-owned subsidiary of Axar (“Axar Special Member”), entered into the Third Amended and Restated Limited Liability Company Agreement of the General Partner, pursuant to which the Axar Special Member was admitted as a member with the right to designate three-sevenths of the board of directors of the general partner and through such interest holds a number of control rights;

Addition of Executive Officer. On April 15, 2019, Garry P. Herdler became our Senior Vice President and Chief Financial Officer;

Reduction in Workforce. OnJanuary 31, 2019, we announced a profit improvement initiative as part of our ongoing organizational review. This profit improvement initiative is intended to further integrate, streamline and optimize our operations. As part of this profit improvement initiative, we undertook certain cost reduction initiatives, including a reduction of approximately 216 positions of its workforce, related to corporate functions in Trevose, Pennsylvania as well as our field operations, a streamlining of general and administrative expenses and an optimization of location spend; and

Lease accounting standard. Effective January 1, 2019, we adopted the new lease accounting standard as further discussed in Part 1. Item 1. Financial Statements (Unaudited)—Notes to the Unaudited Condensed Consolidated Financial Statements—Note 1 General of this Quarterly Report on Form 10-Q which resulted in an increase in other assets of $15.3 million and increases of $2.2 million and $13.1 million in accounts payable and accrued liabilities and other long-term liabilities, respectively, in the unaudited condensed consolidated balance sheet. The adoption did not have a material impact on our results of operations or cash flows.

GENERAL TRENDS AND OUTLOOK

We expect our business to be affected by key trends in the death care industry, based upon assumptions made by us and information currently available. Death care industry factors affecting our financial position and results of operations include, but are not limited to, demographic trends in terms of population growth, average age, death rates and cremation trends. In addition, we are subject to fluctuations in the fair value of equity and fixed-maturity debt securities held in our trusts. These values can be negatively impacted by contractions in the credit market and overall downturns in economic activity. Our ability

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to make payments on our debt ~~and our ability to make cash distributions to our unitholders depend~~depends on our success at managing operations with respect to these industry trends. To the extent our underlying assumptions about or interpretations of available information prove to be incorrect, our actual results may vary materially from our expected results.

Business Strategies

We believe the Recapitalization Transactions demonstrate both strong underlying values of our asset base, as well as confidence in our ability to execute our turnaround plan. We believe the recapitalization of our balance sheet has reset our financial footing and helps position us to execute the following business strategies:

Execute on Financial Strategy. The Recapitalization Transactions have significantly extended our debt capital structure with a five-year maturity, which provides us with a meaningful liquidity improvement to execute our turnaround strategy, including the next phase of our performance improvement plans. In April 2019, we announced a turnaround strategy focused on four key goals: cash flow and liquidity, capital structure, strategic balance sheet/portfolio review, and performance improvement from cost reductions and revenue enhancement;

Implementation of New Strategic Initiatives. We view our substantial and diverse asset base as a strength, but we have prioritized the ways in which we view our assets. We believe that by tiering operating units by class and contribution, initiating a divestiture plan for “lower tier” assets and prioritizing certain assets over others, we will be able to optimize results in our top tier properties and more efficiently manage our assets. From a portfolio review perspective, we continue to focus our resources on improving our “top tier” assets as we believe they possess the greatest potential for improved profitability. We are also minimizing costs and resources on our “lower-tier” assets to reduce the impact these assets have on profitability of the portfolio. Additionally, we continue to examine our portfolio to determine our strategies for core and non-core assets and evaluate the potential for realizing value through divestitures of non-core assets;

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

Complete C-Corporation Conversion. The Recapitalization Transactions, together with our cost structure and performance improvement efforts and the contemplated C-Corporation Conversion are important steps to revitalizing our business and positioning us for future success.

RESULTS OF OPERATIONS

We have two distinct reportable segments, Cemetery Operations and Funeral Home Operations, which are supported by corporate costs and expenses. As of January 1, 2018, the Partnership adopted the new Revenue Standard (“ASC 606”). 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. Under ASC 606, only incremental costs to obtain the contract will be deferred and all other cost will be expensed as incurred. Additionally, the Partnership will recognize revenue for the interment right upon the transfer of control to the customer, which will result in an earlier recognition of revenue under ASC 606.

Cemetery Operations

Overview

We are currently the second largest owner and operator of cemeteries in the United ~~States. At~~States of America. As of June 30, ~~2018,~~2019, we operated ~~322~~321 cemeteries in 27 states and Puerto ~~Rico,~~Rico. We own 291 of ~~which 291 were owned~~these cemeteries, and ~~31 were operated~~we manage or operate the remaining 30 under ~~lease,~~leases, operating agreements or management agreements. Revenues from our Cemetery Operations segment accounted for approximately ~~83%~~84% and ~~81%~~82% of our total revenues during the three and six months ended June 30, ~~2018, respectively.~~2019.

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Operating Results

Three Months Ended June 30, 2019 Compared to Three Months Ended June 30, 2018

The following table presents operating results for our Cemetery Operations segment for the three months ended June 30, 2019 and 2018 (in thousands):

	Three Months Ended June 30,
					Variance
	2019		2018		$				%
Interments	$	20,995	$	20,789	$	206				1	%
Merchandise		17,315		17,116		199				1	%
Services		17,365		17,737		(372	)			(2	%)
Interest income		1,954		2,418		(464	)			(19	%)
Investment and other		7,999		9,620		(1,621	)			(17	%)
Total revenues		65,628		67,680		(2,052	)			(3	%)
Cost of goods sold		10,843		13,086		(2,243	)			(17	%)
Cemetery expense		21,636		21,007		629				3	%
Selling expense		15,497		17,166		(1,669	)			(10	%)
General and administrative expense		10,958		10,163		795				8	%
Depreciation and amortization		1,920		2,111		(191	)			(9	%)
Total costs and expenses		60,854		63,533		(2,679	)			(4	%)
Segment operating profit	$	4,774	$	4,147	$	627		��		15	%

The following table presents supplemental operating data for the three months ended June 30, 2019 and 2018:

	Three Months Ended June 30,
					Variance
SUPPLEMENTAL DATA:	2019		2018		#			%
Interments performed		13,543		14,102		(559	)		(4	%)
Net interment rights sold ⁽¹⁾
Lots		7,196		8,941		(1,745	)		(20	%)
Mausoleum crypts (including pre-construction)		342		301		41			14	%
Niches		552		430		122			28	%
Total net interment rights sold ⁽¹⁾		8,090		9,672		(1,582	)		(16	%)
Number of pre-need cemetery contracts written		10,066		11,547		(1,481	)		(13	%)
Number of at-need cemetery contracts written		14,623		15,276		(653	)		(4	%)
Number of cemetery contracts written		24,689		26,823		(2,134	)		(8	%)

⁽¹⁾

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

Cemetery interments revenues were $21.0 million for the three months ended June 30, 2019, an increase of $0.2 million and 1% from $20.8 million for the three months ended June 30, 2018. The change was due to a decrease in promotional pricing with an impact of $1.0 million, an increase in pre-need mausoleum sales of $0.4 million and a net increase in revenue from various other products totaling $0.2 million. These increases were partially offset by a decrease in pre-need lot sales of $1.4 million resulting primarily from a bulk sale of several hundred lots in the prior year that did not recur in the current period.

Cemetery merchandise revenues were $17.3 million for the three months ended June 30, 2019, an increase of $0.2 million and 1% from $17.1 million for the three months ended June 30, 2018. The change was due to a decrease in promotional pricing with an impact of $0.5 million and a net increase in revenue from pre-need products totaling $0.3 million. These increases were partially offset by a net decrease in revenue from at-need products totaling $0.6 million.

Cemetery services revenues were $17.4 million for the three months ended June 30, 2019, a decrease of $0.4 million and 2% from $17.7 million for the three months ended June 30, 2018. The change was due to net decreases in revenue from pre-need and at-need products of $0.5 million and $0.2 million, respectively. These decreases were partially offset by a reduction in promotional pricing with an impact of $0.3 million.

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Interest income was $2.0 million for the three months ended June 30, 2019, a decrease of $0.5 million and 19% from $2.4 million for the three months ended June 30, 2018. The change was primarily due to a decrease in accounts receivable outstanding driven by the accelerated collection of pre-need receivables in 2018 and 2019.

Investment and other income was $8.0 million for the three months ended June 30, 2019, a decrease of $1.6 million and 17% from $9.6 million for the three months ended June 30, 2018. The change was due to a decrease in investment income of $1.4 million primarily due to a return to a normal level of investment activity, and land sales of $0.4 million in the prior period that did not recur in the current period. These decreases were partially offset by a net increase of $0.2 million in various other sources of investment and other income.

Cost of goods sold was $10.8 million for the three months ended June 30, 2019, a decrease of $2.2 million and 17% from $13.1 million for the three months ended June 30, 2018. The change was primarily due to decreased merchandise costs relating to markers and caskets, combined with lower costs on lots.

Cemetery expenses were $21.6 million for the three months ended June 30, 2019, an increase of $0.6 million and 3% from $21.0 million for the three months ended June 30, 2018. The change was due to an increase in landscaping and lawncare expense of $1.5 million combined with an increase in repairs and maintenance of $0.5 million. These increases were partially offset by a decrease in payroll and related taxes of $0.8 million and a net decrease in various other expenses of $0.6 million.

Selling expenses were $15.5 million for the three months ended June 30, 2019, a decrease of $1.7 million and 10% from $17.2 million for the three months ended June 30, 2018. The change was primarily due to a decrease in sales incentive compensation as a result of a decrease in contracts written in the second quarter of 2019, partially offset by a decrease in the deferral of sales incentive compensation.

General and administrative expenses were $11.0 million for the three months ended June 30, 2019, an increase of $0.8 million and 8% from $10.2 million for the three months ended June 30, 2018. The change was due to an increase in payroll and related taxes of $1.2 million associated with the implementation of a general manager operating model, partially offset by a net decrease in various other expenses of $0.4 million.

Depreciation and amortization expenses were $1.9 million for the three months ended June 30, 2019, a decrease of $0.2 million and 9% from $2.1 million for the three months ended June 30, 2018. The change was due to routine depreciation and amortization of the associated asset base.

Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018

The following table presents operating results for our Cemetery Operations segment for the ~~respective reporting periods~~six months ended June 30, 2019 and 2018 (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017						Variance
	As reported under FASB ASC 606		As reported under FASB ASC 605		As reported under FASB ASC 606		As reported under FASB ASC 605		2019		2018		$			%
Interments	$	20,789	$	19,641	$	40,414	$	37,620	$	36,939	$	40,414	$	(3,475	)		(9	%)
Merchandise		17,116		18,834		33,743		37,131		33,856		33,743		113			0	%
Services		17,737		18,619		34,228		35,132		33,332		34,228		(896	)		(3	%)
Interest income		2,418		2,070		4,552		4,299		3,776		4,552		(776	)		(17	%)
Investment and other		9,620		11,582		16,986		22,091		15,635		16,986		(1,351	)		(8	%)

Total revenues		67,680		70,746		129,923		136,273		123,538		129,923		(6,385	)		(5	%)

Cost of goods sold		13,086		12,043		26,521		25,562		20,586		26,521		(5,935	)		(22	%)
Cemetery expense		21,007		20,124		38,421		36,821		38,883		38,421		462			1	%
Selling expense		17,166		15,623		33,422		32,082		30,230		33,422		(3,192	)		(10	%)
General and administrative expense		10,163		9,753		21,121		19,710		22,397		21,121		1,276			6	%
Depreciation and amortization		2,111		2,298		4,185		4,559		3,882		4,185		(303	)		(7	%)

Total costs and expenses		63,533		59,841		123,670		118,734		115,978		123,670		(7,692	)		(6	%)

Segment income	$	4,147	$	10,905	$	6,253	$	17,539

Segment operating profit									$	7,560	$	6,253	$	1,307			21	%

~~Three Months Ended June 30, 2018 Compared to Three Months Ended June 30, 2017~~43

Table of Contents

~~Cemetery interment revenues were $20.8 million~~

The following table presents supplemental operating data for the ~~three~~six months ended June 30, ~~2018, an increase of $1.1 million from $19.6~~2019 and 2018:

	Six Months Ended June 30,
					Variance
	2019		2018		#			%
SUPPLEMENTAL DATA:
Interments performed		26,538		28,674		(2,136	)		(7	%)
Net interment rights sold ⁽¹⁾
Lots		11,681		15,477		(3,796	)		(25	%)
Mausoleum crypts (including pre-construction)	557			847		(290	)		(34	%)
Niches	890			859		31			4	%
Total net interment rights sold (1)		13,128		17,183		(4,055	)		(24	%)
Number of pre-need cemetery contracts written		18,500		21,709		(3,209	)		(15	%)
Number of at-need cemetery contracts written		27,872		30,003		(2,131	)		(7	%)
Number of cemetery contracts written		46,372		51,712		(5,340	)		(10	%)

⁽¹⁾

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

Cemetery interments revenues were $36.9 million for the ~~three~~six months ended June 30, ~~2017.~~2019, a decrease of $3.5 million and 9% from $40.4 million for the six months ended June 30, 2018. The ~~increase~~change was ~~primarily~~ due to ~~the adoption of ASC 606, accompanied by improvement in lot and mausoleum sales. Partially offsetting these increases was~~ a ~~decline inpre-need~~ ~~crypt sales, a return to a normal level of cancellations as there was a corresponding~~ decrease in ~~the cancellation reserve~~pre-need lots of $3.5 million resulting primarily from bulk sales of several hundred lots in the prior year that did not recur in the current period, ~~and~~combined with a net decrease in other pre-need revenues of $0.8 million, an increase in ~~discounts~~the cancellation reserve of $0.5 million and ~~promotions.~~a net decrease in at-need revenues of $0.4 million. These decreases were partially offset by a reduction in promotional pricing with an impact of $1.7 million.

