Document and Entity Information

9 Months Ended
Sep. 30, 2011

Nov. 9, 2011

Document Information [Line Items]

Document Type

10-Q

Amendment Flag

FALSE

Document Period End Date

Sep. 30, 2011

Document Fiscal Year Focus

2011

Document Fiscal Period Focus

Q3

Trading Symbol

STON

Entity Registrant Name

STONEMOR PARTNERS LP

Entity Central Index Key

0001286131

Current Fiscal Year End Date

--12-31

Entity Filer Category

Accelerated Filer

Entity Common Stock, Shares Outstanding

19,366,971

Condensed Consolidated Balance Sheets (USD $)

In Thousands

Sep. 30, 2011

Dec. 31, 2010

Current assets:

Cash and cash equivalents

$ 20,135

$ 7,535

Accounts receivable, net of allowance

47,741

45,149

Prepaid expenses

4,951

3,783

Other current assets

15,027

9,002

Total current assets

87,854

65,469

Long-term accounts receivable, net of allowance

63,516

60,061

Cemetery property

295,004

283,460

Property and equipment, net of accumulated depreciation

70,712

66,249

Merchandise trusts, restricted, at fair value

306,403

318,318

Perpetual care trusts, restricted, at fair value

235,359

249,690

Deferred financing costs, net of accumulated amortization

9,059

9,801

Deferred selling and obtaining costs

65,819

59,422

Deferred tax assets

566

605

Goodwill

22,671

18,153

Other assets

13,490

14,364

Total assets

1,170,453

1,145,592

Current liabilities:

Accounts payable and accrued liabilities

20,454

23,444

Accrued interest

5,410

2,034

Current portion, long-term debt

1,743

1,386

Total current liabilities

27,607

26,864

Other long-term liabilities

2,955

3,687

Long-term debt

173,816

219,008

Deferred cemetery revenues, net

400,002

386,465

Deferred tax liabilities

17,667

18,331

Merchandise liability

118,194

113,356

Perpetual care trust corpus

235,359

249,690

Total liabilities

975,600

1,017,401

Commitments and Contingencies

Partners' capital

General partner

2,688

1,809

Common partners

192,165

126,382

Total partners' capital

194,853

128,191

Total liabilities and partners' capital

$ 1,170,453

$ 1,145,592

Condensed Consolidated Statement of Operations (USD $)

In Thousands, except Per Share data, unless otherwise specified

3 Months Ended
Sep. 30,

9 Months Ended
Sep. 30,

2011

2010

2011

2010

Revenues:

Total revenues

$ 60,325

$ 52,130

$ 169,663

$ 141,537

Costs and Expenses:

Selling expense

12,192

10,298

33,923

27,381

General and administrative expense

7,111

6,327

20,569

18,086

Corporate overhead (including $195 and $190 in unit-based compensation for the three months ended September 30, 2011 and 2010, and $576 and $543 for the nine months ended September 30, 2011 and 2010, respectively)

5,628

5,360

17,572

16,054

Depreciation and amortization

1,886

2,466

6,374

6,205

Acquisition related costs

1,189

1,963

3,147

4,619

Total cost and expenses

56,346

51,413

160,689

137,475

Operating profit

3,979

717

8,974

4,062

Expenses related to refinancing

453

Gain on acquisitions

59

7,152

Early extinguishment of debt

4,010

Increase in fair value of interest rate swaps

1,398

4,637

Interest expense

4,824

5,902

14,266

15,999

Loss before income taxes

(845)

(3,728)

(9,755)

(148)

Income tax expense (benefit)

State

69

(20)

(829)

34

Federal

(691)

(1,807)

(2,304)

(2,716)

Total income tax expense (benefit)

(622)

(1,827)

(3,133)

(2,682)

Net income (loss)

(223)

(1,901)

(6,622)

2,534

General partner's interest in net income (loss) for the period

(4)

(38)

(132)

51

Limited partners' interest in net income (loss) for the period

(219)

(1,863)

(6,490)

2,483

Net income (loss) per limited partner unit (basic and diluted)

(0.01)

(0.13)

(0.35)

0.18

Weighted average number of limited partners' units outstanding (basic and diluted)

19,353

13,995

18,807

13,649

Distributions declared per unit

$ 0.585

$ 0.565

$ 1.755

$ 1.675

Cemetery

Revenues:

Merchandise

28,738

25,750

81,277

68,576

Services

13,295

11,537

35,697

29,562

Investment and other

10,793

8,335

30,495

25,240

Costs and Expenses:

Merchandise

5,787

5,098

15,272

12,466

Services

1,373

1,370

4,097

3,727

Cemetery expense

15,312

13,506

42,860

34,839

Funeral Home

Revenues:

Merchandise

3,041

2,516

9,137

7,378

Services

4,458

3,992

13,057

10,781

Costs and Expenses:

Merchandise

982

967

3,197

2,833

Services

3,107

2,549

8,456

6,884

Other

$ 1,779

$ 1,509

$ 5,222

$ 4,381

Condensed Consolidated Statement of Operations (Parenthetical) (USD $)

In Thousands

3 Months Ended
Sep. 30,

9 Months Ended
Sep. 30,

2011

2010

2011

2010

Corporate overhead, unit-based compensation

$ 195

$ 190

$ 576

$ 543

Condensed Consolidated Statement of Partners' Capital (USD $)

In Thousands

Total

Common Unit Holders

General Partner

Beginning Balance at Dec. 31, 2010

$ 128,191

$ 126,382

$ 1,809

Issuance of common units

264

Proceeds from public offering

103,207

General partner contribution

2,246

Compensation related to UARs

394

Net loss

(6,622)

(6,490)

(132)

Cash distribution

(32,827)

(31,592)

(1,235)

Ending Balance at Sep. 30, 2011

$ 194,853

$ 192,165

$ 2,688

Condensed Consolidated Statement of Cash Flows (USD $)

In Thousands

9 Months Ended
Sep. 30,

2011

2010

Operating activities:

Net income (loss)

$ (6,622)

$ 2,534

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Cost of lots sold

5,004

4,414

Depreciation and amortization

6,374

6,205

Unit-based compensation

576

543

Accretion of debt discounts

950

252

Change in fair value of interest rate swaps

(4,637)

Write-off of deferred financing fees

453

Gain on acquisitions

(7,152)

Early extinguishment of debt

4,010

Changes in assets and liabilities that provided (used) cash:

Accounts receivable

(5,509)

(12,014)

Allowance for doubtful accounts

3,597

2,731

Merchandise trust fund

(11,681)

(1,500)

Prepaid expenses

586

(468)

Other current assets

(6,024)

(2,041)

Other assets

244

519

Accounts payable and accrued and other liabilities

(1,290)

(224)

Deferred selling and obtaining costs

(6,398)

(7,755)

Deferred cemetery revenue

31,560

31,728

Deferred taxes (net)

(2,476)

(2,883)

Merchandise liability

(2,285)

(495)

Net cash provided by operating activities

11,069

9,757

Investing activities:

Cash paid for cemetery property

(4,258)

(1,841)

Purchase of subsidiaries

(10,300)

(38,462)

Cash paid for management agreements

(346)

Cash paid for property and equipment

(4,601)

(4,139)

Net cash used in investing activities

(19,159)

(44,788)

Financing activities:

Cash distribution

(32,827)

(23,341)

Additional borrowings on long-term debt

27,800

63,636

Repayments of long-term debt

(74,490)

(40,928)

Proceeds from public offering

103,207

39,502

Proceeds from general partner contribution

2,246

1,031

Fees paid related to early extinguishment of debt

(4,010)

Cost of financing activities

(1,236)

(390)

Net cash provided by financing activities

20,690

39,510

Net increase in cash and cash equivalents

12,600

4,479

Cash and cash equivalents - Beginning of period

7,535

13,479

Cash and cash equivalents - End of period

20,135

17,958

Supplemental disclosure of cash flow information

Cash paid during the period for interest

9,897

12,060

Cash paid during the period for income taxes

2,242

961

Non-cash investing and financing activities

Acquisition of assets by financing

237

Issuance of limited partner units for cemetery acquisition

264

5,785

Acquisition of asset by assumption of directly related liability

$ 2,532

NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1.	NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

StoneMor Partners L.P. (“StoneMor”, the “Company” or the “Partnership”) is a provider of funeral and cemetery products and services in the death care industry in the United States. Through its subsidiaries, StoneMor offers a complete range of funeral merchandise and services, along with cemetery property, merchandise and services, both at the time of need and on a pre-need basis. As of September 30, 2011, the Partnership operated 269 cemeteries, 248 of which are owned, in 25 states and Puerto Rico and owned and operated 66 funeral homes in 17 states and Puerto Rico.

Basis of Presentation

The unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The unaudited condensed consolidated financial statements also include the effects of retroactive adjustments resulting from the Company’s 2010 acquisitions (see Note 13). All interim financial data is unaudited. However, in the opinion of management, the interim financial data as of September 30, 2011 and for the three and nine months ended September 30, 2011 and 2010 include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim periods. The results of operations for interim periods are not necessarily indicative of the results of operations to be expected for a full year. The December 31, 2010 condensed consolidated balance sheet data was derived from audited financial statements in the Company’s 2010 Annual Report on Form 10-K (“2010 Form 10-K”) and has been adjusted to include the effects of retrospective adjustments resulting from the Company’s 2010 acquisitions, but does not include all disclosures required by GAAP, which are presented in the Company’s 2010 Form 10-K.

Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of each of the Company’s subsidiaries. These statements also include the accounts of the merchandise and perpetual care trusts in which the Company has a variable interest and is the primary beneficiary. The Company operates 21 cemeteries under long-term operating or management contracts. The operations of 15 of these managed cemeteries have been consolidated in accordance with the provisions of Accounting Standards Codification (ASC) 810.

The 3 cemeteries that the Company began operating under a long-term operating agreement in the third quarter of 2010 and 3 other cemeteries the Company operates under long-term operating agreements do not qualify as acquisitions for accounting purposes. As a result, the Company did not consolidate all of the existing assets and liabilities related to these cemeteries. The Company has consolidated the existing assets and liabilities of each of these cemeteries’ merchandise and perpetual care trusts as variable interest entities since the Company controls and receives the benefits and absorbs any losses from operating these trusts. Under these long-term operating agreements, which are subject to certain termination provisions, the Company is the exclusive operator of these cemeteries. The Company earns revenues related to sales of merchandise, services, and interment rights and incurs expenses related to such sales and the maintenance and upkeep of these cemeteries. Upon termination of these contracts, the Company will retain all of the benefits and related contractual obligations incurred from sales generated during the contract period. The Company has also recognized the existing merchandise liabilities that it assumed as part of these agreements. See Note 13 for further details on the 3 cemeteries the Company began operating under a long-term operating agreement in the third quarter of 2010.

Total revenues derived from the 21 cemeteries operated under long-term operating or management contracts totaled approximately $10.0 million and $27.9 million for the three and nine months ended September 30, 2011, as compared to $8.7 million and $24.3 million from these cemetery properties during the same periods last year.

New Accounting Pronouncements

In the third quarter of 2011, the Financial Accounting Standards Board issued Update No. 2011-08, Intangibles – Goodwill and Other (Topic 350) (“ASU 2011-08”). Prior to ASU 2011-08, the first step in the goodwill impairment test was to compare the fair value of a reporting unit to its carrying amount, including goodwill. ASU 2011-08 allows a Company to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If, after this assessment, it is determined that it is not more likely than not that the fair value of a reporting unit is less than its carrying value, the goodwill test can be concluded and it is not necessary to calculate the fair value of the reporting unit. However, if the qualitative assessment does not lead to this conclusion, the full two step goodwill test, which has not been changed by ASU 2011-08, must be performed. The Company has chosen to early adopt the provisions of ASU 2011-08. This adoption is not expected to impact the Company’s financial position, results of operations, or cash flows.