Cemetery merchandise revenues were ~~$17.1~~$33.9 million for the ~~three~~six months ended June 30, ~~2018, a decrease~~2019, an increase of ~~$1.7~~$0.1 million and 0% from ~~$18.8~~$33.7 million for the ~~three~~six months ended June 30, ~~2017.~~ 2018. The change was due to a decrease in promotional pricing with an impact of $0.9 million, partially offset by net decreases in revenue from pre-need and at-need products of $0.3 million and $0.1 million, respectively, combined with an increase in the cancellation reserve contributing $0.4 million.

Cemetery ~~merchandise~~services revenues were ~~elevated in 2017 compared to~~$33.3 million for the six months ended June 30, 2019, a decrease of $0.9 million and 3% from $34.2 million for the six months ended June 30, 2018. The change was due to a decrease in at-need openings and closings of $1.4 million, combined with a net decrease in revenue from pre-need services of $0.2 million and an increase in the ~~current period~~cancellation reserve contributing $0.2 million. These decreases were partially offset by a decrease in promotional pricing with an impact of $0.5 million and an increase in revenues from the other at-need services of $0.4 million.

Interest income was $3.8 million for the six months ended June 30, 2019, a decrease of $0.8 million and 17% from $4.6 million for the six months ended June 30, 2018. The change was primarily due to a ~~return to a normal level of recognition of sales of contracts acquired through acquisitions andpre-need~~ ~~vaults, combined with a return to a normal level of cancellations as there was a corresponding~~ decrease in ~~the cancellation reserve in the prior year that did not recur in the current period. Partially offsetting the decrease was an increase inat-need~~ ~~marker sales and the impact of the adoption of ASC 606. The recognition of sales ofpre-need~~ ~~vaults during the three months ended June 30, 2017 was higher than normal due to constructive delivery of a largeback-log~~ of~~pre-need~~ ~~merchandise that became available to be serviced in that period.~~

Cemetery services revenues were $17.7 million for the three months ended June 30, 2018, a decrease of $0.9 million from $18.6 million for the three months ended June 30, 2017. The decrease was primarily due to a return to a normal level of recognition of sales of contracts acquired through acquisitions and~~pre-need~~ ~~openings and closings, partially offset~~accounts receivable outstanding driven by the ~~adoption~~accelerated collection of ~~ASC 606. The recognition of~~pre-need ~~opening~~ receivables in 2018 and ~~closing revenue during the three months ended June 30, 2017 was higher than normal due to constructive delivery of a largeback-log~~ of~~pre-need~~ ~~services that became available to be serviced in that period.~~

Interest income was $2.4 million for the three months ended June 30, 2018, an increase of $0.3 million from $2.1 million for the three months ended June 30, 2017. The increase was due to an increase in payments and a corresponding acceleration of interest received.2019.

Investment and other income was $9.6 million for the three months ended June 30, 2018, a decrease of $2.0 million from $11.6 million for the three months ended June 30, 2017. The decrease was primarily due to the adoption of ASC 606 which resulted in a reduction associated with the deferral of revenue from document fees. Partially offsetting the decrease was an increase in investment income and revenue from land sales.

Cost of goods sold was $13.1 million for the three months ended June 30, 2018, an increase of $1.0 million from $12.0 million for the three months ended June 30, 2017. The increase was primarily related to increases in the cost of vaults and caskets. Partially offsetting the increase were decreases in other products in line with decreases in the associated revenues and the adoption of ASC 606.

Cemetery expenses were $21.0 million for the three months ended June 30, 2018, an increase of $0.9 million from $20.1 million for the three months ended June 30, 2017. The increase was principally due to losses incurred on the disposal of fixed assets, increases in the scope and timing of landscaping services, an increase in property taxes resulting from a refund in the prior year that did not recur in the current period and higher employee benefits as a result of an increase in the number of high-cost medical claims. Partially offsetting these increases was a decrease in repairs and maintenance expenses.

~~Selling expenses were $17.2 million for the three months ended June 30, 2018, an increase of $1.5 million from~~ $15.6 million for the three months ended June 30, ~~2017. The increase was primarily the result of the adoption of ASC 606 and increases in payroll and compensation costs and advertising.~~

General and administrative expenses were $10.2 million for the three months ended June 30, 2018, an increase of $0.4 million from $9.8 million for the three months ended June 30, 2017. This increase was primarily due to increases in legal fees.

~~Depreciation and amortization expense was $2.1 million for the three months ended June 30, 2018,~~2019, a decrease of ~~$0.2~~$1.4 million ~~compared to $2.3 million for the three months ended June 30, 2017. This decrease was due to normal depreciation~~ and ~~amortization of the associated asset base.~~

~~Six Months Ended June 30, 2018 Compared to Six Months Ended June 30, 2017~~

~~Cemetery interment revenues were $40.4 million for the six months ended June 30, 2018, an increase of $2.8 million~~8% from ~~$37.6 million for the six months ended June 30, 2017. The increase was primarily due to the adoption of ASC 606 coupled with increases in lot andpre-need~~ ~~mausoleum sales. Partially offsetting these increases was a decrease inpre-need~~ ~~crypts and an increase in discounts and promotions.~~

Cemetery merchandise revenues were $33.7 million for the six months ended June 30, 2018, a decrease of $3.4 million from $37.1 million for the six months ended June 30, 2017. The decrease was primarily due to a return to a normal level of recognition of sales of~~pre-need~~ vaults and markers and contracts acquired through acquisitions, combined with a return to a normal level of cancellations as there was a decrease in the cancellation reserve in the prior year that did not recur in the current period. Partially offsetting these decreases was an increase in~~at-need~~ ~~marker revenues combined with the adoption of ASC 606. The recognition of sales ofpre-need~~ ~~vaults and markers and acquired contracts during the six months ended June 30, 2017 was higher than normal due to constructive delivery of a largeback-log~~ of~~pre-need~~ ~~merchandise that became available to be serviced.~~

Cemetery services revenues were $34.2 million for the six months ended June 30, 2018, a decrease of $0.9 million from $35.1 million for the six months ended June 30, 2017. The decrease was primarily due to a return to a normal level of recognition of sales of contracts acquired through acquisitions and~~pre-need~~ ~~openings and closings, partially offset by the adoption of ASC 606 andat-need~~ ~~marker installations. The recognition of contracts acquired andpre-need~~ ~~opening and closing revenue during the six months ended June 30, 2017 was higher than normal due to constructive delivery of a largeback-log~~ of~~pre-need~~ ~~services that became available to be serviced in that period.~~

Interest income was $4.6 million for the six months ended June 30, 2018, an increase of $0.3 million from $4.3 million for the six months ended June 30, 2017. The increase was due to an increase in payments and a corresponding acceleration of interest received.

~~Investment and other income was~~ $17.0 million for the six months ended June 30, ~~2018,~~2018. The change was due to land sales of $0.4 million in the prior period that did not recur in the current period combined with a net decrease of ~~$5.1~~$1.0 million ~~from $22.1~~in various other sources of investment and other income.

Cost of goods sold was $20.6 million ~~for~~ the six months ended June 30, ~~2017. The decrease was primarily due to the adoption of ASC 606 which resulted in a reduction associated with the deferral of revenue from document fees, combined with~~2019, a decrease ~~in land sales. Partially offsetting this decrease was an increase in investment income.~~

~~Cost~~ of ~~goods sold was~~$5.9 million and 22% from $26.5 million for the six months ended June 30, 2018. The change was primarily due to a decrease in revenues and vault inventory adjustments and impairments of $1.9 million recorded in the first quarter of 2018 ~~an increase of $1.0 million from $25.6~~that did not recur in the current period. These decreases were combined with decreased merchandise costs relating to markers and caskets and lower costs on lots.

Cemetery expenses were $38.9 million for the six months ended June 30, ~~2017. The~~2019, an increase ~~was primarily related to increases in the costs~~ of ~~vaults~~$0.5 million and caskets due to the impairment charge in the first quarter of 2018, partially offset by decreases in most products in line with decreases in the associated revenues, combined with the adoption of ASC 606.

~~Cemetery expenses were~~1% from $38.4 million for the six months ended June 30, ~~2018,~~2018. The change was due to an increase in landscaping and lawncare expense of ~~$1.6~~$1.3 million ~~from $36.8~~combined with an increase in repairs and maintenance of $0.7 million. These increases were partially offset by a decrease in payroll and related taxes of $1.5 million.

Selling expenses were $30.2 million for the six months ended June 30, ~~2017. The increase was primarily due to increase in scope~~2019, a decrease of $3.2 million and ~~timing of landscaping services, an increase in property taxes resulting~~10% from ~~a refund in the prior year that did not recur in the current period, losses incurred on the disposal of fixed assets and higher utility costs.~~

~~Selling expenses were~~ $33.4 million for the six months ended June 30, ~~2018, an increase~~2018. The change was due to a decrease in sales incentive compensation related to a decrease in contracts written in the current period, partially offset by a decrease in the deferral of ~~$1.3 million from $32.1~~sales compensation.

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General and administrative expenses were $22.4 million for the six months ended June 30, ~~2017. The~~2019, an increase ~~was primarily the result~~ of ~~the adoption of ASC 606~~$1.3 million and ~~increases in advertising and employee benefits resulting~~6% from ~~increased headcount. Partially offsetting these increases was a decrease in sales compensation related to the decrease in revenues.~~

~~General and administrative expenses were~~ $21.1 million for the six months ended June 30, ~~2018,~~2018. The change was due to an increase in payroll and related taxes of ~~$1.4~~$2.3 million ~~from $19.7~~associated with the implementation of a general manager operating model, partially offset by a decrease in legal fees of $0.7 million and a net decrease in various other expenses of $0.3 million.

Depreciation and amortization expenses were $3.9 million for the six months ended June 30, ~~2017. The increase was primarily due to increases in legal fees,~~2019, a decrease of $0.3 million and ~~an increase in payroll.~~

~~Depreciation and amortization expense was~~7% from $4.2 million for the six months ended June 30, ~~2018, a decrease of $0.4 million compared to $4.6 million for the six months ended June 30, 2017. This decrease~~2018. The change was ~~primarily~~ due to ~~normal~~ routine depreciation and amortization of the associated asset base.

Funeral Home Operations

Overview

AtAs of June 30, ~~2018,~~2019, we owned, ~~and~~ operated 92or managed 90 funeral ~~homes~~homes. These properties are located in 17 states and Puerto Rico. Revenues from Funeral Home Operations accounted for approximately ~~17%~~16% and 18% of our total revenues during the three and six months ended June 30, ~~2018.~~2019, respectively.

~~Operating Results~~Three Months Ended June 30, 2019 Compared to Three Months Ended June 30, 2018

The following table presents operating results for our Funeral Home Operations for the ~~respective reporting periods~~three months ended June 30, 2019 and 2018 (in thousands):

	Three Months Ended June 30,
					Variance
	2019		2018		$			%
Merchandise	$	6,073	$	6,522	$	(449	)		(7	%)
Services		6,794		7,369		(575	)		(8	%)
Total revenues		12,867		13,891		(1,024	)		(7	%)
Merchandise		1,014		1,108		(94	)		(8	%)
Services		5,459		5,582		(123	)		(2	%)
Depreciation and amortization		598		701		(103	)		(15	%)
Other		3,994		3,961		33			1	%
Total expenses		11,065		11,352		(287	)		(3	%)
Segment operating profit	$	1,802	$	2,539	$	(737	)		(29	%)

   Three Months Ended June 30,    Six Months Ended June 30,
   2018    2017    2018    2017
   As reported
under
FASB ASC
606    As reported
under
FASB ASC
605    As reported
under
FASB ASC
606    As reported
under
FASB ASC
605
Merchandise
   $ 6,522    $ 6,749    $ 13,951    $ 14,585
Services
   7,369    8,457    15,642    18,040








Total revenues
   13,891    15,206    29,593    32,625








Merchandise
   1,108    1,623    3,586    3,383
Services
   5,582    5,454    11,100    11,153
Depreciation and amortization
   701    810    1,414    1,616
Other
   3,961    4,987    9,001    10,332








Total expenses
   11,352    12,874    25,101    26,484








Segment income
   $ 2,539    $ 2,332    $ 4,492    $ 6,141

~~Three Months Ended June 30, 2018 Compared to Three Months Ended June 30, 2017~~

Funeral home merchandise revenues were $6.1 million for the three months ended June 30, 2019, a decrease of $0.4 million and 7% from $6.5 million for the three months ended June 30, ~~2018,~~2018. The change was primarily due to a decrease in the number of ~~$0.2 million from $6.7~~pre-need contracts that matured.

Funeral home services revenues were $6.8 million for the three months ended June 30, ~~2017. The decrease was primarily due to a return to a normal level of cancellations as there was~~2019, a decrease ~~in the cancellation reserve in the prior year that did not recur in the current period~~of $0.6 million and ~~the impact of divested properties. Partially offsetting these decreases were increases in casket revenues and increases in servicing ofpre-need~~ ~~contracts acquired through acquisitions.~~

~~Funeral home services revenues were~~8% from $7.4 million for the three months ended June 30, ~~2018,~~2018. The change was due to a decrease in the number of pre-need contracts that matured with an impact of $0.2 million, a decrease in the number of pre-need insurance contracts written with an impact to commission revenue of $0.2 million and a net decrease in various other funeral home service revenues of $0.2 million.

Funeral home expenses were $11.1 million for the three months ended June 30, 2019, a decrease of $0.3 million and 3% from $11.4 million for the three months ended June 30, 2018. The change was due to savings of $0.6 million achieved with the elimination of the insurance sales group, partially offset by the impact of properties divested since the prior period of $0.2 million combined with a net increase in various other expenses of $0.1 million.

Table of Contents

Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018

The following table presents operating results for our Funeral Home Operations for the six months ended June 30, 2019 and 2018 (in thousands):

	Six Months Ended June 30,
					Variance
	2019		2018		$			%
Merchandise	$	12,348	$	13,951	$	(1,603	)		(11	%)
Services		14,078		15,642		(1,564	)		(10	%)
Total revenues		26,426		29,593		(3,167	)		(11	%)
Merchandise		3,331		3,586		(255	)		(7	%)
Services		11,012		11,100		(88	)		(1	%)
Depreciation and amortization		1,186		1,414		(228	)		(16	%)
Other		7,624		9,001		(1,377	)		(15	%)
Total expenses		23,153		25,101		(1,948	)		(8	%)
Segment operating profit	$	3,273	$	4,492	$	(1,219	)		(27	%)

Funeral home merchandise revenues were $12.3 million for the six months ended June 30, 2019, a decrease of $1.6 million and 11% from $14.0 million for the six months ended June 30, 2018. The change was due to a decrease in the number of pre-need contracts that matured with an impact of $0.7 million, a decrease in revenues from at-need casket and vault sales of $0.4 million and a net decrease in revenues from various other products and divestitures of $0.5 million.

Funeral home services revenues were $14.1 million for the six months ended June 30, 2019, a decrease of $1.6 million and 10% from $15.6 million for the six months ended June 30, 2018. The change was due to a net decrease in at-need services of $0.6 million, a decrease in the number of pre-need insurance contracts written with an impact to commission revenue of $0.5 million, a decrease in the number of pre-need contracts that matured with an impact of $0.2 million and a net decrease in revenues from various other products and divestitures of $0.3 million.

Funeral home expenses were $23.2 million for the six months ended June 30, 2019, a decrease of $1.9 million and 8% from $25.1 million for the six months ended June 30, 2018. The change was due to savings of $1.6 million achieved with the elimination of the insurance sales group, a decrease in depreciation and amortization of $0.2 million due to routine depreciation and amortization of the associated asset base and a net decrease in various other expenses of $0.1 million.

Corporate

Operating Results

Three Months Ended June 30, 2019 Compared to Three Months Ended June 30, 2018

Corporate Overhead

We categorize corporate overhead as the following:

payroll related to employees operating at the corporate headquarters;

professional fees primarily consisting of legal fees, auditing and accounting fees, and fees for other third party service providers;

information technology;

stock compensation; and

expenses to operate the corporate headquarters.

In the current and prior year we incurred a number of expenses that are likely to not recur. They primarily consisted of severance from corporate reductions in force, C-Corporation conversion fees, ASC 606 implementation costs, financial advisory fees, executive placement fees and retention incentives, and are summarized in the following table:

Table of Contents

	Three Months Ended June 30,
					Variance
	2019		2018		$			%
Corporate overhead	$	13,137	$	15,165	$	(2,028	)		(13	%)
Non-recurring adjustments
Severance		512		631		(119	)		(19	%)
C-Corporation Conversion fees		217		805		(588	)		(73	%)
Other professional fees		678		1,658		(980	)		(59	%)
Total non-recurring adjustments		1,407		3,094		(1,687	)		(55	%)
Corporate overhead, adjusted	$	11,730	$	12,071	$	(341	)		(3	%)

Corporate overhead expense was $13.1 million for the three months ended June 30, 2019, a decrease of $2.0 million and 13% from $15.2 million for the three months ended June 30, 2018. The change was due to the following:

savings in payroll and benefits of $1.3 million resulting primarily from a reduction in workforce earlier in the year;

a reduction in professional fees of $1.1 million primarily resulting from completion of the ASC 606 implementation project and fees paid to an interim executive in the prior year that were not incurred in the current period;

a decrease of $0.6 million in various other expenses;

an increase in legal settlements of $0.5 million; and

an increase in stock compensation of $0.5 million.

Corporate Depreciation and Amortization

Depreciation and amortization expense was $0.20 million for the three months ended June 30, 2019, a decrease of $0.06 million and 23% from $0.26 million for the three months ended June 30, 2018. The change was due to routine depreciation and amortization of the associated asset base.

Other Losses, Net

Other losses, net was $3.4 million for the three months ended June 30, 2019 and consisted of a $2.1 loss on the termination of a management agreement and a $1.3 million impairment of cemetery property. For the three months ended June 30, 2018 there were no other gains or losses.

Interest Expense

Interest expense was $9.3 million for the three months ended June 30, 2019, an increase of $1.2 million and 15% from $8.1 million for the three months ended June 30, 2018. The change was due to the following:

an increase of $2.2 million related to higher interest and increased borrowings on the revolving credit facilities;

an increase of $0.5 million related to the senior notes;

an increase of $0.4 million due to increases in deferred financing fees; and

a decrease of $1.9 million related to the reversal of the accrued ticking fee under the revolving credit facilities.

Loss on Debt Extinguishment

Loss on debt extinguishment was $8.5 million for the three months ended June 30, ~~2017. The decrease was due~~2019. This related to ~~a decrease in insurance commissions resulting from shifting focus topre-need~~ ~~trusting, a return to a normal level~~the write-off of ~~cancellations as~~deferred financing fees of $6.9 million and original issue discounts of $1.6 million associated with the refinancing of the senior notes and revolving credit facilities. For the three months ended June 30, 2018 there was a decrease in the cancellation reserve in the prior year that did not recur in the current period, and the impact of divested properties. Partially offsetting these decreases were increases in the volume of funeral home services.no loss on debt extinguishment.

~~Funeral home expenses were $11.4~~Income Tax Benefit (Expense)

Income tax expense was $6.4 million for the three months ended June 30, ~~2018, a decrease of $1.5~~2019 compared to $0.2 million ~~from $12.9 million~~ forthe three months ended June 30, 2018. The deferred tax provision increased in the three months ended June 30, ~~2017. The decrease was~~2019 due to ~~lower insurance operation expenses resulting from changes in~~IRC Section 382 limitations created by the compensation plan and more closely integrating the operations with those of the funeral homes, combined with the impact of divested locations, lower costs of merchandise, and a decrease in advertising expenses. Partially offsetting these decreases were increases in payroll and employee benefits.

~~Six Months Ended June 30, 2018 Compared~~Preferred Offering on our ability to ~~Six Months Ended June 30, 2017~~

~~Funeral home merchandise revenues were $14.0 million~~use our net operating loss carryovers to offset existing deferred tax liabilities. The income tax expense for the ~~six months~~quarter ended June 30, 2018 ~~a decrease of $0.6 million from $14.6 million for the six months ended June 30, 2017. The decrease~~ was primarily due to the impact of divested properties combined with a return to a normal level of cancellations as there was a release of the cancellation reserve in the prior year that did not recur in the current period. Partially offsetting these decreases was an increase in casket revenues.

Funeral home services revenues were $15.6 million for the six months ended June 30, 2018, a decrease of $2.4 million from $18.0 million for the six months ended June 30, 2017. The decrease was due to a decrease in insurance commissions resulting from shifting focus to~~pre-need~~ trusting, a return to a normal level of cancellations as there was a release of the cancellation reserve in the prior year that did not recur in the current period, the impact of divested properties, and the adoption of ASC 606. Partially offsetting these decreases were increases in the volume of~~at-need~~ ~~funeral home services.~~

Funeral home expenses were $25.1 million for the six months ended June 30, 2018, a decrease of $1.4 million from $26.5 million for the six months ended June 30, 2017. The decrease was due to lower insurance operation expenses resulting from changes in the compensation plan and more closely integrating the operations with those of the funeral homes, combined with the impact of divested locations and associated decrease in depreciation and amortization, and a decrease in advertising expenses. Partially offsetting these decreases were increases in the cost of merchandise and wages.

~~Corporate Overhead~~

Corporate overhead was $15.2 million for the three months ended June 30, 2018, a decrease of $0.9 million from $16.1 million for the three months ended June 30, 2017. The decrease was primarily due to a decrease in professional fees resulting from the completion of a review of our deferred contracts in the prior year, combined with a decrease in recruiting costs resulting from less turnover in management. Partially offsetting these decreases were increases in stock compensation and payroll and related costs.

Corporate overhead was $27.0 million for the six months ended June 30, 2018, a decrease of $0.2 million from $27.2 million for the six months ended June 30, 2017. The decrease was primarily due to a decrease in professional fees resulting from the completion of a review of our deferred contracts in the prior year, combined with a decrease in recruiting costs resulting from less turnover in management. Partially offsetting these decreases were increases in stock compensation and payroll and related costs, and a decrease in~~non-recurring~~ ~~rebates and discounts.~~

~~Corporate Depreciation and Amortization~~

Depreciation and amortization expense was relatively consistent with the prior quarterly period, with $0.3 million for the three months ended June 30, 2018, compared to $0.3 million for the three months ended June 30, 2017.