Use of Estimates

Preparation of these unaudited condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the unaudited condensed consolidated financial statements and the reported amounts of revenue and expense during the reporting periods. As a result, actual results could differ from those estimates. The most significant estimates in the unaudited condensed consolidated financial statements are the valuation of assets in the merchandise trust and perpetual care trust, allowance for cancellations, unit-based compensation, merchandise liability, deferred sales revenue, deferred margin, deferred merchandise trust investment earnings, deferred obtaining costs and income taxes. Deferred sales revenue, deferred margin and deferred merchandise trust investment earnings are included in deferred cemetery revenues, net, on the unaudited condensed consolidated balance sheets.

LONG-TERM ACCOUNTS RECEIVABLE, NET OF ALLOWANCE

2.	LONG-TERM ACCOUNTS RECEIVABLE, NET OF ALLOWANCE

Long-term accounts receivable, net, consist of the following:


	As of
	September 30, 2011			December 31, 2010
	(in thousands)
Customer receivables	$	146,842		$	135,530
Unearned finance income		(16,269	)		(14,488	)
Allowance for contract cancellations		(19,316	)		(15,832	)

		111,257			105,210
Less: current portion, net of allowance		47,741			45,149

Long-term portion, net of allowance	$	63,516		$	60,061

Activity in the allowance for contract cancellations is as follows:


	For the nine months ended September 30,
	2011			2010
	(in thousands)
Balance - Beginning of period	$	15,832		$	13,865
Provision for cancellations		13,799			11,447
Charge-offs - net		(10,315	)		(7,854	)

Balance - End of period	$	19,316		$	17,458

CEMETERY PROPERTY

3.	CEMETERY PROPERTY

Cemetery property consists of the following:


	As of
	September 30, 2011		December 31, 2010
	(in thousands)
Developed land	$	63,313	$	61,849
Undeveloped land		163,949		159,386
Mausoleum crypts and lawn crypts		67,742		62,225

Total	$	295,004	$	283,460

PROPERTY AND EQUIPMENT

4.	PROPERTY AND EQUIPMENT

Major classes of property and equipment follow:


	As of
	September 30, 2011			December 31, 2010
	(in thousands)
Building and improvements	$	71,617		$	67,247
Furniture and equipment		36,279			31,947

		107,896			99,194
Less: accumulated depreciation		(37,184	)		(32,945	)

Property and equipment - net	$	70,712		$	66,249

Depreciation expense was $1.4 million and $4.3 million for the three and nine months ended September 30, 2011, respectively, as compared to $1.7 million and $3.9 million during the same periods last year.

MERCHANDISE TRUSTS

5.	MERCHANDISE TRUSTS

At September 30, 2011, the Company’s merchandise trusts consisted of the following types of assets:

•

Money Market Funds that invest in low risk short term securities;

•

Publicly traded mutual funds that invest in underlying debt securities;

•

Publicly traded mutual funds that invest in underlying equity securities;

•

Equity investments that are currently paying dividends or distributions. These investments include Real Estate Investment Trusts (“REIT’s”), Master Limited Partnerships and global equity securities;

•

Fixed maturity debt securities issued by various corporate entities;

•

Fixed maturity debt securities issued by the U.S. Government and U.S. Government agencies;

•

Fixed maturity debt securities issued by U.S. states and local government agencies; and

•

Assets acquired related to the June 22, 2011 acquisition of three cemeteries and four funeral homes from SCI Missouri (see Note 13). According to the terms of the agreement, SCI Missouri was required to liquidate the holdings of the related trusts upon closing and forward the proceeds to us as soon as practicable. As of September 30, 2011, the Company had not received these amounts. Accordingly, these assets are shown in a single line item in the disclosures below as “Assets acquired via acquisition” and the cost basis and fair value of such assets are based upon preliminary estimates that the Company is required to make in accordance with Accounting Topic 805.

All of these investments are classified as Available for Sale as defined by the Investments in Debt and Equity topic of the ASC. Accordingly, all of the assets are carried at fair value. All of these investments are considered to be either Level 1 or Level 2 assets as defined by the Fair Value Measurements and Disclosures topic of the ASC. At September 30, 2011, approximately 94.3% of the total managed investments were Level 1 investments while approximately 5.7% were Level 2 assets. There were no Level 3 assets.

The merchandise trusts are variable interest entities (VIE) for which the Company is the primary beneficiary. The assets held in the merchandise trusts are required to be used to purchase the merchandise to which they relate. If the value of these assets falls below the cost of purchasing such merchandise, the Company may be required to fund this shortfall.

The Company has included $6.5 million and $6.4 million of investments held in trust by the West Virginia Funeral Directors Association at September 30, 2011 and December 31, 2010, respectively, in its merchandise trust assets. As required by law, the Company 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 recorded at their account value, which approximates fair value.

The cost and market value associated with the assets held in merchandise trusts at September 30, 2011 and December 31, 2010 were as follows:


As of September 30, 2011	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
			(in thousands)
Short-term investments	$	27,242	$	—	$	—		$	27,242
Fixed maturities:
U.S. Government and federal agency		—		—		—			—
U.S. State and local government agency		23		—		—			23
Corporate debt securities		10,357		—		(1,020	)		9,337
Other debt securities		2,461		—		—			2,461

Total fixed maturities		12,841		—		(1,020	)		11,821

Mutual funds - debt securities		66,684		1,948		(2,673	)		65,959
Mutual funds - equity securities		140,021		83		(15,581	)		124,523
Equity securities		66,631		1,572		(5,604	)		62,599
Other invested assets		6,039		—		(927	)		5,112

Total managed investments	$	319,458	$	3,603	$	(25,805	)	$	297,256

Assets acquired via acquisition		2,622		—		—			2,622
West Virginia Trust Receivable		6,525		—		—			6,525

Total	$	328,605	$	3,603	$	(25,805	)	$	306,403


As of December 31, 2010	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
			(in thousands)
Short-term investments	$	40,723	$	—	$	—		$	40,723
Fixed maturities:
U.S. Government and federal agency		—		—		—			—
U.S. State and local government agency		23		—		—			23
Corporate debt securities		9,973		119		(152	)		9,940
Other debt securities		1,503		35		—			1,538

Total fixed maturities		11,499		154		(152	)		11,501

Mutual funds - debt securities		49,717		3,087		(286	)		52,518
Mutual funds - equity securities		124,177		6,444		(3,956	)		126,665
Equity securities		69,462		6,708		(909	)		75,261
Other invested assets		4,991		217		—			5,208

Total managed investments	$	300,569	$	16,610	$	(5,303	)	$	311,876

West Virginia Trust Receivable		6,442		—		—			6,442

Total	$	307,011	$	16,610	$	(5,303	)	$	318,318

The contractual maturities of debt securities as of September 30, 2011 are as follows:


As of September 30, 2011	Less than 1 year		1 year through 5 years		6 years through 10 years		More than 10 years
			(in thousands)
U.S. Government and federal agency	$	—	$	—	$	—	$	—
U.S. State and local government agency		23		—		—		—
Corporate debt securities		—		8,544		793		—
Other debt securities		2,461		—		—		—

Total fixed maturities	$	2,484	$	8,544	$	793	$	—

An aging of unrealized losses on the Company’s investments in fixed maturities and equity securities at September 30, 2011 and December 31, 2010 is presented below:


	Less than 12 months				12 Months or more				Total
As of September 30, 2011	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
					(in thousands)
Fixed maturities:
U.S. Government and federal agency	$	—	$	—	$	—	$	—	$	—	$	—
U.S. State and local government agency		—		—		—		—		—		—
Corporate debt securities		8,639		862		698		158		9,337		1,020
Other debt securities		—		—		—		—		—		—

Total fixed maturities		8,639		862		698		158		9,337		1,020

Mutual funds - debt securites		47,518		2,422		2,350		251		49,868		2,673
Mutual funds - equity securites		64,956		6,823		54,156		8,758		119,112		15,581
Equity securities		35,768		4,125		4,921		1,479		40,689		5,604
Other invested assets		1,915		927		—		—		1,915		927

Total	$	158,796	$	15,159	$	62,125	$	10,646	$	220,921	$	25,805


	Less than 12 months				12 Months or more				Total
As of December 31, 2010	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
					(in thousands)
Fixed maturities:
U.S. Government and federal agency	$	—	$	—	$	—	$	—	$	—	$	—
U.S. State and local government agency		—		—		—		—		—		—
Corporate debt securities		4,887		95		813		57		5,700		152
Other debt securities		—		—		—		—		—		—

Total fixed maturities		4,887		95		813		57		5,700		152

Mutual funds - debt securites		1,619		11		2,331		275		3,950		286
Mutual funds - equity securites		364		48		56,316		3,908		56,680		3,956
Equity securities		5,227		129		7,817		780		13,044		909

Total	$	12,097	$	283	$	67,277	$	5,020	$	79,374	$	5,303

A reconciliation of the Company’s merchandise trust activities for the nine months ended September 30, 2011 is presented below:


Fair Value @ 12/31/2010	Contributions		Distributions			Interest/ Dividends		Capital Gain Distributions		Realized Gain/ Loss		Taxes			Fees			Unrealized Change in Fair Value			Fair Value @ 9/30/2011
						(in thousands)
$ 318,318		36,451		(29,535	)		9,257		7,166		1,669		(1,571	)		(1,843	)		(33,509	)	$	306,403

The Company made net deposits into the trusts of approximately $6.9 million during the nine months ended September 30, 2011. During the nine months ended September 30, 2011, purchases and sales of securities available for sale included in trust investments were approximately $263.9 million and $254.8 million, respectively. Contributions included $4.1 million of assets that were acquired through acquisitions during the nine months ended September 30, 2011.

Other-than-temporary Impairments of Trust Assets

During the nine months ended September 30, 2011, the Company determined that there was a single security with an aggregate cost basis of approximately $0.2 million and an aggregate fair value of approximately $0.1 million, resulting in an impairment of $0.1 million, wherein such impairment was considered to be other-than-temporary. Accordingly, the Company adjusted the cost basis of this asset to its current value and offset this change against deferred revenue. This reduction in deferred revenue will be reflected in earnings in future periods as the underlying merchandise is delivered or the underlying service is performed. During the three months ended September 30, 2011, the Company determined that there were no other than temporary impairments to the investment portfolio for merchandise trusts.

During the three and nine months ended September 30, 2010, the Company determined that there were 17 securities, with an aggregate cost basis of approximately $40.6 million and $40.9 million, respectively, an aggregate fair value of approximately $27.5 million and $27.6 million, respectively, and a resulting impairment of approximately $13.1 million and $13.3 million, respectively, wherein such impairment was considered to be other-than-temporary. Accordingly, the Company adjusted the cost basis of this asset to its current value and offset this change against deferred revenue. This reduction in deferred revenue will be reflected in earnings in future periods as the underlying merchandise is delivered or the underlying service is performed.