Depreciation and amortization expense was $0.5 million for the six months ended June 30, 2018, compared to $0.7 million for the six months ended June 30, 2017. The decrease was due to depreciation booked in the first quarter of 2017 related to fully depreciating assets in 2017.

~~Other Losses~~

There were no other losses to report for the three months ended June 30, 2018. Other losses were $1.1 million for the three months ended June 30, 2017, related to a $1.4 million loss on impairment of long-lived assets, partially offsetdriven by ~~a $0.3 million gain from the sale of a funeral home business and a separate funeral home building.~~

Other losses were $5.2 million for the six months ended June 30, 2018 an increase of of $4.1 million from other losses of $1.1 million for the six months ended June 30, 2017. Other losses increased due to the impairment charge in the first quarter of 2018 related to the allocated damaged merchandise of approximately $5.0 million. Other losses for the six months ended June 30, 2017, related to a $1.4 million loss on impairment of long-lived assets, partially offset by a $0.3 million gain from the sale of a funeral home business and a separate funeral home building during the second quarter of 2017.

~~Interest Expense~~

Interest expense was $8.1 million for the three months ended June 30, 2018, an increase of $1.4 million from $6.7 million for the three months ended June 30, 2017. This was principally due to a higher weighted average interest rate and higher weighted average line of credit balance outstanding for the three months ended June 30, 2018 compared to the three months ended June 30, 2017.

Interest expense was $15.2 million for the six months ended June 30, 2018, an increase of $1.8 million from $13.4 million for the six months ended June 30, 2017. The increase was principally due to a higher weighted average interest rate and higher weighted average line of credit balance outstanding for the six months ended June 30, 2018 compared to the six months ended June 30, 2017.

~~Income Tax Benefit (Expense)~~

Income tax expense was $0.2 million for the three months ended June 30, 2018, compared to income tax expense of $0.7 million for the three months ended June 30, 2017. This change was due to benefits arising from the 2017 Tax Act which allowed us to reduce deferred taxes on ~~life-long deferred tax liabilities with 2018 net operating losses.~~management fee income. Our effective tax rate differs from our statutory tax rate primarily, because our legal entity structure includes different tax filing entities, including apartnerships with significant ~~number of partnerships~~income that are not subject to ~~paying tax.~~entity level income taxes.

~~Income tax benefit~~

Table of Contents

Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018

Corporate Overhead

The following table summarizes our corporate overhead by expense category for the six months ended June 30, 2019 and 2018 (in thousands):

	Six Months Ended June 30,
						Variance
	2019			2018		$			%
Corporate overhead	$	26,550		$	26,992	$	(442	)		(2	%)
Non-recurring adjustments
Severance		1,073			1,143		(70	)		(6	%)
C-Corporation Conversion fees		534			1,019		(485	)		(48	%)
Other professional fees		2,939			2,581		358			14	%
Total non-recurring adjustments		4,546	��		4,743		(197	)		(4	%)
Corporate overhead, adjusted	$	22,004		$	22,249	$	(245	)		(1	%)

Corporate overhead expense was ~~$2.2~~$26.6 million for the six months ended June 30, ~~2018, change~~2019, a decrease of ~~$3.7~~$0.4 million and 2% from ~~income tax expense of $1.5~~$27.0 million for the six months ended June 30, ~~2017. This~~2018. The change was due to the following:

savings in payroll and benefits of $1.7 million resulting from a reduction in workforce earlier in the year;

a decrease of $1.0 million in various other expenses, with the largest being recruiting and telecommunications;

an increase in professional fees of $0.7 million primarily resulting from fees paid to a financial advisor and fees paid related to the potential C-Corporation Conversion, partially offset by fees paid to an interim executive in the prior year that were not incurred in the current period and completion of the ASC 606 implementation project;

an increase in stock compensation expense of $0.7 million; and

an increase in legal settlements of $0.9 million.

Corporate Depreciation and Amortization

Depreciation and amortization expense was $0.41 million for the six months ended June 30, 2019, a decrease of $0.11 million and 21% from $0.52 million for the six months ended June 30, 2018. The change was due to ~~benefits arising~~routine depreciation and amortization of the associated asset base.

Other Losses, Net

Other losses, net was $3.4 million for the six months ended June 30, 2019, a decrease of $1.8 million and 34% from $5.2 million for the ~~2017~~six months ended June 30, 2018. Other losses, net for the six months ended June 30, 2019 consisted of a $2.1 loss on the termination of a management agreement and a $1.3 million impairment of cemetery property. Other losses, net for the six months ended June 30, 2018 consisted primarily of losses related to damaged merchandise of approximately $5.0 million.

Interest Expense

Interest expense was $22.5 million for the six months ended June 30, 2019, an increase of $7.3 million and 48% from $15.2 million for the six months ended June 30, 2018. The change was due to the following:

an increase of $3.7 million due to increases in, and write-off of, deferred financing fees;

an increase of $3.1 million related to higher interest and increased borrowings on the revolving credit facilities; and

an increase of $0.5 million related to the senior notes.

Loss on Debt Extinguishment

Loss on debt extinguishment was $8.5 million for the six months ended June 30, 2019. This related to the write-off of deferred financing fees of $6.9 million and original issue discounts of $1.6 million associated with the refinancing of the senior notes and revolving credit facilities. For the six months ended June 30, 2018 there was no loss on debt extinguishment.

Table of Contents

Income Tax Expense

Income tax expense was $6.4 million for the six months ended June 30, 2019 compared to $2.2 million income tax benefit for the six months ended June 30, 2018. The deferred tax provision increased in the three months ended June 30, 2019 due to IRC Section 382 limitations created by the Preferred Offering on our ability to use our net operating loss carryovers to offset existing deferred tax liabilities. The benefit for the six months ended June 30, 2018 was primarily driven by changes in the Tax Act ~~which~~with allowed usthe Partnership to ~~reduce deferred taxes on life-long~~use post December 31, 2017 net operating losses against long life deferred tax ~~liabilities with 2018 net operating losses.~~liabilities. Our effective tax rate differs from our statutory tax rate primarily, because our legal entity structure includes different tax filing entities, including apartnerships with significant ~~number of partnerships~~income that are not subject to entity level income ~~tax.~~

~~Supplemental Data~~

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

   Three Months Ended June 30,    Six Months Ended June 30,
   2018    2017    2018    2017
Interments performed
   14,102    13,627    28,674    28,057
Interment rights sold⁽¹⁾

Lots
   8,941    8,604    15,477    15,856
Mausoleum crypts (includingpre-construction)
   301    553    847    1,083
Niches
   430    492    859    962








Net interment rights sold⁽¹⁾
   9,672    9,649    17,183    17,901








Number ofpre-need cemetery contracts written
   11,547    12,087    21,709    23,523
Number ofat-need cemetery contracts written
   15,276    15,575    30,003    30,859








Number of cemetery contracts written
   26,823    27,662    51,712    54,382

⁽¹⁾	~~Net of cancellations. Sales of double-depth burial lots are counted as two sales.~~

LIQUIDITY AND CAPITAL RESOURCES

General

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

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 “Critical Accounting Policies and Estimates” regarding revenue recognition),~~ which will reduce the amount of additional ~~borrowings;~~borrowings or asset sales needed; and

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

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

we have continued to incur net losses for the three and six months ended June 30, 2019 and have an accumulated deficit and negative cash flow from operating activities as of June 30, 2019, due to an increased competitive environment, increased expenses due to the proposed C-Corporation Conversion and increases in professional fees and compliance costs; and

•

net losses from operations due to an increased competitive environment, an increase in professional fees and compliance costs and an increase in consulting fees associated with our adoption of the Accounting Standard Codification (“ASC”) 606,~~Revenue from Contracts with Customers~~~~incurred in the year ended December 31, 2017 and the three and six months ended June 30, 2018;~~

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

~~our failure to comply with certain covenants of our Credit Agreement (as defined below), as amended due to our inability to complete timely filings of our Annual Reports on Form10-K~~ ~~and Quarterly Reports on Form10-Q,~~ exceeding the maximum consolidated leverage ratio financial covenant for the periods ended December 31, 2017 and March 31, 2018, exceeding the maximum consolidated secured net leverage ratio financial covenant for the periods ended June 30, 2018, September 30,During 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 previously disclosed in the credit facility subsection in Note 1 and Note 9, these failures constituted defaults that our lenders agree to waive.

~~During 2017 and to date in 2018,~~2019, we ~~have~~ implemented (and will continue to implement) various actions to improve ~~our~~ profitability and cash flows to fund operations. ~~When considered in the aggregate, we believe these actions will alleviate substantial doubt about the Partnership’s ability to continue as a going concern over the next twelve-month period.~~ A summary of these actions is as follows:

continue to manage ~~our~~ recurring operating expenses ~~including the January 2019 Restructuring Actions as disclosed in Note 17 Subsequent Events~~ and seek to limit ~~our~~non-recurring operating expenses over the next twelve-month period; and

identify and complete sales of certain assets and businesses to provide supplemental ~~liquidity as disclosed in Note 1 to the Partnership’s consolidated financial statements included in Part II, Item 8. Financial Statements and Supplementary Data and pursuant to the amendment~~liquidity.

Table of ~~our credit facility as further described below; and~~Contents

for the reasons disclosed above, we were not in compliance with certain of our debt 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 our credit facility on June 12, 2018, July 13, 2018 and February 4, 2019, respectively. Refer to the credit facility subsection under the “Long-Term Debt” section below for a more detailed discussion of these amendments. Moreover, basedBased on our forecasted operating performance, planned actions to improve profitability, cash flows and projected plans to file financial statements on a timely basis consistent with ~~our amended credit facility~~the debt covenants, we do not believe it is probable that we will ~~further~~ breach ~~our~~the covenants under the ~~amended credit facility~~Indenture for the next twelve-month period. However, there is no certainty that our actual operating performance and cash flows will not be substantially different from forecasted results, and no certainty we will not need ~~further~~ amendments to ~~our credit facility~~the Indenture in the future. Factors that could impact the significant assumptions used by ~~the Partnership~~us in assessing our ability to satisfy ~~our~~its financial covenants include the following:

operating performance not meeting reasonably expected forecasts;

failing to generate profitable sales;

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

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

the number of deaths in our markets declining; and

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

If our planned, implemented and not yet implemented actions are not completed or implemented and cash savings are not realized, ~~and~~or we fail to improve our operating performance and cash flows or we are not able to comply with the covenants under ~~our amended credit facility,~~the Indenture, we may be forced to limit our business activities, limit our ability to implement further modifications to our operations ~~further~~or limit the effectiveness of some actions that are included in our forecasts, amend ~~our credit facility~~the Indenture and/or seek other sources of capital, and we may be unable to continue as a going concern. ~~Any of these events may have~~Additionally, a ~~material adverse effect on~~failure to generate additional liquidity could negatively impact our ~~results of operations and financial condition. The consolidated financial statements included in this Quarterly Report on Form10-Q~~ ~~do not include any adjustments~~access to inventory or services that ~~might result from~~are important to the ~~outcome of these uncertainties.~~

In addition, we believe the Partnership will have sufficient liquid assets, cash from operations and borrowing capacity to meet its financial commitments, debt service obligations, contingencies and anticipated capital expenditures for at least the next twelve-month period. However, as disclosed in Part I, Item 1A. Risk Factorsoperation of our ~~2017 Annual Report on Form10-K,~~ ~~and Item 8.01 of~~business. Given our Current Report on Form 8-K filed on February 4, 2019, the Partnership is subject to business, operational and other risks that could adversely affect its operating performance, cash flows and filing timeliness. Accordingly, should any of these risk factors come to fruition over the next twelve-month period, we may need to seek to continue to supplement cash generation with proceeds from financing activities, including borrowings under the credit facility and other borrowings, the issuance of additional limited partner units subject to compliance with applicable securities laws and the terms of our senior credit facility, capital contributions from our general partner and the sale of assets and other transactions. We continually monitor the Partnership’s financial position, liquidity and credit facility financial covenants to determine the likelihood of shortfalls in future reporting periods.

~~Cash Flows—Six Months Ended June 30, 2018 Compared to Six Months Ended June 30, 2017~~

Net cash provided by operating activities was $15.4 million during the six months ended June 30, 2018 and was consistent with $15.5 million during the six months ended June 30, 2017. For the six months ended June 30, 2018, the primary driver of cash flows from operating activities was the change in deferred revenues. For the six months ended June 30, 2017, the primary driver of cash flows from operating activities was the change in our merchandise trust principally due to the liquidation of merchandise trusts assets, offset by a corresponding decrease in deferred revenue.

Net cash used in investing activities was $8.5 million during the six months ended June 30, 2018, an increase of $6.0 million from $2.5 million used in investing activities during the six months ended June 30, 2017. Net cash used in investing activities during the six months ended June 30, 2018 consisted of $7.6 million used for capital expenditures and $0.8 million used for acquisitions. Net cash used in investing activities during the six months ended June 30, 2017 principally consisted of $3.3 million used for capital expenditures.

Net cash provided by financing activities was $1.2 million for the six months ended June 30, 2018 compared to net cash used in financing activities of $18.8 million for the six months ended June 30, 2017. Net cash provided by financing activities during the six months ended June 30, 2018 consisted primarily of $4.0 million of net proceeds from borrowings, partially offset by $2.8 million of costs related to financing activities. Net cash used in financing activities during the six months ended June 30, 2017 consisted primarily of $24.5 million of cash distributions and $0.8 million of costs related to financing activities, partially offset by $6.5 million of net borrowings.

~~Capital Expenditures~~

~~Our capital requirements consist primarily of:~~

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

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

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

   Three Months Ended June 30,    Six Months Ended June 30,
   2018    2017    2018    2017
Maintenance capital expenditures
   $ 1,113    $ 786    $ 2,157    $ 1,615
Expansion capital expenditures
   2,144    1,029    5,469    1,696








Total capital expenditures
   $ 3,257    $ 1,815    $ 7,626    $ 3,311

~~Long-Term Debt~~

~~Credit Facility~~

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

Prior to the Eighth Amendment the Amended Credit Agreement provides for up to $175.0 million initial aggregate amount of Revolving Commitments, which are subject to borrowing base limitations. Under the Eighth Amendment, the Partnership can no longer draw on Revolving Commitments under the Tranche A Revolving Credit Facility but had availability of $ $20 million under the Tranche B Revolving Credit Facility (in addition to amounts drawn on February 4, 2019), which may be utilized in the amount of $5.0 million (or integral multiple thereof) from time to time until April 30, 2019, provided that borrowings on the last $10 million, which would result in the outstanding principal amount of the Tranche B Revolving Credit Facility being in excess of $25.0 million, would require that the Partnership receive a fairness opinion with respect to the Tranche B Revolving Credit Facility. The Operating Company may also request the issuance of Letters of Credit for up to $9.4 million (plus an amount equal to the principal amount of Tranche A Revolving Loans subject to the optional prepayment after the Eighth Amendment Effective Date) in the aggregate, of which there were $9.4 million outstanding at June 30, 2018 and $7.5 million outstanding at December 31, 2017. The Maturity Date under the Amended Credit Agreement is the earlier of (i) May 1, 2020 and (ii) the date that is six months prior to the earliest scheduled maturity date of any outstanding Permitted Unsecured Indebtedness (at present, such date is December 1, 2020, which is six months prior to June 1, 2021 maturity date of outstanding 7.875% senior notes).

As of June 30, 2018, the outstanding amount of borrowings under the Amended Credit Agreement was $156.9 million, which was used to pay down outstanding obligations under the Partnership’s prior credit agreement, to pay fees, costs and expenses related to the New Agreements and to fund working capital needs. Generally, proceeds of the Loans made under the Tranche A Revolving Credit Facility under the Amended Credit Agreement could be used to finance the working capital needs and for other general corporate purposes of the Borrowers and Guarantors, including acquisitions and distributions permitted under the Amended Credit Agreement. Proceeds of the Loans made under the Tranche B Revolving Credit Facility under the Amended Credit Agreement can be used to finance the working capital needs and for other general corporate purposes of the Borrowers and Guarantors, and to pay fees and expenses related to the Tranche B Revolving Credit Facility. On the Eighth Amendment Effective Date, no part of the proceeds of loans made under the Tranche B Revolving Credit Facility may be used to make any payment of principal on the Tranche A Revolving Loans.

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

The Applicable Rate is as follows: 4.50% for Eurodollar Rate Loans and 3.50% for Base Rate Loans from February 4, 2019 to February 28, 2019; 4.75% and 3.75%, respectively, from March 1, 2019 to March 31, 2019; 5.50% and 4.50%, respectively, from April 1, 2019 to April 30, 2019; 5.75% and 4.75%, respectively, from May 1, 2019 to May 31, 2019; and 6.00% and 5.00%, respectively, from June 1, 2019. As of June 30, 2018, the Applicable Rate for Eurodollar Rate Loans was 3.75% and for Base Rate Loans was 2.75%. On June 30, 2018, the weighted average interest rate on outstanding borrowings under the Amended Credit Agreement was 6.70%.

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

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

~~Senior Notes~~

On May 28, 2013, 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 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 are being amortized over the life of the Senior Notes. The Senior Notes mature on June 1, 2021.

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

Year
   Percentage
2018
   101.969 %
2019 and thereafter
   100.000 %

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

The Senior Notes are jointly and severally guaranteed by certain of our subsidiaries. The Indenture governing the Senior Notes contains covenants, including limitations of our ability to incur certain additional indebtedness and liens, make certain dividends, distributions, redemptions or investments, enter into certain transactions with affiliates, make certain asset sales, and engage in certain mergers, consolidations or sales of all or substantially all of our assets, among other items. As of June 30, 2018, we were in compliance with these covenants.

~~Cash Distributions Policy~~

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

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

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

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

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

On April 28, 2017, we announced a quarterly cash distribution of $0.33 per common unit pertaining to the results for the first quarter of 2017. The distribution was paid on May 15, 2017 to common unit holders of record as of the close of business on May 8, 2017. A part of or all of this quarterly cash distribution may be deemed to have been a return of capital for our limited partners if such quarterly cash distribution, when combined with all other cash distributions made during the calendar year, exceeds the partner’s share of taxable income for the corresponding period, depending upon the individual limited partner’s specific tax position. Because the Partnership’s general and limited partner interests have cumulative net losses as of the end of the period, the distribution represented a return of capital to those interests in accordance with US GAAP.

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

~~We anticipate~~ Any of these events may have a material adverse effect on our results of operations and financial condition. Our ability to meet our obligations at June 30, 2019, and to continue as a going concern, is dependent upon achieving the action plans noted above. The unaudited condensed consolidated financial statements for the three and six months ended June 30, 2019 were prepared on the basis of a going concern, which contemplates that we will ~~use~~be able to realize assets and discharge liabilities in the normal course of business. Accordingly, they do not give effect to adjustments, if any, that would be necessary should we be required to liquidate its assets.

Goodwill

The Partnership’s goodwill balance was $24.9 million at June 30, 2019 and December 31, 2018, which management determined was lower than the associated reporting unit’s fair value. The Partnership continues to experience unfavorable operating results and is monitoring the impact that these unfavorable operating results could have on the conclusion that its goodwill is not impaired. It is possible that continued negative operating trends could change the Partnership’s conclusion regarding whether or not goodwill is impaired.

Cash Flows

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

	Six Months Ended June 30,
	2019			2018
Net cash (used in) provided by operating activities	$	(31,572	)	$	15,404
Net cash used in investing activities		(3,588	)		(8,459	)
Net cash provided by financing activities		78,967			1,213

Significant sources and uses of cash during the six months ended June 30, 2019 and 2018

Operating Activities

Net cash used in operations was $31.6 million for the six months ended June 30, 2019 compared to $15.4 million of net cash provided by operations during the six months ended June 30, 2018. The increase in cash outflows of $47.0 million was primarily due to the following:

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Change in cash from ~~borrowings or asset sales during this period for~~accounts payable and accrued liabilities – $13.2 million: We aggressively managed our working capital in 2018 to maximize cash flows. Upon completion of the Recapitalization Transaction, we made a significant paydown on our payables.

Cash interest – $4.1 million: Cash interest increased as we incurred more debt from the amended credit facility which had higher debt service costs.

Impact of early payoff – $7.7 million: In order to improve the liquidity profile of the business in 2018, we ran an early payoff program. The early payoff program offered customers with outstanding pre-need receivable contracts the opportunity to pre-pay their outstanding balance at a 15% discount. This resulted in $7.7 million of net cash flow in the first half of 2018.

Merchandise trust distributions – $5.0 million: We distributed $5.0 million of excess income in our merchandise trust in the first half of 2018. This distribution was viewed as non-recurring in nature.

Contraction in sales production, non-recurring expenses and other working capital items – $17.0 million: Our cash flow profile was further impacted by the continued decline in sales production, incurrence of non-recurring expenses and the impact of other working capital items.

Investing Activities

Net cash used in investing activities for the six months ended June 30, 2019 was $3.6 million as compared to $8.5 million in the comparable 2018 period. The cash used in investing activities for the six months ended June 30, 2019 was primarily attributable to capital expenditures of $4.8 million for purchases of property, plant and equipment, offset by proceeds from the termination of one of our management agreements of $1.3 million. Net cash used in investing activities during the six months ended June 30, 2018 consisted of $7.6 million used for capital expenditures and ~~provide a reserve~~$0.8 million used for acquisitions.

Financing Activities

Net cash provided by financing activities for the six months ended June 30, 2019 increased $77.8 million from the six months ended June 30, 2018 to ~~enhance~~$79.0 million, primarily due to net proceeds of $406.1 million and $57.5 million from the issuance of the Senior Secured Notes and the Preferred Offering, respectively, which were both related to our ~~financial condition relative~~comprehensive recapitalization, as described in Note 8 Long-Term Debt and Note 9 Redeemable Convertible Preferred Units and Partners’ Deficit of the Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. These investing proceeds were offset by the repayment in full of the prior senior notes and revolving credit facilities of $366.5 million, the payment of $17.4 million in financing costs related to the ~~financial covenants~~debt refinancing and debt amendments and principal payments of $0.7 million for our finance leases. Net cash provided by financing activities during the six months ended June 30, 2018 consisted primarily of $4.0 million of net proceeds from borrowings, partially offset by $2.8 million of financing costs.

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Maintenance capital expenditures	$	81	$	1,113	$	1,093	$	2,157
Expansion capital expenditures		2,854		2,144		3,745		5,469
Total capital expenditures	$	2,935	$	3,257	$	4,838	$	7,626

Contractual Obligations

In the normal course of business, we enter into various contractual and contingent obligations that impact or could impact our liquidity. The table below contains the significant changes from the Contractual Obligations disclosed in our Annual Report filed on Form 10-K filed on April 3, 2019. The changes are reflective of the ~~Amended Credit Agreement.~~refinancing of our senior notes and the issuance of our Senior Secured Notes (in thousands):

	Total		2019		2020-2022		2023-2025		2026+
Contractual Obligations:
Debt⁽¹⁾	$	714,744	$	22,994	$	145,538	$	546,212	$	—
Total	$	714,744	$	22,994	$	145,538	$	546,212	$	—

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~~Agreements~~

⁽¹⁾

Represents the interest payable and par value of our Senior Secured Notes (as defined herein) due and does not include the unamortized debt discounts of $14.3 million at June 30, 2019. This table assumes that we pay the fixed rate of 7.50% per annum in cash plus the fixed rate of 4.00% per annum payable in kind through January 30, 2022 and that current principal amounts outstanding under the Senior Secured Notes are not repaid until the maturity date of June 30, 2024.