PERPETUAL CARE TRUSTS

6.	PERPETUAL CARE TRUSTS

At September 30, 2011, the Company’s perpetual care trusts consisted of the following types of assets:

•

Money Market Funds that invest in low risk short term securities;

•

Publicly traded mutual funds that invest in underlying debt securities;

•

Publicly traded mutual funds that invest in underlying equity securities;

•

Equity investments that are currently paying dividends or distributions. These investments include REIT’s, Master Limited Partnerships, and global equity securities;

•

Fixed maturity debt securities issued by various corporate entities;

•

Fixed maturity debt securities issued by the U.S. Government and U.S. Government agencies;

•

Fixed maturity debt securities issued by U.S. states and local agencies; and

•

Assets acquired related to the August 17, 2011 acquisition of five cemeteries and four funeral homes from SCI Puerto Rico (see Note 13). According to the terms of the agreement, SCI Puerto Rico was required to liquidate the holdings of the related trusts upon closing and forward the proceeds to us as soon as practicable. As of September 30, 2011, the Company had not received these amounts. Accordingly, these assets are shown in a single line item in the disclosures below as “Assets acquired via acquisition” and the cost basis and fair value of such assets are based upon preliminary estimates that the Company is required to make in accordance with Accounting Topic 805.

All of these investments are classified as Available for Sale as defined by the Investments in Debt and Equity topic of the ASC. Accordingly, all of the assets are carried at fair value. All of these investments are considered to be either Level 1 or Level 2 assets as defined by the Fair Value Measurements and Disclosures topic of the ASC. At September 30, 2011, approximately 90.8% of the total managed investments were Level 1 investments while approximately 9.2% were Level 2 assets. There were no Level 3 assets.

The cost and market value associated with the assets held in perpetual care trusts at September 30, 2011 and December 31, 2010 were as follows:


As of September 30, 2011	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
Short-term investments	$	17,572	$	—	$	—		$	17,572
Fixed maturities:
U.S. Government and federal agency		408		104		—			512
U.S. State and local government agency		67		81		—			148
Corporate debt securities		22,816		171		(1,882	)		21,105
Other debt securities		371		—		—			371

Total fixed maturities		23,662		356		(1,882	)		22,136

Mutual funds - debt securities		60,451		72		(1,875	)		58,648
Mutual funds - equity securities		103,879		1,054		(12,044	)		92,889
Equity Securities		37,914		6,263		(657	)		43,520
Other invested assets		448		122		(570	)		—

Total managed investments	$	243,926	$	7,867	$	(17,028	)	$	234,765

Assets acquired via acquisition		594		—		—			594

Total	$	244,520	$	7,867	$	(17,028	)	$	235,359


As of December 31, 2010	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in thousands)
Short-term investments	$	20,583	$	—	$	—		$	20,583
Fixed maturities:
U.S. Government and federal agency		515		85		—			600
U.S. State and local government agency		67		81		—			148
Corporate debt securities		22,047		879		(234	)		22,692
Other debt securities		509		—		(1	)		508

Total fixed maturities		23,138		1,045		(235	)		23,948

Mutual funds - debt securities		52,809		2,865		(525	)		55,149
Mutual funds - equity securities		88,871		5,787		(2,878	)		91,780
Equity Securities		48,054		9,379		(181	)		57,252
Other invested assets		887		91		—			978

Total	$	234,342	$	19,167	$	(3,819	)	$	249,690

The contractual maturities of debt securities as of September 30, 2011 are as follows:


As of September 30, 2011	Less than 1 year		1 year through 5 years		6 years through 10 years		More than 10 years
	(in thousands)
U.S. Government and federal agency	$	—	$	388	$	124	$	—
U.S. State and local government agency		148		—		—		—
Corporate debt securities		129		18,770		2,206		—
Other debt securities		371		—		—		—

Total fixed maturities	$	648	$	19,158	$	2,330	$	—

An aging of unrealized losses on the Company’s investments in fixed maturities and equity securities at September 30, 2011 and December 31, 2010 held in perpetual care trusts is presented below:


	Less than 12 months				12 Months or more				Total
As of September 30, 2011	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(in thousands)
Fixed maturities:
U.S. Government and federal agency	$	—	$	—	$	—	$	—	$	—	$	—
U.S. State and local government agency		—		—		—		—		—		—
Corporate debt securities		18,482		1,718		952		164		19,434		1,882
Other debt securities		—		—		—		—		—		—

Total fixed maturities		18,482		1,718		952		164		19,434		1,882

Mutual funds - debt securites		55,373		1,686		1,611		189		56,984		1,875
Mutual funds - equity securites		31,308		4,436		43,413		7,608		74,721		12,044
Equity securities		6,329		649		228		8		6,557		657
Other invested assets		—		570		—		—		—		570

Total	$	111,492	$	9,059	$	46,204	$	7,969	$	157,696	$	17,028


	Less than 12 months				12 Months or more				Total
As of December 31, 2010	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(in thousands)
Fixed maturities:
U.S. Government and federal agency	$	—	$	—	$	—	$	—	$	—	$	—
U.S. State and local government agency		—		—		—		—		—		—
Corporate debt securities		9,195		145		1,196		89		10,391		234
Other debt securities		137		1		—		—		137		1

Total fixed maturities		9,332		146		1,196		89		10,528		235

Mutual funds - debt securites		1,444		127		2,702		398		4,146		525
Mutual funds - equity securites		—		—		45,268		2,878		45,268		2,878
Equity securities		1,695		107		3,102		74		4,797		181

Total	$	12,471	$	380	$	52,268	$	3,439	$	64,739	$	3,819

A reconciliation of the Company’s perpetual care trust activities for the nine months ended September 30, 2011 is presented below:


Fair Value @ 12/31/2010		Contributions		Distributions			Interest/ Dividends		Capital Gain Distributions		Realized Gain/ Loss		Taxes			Fees			Unrealized Change in Fair Value			Fair Value @ 9/30/2011
(in thousands)
$	249,690		7,452		(8,971	)		11,690		26		2,262		(865	)		(1,416	)		(24,509	)	$	235,359

The Company made net withdrawals out of the trusts of approximately $1.5 million during the nine months ended September 30, 2011. During the nine months ended September 30, 2011, purchases and sales of securities available for sale included in trust investments were approximately $116.3 million and $111.1 million, respectively. Contributions included $3.0 million of assets that were acquired through acquisitions during the nine months ended September 30, 2011.

Other-than-temporary Impairments of Trust Assets

During the nine months ended September 30, 2011, the Company determined that there was a single security with an aggregate cost basis of less than $0.1 million which was substantially impaired, and such impairment was considered to be other-than-temporary. Accordingly, the Company adjusted the cost basis of this asset to its current value and offset this change against the liability for perpetual care trust corpus. During the three months ended September 30, 2011, the Company determined that there were no other than temporary impairments to the investment portfolio for perpetual care trusts.

During the three and nine months ended September 30, 2010, the Company determined that there were 3 securities, with an aggregate cost basis of approximately $25.6 million, an aggregate fair value of approximately $10.8 million and a resulting impairment of approximately $14.8 million, wherein such impairment was considered to be other-than-temporary. Accordingly, the Company has adjusted the cost basis of this asset to its current value and offset this change against the liability for perpetual care trust corpus.

DERIVATIVE INSTRUMENTS

7.	DERIVATIVE INSTRUMENTS

On November 24, 2009, the Company entered into an interest rate swap (the “First Interest Rate Swap”) wherein the Company agreed to pay the counterparty interest in the amount of three month LIBOR plus 888 basis points in consideration for the counterparties agreement to pay the Company a fixed rate of interest of 10.25% on a principal amount of $108.0 million. On December 4, 2009, the Company entered into an interest rate swap (the “Second Interest Rate Swap”, together with the First Interest Rate Swap, the “Interest Rate Swaps”) wherein the Company agreed to pay the counterparty interest in the amount of three month LIBOR plus 869 basis points in consideration for the counterparties agreement to pay the Company a fixed rate of interest of 10.25% on a principal amount of $27.0 million.

The Interest Rate Swaps did not qualify for hedge accounting. Accordingly, the fair value of the Interest Rate Swaps were reported on the Company’s balance sheet and periodic changes in the fair value of the Interest Rate Swaps were recorded in earnings. At September 30, 2010, the Company recorded an asset of approximately $2.0 million, which represents the fair value of the Interest Rate Swaps. The Company recorded a gain on the fair value of interest rate swaps of approximately $1.4 million and $4.6 million during the three and nine months ended September 30, 2010, respectively. The Interest Rate Swaps were terminated in October of 2010.

LONG-TERM DEBT

8.	LONG-TERM DEBT

The Company had the following outstanding debt:


	As of
	September 30, 2011		December 31, 2010
	(in thousands)
Insurance premium financing	$	452	$	215
Vehicle financing		1,222		1,365
Acquisition Credit Facility, due January 2016		5,500		15,000
Revolving Credit Facility, due January 2016		18,000		18,500
Note payable - Greenlawn acquisition		1,355		1,400
Note payable - Nelms acquisition (net of discount)		706		866
Note payable - Acquisition non-competes		1,642		1,646
10.25% Senior Notes, due 2017		150,000		150,000
Class B Senior Secured Notes, due 2012 (interest rate-12.50%)		—		17,500
Class C Senior Secured Notes, due 2012 (interest rate-12.50%)		—		17,500

Total		178,877		223,992
Less current portion		1,743		1,386
Less unamortized bond discount		3,318		3,598

Long-term portion	$	173,816	$	219,008

This note includes a summary of material terms of the Company’s senior notes, senior secured notes, credit facilities and other debt obligations. For a more detailed description of the Company’s long-term debt agreements, see the Company’s 2010 Form 10-K.

10.25% Senior Notes due 2017

Purchase Agreement

On November 18, 2009, the Company entered into a Purchase Agreement (the “Purchase Agreement”) by and among StoneMor Operating LLC (the “Operating Company”), Cornerstone Family Services of West Virginia Subsidiary, Inc. (“CFS West Virginia”), Osiris Holding of Maryland Subsidiary, Inc. (“Osiris”), the Partnership, the subsidiary guarantors named in the Purchase Agreement (together with the Company, the “Note Guarantors”) and Bank of America Securities LLC (“BAS”), acting on behalf of itself and as the representative for the other initial purchasers named in the Purchase Agreement (collectively, the “Initial Purchasers”). Pursuant to the Purchase Agreement, the Operating Company, CFS West Virginia and Osiris (collectively, the “Issuers”), each the Company’s wholly-owned subsidiary, as joint and several obligors, agreed to sell to the Initial Purchasers $150.0 million aggregate principal amount of 10.25% Senior Notes due 2017 (the “Senior Notes”), with an original issue discount of approximately $4.0 million, in a private placement exempt from the registration requirements under the Securities Act, for resale by the Initial Purchasers (i) to qualified institutional buyers pursuant to Rule 144A under the Securities Act or (ii) outside the United States to non-U.S. persons in compliance with Regulation S under the Securities Act (the “Notes Offering”). The Notes Offering closed on November 24, 2009.

Indenture

On November 24, 2009, the Issuers, the Company, and the other Note Guarantors entered into an indenture (the “Indenture”), among the Issuers, the Company, the other Note Guarantors and Wilmington Trust FSB, as trustee (the “Trustee”) governing the Senior Notes.

The Issuers pay 10.25% 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, starting on June 1, 2010. The Senior Notes mature on December 1, 2017.

The Indenture requires the Company, the Issuers and/or the Note Guarantors, as applicable, to comply with various covenants including, but not limited to, covenants that, subject to certain exceptions, limit the Company’s and its subsidiaries’ ability to (i) incur additional indebtedness; (ii) make certain dividends, distributions, redemptions or investments; (iii) enter into certain transactions with affiliates; (iv) create, incur, assume or permit to exist certain liens against their assets; (v) make certain sales of their assets; and (vi) engage in certain mergers, consolidations or sales of all or substantially all of their assets. The Indenture also contains various affirmative covenants regarding, among other things, delivery of certain reports filed with the SEC and materials required pursuant to Rule 144A under the Securities Act to holders of the Senior Notes and joinder of future subsidiaries as Note Guarantors under the Indenture. The Company was in compliance with all financial covenants at September 30, 2011.