Long-Term Debt and Redeemable Convertible Preferred Units

Senior Secured Notes

On June 27, 2019, StoneMor Partners L.P., Cornerstone Family Services of West Virginia Subsidiary, Inc. and, collectively with the ~~Archdiocese~~Partnership, certain direct and indirect subsidiaries of ~~Philadelphia~~

~~In accordance~~the Partnership, the initial purchasers party thereto and Wilmington Trust, National Association, as trustee and as collateral agent, entered into an indenture with respect to the ~~lease and management agreements with the Archdiocese of Philadelphia, we have agreed to pay the Archdiocese aggregate fixed rent of $36.0 million in the following amounts:~~9.875%/11.500% Senior Secured PIK Toggle Notes due 2024.


~~Lease Years1-5~~ ~~(May 28, 2014 - May 31, 2019)~~			~~None~~
~~Lease Years6-20~~ ~~(June 1, 2019 - May 31, 2034)~~			~~$1,000,000 per Lease Year~~
~~Lease Years21-25~~ ~~(June 1, 2034 - May 31, 2039)~~			~~$1,200,000 per Lease Year~~
~~Lease Years26-35~~ ~~(June 1, 2039 - May 31, 2049)~~			~~$1,500,000 per Lease Year~~
~~Lease Years36-60~~ ~~(June 1, 2049 - May 31, 2074)~~			~~None~~

~~The fixed rent for lease years 6 through 11,~~For further detail on our Senior Secured PIK Toggle Notes due 2024, see Note 8 Long-Term Debt of Part I, Item 1. Financial Statements (Unaudited) of this Quarterly Report on Form 10-Q.

Redeemable Convertible Preferred Units

On June 27, 2019, funds and accounts affiliated with Axar Capital Management LP and certain other investors (individually a “Purchaser” and collectively the “Purchasers”) and the Partnership entered into the Series A Preferred Unit Purchase Agreement (the “Series A Purchase Agreement”) pursuant to which the Partnership sold to the Purchasers an aggregate of ~~$6.0 million, is deferred. If, prior to May 31, 2024,~~52,083,333 of the ~~Archdiocese terminates~~Partnership’s Series A Preferred Units (the “Preferred Units”) representing limited partner interests in the ~~agreements~~Partnership with certain rights, preferences and privileges as are set forth in the Partnership’s Third Amended and Restated Agreement of Limited Partnership dated as of June 27, 2019. The purchase price for the Preferred Units sold pursuant to ~~its~~the Series A Purchase Agreement (the “Purchased Units”) was $1.1040 per Purchased Unit, reflecting an 8% discount to the liquidation preference of each Preferred Unit, for an aggregate purchase price of $57.5 million. The terms of the sale of the Purchased Units were determined based on arms-length negotiations between the General Partner and Axar.

For further detail on our Redeemable Convertible Preferred Units, see Note 9 Redeemable Convertible Preferred Stock of Part I, Item 1. Financial Statements (Unaudited) of this Quarterly Report on Form 10-Q.

Surety Bonds

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

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

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For the six months ended June 30, 2019 and 2018, we had $57.7 million and $57.6 million, respectively, of cash receipts from sales attributable to related bond contracts. These amounts do not consider reductions associated with taxes, obtaining costs or other costs.

Surety bond premiums are paid annually and the bonds are automatically renewable until maturity of the underlying pre-need contracts, unless we are given prior notice of cancellation. Except for cemetery pre-construction bonds (which are irrevocable), the surety companies generally have the right to ~~do so in its sole discretion during lease year 11 or we terminate~~cancel the ~~agreements as~~surety bonds at any time with appropriate notice. In the event a ~~result of a default by~~surety company were to cancel the ~~Archdiocese,~~surety bond, we are ~~entitled~~required to ~~retain~~obtain replacement surety assurance from another surety company or fund a trust for an amount generally less than the ~~deferred fixed rent. If the agreements are~~posted bond amount. We do not ~~terminated, the deferred fixed rent~~expect that we will ~~become~~be required to fund material future amounts related to these surety bonds due ~~and payable on~~to a lack of surety capacity or ~~before June 30, 2024.~~surety company non-performance.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of our unaudited condensed consolidated financial statements and related notes included within Part I, Item 1. Financial Statements (unaudited) in conformity with ~~accounting principles generally accepted in the United States~~GAAP requires ~~making~~us to make estimates and assumptions that affect the reported amounts of assets, ~~and~~ liabilities, revenue, expenses and disclosure of contingent assets and liabilities ~~at the date of the financial statements and the reported amounts of actual revenue and expenses~~that arose during the reporting ~~period.~~period and through the date our financial statements are filed with the SEC. Although we base our estimates on historical experience and various other assumptions ~~that~~ we believe to be reasonable, ~~under the circumstances,~~ actual results may differ from ~~the estimates on which our financial statements are prepared at any given point~~these estimates.

A critical accounting estimate or policy is one that requires a high level of ~~time. Changes in these estimates~~subjective judgement by management and could ~~materially affect~~have a material impact to our financial position, results of operations or cash flows. Significant items that are subject to such estimates and assumptions include revenue and expense accruals, fair value of merchandise and perpetual care trust assets and the allocation of purchase price to the fair value of assets acquired. A discussion offlows if actuals vary significantly from our ~~significant accounting policies we have adopted and followed in the preparation of our condensed consolidated financial statements was included in our Annual Reporton Form 10-K for~~ ~~the year ended December 31, 2017.~~estimates.

There ~~were~~have been no significant changes to ~~our~~the critical accounting policies ~~that have occurred subsequent to December 31, 2017, except~~and estimates identified in our 2018 annual report on Form 10-K, as described in ~~Note 1,~~ Part 1,II, Item 1.7. Management’s Discussion and Analysis of Financial ~~Statements, “Recently Issued Accounting Updates-Adopted~~Condition and Results of Operations in ~~the Current Period.”~~

that report.

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ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

INTEREST-BEARING INVESTMENTS

Our fixed-income securities subject to market risk consist primarily of certain investments in our merchandise trusts and perpetual care trusts. As of June 30, ~~2018,~~2019, the fair value of fixed-income securities in our merchandise trusts and perpetual care trusts represented ~~0.3%~~0.2% and ~~1.7%~~0.8%, of the fair value of total trust assets, respectively. The aggregate of the quoted fair value of these fixed-income securities was ~~$1.3~~$1.1 million and ~~$5.8~~$2.9 million in the merchandise trusts and perpetual care trusts, respectively, as of June 30, ~~2018.~~2019. Holding all other variables constant, a hypothetical 1% change in variable interest rates on these fixed-income securities would change the fair market value of the assets in both our merchandise trusts and perpetual care trusts by less than $0.1 million based on discounted expected future cash flows. If these securities are held to maturity, no change in fair market value will be realized. Our money market and other short-term investments subject to market risk consist primarily of certain investments in our merchandise trusts and perpetual care trusts. As of June 30, ~~2018,~~2019, the fair value of money market and short-term investments in our merchandise trusts and perpetual care trusts represented ~~2.2%~~3.1% and ~~3.1%~~1.9%, respectively, of the fair value of total trust assets. The aggregate of the quoted fair value of these money market and short-term investments was ~~$11.2~~$16.2 million and ~~$10.4~~$6.6 million in the merchandise trusts and perpetual care trusts, respectively, as of June 30, ~~2018.~~2019. Holding all other variables constant, a hypothetical 1% change in variable interest rates on these money market and short-term investments would change the fair market value of the assets in ~~both~~ our merchandise trusts and perpetual care trusts by approximately $0.2 million and $0.1 million, respectively, based on discounted expected future cash flows.

MARKETABLE EQUITY SECURITIES

Our marketable equity securities subject to market risk consist primarily of certain investments held in our merchandise trusts and perpetual care trusts. These assets consist of investments in both individual equity securities as well as closed and open-ended mutual funds. As of June 30, ~~2018,~~2019, the fair value of marketable equity securities in our merchandise trusts and perpetual care trusts represented ~~5.0%~~3.0% and ~~6.9%~~5.0%, ~~respectively,~~ of the fair value of total trust ~~assets.~~assets, respectively. The aggregate of the quoted fair market value of these ~~marketable~~individual equity securities was ~~$25.8~~$15.5 million and ~~$23.5~~$17.3 million in our merchandise trusts and perpetual care trusts, respectively, as of June 30, ~~2018,~~2019, based on final quoted sales prices. Holding all other variables constant, a hypothetical 10% change in variable interest rates of the equity securities would change the fair market value of the assets in our merchandise trusts and perpetual care trusts ~~each~~ by approximately ~~$2.6~~$1.6 million and ~~$2.4~~$1.7 million, respectively, based on discounted expected future cash flows. As of June 30, ~~2018,~~2019, the fair value of marketable closed and open-ended mutual funds in our merchandise trusts represented ~~53.8%~~46.1% of the fair value of total merchandise trust assets, ~~76.6%~~77.6% of which pertained to fixed-income mutual funds. As of June 30, ~~2018,~~2019, the fair value of marketable closed and open-ended mutual funds in our perpetual care trusts represented ~~46.9%~~37.6% of total perpetual care trust assets, ~~80.5%~~85.0% of which pertained to fixed-income mutual funds. The aggregate of the quoted fair market value of these closed and open-ended mutual funds was ~~$275.3~~$239.2 million and ~~$159.7~~$129.1 million in the merchandise trusts and perpetual care trusts, respectively, as of June 30, ~~2018,~~2019, based on final quoted sales prices, of which ~~$210.8~~$185.6 million and ~~$128.6~~$109.8 million, respectively, pertained to fixed-income mutual funds. Holding all other variables constant, a hypothetical 10% change in the average market prices of the closed and open-ended mutual funds would change the fair market value of the assets in our merchandise trusts and perpetual care trusts by approximately ~~$27.5~~$23.9 million and ~~$16.0~~$12.9 million, respectively, based on discounted expected future cash flows.

OTHER INVESTMENT FUNDS

Other investment funds are measured at fair value using the net asset value per share practical expedient. This asset class is composed of fixed income funds and equity funds, which have a redemption period ranging from 1 to 30 days, and private credit funds, which have lockup periods ranging from ~~two~~one to eight years with three potential~~one-year~~ one year extensions at the discretion of the funds’ general partners. This asset class has an inherent valuation risk as the values provided by investment fund managers may not represent the liquidation values obtained by the trusts upon redemption or liquidation of the fund assets. As of June 30, ~~2018,~~2019, the fair value of other investment funds in our merchandise trusts and perpetual care trusts represented ~~35.4%~~44.2% and ~~41.4%~~54.6%, respectively, of the fair value of total trust assets. The fair market value of the holdings in these funds was ~~$181.0~~$229.5 million and ~~$140.9~~$187.4 million in our merchandise trusts and perpetual care trusts, respectively, as of June 30, ~~2018,~~2019, based on net asset value quotes.

~~DEBT INSTRUMENTS~~54

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Certain borrowings under our Amended Credit Facility bear interest at a floating rate, based on LIBOR, which is adjusted quarterly. This subjects us to increases in interest expense resulting from movements in interest rates. As of June 30, 2018, we had $156.9 million of borrowings outstanding under our credit facility, which generally bears interest at a variable rate. Holding all other variables constant, a hypothetical 1% change in variable interest rates would change our consolidated interest expense for the three months ended June 30, 2018 by approximately $0.4 million.

ITEM 4.

CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

The Partnership maintains disclosure controls and procedures as defined in Rules13a-15(e) and15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in ~~SEC~~the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure.

Our management, including the CEO and CFO, evaluated the design and operation of our disclosure controls and procedures pursuant to Rules13a-15(e) and15d-15(e) under the Exchange Act as of June 30, ~~2018.~~2019. Based on such evaluation, our CEO and CFO concluded the disclosure controls and procedures were not effective due to the material weaknesses in internal control over financial reporting described below.

Material Weaknesses in Internal Control over Financial Reporting

Amaterial weakness (as defined in Rule12b-2 under the Exchange Act) is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement in our annual or interim financial statements will not be prevented or detected on a timely basis. The deficiencies noted below could result in a material misstatement in our financial statements; therefore, they represent material weaknesses in our internal control over financial reporting.

We previously identified and reported material weaknesses in internal control over financial reporting as of December 31, ~~2017~~2018 in our Annual Report on Form10-K related to the following:

~~control~~A.

Control environment, control activities and ~~monitoring;~~monitoring:

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

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

Management did not maintain effective controls over sales contract origination occurring at its site locations. Specifically, there was no subsequent review of contract entry and no approved master pricing listing. In addition, there was no oversight monitoring at its corporate office related to cancelations and timely and accurate servicing for correct revenue recognition.

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

~~establishment~~B.

Establishment and review of certain accounting ~~policies;~~policies:

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

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

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

~~reconciliation~~C.

Reconciliation of certain general ledger accounts to supporting ~~details;~~details:

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

~~accurate~~D.

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

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

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

~~review of financial statement disclosures.~~

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

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

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

STATUS OF REMEDIATION OF MATERIAL WEAKNESSES

While we continue to make improvements to our internal control over financial reporting related to the material weaknesses described above, material weaknesses continue to exist, and we believe that the material weaknesses referenced above accurately reflect the material weaknesses in our internal control over financial reporting as of June 30, ~~2018.~~2019. Management, with oversight from our Audit Committee, has identified and begun executing actions that we believe will remediate the material weaknesses described above once fully implemented and operating for a sufficient period of time, and we will continue to devote significant time and attention, including internal and external resources, to these remedial efforts.

We will test the ongoing operating effectiveness of the new remedial controls subsequent to implementation and consider the material weaknesses remediated after the applicable remedial controls operate effectively for a sufficient period of time.

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

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

During the fiscal quarter ended June 30, ~~2018,~~2019, we continued to make improvements to our internal control over financial reporting with respect to material weaknesses that had been ~~identified~~present at that time, and those remediation efforts remain ongoing. Other than as described above and in greater detail in our Annual Report on Form10-K for the fiscal year ended December 31, ~~2017,~~2018, there were no changes in our internal control over financial reporting as defined in Rules13a-15(d) and15d-15(d) of the Exchange Act during the ~~six~~three months ended June 30, ~~2018~~2019 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Effective January 1, 2019, we adopted ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). The adoption of this standard and subsequently-issued related ASUs resulted in the recording of operating lease right-of-use assets and operating lease

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liabilities on our unaudited condensed consolidated balance sheet on January 1, 2019, with no material impact to our unaudited condensed consolidated statements of operations or statements of cash flows on January 1, 2019. In connection with the adoption of these standards, we implemented internal controls to ensure that we properly evaluate our contracts for applicability under ASU 2016-09 and properly apply ASU 2016-02 and subsequently-issued related ASUs in the accounting for and reporting of all our qualifying leases.

Other than as described above and in greater detail in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, there were no changes in our internal control over financial reporting as defined in Rules 13a-15(d) and 15d-15(d) of the Exchange Act during the three months ended June 30, 2019 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART ~~II –~~II- OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

~~Not applicable~~

For information regarding our significant pending administrative and judicial proceedings involving regulatory, operating, transactional, environmental, and other matters, see Part 1. Item 1. Financial Statements (Unaudited)—Notes to the Unaudited Condensed Consolidated Financial Statements—Note 11 Commitments and Contingencies of this Quarterly Report on Form 10-Q.

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

ITEM 1A.

RISK FACTORS

~~Not applicable~~In addition to the risk factors set forth below, we remain subject to the risk factors disclosed in Part I, Item 1A. Risk Factors of our 2018 Annual Report on Form 10-K, which are incorporated by reference herein.

Our turnaround strategy may cause a disruption in operations and may not be successful.

In April 2019, we outlined and began implementing a turnaround strategy to return to profitability, which is focused on four key goals: cash flow and liquidity, capital structure, strategic balance sheet/portfolio review and performance improvement from cost reductions and revenue enhancement. The turnaround strategy may negatively impact our operations, which could include disruptions from the realignment of operational functions within the home office, sales of selected properties, changes in the administrative reporting structure and changes in our product assortments or marketing strategies. These changes could adversely affect our business operations and financial results. The impact of these disruptions may be material. These changes could also decrease the cash we have available to fund ongoing liquidity and working capital requirements, and we may experience periods of limited liquidity. In addition, we are currently not generating sufficient cash flow to cover the interest payments on our debt and meet our operating liquidity needs. If our turnaround strategy is not successful, takes longer than initially projected or is not executed effectively, our business operations, financial results, liquidity and cash flow will be adversely affected. Furthermore, no assurances can be given that our turnaround strategy, even if implemented properly, will result in a return to profitability.

We are under leadership of a new Board of Directors, who collectively have a limited operating history with the Partnership.

In connection with the Recapitalization Transactions, the Board of Directors of StoneMor GP LLC (the “general partner”) was reconstituted. Directors Martin R. Lautman, Ph.D., Leo J. Pound, Robert A Sick and Fenton R. Talbott resigned as directors and, pursuant to the Amended and Restated Limited Liability Company Agreement of the general partner, the authorized number of directors was reduced to seven. Andrew Axelrod, David Miller and Spencer Goldenberg were elected to the board of directors of the general partner to fill the vacancies created by the resignations. The reconstituted board of directors is comprised of Messrs. Axelrod, Miller and Goldenberg, Robert Hellman, Stephen Negrotti, Patricia Wellenbach and Joe Redling. Certain of our new board members have limited experience with our management team and our business. The ability of our new directors to quickly understand our business plans, operations and turnaround strategies will be critical to their ability to make informed and effective decisions about our strategy and operations, particularly given the competitive environment in which our businesses operate.

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

Our indebtedness requires significant interest and principal payments. As of June 30, 2019, we had $386.0 million of total debt (excluding debt issuance costs, debt discounts and capital lease obligations), consisting of $385.0 million of Senior Secured PIK Toggle Notes and $1.0 million of financed vehicles. The Issuers are to pay quarterly interest at either a fixed rate of 9.875% per annum in cash or, at their periodic option through January 30, 2022, a fixed rate of 7.50% per annum in cash plus a fixed rate of 4.00% per annum payable in kind. The Senior Secured Notes will require cash interest payments at 9.875% for all interest periods after January 30, 2022.

Our and our subsidiaries’ level of indebtedness could have important consequences to us, including:

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

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

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

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

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

In addition, the Indenture prohibits us from incurring additional debt or liens for working capital expenditures, acquisitions or other purposes (subject to very limited exceptions), requires us to maintain a minimum liquidity level on a rolling ten business day basis and requires us to meet minimum interest and asset coverage ratios as of the end of each fiscal quarter. Our ability to make payments on and to refinance our indebtedness will depend on our ability to generate cash in the future from operations, financings or asset sales. Our ability to repay our indebtedness and comply with the restrictive and financial maintenance covenants will be dependent on, among other things, the successful execution of our turnaround strategy. If we require additional capacity under the restrictive covenants to successfully execute our turnaround strategy or if we are unable to comply with the financial maintenance covenants, we will need to seek an amendment from a majority of the holders of the Senior Secured Notes. No assurances can be given that we will be successful in obtaining such an amendment and any failure to obtain such an amendment will have a material adverse effect on our business operations and our financial results.

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

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

We have a history of operating losses and may not achieve or maintain profitability and positive cash flow.

We have incurred negative cash flows from operations and net losses for several years and have an accumulated deficit as of June 30, 2019, due to an increased competitive environment, increased expenses due to the proposed C-Corporation Conversion and increases in professional fees and compliance costs. To the extent that we continue to have negative operating cash flow in future periods, we may not have sufficient liquidity and we may not be able to successfully implement our turnaround strategy. We cannot predict if or when we will operate profitably and generate positive cash flows.

The prohibition on incurring additional debt in the Indenture for the Senior Secured Notes, as well as future operating results, may require us to issue additional equity securities to finance our working capital and capital expenditure needs. Any such equity issuance may be at a price less than the then-current market price, which would result in dilution to your interest in the Partnership.

The Indenture prohibits us from incurring additional debt, including to fund working capital and capital expenditures, subject to very limited exceptions. This prohibition may require us to issue additional equity securities, which may be in the form of additional preferred units or common units, in order to provide us with sufficient cash to fund our working capital, liquidity and capital expenditure needs. There can be no assurance as to the price and terms on which such equity securities may be issued, and your equity interest in the Partnership may be materially diluted. Furthermore, there can be no assurances that we will be able to issue additional equity on any terms, in which case we may not have sufficient cash to fund our working capital, liquidity and capital expenditure needs and we may be unable to comply with one or more of the financial maintenance covenants in the Indenture for the Senior Secured Notes.

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Restrictions in the Indenture for the Senior Secured Notes prohibit us from making distributions to you.

The Indenture prohibits us from making distributions to you. As a result, a return on any common units an investor may purchase may only be achieved if our common units trade at a premium to the price paid to acquire such common units.

We must comply with covenants in the Indenture for the Senior Secured Notes. Failure to comply with these covenants, which may result from events that are not within our control, may result in an Event of Default under the Indenture, which would have a material adverse effect on the business and financial condition of the Partnership and on the trading price of our common units.

The operating and financial restrictions and covenants in the Indenture for the Senior Secured Notes restrict our ability to finance future operations or capital needs, including working capital and other liquidity, or to expand or pursue our business activities. For example, the Indenture requires us to comply with various affirmative covenants regarding, among other matters, maintenance and investment of trust funds and trust accounts into which certain sales proceeds are required by law to be deposited, minimum liquidity and other covenants. The Indenture also includes other restrictive and financial maintenance covenants including, but not limited to:

covenants that, subject to certain exceptions, limit our ability to:

▪

incur additional indebtedness, including entering into a working capital facility;

▪

grant liens;

▪

engage in certain sale/leaseback, merger, consolidation or asset sale transactions;

▪

make certain investments;

▪

pay dividends or make distributions;

▪

engage in affiliate transactions;

▪

amend our organizational documents;

▪

make capital expenditures; and

covenants that require us to maintain:

▪

a minimum liquidity level on a rolling ten business day basis;

▪

a minimum interest coverage ratio on a trailing twelve month basis as of each fiscal quarter end; and

▪

a minimum asset coverage ratio as of each fiscal quarter end.

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

our failure to pay any interest on any senior secured note when it becomes due and payable that remains uncured for five business days;

our failure to pay the principal on any of the senior secured notes when it becomes due and payable, whether at the due date thereof, at a date fixed for redemption, by acceleration or otherwise;

our failure to comply with the agreements and covenants relating to maintenance of our legal existence, providing notice of any default or event of default or use of proceeds from the sale of the Senior Secured Notes or any of the restrictive or financial maintenance covenants in the Indenture;

our failure to comply with any other agreements or covenants contained in the Indenture or certain other agreements executed in connection with the Indenture that remains uncured for a period of 15 days after the earlier of written notice and request for cure from the Trustee or holders of at least 25% of the aggregate principal amount of the Senior Secured Notes;

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

the occurrence of a Change in Control (as defined in the Indenture);

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

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

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

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

Our ability to comply with the covenants and restrictions contained in the Indenture may be affected by events beyond our control, including prevailing economic, financial and industry conditions. As a result of changes in market or other economic conditions, our ability to comply with these covenants may be impaired.

If we violate any of the restrictions, covenants, ratios or tests in our Indenture, or fail to pay amounts thereunder when due, the trustee or the holders of at least 25% of the outstanding principal amount of our Senior Secured Notes will be able to accelerate the maturity of all amounts due under the Senior Secured Notes, cause cross-default and demand repayment of amounts outstanding. We might not have, or be able to obtain, sufficient funds to make these accelerated payments, and the failure to make such payments would have a material adverse effect on our business operations and our financial results. Additionally, any subsequent replacement of our debt obligations or any new indebtedness could have similar or greater restrictions.

Our merchandise and perpetual care trust funds own investments in equity securities, fixed income securities and mutual funds, which are affected by financial market conditions that are beyond our control.

Pursuant to state law, a portion of the proceeds from pre-need sales of merchandise and services is put into merchandise trusts until such time that the Partnership meets the requirements for releasing trust principal, which is generally delivery of merchandise or performance of services. In addition, the Indenture for the Senior Secured Notes also provides certain limitations on how the assets in the merchandise trusts may be invested. Generally, a majority of the 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.