Note Purchase Agreement

On August 15, 2007, the Company entered into, along with the General Partner and certain of the Company’s subsidiaries (collectively, the “Note Issuers”), the Amended and Restated Note Purchase Agreement (the “NPA”) with Prudential Investment Management Inc., The Prudential Insurance Company of America, Prudential Retirement Insurance and Annuity Company, certain affiliates of Prudential Investment Management Inc., iStar Financial Inc., SFT I, Inc., and certain affiliates of iStar Financial Inc. (collectively, the “Note Purchasers”). The NPA was amended seven times prior to January 28, 2011 to amend borrowing levels, interest rates and covenants. Capitalized terms which are not defined in the following description shall have the meaning assigned to such terms in the NPA, as amended.

On January 28, 2011, and in connection with the Company’s February 2011 follow on public offering of common units, the Company entered into the Eighth Amendment to the Amended and Restated Credit Agreement. This amendment included the Lenders’ consent to the use of a portion of the proceeds from the public offering of common units to redeem in full the outstanding $17.5 million of 12.5% Series B and $17.5 million of 12.5% Series C Senior Secured Notes due August 2012 and to pay an aggregate make-whole premium of $4.0 million related thereto, which represented the Company’s final obligations outstanding under the NPA. The make-whole premium has been classified as early extinguishment of debt on the unaudited condensed consolidated statement of operations.

Acquisition Credit Facility and Revolving Credit Facility

On April 29, 2011, the Company entered into the Second Amended and Restated Credit Agreement (the “Credit Agreement”) among the Operating Company as the Borrower, each of the subsidiaries of the Operating Company as additional Borrowers, the General Partner and the Company as Guarantors, the Lenders identified therein, and Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer. The terms of the Credit Agreement are substantially the same as the terms of the prior agreement which was entered into on August 15, 2007 and amended eight times prior to entering into the Credit Agreement. The primary purpose of entering into the Credit Agreement was to consolidate the amendments to the prior agreement and to update outdated references. The current terms of the Credit Agreement are set forth below. Capitalized terms which are not defined in the following description shall have the meaning assigned to such terms in the Credit Agreement.

The Credit Agreement provides for both an acquisition credit facility (the “Acquisition Credit Facility”) of $65.0 million and a revolving credit facility (the “Revolving Credit Facility” and, together with the Acquisition Credit Facility, the “Credit Facility”) of $55.0 million. At September 30, 2011, amounts outstanding under the Credit Facility bear interest at a rate of 5.75%. Amounts borrowed may be either Base Rate Loans or Eurodollar Rate Loans and once repaid or prepaid, amounts under the Acquisition Credit Facility may not be reborrowed. Depending on the type of loan, borrowings bear interest at the Base Rate or Eurodollar Rate, plus applicable margins ranging from 1.75% to 2.75% and 2.75% to 3.75%, respectively, depending on the Company’s Consolidated Leverage Ratio. The Base Rate is the highest of the Prime Rate, the Federal Funds Rate plus 0.50%, or the Eurodollar Rate plus 1.0%. The Eurodollar Rate is:

•

with respect to a Eurodollar Rate Loan, the higher of the British Bankers Association LIBOR Rate or 2.0%; and

•

with respect to a Base Rate Loan, the British Bankers Association LIBOR Rate.

The maturity date of the Credit Facility is January 29, 2016. The Company’s maximum Consolidated Leverage Ratio, which is the ratio of Consolidated Funded Indebtedness to Consolidated EBITDA, is 3.65 to 1.0 for all Measurement Periods ending after December 31, 2010. In addition, the Company will not be permitted to have Maintenance Capital Expenditures, as defined in the Credit Agreement, for any Measurement Period ending in 2011, 2012 and 2013 exceeding $4.6 million, $5.2 million and $5.8 million, respectively, or $6.5 million for any Measurement Period ending in 2014 or thereafter. The Company will also not permit Consolidated EBITDA for any Measurement Period to be less than the sum of (i) $52 million plus (ii) 80% of the aggregate of all Consolidated EBITDA for each Permitted Acquisition completed after February 9, 2011.

At the time of entering into the Credit Agreement, Consolidated Fixed Charge Coverage Ratio was required to be not less than 1.15x for any Measurement Period ending in 2011, or 1.20x for any Measurement Period thereafter.

On August 4, 2011, the Company entered into the First Amendment to the Credit Agreement (the “First Amendment”) to provide that the Company may not permit the Consolidated Fixed Charge Coverage Ratio to be less than 1.08x for any Measurement Period ending in the second and third fiscal quarters of 2011, 1.15x for any Measurement Period ending in the fourth quarter of 2011, or 1.20x thereafter. This amendment was effective on a retroactive basis to June 30, 2011.

On October 28, 2011, the Company entered into the Second Amendment to the Credit Agreement (the “Second Amendment”) to provide that the Company may not permit the Consolidated Fixed Charge Coverage Ratio to be less than 1.05x for any Measurement Period ending in the third and fourth fiscal quarters of 2011, or 1.20x thereafter. This amendment was effective on a retroactive basis to August 31, 2011.

The Credit Agreement requires the Borrowers to pay an unused commitment fee, which is calculated based on the amount by which the commitments under the Credit Agreement exceed the usage of such commitments. The Commitment Fee Rate ranges from 0.5% to 0.75% depending on the Company’s Consolidated Leverage Ratio.

The Credit Agreement contains restrictive covenants that, among other things, prohibit distributions upon defined events of default, restrict investments and sales of assets and require the Company to maintain certain financial covenants, including specified financial ratios. A material decrease in revenues could cause the Company to breach certain of its financial covenants, such as the Consolidated Leverage Ratio, Consolidated Fixed Charge Coverage Ratio and the Consolidated EBITDA covenant, under the Credit Agreement. Any such breach could allow the Lenders to accelerate (or create cross-default under) the Company’s debt which would have a material adverse effect on the Company’s business, financial condition or results of operations. As of September 30, 2011 the Company was in compliance with all applicable financial covenants.

The proceeds of the Acquisition Credit Facility may be used by the Borrowers to finance (i) Permitted Acquisitions, and (ii) the purchase and construction of mausoleums. The proceeds of the Revolving Credit Facility and Swing Line Loans may be utilized to finance working capital requirements, Capital Expenditures and for other general corporate purposes. The Borrowers’ obligations under the Credit Agreement are guaranteed by both the Partnership and StoneMor GP LLC.

The Borrowers’ obligations under the Credit Facility are secured by a first priority lien and security interest in substantially all of the Borrowers’ assets, whether then owned or thereafter acquired, excluding: (i) trust accounts, certain proceeds required by law to be placed into such trust accounts and funds held in trust accounts; (ii) the General Partner’s interest in the Partnership, the incentive distribution rights under the Partnership’s partnership agreement and the deposit accounts of the General Partner into which distributions are received; (iii) Equipment subject to a purchase money security interest or equipment lease permitted under the Credit Agreement and certain other contract rights under which contractual, legal or other restrictions on assignment would prohibit the creation of a security interest or such creation of a security interest would result in a default thereunder.

Events of Default under the Credit Agreement include, but are not limited to, the following:

•

non-payment of any principal, interest or other amounts due under the Credit Agreement or any other Credit Document;

•

failure to observe or perform any covenants related to: (i) the delivery of financial statements, compliance certificates, reports and other information; (ii) providing prompt notice of Defaults and other events; (iii) the preservation of the legal existence and good standing of each Borrower and Guarantor; (iv) the ability of the Administrative Agent and each Lender to visit and inspect properties, examine books and records, and discuss financial and business affairs with directors, officers and independent public accountants of each Borrower and Guarantor; (v) restrictions on the use of proceeds; (vi) guarantees by new Subsidiaries; (vii) the maintenance of corporate formalities for each Borrower and Guarantor; (viii) the maintenance of Trust Accounts and Trust Funds; and (ix) any of the negative covenants contained in the Credit Agreement;

•

failure to observe or perform any other covenant, if uncured 30 days after notice thereof is provided by the Administrative Agent or Lenders;

•

any default under any other Indebtedness of the Borrowers or Guarantors;

•

any insolvency proceedings by a Borrower or Guarantor;

•

the insolvency of any Borrower or Guarantor, or a writ of attachment or execution or similar process issuing or being levied against any material part of the property of a Borrower or Guarantor; and

•

any Change in Control.

INCOME TAXES

9.	INCOME TAXES

As of September 30, 2011, the Company’s taxable corporate subsidiaries had a federal net operating loss carryover of approximately $124.9 million, which will begin to expire in 2019 and $170.4 million in state net operating losses which begin to expire this year.

The Partnership is not a taxable entity for federal and state income tax purposes; rather, the Partnership’s tax attributes (except those of its corporate subsidiaries) are to be included in the individual tax returns of its partners. Neither the Partnership’s financial reporting income, nor the cash distributions to unit-holders, can be used as a substitute for the detailed tax calculations that the Partnership must perform annually for its partners. Net income from the Partnership is not treated as “passive income” for federal income tax purposes. As a result, partners subject to the passive activity loss rules are not permitted to offset income from the Partnership with passive losses from other sources.

The Partnership’s corporate subsidiaries account for their income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit 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 provision for income taxes for the three and nine months ended September 30, 2011 and 2010 is based upon the estimated annual effective tax rates expected to be applicable to the Company for 2011 and 2010, respectively. The Company’s effective tax rate differs from its statutory tax rate primarily because the Company’s legal entity structure includes different tax filing entities, including a significant number of partnerships that are not subject to paying tax.

The Company is not currently under examination by any state jurisdictions. The federal statute of limitations and certain state statutes of limitations are open from 2007 forward. Management believes that the accrual for tax liabilities is adequate for all open years. This assessment relies on estimates and assumptions and may involve a series of complex judgments about future events. On the basis of present information, it is the opinion of the Company’s management that there are no pending assessments that will result in a material effect on the Company’s unaudited condensed consolidated financial statements over the next twelve months.

The Company recognizes any interest accrued related to unrecognized tax benefits in interest expense and any penalties in operating expenses. The Company has not recorded any material interest or penalties during the three and nine months ended September 30, 2011 or 2010. During the nine months ended September 30, 2011, the Company recorded an income tax benefit of approximately $0.9 million related to the reversal of uncertain tax positions for which the statute of limitations had expired.

DEFERRED CEMETERY REVENUES, NET

10.

DEFERRED CEMETERY REVENUES, NET

At September 30, 2011 and December 31, 2010, deferred cemetery revenues, net, consisted of the following:


	As of
	September 30, 2011			December 31, 2010
	(in thousands)
Deferred cemetery revenue	$	294,464		$	266,754
Deferred merchandise trust revenue		46,089			28,999
Deferred merchandise trust unrealized gains (losses)		(22,202	)		11,307
Deferred pre-acquisition margin		122,914			117,309
Deferred cost of goods sold		(41,263	)		(37,904	)

Deferred cemetery revenues, net	$	400,002		$	386,465

Deferred selling and obtaining costs	$	65,819		$	59,422

Deferred selling and obtaining costs are carried as an asset on the unaudited condensed consolidated balance sheet in accordance with the Financial Services – Insurance topic of the ASC.

COMMITMENTS AND CONTINGENCIES

11.

COMMITMENTS AND CONTINGENCIES

Legal

The Company is party to legal proceedings in the ordinary course of its business but does not expect the outcome of any proceedings, individually or in the aggregate, to have a material effect on the Company’s financial position, results of operations or liquidity.

Leases

At September 30, 2011, the Company was committed to operating lease payments for premises, automobiles and office equipment under various operating leases with initial terms ranging from one to five years and options to renew at varying terms. Expenses under operating leases were $0.6 million and $1.7 million for the three and nine months ended September 30, 2011, respectively, and $0.6 million and $1.6 million for the three and nine months ended 2010, respectively.

At September 30, 2011, operating leases will result in future payments in the following approximate amounts:


	(in thousands)
2012	$	1,711
2013		1,505
2014		946
2015		681
2016		658
Thereafter		1,868

Total	$	7,369

PARTNERS' CAPITAL

12.

PARTNERS’ CAPITAL

Unit-Based Compensation

The Company has issued to certain key employees and management unit-based compensation in the form of unit appreciation rights and phantom partnership units.

Compensation expense recognized related to unit appreciation rights and restricted phantom unit awards for the three and nine months ended September 30, 2011 and 2010 are summarized in the table below:


	Three months ended September 30,				Nine months ended September 30,
	2011		2010		2011		2010
	(in thousands)				(in thousands)
Unit appreciation rights	$	119	$	121	$	358	$	364
Restricted phantom units		76		69		218		179

Total unit-based compensation expense	$	195	$	190	$	576	$	543

As of September 30, 2011, there was approximately $1.1 million in non-vested unit appreciation rights outstanding. These unit appreciation rights will be expensed through the first quarter of 2013.

On February 9, 2011, the Company completed a follow on public offering of 3,756,155 common units, including an option to purchase up to 731,155 common units to cover over-allotments which was exercised in full by the underwriters, at a price of $29.25 per unit, representing a 19.4% interest in the Company. Total gross proceeds from these transactions were approximately $109.9 million, before offering costs and underwriting discounts. Net proceeds of the offering, including the related capital contribution of the General Partner, after deducting underwriting discounts and offering expenses, were approximately $105.6 million. As part of this transaction, selling unitholders also sold 1,849,366 common units. The Company did not receive any of the proceeds generated by the sale of any units held by the selling unitholders.

On June 22, 2011, the Company issued 9,852 units in connection with an acquisition consummated in the second quarter of 2010. See Note 13.

ACQUISITIONS

13.

ACQUISITIONS

First Quarter 2011 Acquisition

On January 5, 2011, the Operating Company, StoneMor North Carolina LLC, a North Carolina limited liability company and StoneMor North Carolina Subsidiary LLC, a North Carolina limited liability company, each a wholly-owned subsidiary of the Company (collectively the “Buyer”), entered into an Asset Purchase and Sale Agreement (the “1st Quarter Purchase Agreement”) with Heritage Family Services, Inc., a North Carolina corporation and an individual (collectively the “Seller”).

Pursuant to the 1st Quarter Purchase Agreement, the Buyer acquired three cemeteries in North Carolina, including certain related assets, and assumed certain related liabilities. In consideration for the net assets acquired, the Buyer paid the Seller $1.7 million in cash.

The table below reflects the Company’s preliminary assessment of the fair value of net assets acquired, the purchase price and the resulting goodwill recorded in the first quarter of the year. These amounts will be retrospectively adjusted as additional information is received.


	Preliminary Assessment
	(in thousands)
Assets:
Accounts receivable	$	97
Cemetery property		1,710
Merchandise trusts, restricted, at fair value		880
Perpetual care trusts, restricted, at fair value		344
Property and equipment		332
Other assets		100

Total assets		3,463

Liabilities:
Deferred margin		795
Merchandise liabilities		734
Perpetual care trust corpus		344

Total liabilities		1,873

Fair value of net assets acquired		1,590

Consideration paid		1,700

Goodwill from purchase	$	110

Second Quarter 2011 Acquisition

On June 22, 2011, the Operating Company, StoneMor Missouri LLC, a Missouri limited liability company and StoneMor Missouri Subsidiary LLC, a Missouri limited liability company, each a wholly-owned subsidiary of the Company (collectively the “Buyer”), entered into an Asset Purchase and Sale Agreement (the “2nd Quarter Purchase Agreement”) with SCI International, LLC, a Delaware limited liability company and Keystone America, Inc., a Delaware corporation (collectively the “Seller” or “SCI Missouri”).

Pursuant to the 2nd Quarter Purchase Agreement, the Buyer acquired three cemeteries and four funeral homes in Missouri, including certain related assets, and assumed certain related liabilities. In consideration for the net assets acquired, the Buyer paid the Seller $2.15 million in cash.

The table below reflects the Company’s preliminary assessment of the fair value of net assets acquired, the purchase price and the resulting goodwill recorded during the second quarter of the year. These amounts will be retrospectively adjusted as additional information is received.


	Preliminary Assessment
	(in thousands)
Assets:
Accounts receivable	$	104
Cemetery property		880
Merchandise trusts, restricted, at fair value		2,622
Perpetual care trusts, restricted, at fair value		1,195
Property and equipment		1,783

Total assets		6,584

Liabilities:
Deferred margin		1,420
Merchandise liabilities		1,701
Perpetual care trust corpus		1,195
Deferred tax liability		400

Total liabilities		4,716

Fair value of net assets acquired		1,868

Consideration paid		2,150

Goodwill from purchase	$	282

Third Quarter 2011 Acquisitions

On August 1, 2011, the Operating Company and CFS West Virginia, an affiliate of the Operating Company, (collectively the “Buyer”) entered into a Stock Purchase Agreement with three individuals (collectively the “Seller”) to purchase all of the stock of Prince George Cemetery Corporation, a Virginia corporation. Through the purchase of Prince George Cemetery Corporation, the Buyer acquired one cemetery in Virginia. In consideration for the stock acquired, the Buyer paid the Seller approximately $1.9 million in cash. The Buyer will also pay $0.3 million in cash in even quarterly installments over a five year period in exchange for non-compete agreements with the Seller.

The table below reflects the Company’s preliminary assessment of the fair value of net assets acquired, the purchase price and the resulting goodwill recorded in the third quarter of the year. These amounts will be retrospectively adjusted as additional information is received.


	Preliminary Assessment
	(in thousands)
Assets:
Accounts receivable	$	89
Cemetery property		2,277
Merchandise trusts, restricted, at fair value		577
Perpetual care trusts, restricted, at fair value		898
Property and equipment		125
Other assets		160

Total assets		4,126

Liabilities:
Deferred margin		360
Merchandise liabilities		332
Deferred tax liability		810
Perpetual care trust corpus		898

Total liabilities		2,400

Fair value of net assets acquired		1,726

Consideration paid at closing		1,850

Consideration to be paid		280

Total consideration	$	2,130

Goodwill from purchase	$	404

Also, on August 17, 2011, the Operating Company, StoneMor Puerto Rico LLC, a Puerto Rico limited liability company and StoneMor Puerto Rico Subsidiary LLC, a Puerto Rico limited liability company, each a wholly-owned subsidiary of the Company (collectively the “Buyer”), entered into a Stock Purchase Agreement with Alderwoods Group, LLC, a Delaware limited liability company (the “Seller” or “SCI Puerto Rico”) to purchase all of the stock of SCI Puerto Rico Funeral and Cemetery Services, Inc., a Puerto Rico corporation. Through the purchase of SCI Puerto Rico Funeral and Cemetery Services, Inc., the Buyer acquired five cemeteries and four funeral homes in Puerto Rico. In consideration for the stock acquired, the Buyer paid the Seller $4.6 million in cash.

The table below reflects the Company’s preliminary assessment of the fair value of net assets acquired, the purchase price and the resulting goodwill recorded in the third quarter of the year. These amounts will be retrospectively adjusted as additional information is received.


	Preliminary
	Assessment
	(in thousands)
Assets:
Accounts receivable	$	3,844
Cemetery property		4,730
Perpetual care trusts, restricted, at fair value		594
Property and equipment		3,570

Total assets		12,738

Liabilities:
Deferred margin		5,526
Merchandise liabilities		5,100
Deferred tax liability		640
Perpetual care trust corpus		594

Total liabilities		11,860

Fair value of net assets acquired		878

Consideration paid		4,600

Goodwill from purchase	$	3,722

The results of operations and pro forma results related to the acquisitions made in 2011 are not material to the unaudited condensed consolidated financial statements taken as a whole.

First Quarter 2010 Acquisition

On March 30, 2010, the Operating Company, StoneMor Michigan LLC, a Michigan limited liability company (“Buyer LLC”) and StoneMor Michigan Subsidiary LLC, a Michigan limited liability company (“Buyer NQ Sub” and individually and collectively with StoneMor LLC and Buyer LLC, “Buyer”), each a wholly-owned subsidiary of StoneMor Partners L.P. (the “Company”), entered into an Asset Purchase and Sale Agreement (the “Purchase Agreement”) with SCI Funeral Services, LLC, an Iowa limited liability company (“Parent”), SCI Michigan Funeral Services, Inc., a Michigan corporation (“SCI Michigan”, and together with Parent, “SCI”), Hillcrest Memorial Company, a Delaware corporation (“Hillcrest”), Christian Memorial Cultural Center, Inc., a Michigan corporation (“Christian”), Sunrise Memorial Gardens Cemetery, Inc., a Michigan corporation (“Sunrise”), and Flint Memorial Park Association, a Michigan corporation (“Flint” and individually and collectively with Sunrise, Hillcrest and Christian, “Seller”).

In connection with the Purchase Agreement, on March 30, 2010, StoneMor LLC and Plymouth Warehouse Facilities LLC, a Delaware limited liability company and a wholly-owned subsidiary of the Company (“Plymouth” and individually and collectively with StoneMor LLC, “Warehouse Buyer”), entered into an Asset Purchase and Sale Agreement (the “Warehouse Purchase Agreement”) with SCI, Hillcrest, Sunrise, Flint, Buyer NQ Sub and Buyer LLC.

Pursuant to the Purchase Agreement, Buyer acquired nine cemeteries in Michigan, including certain related assets (the “Acquired Assets”), and assumed certain related liabilities (the “Assumed Liabilities”). In consideration for the transfer of the Acquired Assets and in addition to the assumption of the Assumed Liabilities, Buyer paid Seller approximately $14.1 million (the “Closing Purchase Price”) in cash.

Pursuant to the Warehouse Purchase Agreement, Warehouse Buyer acquired one warehouse in Michigan from SCI, including certain related assets, and assumed certain related liabilities for $0.5 million in cash, which was deemed part of the $14.1 million consideration paid in connection with the Purchase Agreement.

The Purchase Agreement and Warehouse Purchase Agreement also include various representations, warranties, covenants, indemnification and other provisions which are customary for transactions of this nature.

In the fourth quarter of 2010, the Company obtained additional information regarding the fair value of the net assets acquired in the Purchase Agreement. This change to the provisional purchase price allocation resulted in a recast of amounts originally reported on Form 10-Q for the first quarter of 2010. The table below reflects the Company’s final assessment of these fair values and all amounts have been retrospectively adjusted.