Also, 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.

We have hired an outside managers to manage these trust’s assets. There is no guarantee these managers will achieve their objectives and deliver adequate returns, and their investment choices may result in losses. In addition our returns on these investments are affected by financial market conditions that are beyond our control. If the investments in our trust funds experience significant declines, there could be insufficient funds in the trusts to cover the costs of delivering services and merchandise. Pursuant to state law, we may be required to cover any such shortfall in merchandise trusts with cash flows from operations, which could have a material adverse effect on our financial condition, results of operations or cash flows.

If the fair market value of these trusts, plus any other amount due to us upon delivery of the associated contracts, were to decline below the estimated costs to deliver the underlying products and services, we would record a charge to earnings to record a liability for the expected losses on the delivery of the associated contracts.

Our ability to use our Net Operating Losses and other Tax Assets is uncertain.

As of December 31, 2018, our corporate subsidiaries had net operating loss (“NOL”) carryforwards of approximately $396.6 million for U.S. federal income tax purposes and substantial similar tax assets at the federal and state levels. However, on June

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27, 2019, we closed the Recapitalization Transactions. Along with other previous transfers of our interests, we believe the Recapitalization Transactions caused an “ownership change” for income tax purposes with respect to our corporate subsidiaries, which may significantly limit the corporate subsidiaries’ ability to use NOLs and certain other tax assets to offset future taxable income, possibly reducing the amount of cash available to our corporate subsidiaries and us to satisfy our obligations.

We are involved in Legal Proceedings.

We are involved in the disputes and legal proceedings as discussed in Part 1. Item 1. Financial Information—Notes to the Unaudited Condensed Consolidated Financial Statements—Note 11 Commitments and Contingencies of this Quarterly Report on Form 10-Q. Although Anderson v. StoneMor Partners, LP, et al., No. 2:16-cv-6111 was dismissed by the District Court of Pennsylvania, and that dismissal was affirmed by the Third Circuit on June 20, 2019, a petition for rehearing has been filed with the Third Circuit and we remain a party to other ongoing litigation against us. In addition, as a public company, we are also potentially susceptible to litigation, such as claims asserting violations of securities laws. Any such claims, with or without merit, if not resolved, could be time-consuming and result in costly litigation. There can be no assurance that an adverse result in any future proceeding would not have a potentially material adverse on our business, results of operations or financial condition.

Economic, financial and stock market fluctuations could affect future potential earnings and cash flows and could result in future goodwill, intangible assets and long-lived asset impairments.

In addition to an annual review, we assess the impairment of goodwill, intangible assets and other long-lived assets whenever events or changes in circumstances indicate that the carrying value may be greater than fair value. Factors that could trigger an interim impairment review include, but are not limited to, a significant decline in the market value of our stock or debt values, significant under-performance relative to historical or projected future operating results, and significant negative industry or economic trends. If these factors occur, we may have a triggering event, which could result in an impairment of our goodwill. Based on the results of our annual goodwill and intangible assets impairment test we performed as of October 1, 2018 and our annual review of long-lived assets as of December 31, 2018, we concluded that there was no impairment of our goodwill, intangible assets or other long-lived assets.

Our ability to generate preneed sales depends on a number of factors, including sales incentives and local and general economic conditions.

Significant declines in preneed sales would reduce our backlog and revenue and could reduce our future market share. On the other hand, a significant increase in preneed sales can have a negative impact on cash flow as a result of commissions and other costs incurred initially without corresponding revenue.

We are continuing to refine the mix of service and product offerings in both our funeral and cemetery segments, including changes in our sales commission and incentive structure. These changes could cause us to experience declines in preneed sales in the short-run. In addition, economic conditions at the local or national level could cause declines in preneed sales either as a result of less discretionary income or lower consumer confidence. Declines in preneed cemetery property sales reduces current revenue, and declines in other preneed sales would reduce our backlog and future revenue and could reduce future market share.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

~~None.~~The information required by this section is incorporated by reference from Item 1.01 of the Partnership’s Current Report on Form 8-K filed on June 28, 2019.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

MINE SAFETY DISCLOSURES

Not ~~Applicable.~~applicable.

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ITEM 5.

OTHER INFORMATION

None.

~~ITEM 6. EXHIBITS~~

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~~Exhibit~~ITEM 6. ~~Number~~		~~Description~~

10.1*		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).

~~10.2*†~~		Employment Agreement dated June 15, 2018 by and between StoneMor GP LLC and Austin K. So (incorporated by reference to Exhibit 10.3 of Registrant’s Current Report on Form 8-K filed on June 18, 2018).

~~10.3*†~~		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)

~~10.4*†~~		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).EXHIBIT INDEX

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

			Incorporated by Reference
Exhibit Number	Description	Filed/ Furnished Herewith	Form	Exhibit	Filing Date

3.1	Third Amended and Restated Agreement of Limited Partnership of StoneMor Partners L.P. dated as of June 27, 2019	*	8-K	3.1	June 28, 2019

4.1	Indenture dated as of June 27, 2019 by and among StoneMor Partners L.P., Cornerstone Family Services of West Virginia Subsidiary, Inc., the initial purchasers named therein, the guarantors named therein and Wilmington Trust, National Association, as trustee, including the form of 9.875%/11.500% Senior Secured PIK Toggle Notes due 2024	*	8-K	4.1	June 28, 2019

4.2	Form of 9.875%/11.500% Senior Secured PIK Toggle Note due 2024 (included in Exhibit 4.1)	*	8-K	4.2	June 28, 2019

4.3	Collateral Agreement dated as of June 27, 2019 by and among StoneMor Partners L.P., Cornerstone Family Services of West Virginia Subsidiary, Inc., the guarantors named therein and Wilmington Trust, National Association, as collateral agent	*	8-K	4.3	June 28, 2019

4.4	Registration Rights Agreement dated June 27, 2019 by and among StoneMor Partners L.P., Cornerstone Family Services of West Virginia Subsidiary, Inc., the guarantors name therein and the initial purchasers named therein	*	8-K	4.4	June 28, 2019

10.1†	Employment Agreement dated April 10, 2019 by and between StoneMor GP LLC and Garry P. Herdler	*	8-K	10.1	April 16, 2019

10.2†	Executive Restricted Unit Agreement dated April 15, 2019 by and between StoneMor GP LLC and Garry P. Herdler	*	8-K	10.2	April 16, 2019

10.3†	Retirement Agreement dated as of April 10, 2019 by and between Mark L. Miller and StoneMor GP LLC	*	8-K	10.3	April 16, 2019

10.4†	Key Employee Unit Agreement under the StoneMor Amended and Restated 2019 Long-Term Incentive Plan, dated as of April 15, 2019 by and between StoneMor GP LLC and Joseph M. Redling	*	8-K	10.4	April 16, 2019

10.5†	Key Employee Unit Agreement under the StoneMor Amended and Restated 2019 Long-Term Incentive Plan, dated as of April 15, 2019 by and between StoneMor GP LLC and Austin K. So	*	8-K	10.5	April 16, 2019

10.6†	Form of Key Employee Unit Agreement under the StoneMor Amended and Restated 2019 Long-Term Incentive Plan	*	8-K	10.6	April 16, 2019

10.7*	First Amendment to Merger and Reorganization Agreement	*	8-K	10.1	May 1, 2019

10.8	Second Amendment to Voting and Support Agreement	*	8-K	10.2	May 1, 2019

10.9	Series A Preferred Unit Purchase Agreement dated as of June 27, 2019 by and among StoneMor Partners L.P., SMP SPV LLC, Star V Partners LLC, Blackwell Partners LLC –Series E, David Miller, MPF Investco 6, LLC, MPF Investco 7, LLC, MPF Investco 8, LLC, The Mangrove Partners Fund, L.P. and The Mangrove Partners Fund (Cayman Partnership), L.P.	*	8-K	10.1	June 28, 2019

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10.10	Registration Rights Agreement dated as of June 27, 2019 by and among StoneMor Partners L.P., StoneMor GP LLC, SMP SPV LLC, Star V Partners LLC, Blackwell Partners LLC –Series E, David Miller, MPF Investco 6, LLC, MPF Investco 7, LLC, MPF Investco 8, LLC, The Mangrove Partners Fund, L.P. and The Mangrove Partners Fund (Cayman Partnership), L.P.	*	8-K	10.2	June 28, 2019

10.11	Second Amendment to Merger and Reorganization Agreement dated as of June 27, 2019 by and among StoneMor Partners L.P., StoneMor GP LLC, StoneMor GP Holdings LLC and Hans Merger Sub, LLC	*	8-K	10.3	June 28, 2019

10.12	Third Amendment to Voting and Support Agreement dated as of June 27, 2019 by and among StoneMor Partners L.P., StoneMor GP LLC and the unitholders of StoneMor Partners L.P. named therein	*	8-K	10.4	June 28, 2019

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

31.2	Certification pursuant to Exchange Act Rule 13a-14(a) of Garry P. Herdler, Chief Financial Officer and Senior Vice President

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

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	**

99.1	Third Amended and Restated Limited Liability Company Agreement of StoneMor GP LLC dated as of June 27, 2019		8-K	99.2	June 28, 2019

101	Attached as Exhibit 101 to this report are the following Interactive Data Files formatted in XBRL (eXtensible Business Reporting Language): (i) Unaudited Condensed Consolidated Balance Sheets as of June30, 2019, and December 31, 2018; (ii) Unaudited Condensed Consolidated Statements of Operations for the three months ended June 30, 2019 and 2018; (iii) Unaudited Condensed Consolidated Statements of Partners’ (Deficit) Capital; (iv) Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended June 30, 2019 and 2018; and (v) Notes to the Unaudited Condensed Consolidated Financial Statements. Users of this data are advised pursuant to Rule 401 of Regulation S-T that the information contained in the XBRL documents is unaudited and these are not the official publicly filed financial statements of StoneMor Partners L.P.


~~10.5*†~~	*	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).

~~10.6*†~~		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).

~~10.7*†~~		Employment Agreement dated June 29, 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 3, 2018).

~~10.8*†~~		Employment Agreement by and between Dina S. Kelly and StoneMor GP LLC, dated May 10, 2018 (incorporated by reference to Exhibit 10.74 of Registrant’s Current Report on Form 10-K filed on July 17, 2018).

~~10.9*†~~		Separation Agreement and General Release by and between Dina S. Kelly and StoneMor GP LLC, dated June 1, 2018 (incorporated by reference to Exhibit 10.75 of Registrant’s Current Report on Form 10-K filed on July 17, 2018).

~~31.1~~		~~Certification pursuant to Exchange Act Rule13a-14(a)~~ ~~of Joseph M. Redling, President and Chief Executive Officer.~~

~~31.2~~		~~Certification pursuant to Exchange Act Rule13a-14(a)~~ ~~of Mark L. Miller, 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 ActRule 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 ActRule 13a-14(b)~~ ~~of Mark L. Miller, Chief Financial Officer and Senior Vice President (furnished herewith).~~

99.1*		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) Unaudited Condensed Consolidated Balance Sheets as of June 30, 2018, and December 31, 2017; (ii) Unaudited Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2018 and 2017; (iii) Unaudited Condensed Consolidated Statement of Partners’ Capital (Deficit); (iv) Unaudited Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2018 and 2017; and (v) Notes to the Unaudited Condensed Consolidated Financial Statements. Users of this data are advised 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

† **	Furnished herewith

†	Management contract, compensatory plan or arrangement

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~~SIGNATURES~~SIGNATURES

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


				STONEMOR PARTNERS L.P.

		By:	StoneMor GP LLC, its General Partner
				~~its general partner~~
Date: August 9, 2019
~~Date: February 12, 2019~~	By:		~~By:~~	/s/Joseph M. Redling
				Joseph M. Redling
				President and Chief Executive Officer
~~(Principal Executive Officer)~~

Date: ~~February 12,~~August 9, 2019			By:	/s/~~Mark L. Miller~~Garry P. Herdler
				~~Mark L. Miller~~	Garry P. Herdler
				Chief Financial Officer and Senior Vice President ~~(Principal Financial Officer)~~

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