	Final Assessment
	(in thousands)
Assets:
Cemetery property	$	33,761
Accounts receivable		2,651
Merchandise trusts, restricted, at fair value		48,027
Perpetual care trusts, restricted, at fair value		15,084
Property and equipment		5,768

Total assets		105,291

Liabilities:
Deferred margin		31,094
Merchandise liabilities		30,126
Deferred income tax liability, net		7,879
Perpetual care trust corpus		15,084

Total liabilities		84,183

Fair value of net assets acquired		21,108

Consideration paid		14,015

Gain on bargain purchase	$	7,093

Second Quarter 2010 Acquisition

On April 29, 2010, the Johnson County Circuit Court of Indiana entered the Order Approving Form of Amended and Restated Purchase Agreement and Authorizing Sale of Equity Interests and Assets (the “Indiana Order”). The Indiana Order, subject to certain conditions, permitted Lynette Gray, as receiver (the “Receiver”) of the business and assets of Ansure Mortuaries of Indiana, LLC (“Ansure”), Memory Gardens Management Corporation (“MGMC”), Forest Lawn Funeral Home Properties, LLC (“Forest Lawn”), Gardens of Memory Cemetery LLC (“Gardens of Memory”), Gill Funeral Home, LLC (“Gill”), Garden View Funeral Home, LLC (“Garden View”), Royal Oak Memorial Gardens of Ohio Ltd. (“Royal Oak”), Heritage Hills Memory Gardens of Ohio Ltd. (“Heritage”) and Robert E. Nelms (“Nelms” and collectively with Ansure, MGMC, Forest Lawn, Gardens of Memory, Gill, Garden View, Royal Oak and Heritage, the “Original Sellers”), to enter into and consummate an Amended and Restated Purchase Agreement (the “2nd Quarter Purchase Agreement”) with StoneMor Operating LLC, a Delaware limited liability company (“StoneMor LLC”), StoneMor Indiana LLC, an Indiana limited liability company (“StoneMor Indiana”), StoneMor Indiana Subsidiary LLC, an Indiana limited liability company (“StoneMor Subsidiary”) and Ohio Cemetery Holdings, Inc., an Ohio nonprofit corporation (“Ohio Nonprofit,” and collectively with StoneMor LLC, StoneMor Indiana and StoneMor Subsidiary, the “Buyer”), each a wholly-owned subsidiary of the Company. Subject to the receipt of the Indiana Order, the Purchase Agreement was executed by the Buyer and the Receiver on April 2, 2010.

Effective June 21, 2010, certain subsidiaries of the Company entered into Amendment No. 1 to the 2nd Quarter Purchase Agreement (“Amendment No. 1”) by and among the Buyer, the Original Sellers, Robert Nelms, LLC (“Nelms LLC,” and collectively with the Original Sellers, the “Sellers”) and the Receiver, which amended the Purchase Agreement executed by the Buyer and the Receiver. Amendment No. 1 amended the 2nd Quarter Purchase Agreement by: adding certain parties to the Purchase Agreement; modifying certain representations and warranties made by the Original Sellers in the 2nd Quarter Purchase Agreement; and providing that the Buyer will assume certain additional liabilities such as the obligation to pay for all claims incurred under the health benefit plans of the Original Sellers on or before the closing of the transactions contemplated by the Purchase Agreement and Amendment No. 1, but which had not been reported on or prior to the closing.

Effective June 21, 2010, pursuant to the 2nd Quarter Purchase Agreement and Amendment No. 1, the Buyer acquired the stock (the “Stock”) of certain companies owned by Ansure (the “Acquired Companies”) and certain assets (the “Assets”) owned by Nelms, Nelms LLC, Gill, Gardens of Memory, Garden View, Forest Lawn, Heritage, Royal Oak and MGMC, resulting in the acquisition of 8 cemeteries and 5 funeral homes in Indiana, Michigan and Ohio (the “Acquisition”). The Buyer acquired the Stock and Assets, advanced moneys to pay for trust shortfalls of the cemeteries, paid certain liabilities of the Sellers, which were offset by funds held in a Smith Barney Account acquired by the Buyer in the transaction, and paid certain legal fees of the parties to the transaction and other acquisition costs, for a total consideration, including the offset by the funds held in the Smith Barney Account, of approximately $32.5 million. The Acquisition was financed, in part, by borrowing $22.5 million from the Company’s acquisition facility under the Amended and Restated Credit Agreement dated August 15, 2007 among StoneMor LLC, certain of its subsidiaries, the Company, StoneMor GP LLC, Bank of America, N.A., the other lenders party thereto, and Banc of America Securities LLC, as amended.

Settlement Agreement

In connection with the Acquisition, effective June 21, 2010, StoneMor LLC and StoneMor Indiana (collectively, “StoneMor”) and the Company entered into a Settlement Agreement (the “Settlement Agreement”) with Chapel Hill Associates, Inc., d/b/a Chapel Hill Memorial Gardens of Grand Rapids, Chapel Hill Funeral Home, Inc., Covington Memorial Funeral Home, Inc., Covington Memorial Gardens, Inc., Forest Lawn Memorial Chapel Inc., Forest Lawn Memory Gardens Inc., Fred W. Meyer, Jr. by James R. Meyer as Special Administrator to the Estate of Fred W. Meyer, Jr. (the “F. Meyer Estate”), James R. Meyer (“J. Meyer”), Thomas E. Meyer (“T. Meyer”), Nancy J. Cade (“Cade,” and collectively with the F. Meyer Estate, J. Meyer, and T. Meyer, the “Meyer Family”) and F.T.J. Meyer Associates, LLC (“FTJ”).

Pursuant to the Settlement Agreement, StoneMor agreed to assume, pay and discharge a portion of Ansure’s and Forest Lawn’s obligations under: (i) certain notes issued by Ansure in favor of Fred W. Meyer, Jr., J. Meyer, T. Meyer, and Cade (collectively, the “Original Meyer Family”); and (ii) a note issued by Forest Lawn to FTJ, which was later assigned to the Original Meyer Family.

StoneMor agreed to assume approximately $7.1 million of Ansure’s and Forest Lawn’s obligations under the notes they issued, with the remaining principal, interest and fees due under such notes forgiven by the Meyer Family. In connection with the assumption of these obligations, at Closing, StoneMor issued promissory notes to each member of the Meyer Family (the “Closing Notes”) and additional promissory notes payable in installments to certain members of the Meyer Family (the “Installment Notes”). The Closing Notes were issued effective June 21, 2010 in the aggregate principal amount of approximately $5.8 million, were unsecured subordinated obligations of StoneMor, bore no interest and were payable on demand at the Closing. The Closing Notes were paid at closing by: (i) the issuance by the Company of 293,947 unregistered common units representing limited partnership interests of the Company (the “Units”) valued at approximately $5.6 million pursuant to the terms of the Settlement Agreement; and (ii) a cash payment of approximately $0.2 million.

The Installment Notes were issued effective June 21, 2010 and mature April 1, 2014. The Installment Notes are to be paid over a 4 year period and do not have a stated rate of interest. The Company has recorded the Installment Notes at their fair market value of approximately $2.6 million. The face amounts of the Installment Notes were discounted approximately $0.7 million, and the discount will be amortized to interest expense over the life of the Installment Notes. The Installment Notes bear 10.25% interest per annum on the portion of the outstanding balance after the maturity date or while there exists any uncured event of default or the exercise by the Company of any remedies following the occurrence and during the continuance of any event of default. In addition, if StoneMor voluntarily files for bankruptcy or is involved in an involuntary bankruptcy proceeding, the entire principal balance of the Installment Notes will automatically become due and payable.

J. Meyer, T. Meyer and Cade each entered into an Amended and Restated Agreement-Not-To-Compete with StoneMor, which amended the non-compete agreements each previously entered into with Ansure. In consideration for entering into an Amended and Restated Agreement-Not-To-Compete, StoneMor agreed to pay an aggregate of approximately $2.3 million to J. Meyer, T. Meyer, and Cade, with approximately $0.3 million paid at Closing, and the remainder to be paid in installments over 4 years.

The Settlement Agreement also provides that, if the annual distributions paid by the Company to its unitholders are less than $2.20, StoneMor will pay additional cash consideration to the Meyer Family annually for four years pursuant to a formula contained in the Settlement Agreement. StoneMor may also pay up to approximately $2.4 million to the Meyer Family from the proceeds of the Misappropriation Claims, subject to certain minimum thresholds before payments are required.

In addition, StoneMor provided an assignment from the Receiver to the Meyer Family of the Eminent Domain Claim, as defined in the Settlement Agreement, and the proceeds thereto, at closing. The Meyer Family agreed to assign its rights under the Fraud Claims, as defined in the Settlement Agreement, to StoneMor.

All obligations of StoneMor, the Company, and the Acquired Companies under the Settlement Agreement and other transaction documents are subordinate and junior to the obligations of StoneMor, the Company, and the Acquired Companies under any Senior Debt, as defined in the Settlement Agreement.

The Settlement Agreement also includes various representations, warranties, covenants, mutual releases, indemnification and other provisions, which are customary for a transaction of this nature.

Unregistered Sale of Securities

In connection with the Acquisition, StoneMor GP LLC, the general partner of the Company (“StoneMor GP”), entered into a Non-Competition Agreement (“Non-Competition Agreement”) dated as of June 21, 2010 with Ronald P. Robertson, pursuant to which Mr. Robertson agreed not to compete with StoneMor GP and the companies under its management and control. In consideration for Mr. Robertson’s covenant not to compete and as a partial payment of the Closing Notes to the Meyer Family pursuant to the Settlement Agreement, effective June 21, 2010, the Company issued 303,800 Units.

Pursuant to the Non-Competition Agreement, the Company is obligated to issue additional Units which were initially valued at a fair value of $0.5 million based on a unit price of $20.30 just prior to the date of acquisition. As a result, the Company issued 9,852 units in June of 2011, resulting in a charge to partners’ capital of approximately $0.3 million. The Company is also obligated to issue an additional 9,852 units and 4,926 units in June of 2012 and June of 2013, respectively.

The table below reflects the Company’s final assessment of the fair value of net assets received, the purchase price and the resulting goodwill from the purchase and displays the adjustment made from the adjusted values reported at December 31, 2010. The Company obtained additional information in the second quarter of 2011 and has retrospectively adjusted these preliminary values as noted below.


	Preliminary Assessment		Adjustments			Final Assessment
			(in thousands)
Assets:
Cemetery land	$	21,686	$	—		$	21,686
Cemetery and funeral home property		9,039		—			9,039
Accounts receivable		2,138		—			2,138
Merchandise trusts, restricted, at fair value		17,142		1,806			18,948
Perpetual care trusts, restricted, at fair value		3,349		733			4,082
Other assets		4,369		422			4,791

Total assets		57,723		2,961			60,684

Liabilities:
Deferred margin		15,939		—			15,939
Merchandise liabilities		15,543		—			15,543
Deferred income tax liability, net		9,426		302			9,728
Perpetual care trust corpus		3,349		733			4,082

Total liabilities		44,257		1,035			45,292

Fair value of net assets acquired		13,466		1,926			15,392

Paid at closing - purchase price		10,417		—			10,417

Paid at closing - units		5,785		110			5,895

Paid at closing - liabilities incurred	$	3,648	$	—		$	3,648

Goodwill from purchase	$	18,914	$	(1,816	)	$	17,098
Total purchase price		19,850		110			19,960
Paid at closing - trust underfunding		12,530		—			12,530
Total paid at closing		32,380		110			32,490

If the acquisitions from the first and second quarters of 2010 had been consummated on January 1, 2010, on a pro forma basis, for the three and nine months ended September 30, 2010, consolidated revenues would have been $55.1 million and $149.0 million, respectively, consolidated net income (loss) would have been $(2.1) million and $1.7 million, respectively and net income (loss) per limited partner unit (basic and diluted) would have been $(0.15) and $0.12, respectively.

Third Quarter 2010 Acquisition and Long-Term Operating Agreement

During the third quarter of 2010, certain subsidiaries of the Company entered into a long-term operating agreement (the “Operating Agreement”) with the Archdiocese of Detroit (the “Archdiocese”) wherein the Company became the exclusive operator of certain cemeteries owned by the Archdiocese.

Key terms and conditions of the operating agreement include, but are not limited to, the following:

1.	There was no consideration paid by either party to effect the execution of the Operating Agreement.

2.

The Archdiocese will pay the Company a management fee in the amounts of $0.5 million, $0.4 million and $0.3 million during the first three years of the agreement. This fee is in addition to any revenues the Company will earn from operating the property. No monies will be transferred during Year 4. The Company will pay the Archdiocese a fee in an amount equal to 5% of revenues beginning in Year 5. Total amounts paid are capped at $0.3 million, $0.4 million and $0.5 million during years five through seven consecutively.

3.	The operating agreement is for a term of 40 years (subject to certain termination rights).

4.	The Company shall acquire the exclusive rights to all of the property and assets of each cemetery, including but not limited to, the use of all land for interment purposes; the sum of accounts receivable and merchandise trust funds in force for existing pre-need contracts.

The Company has concluded that this Operating Agreement does not qualify as a variable interest entity because the Company does not control the entity. However, the existing merchandise trust, which had a fair value of approximately $3.5 million as of the contract date, has been consolidated as a variable interest entity as the Company controls and directly benefits from the operations of the merchandise trust. Other liabilities assumed by the Company have also been recorded as of the contract date. As no consideration was paid in this transaction, the Company has recorded a deferred gain of approximately $3.1 million within deferred cemetery revenues, net, which represent the excess of the value of the merchandise trust over the liabilities assumed. This amount will be amortized as the Company recognizes the benefits of ownership associated with the merchandise trust.

The table below reflects the amounts recorded on the contract date either through consolidation as a VIE or the assumption of a liability, resulting in a deferred gain.


	Final Assessment
	(in thousands)
Assets:
Merchandise trusts, restricted, at fair value	$	3,493
Liabilities:
Deferred margin		208
Merchandise liabilities		192

Net assets recorded		3,093
Consideration paid		—

Deferred gain	$	3,093

Also during the third quarter of 2010, the Company purchased a single cemetery for $1.5 million, which included the payoff of an existing mortgage of $0.3 million. At September 30, 2010, the Company had made a provisional assessment of the fair value of net assets acquired for this transaction. The Company obtained additional information in the fourth quarter of 2010 and had retrospectively adjusted these preliminary values as of December 31, 2010.

The table below reflects the Company’s final assessment of the fair value of net assets received, the purchase price and the resulting gain on a bargain purchase and displays the adjustment made from the adjusted values reported at December 31, 2010. The Company obtained additional information in the second quarter of 2011 and has retrospectively adjusted these preliminary values as noted below.


	Preliminary Assessment		Adjustments			Final Assessment
			(in thousands)
Assets:
Accounts receivable	$	1,003	$	(134	)	$	869
Cemetery property		2,831					2,831
Property and equipment		607					607
Merchandise trusts, restricted, at fair value		3,080					3,080
Perpetual care trusts, restricted, at fair value		1,089					1,089
Intangible assets		340					340

Total assets		8,950		(134	)		8,816

Liabilities:
Deferred margin		2,537		(133	)		2,404
Other liabilities		318					318
Merchandise liabilities		2,342					2,342
Deferred tax liabilities		1,104					1,104
Perpetual care trust corpus		1,089		—			1,089

Total liabilities		7,390		(133	)		7,257

Fair value of net assets acquired		1,560		(1	)		1,559

Consideration paid		1,500		—			1,500

Gain on bargain purchase	$	60	$	(1	)	$	59

The results of operations related to this acquisition are not material to the financial statements taken as a whole.

The accounting for an acquisition made in the fourth quarter of 2010 has still not been finalized and is subject to further adjustment during 2011. During the second quarter of 2011, the Company obtained additional information related to the acquisition made in the fourth quarter of 2010. These adjustments resulted in changes to amounts reported on the balance sheet at December 31, 2010 as follows; an increase to goodwill of $0.1 million and a decrease to long-term accounts receivable of $0.1 million.

SEGMENT INFORMATION

14.

SEGMENT INFORMATION

The Company is organized into five distinct reportable segments which are classified as Cemetery Operations – Southeast, Cemetery Operations – Northeast, Cemetery Operations – West, Funeral Homes, and Corporate.

The Company has chosen this level of organization of reportable segments due to the fact that a) each reportable segment has unique characteristics that set it apart from other segments; b) the Company has organized its management personnel at these operational levels; and c) it is the level at which the Company’s chief decision makers and other senior management evaluate performance.

The cemetery operations segments sell interment rights, caskets, burial vaults, cremation niches, markers and other cemetery related merchandise. The nature of the Company’s customers differs in each of our regionally based cemetery operating segments. Cremation rates in the West region are substantially higher than they are in the Southeast region. Rates in the Northeast region tend to be somewhere between the two. Statistics indicate that customers who select cremation services have certain attributes that differ from customers who select other methods of interment. The disaggregation of cemetery operations into the three distinct regional segments is primarily due to these differences in customer attributes along with the previously mentioned management structure and senior management analysis methodologies.

The Company’s Funeral Homes segment offers a range of funeral-related services such as family consultation, the removal of and preparation of remains and the use of funeral home facilities for visitation. These services are distinctly different than the cemetery merchandise and services sold and provided by the cemetery operations segments.

The Company’s Corporate segment includes various home office selling and administrative expenses that are not allocable to the other operating segments.

Segment information as of and for the three and nine months ended September 30, 2011 and 2010 is as follows:

As of and for the three months ended September 30, 2011:


	Cemeteries						Funeral
	Southeast		Northeast		West		Homes		Corporate			Adjustment			Total
	(in thousands)
Revenues
Sales	$	19,480	$	7,744	$	11,939	$	—	$	—		$	(5,000	)	$	34,163
Service and other		7,354		6,007		7,136		—		—			(1,834	)		18,663
Funeral home		—		—		—		7,705		—			(206	)		7,499

Total revenues		26,834		13,751		19,075		7,705		—			(7,040	)		60,325

Costs and expenses
Cost of sales		4,056		1,965		2,127		—		—			(988	)		7,160
Cemetery		6,009		3,770		5,533		—		—			—			15,312
Selling		6,686		2,693		3,621		—		130			(938	)		12,192
General and administrative		3,279		1,535		2,297		—		—			—			7,111
Corporate overhead		—		—		—		—		5,628			—			5,628
Depreciation and amortization		425		219		444		391		407			—			1,886
Funeral home		—		—		—		5,868		—			—			5,868
Acquisition related costs		—		—		—		—		1,189			—			1,189

Total costs and expenses		20,455		10,182		14,022		6,259		7,354			(1,926	)		56,346

Operating profit	$	6,379	$	3,569	$	5,053	$	1,446	$	(7,354	)	$	(5,114	)	$	3,979

Total assets	$	438,653	$	275,081	$	365,737	$	55,117	$	35,865		$	—		$	1,170,453
Amortization of cemetery property	$	839	$	442	$	441	$	—	$	—		$	(268	)	$	1,454
Long lived asset additions	$	7,735	$	472	$	1,834	$	3,869	$	236		$	—		$	14,146
Goodwill	$	3,629	$	—	$	11,586	$	7,456	$	—		$	—		$	22,671

As of and for the nine months ended September 30, 2011:


	Cemeteries						Funeral
	Southeast		Northeast		West		Homes		Corporate			Adjustment			Total
	(in thousands)
Revenues
Sales	$	59,448	$	24,277	$	34,960	$	—	$	5		$	(25,203	)	$	93,487
Service and other		23,533		17,586		22,207		—		—			(9,344	)		53,982
Funeral home		—		—		—		22,749		—			(555	)		22,194

Total revenues		82,981		41,863		57,167		22,749		5			(35,102	)		169,663

Costs and expenses
Cost of sales		12,128		5,281		5,743		—		—			(3,783	)		19,369
Cemetery		17,036		10,739		15,085		—		—			—			42,860
Selling		20,292		8,464		10,336		—		807			(5,976	)		33,923
General and administrative		9,547		4,555		6,469		—		(2	)		—			20,569
Corporate overhead		—		—		—		—		17,572			—			17,572
Depreciation and amortization		1,183		663		1,686		1,118		1,724			—			6,374
Funeral home		—		—		—		16,875		—			—			16,875
Acquisition related costs		—		—		—		—		3,147			—			3,147

Total costs and expenses		60,186		29,702		39,319		17,993		23,248			(9,759	)		160,689

Operating profit	$	22,795	$	12,161	$	17,848	$	4,756	$	(23,243	)	$	(25,343	)	$	8,974

Total assets	$	438,653	$	275,081	$	365,737	$	55,117	$	35,865		$	—		$	1,170,453
Amortization of cemetery property	$	2,592	$	1,582	$	835	$	—	$	—		$	(597	)	$	4,412
Long lived asset additions	$	11,607	$	1,223	$	5,111	$	5,909	$	540		$	—		$	24,390
Goodwill	$	3,629	$	—	$	11,586	$	7,456	$	—		$	—		$	22,671

As of and for the three months ended September 30, 2010:


	Cemeteries						Funeral
	Southeast		Northeast		West		Homes		Corporate			Adjustment			Total
	(in thousands)
Revenues
Sales	$	18,807	$	8,474	$	10,232	$	—	$	—		$	(8,166	)	$	29,347
Service and other		7,610		6,153		6,898		—		—			(4,386	)		16,275
Funeral home		—		—		—		6,688		—			(180	)		6,508

Total revenues		26,417		14,627		17,130		6,688		—			(12,732	)		52,130

Costs and expenses
Cost of sales		3,975		1,988		1,783		—		—			(1,278	)		6,468
Cemetery		5,354		3,482		4,670		—		—			—			13,506
Selling		5,967		2,690		3,112		—		172			(1,643	)		10,298
General and administrative		3,004		1,502		1,812		—		9			—			6,327
Corporate overhead		—		—		—		—		5,360			—			5,360
Depreciation and amortization		417		192		454		253		1,150			—			2,466
Funeral home		—		—		—		5,025		—			—			5,025
Acquisition related costs		—		—		—		—		1,963			—			1,963

Total costs and expenses		18,717		9,854		11,831		5,278		8,654			(2,921	)		51,413

Operating profit	$	7,700	$	4,773	$	5,299	$	1,410	$	(8,654	)	$	(9,811	)	$	717

Total assets	$	369,567	$	260,912	$	348,006	$	48,668	$	92,475		$	—		$	1,119,628
Amortization of cemetery property	$	760	$	544	$	182	$	—	$	—		$	(92	)	$	1,394
Long lived asset additions	$	476	$	3,611	$	1,476	$	202	$	31		$	—		$	5,796
Goodwill	$	456	$	—	$	11,304	$	5,818	$	—		$	—		$	17,578

As of and for the nine months ended September 30, 2010:


	Cemeteries						Funeral
	Southeast		Northeast		West		Homes		Corporate			Adjustment			Total
	(in thousands)
Revenues
Sales	$	58,231	$	25,250	$	26,469	$	—	$	—		$	(33,613	)	$	76,337
Service and other		19,039		16,424		13,223		—		—			(1,645	)		47,041
Funeral home		—		—		—		18,651		—			(492	)		18,159

Total revenues		77,270		41,674		39,692		18,651		—			(35,750	)		141,537

Costs and expenses
Cost of sales		11,975		5,298		4,311		—		7			(5,398	)		16,193
Cemetery		15,057		9,822		9,963		—		—			(3	)		34,839
Selling		18,490		8,087		7,843		—		490			(7,529	)		27,381
General and administrative		8,910		4,473		4,690		—		13			—			18,086
Corporate overhead		—		—		—		—		16,054			—			16,054
Depreciation and amortization		1,155		571		759		820		2,900			—			6,205
Funeral home		—		—		—		14,120		—			(22	)		14,098
Acquisition related costs		—		—		—		—		4,619			—			4,619

Total costs and expenses		55,587		28,251		27,566		14,940		24,083			(12,952	)		137,475

Operating profit	$	21,683	$	13,423	$	12,126	$	3,711	$	(24,083	)	$	(22,798	)	$	4,062

Total assets	$	369,567	$	260,912	$	348,006	$	48,668	$	92,475		$	—		$	1,119,628
Amortization of cemetery property	$	2,345	$	1,615	$	475	$	—	$	—		$	(482	)	$	3,953
Long lived asset additions	$	2,440	$	4,524	$	64,402	$	8,055	$	78		$	—		$	79,499
Goodwill	$	456	$	—	$	11,304	$	5,818	$	—		$	—		$	17,578

Results of individual business units are presented based on our management accounting practices and management structure. There is no comprehensive, authoritative body of guidance for management accounting equivalent to accounting principles generally accepted in the United States of America; therefore, the financial results of individual business units are not necessarily comparable with similar information for any other company. The management accounting process uses assumptions and allocations to measure performance of the business units. Methodologies are refined from time to time as management accounting practices are enhanced and businesses change. Revenues and associated expenses are not deferred in accordance with SAB No. 104 therefore, the deferral of these revenues and expenses is provided in the adjustment column to reconcile the Company’s managerial financial statements to those prepared in accordance with GAAP. Pre-need sales revenues included within the sales category consist primarily of the sale of burial lots, burial vaults, mausoleum crypts, grave markers and memorials, and caskets. Management accounting practices included in the Southeast, Northeast, and Western Regions reflect these pre-need sales when contracts are signed by the customer and accepted by the Company. Pre-need sales reflected in the unaudited condensed consolidated financial statements, prepared in accordance with GAAP, recognize revenues for the sale of burial lots and mausoleum crypts when the product is constructed and at least 10% of the sales price is collected. With respect to the other products, the unaudited condensed consolidated financial statements prepared under GAAP recognize sales revenues when the criteria for delivery under SAB No. 104 are met. These criteria include, among other things, purchase of the product, delivery and installation of the product in the ground, and transfer of title to the customer. In each case, costs are accrued in connection with the recognition of revenues; therefore, the unaudited condensed consolidated financial statements reflect Deferred Cemetery Revenue, Net and Deferred Selling and Obtaining Costs on the balance sheet, whereas the Company’s management accounting practices exclude these items.

FAIR VALUE MEASUREMENTS

15.

FAIR VALUE MEASUREMENTS

The Fair Value Measurements and Disclosures topic of the ASC defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. This topic also establishes a fair value hierarchy that gives the highest priority to observable inputs and the lowest priority to unobservable inputs. The three levels of the fair value hierarchy defined by this topic are described below.

Level 1: Quoted market prices available in active markets for identical assets or liabilities. The Company includes short-term investments, consisting primarily of money market funds, U.S. Government debt securities and publicly traded equity securities and mutual funds in its level 1 investments.

Level 2: Quoted prices in active markets for similar assets; quoted prices in non-active markets for identical or similar assets; inputs other than quoted prices that are observable. The Company includes U.S. state and municipal, corporate and other fixed income debt securities in its level 2 investments.

Level 3: Any and all pricing inputs that are generally unobservable and not corroborated by market data.

The following table allocates the Company’s assets and liabilities measured at fair value as of September 30, 2011 and December 31, 2010.

As of September 30, 2011

Merchandise Trust


Description	Level 1		Level 2		Total
	(in thousands)
Assets
Short-term investments	$	27,242	$	—	$	27,242
Fixed maturities:
U.S. government and federal agency		—		—		—
U.S. state and local government agency		—		23		23
Corporate debt securities		—		9,337		9,337
Other debt securities		—		2,461		2,461

Total fixed maturity investments		—		11,821		11,821

Mutual funds - debt securities		65,959		—		65,959
Mutual funds - equity securities - real estate sector		19,998		—		19,998
Mutual funds - equity securities - energy sector		24,421		—		24,421
Mutual funds - equity securities - MLP’s		18,488		—		18,488
Mutual funds - equity securities - other		61,616		—		61,616
Equity securities
Preferred REIT’s		9,027		—		9,027
Master limited partnerships		34,314		—		34,314
Global equity securities		19,258		—		19,258
Other invested assets		—		5,112		5,112

Total	$	280,323	$	16,933	$	297,256

Perpetual Care Trust


Description	Level 1		Level 2		Total
	(in thousands)
Assets
Short-term investments	$	17,572	$	—	$	17,572
Fixed maturities:
U.S. government and federal agency		512		—		512
U.S. state and local government agency		—		148		148
Corporate debt securities		—		21,105		21,105
Other debt securities		—		371		371

Total fixed maturity investments		512		21,624		22,136

Mutual funds - debt securities		58,648		—		58,648
Mutual funds - equity securities - real estate sector		22,144		—		22,144
Mutual funds - equity securities - energy sector		17,368		—		17,368
Mutual funds - equity securities - MLP’s		12,467		—		12,467
Mutual funds - equity securities - other		40,910		—		40,910
Equity securities
Preferred REIT’s		19,505		—		19,505
Master limited partnerships		23,379		—		23,379
Global equity securities		636		—		636
Other invested assets		—		—		—

Total	$	213,141	$	21,624	$	234,765

As of December 31, 2010

Merchandise Trust


Description	Level 1		Level 2		Total
	(in thousands)
Assets
Short-term investments	$	40,723	$	—	$	40,723
Fixed maturities:
U.S. government and federal agency		—		—		—
U.S. state and local government agency		—		23		23
Corporate debt securities		—		9,940		9,940
Other debt securities		—		1,538		1,538

Total fixed maturity investments		—		11,501		11,501

Mutual funds - debt securities		52,518		—		52,518
Mutual funds - equity securities - real estate sector		12,761		—		12,761
Mutual funds - equity securities - energy sector		29,119		—		29,119
Mutual funds - equity securities - MLP’s		20,077		—		20,077
Mutual funds - equity securities - other		64,708		—		64,708
Equity securities
Preferred REIT’s		16,549		—		16,549
Master limited partnerships		36,520		—		36,520
Global equity securities		22,192		—		22,192
Other invested assets		—		5,208		5,208

Total	$	295,167	$	16,709	$	311,876

Perpetual Care Trust


Description	Level 1		Level 2		Total
	(in thousands)
Assets
Short-term investments	$	20,583	$	—	$	20,583
Fixed maturities:
U.S. government and federal agency		600		—		600
U.S. state and local government agency		—		148		148
Corporate debt securities		—		22,692		22,692
Other debt securities		—		508		508

Total fixed maturity investments		600		23,348		23,948

Mutual funds - debt securities		55,149		—		55,149
Mutual funds - equity securities - real estate sector		13,026		—		13,026
Mutual funds - equity securities - energy sector		21,340		—		21,340
Mutual funds - equity securities - MLP’s		13,564		—		13,564
Mutual funds - equity securities - other		43,850		—		43,850
Equity securities
Preferred REIT’s		31,050		—		31,050
Master limited partnerships		25,426		—		25,426
Global equity securities		776		—		776
Other invested assets		—		978		978

Total	$	225,364	$	24,326	$	249,690

All level 2 assets are priced utilizing independent pricing services. There were no level 3 assets.

RESTATEMENT OF SEPTEMBER 30, 2010 CONSOLIDATED FINANICAL STATEMENTS

16.

RESTATEMENT OF SEPTEMBER 30, 2010 CONSOLIDATED FINANICAL STATEMENTS

As previously disclosed in the Company’s 2010 Form 10-K, during the third quarter of 2010, the Company became the exclusive operator of three cemeteries under long-term operating agreements. The Company had previously concluded that through these operating agreements it had obtained control over variable interest entities and accordingly, the Company applied purchase accounting to record its interest in these variable interest entities. It was subsequently determined that these cemeteries did not qualify as variable interest entities. The Company also determined that it did not obtain control either under the voting interest model or by contract. As a result, the Company concluded that the cemeteries should not have been consolidated and purchase accounting rules should not have been applied. The unaudited condensed consolidated statement of operations for the three and nine months ended September 30, 2010 and the unaudited condensed consolidated statement of cash flows for the nine months ended September 30, 2010 have been revised to deconsolidate these cemeteries and remove a gain of approximately $6.4 million that was recognized upon execution of the agreements.

Further, as part of these agreements, the Company has assumed certain liabilities and has assumed control of the underlying merchandise trusts related to these cemeteries. These trusts were previously and continue to be properly consolidated as variable interest entities. See Note 13 for a more detailed discussion of the net assets that have been recognized as a result of these transactions.

The following is a summary of the impact of the restatement on the unaudited condensed consolidated financial statements:

For the three months ended September 30, 2010


Condensed Consolidated Statement of Operations	As Previously Reported			Adjustment			As Restated
Cost of goods sold merchandise	$	5,150		$	(52	)	$	5,098
Depreciation and amortization		2,261			205			2,466
Acquisition related costs		2,167			(204	)		1,963
Operating profit		656			61			717
Gain on acquisitions		6,656			(6,597	)		59
Income tax benefit		(1,829	)		2			(1,827	)
Net income (loss)		4,645			(6,546	)		(1,901	)
General partner’s interest in net income (loss) for the period		93			(131	)		(38	)
Limited partners’ interest in net income (loss) for the period		4,552			(6,415	)		(1,863	)
Net income (loss) per limited partner unit - basic and diluted	$	.33		$	(.46	)	$	(.13	)

For the nine months ended September 30, 2010


Condensed Consolidated Statement of Operations	As Previously Reported			Adjustment			As Restated
Cost of goods sold merchandise	$	12,572		$	(106	)	$	12,466
Depreciation and amortization		5,918			287			6,205
Acquisition related costs		4,823			(204	)		4,619
Operating profit		4,029			33			4,062
Gain on acquisitions		29,968			(22,816	)		7,152
Income tax benefit		(2,683	)		1			(2,682	)
Net income (loss)		25,326			(22,792	)		2,534
General partner’s interest in net income (loss) for the period		510			(459	)		51
General partner’s IDR interest in net income (loss) for the period		6,250			(6,250	)		—
Limited partners’ interest in net income (loss) for the period		18,565			(16,082	)		2,483
Net income (loss) per limited partner unit - basic and diluted	$	1.36		$	(1.18	)	$	.18


Condensed Consolidated Statement of Cash Flows	As Previously Reported			Adjustment			As Restated
Net cash provided by operating activities	$	9,433		$	324		$	9,757
Net cash used in investing activities	$	(44,464	)	$	(324	)	$	(44,788	)

SUBSEQUENT EVENTS

17.

SUBSEQUENT EVENTS

In October of 2011, the Company acquired three cemeteries and three funeral homes in Tennessee. The cemeteries and funeral homes were purchased out of a state court-appointed receivership for approximately $5.0 million in cash. The Company is in the process of assessing the allocation of the purchase price and the fair value of the net assets acquired in this transaction.