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Stonemor Partners LP – ‘10-Q’ for 9/30/13

On:  Thursday, 11/7/13, at 1:56pm ET   ·   For:  9/30/13   ·   Accession #:  1193125-13-432439   ·   File #:  1-32270

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  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

11/07/13  Stonemor Partners LP              10-Q        9/30/13   88:11M                                    Donnelley … Solutions/FA

Document/Exhibit                   Description                      Pages   Size 

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                (Parenthetical)                                                  
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                Capital                                                          
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                Summary of Significant Accounting Policies                       
                (Policies)                                                       
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                (Tables)                                                         
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                Summary of Significant Accounting Policies -                     
                Additional Information (Detail)                                  
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                (Detail)                                                         
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                (Detail)                                                         
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                in Perpetual Care Trusts (Detail)                                
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                Perpetual Care Trusts (Detail)                                   
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                Maturities and Equity Securities Held in Perpetual               
                Care Trusts (Detail)                                             
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                Information (Detail)                                             
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                Appreciation Rights and Restricted Phantom Unit                  
                Awards (Detail)                                                  
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                Acquired of First Quarter Twenty Thirteen                        
                Acquisition (Detail)                                             
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                Acquired and Resulting Gain on Bargain Purchase of               
                Third Quarter Twenty Thirteen (Detail)                           
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                Bronswood Cemetery (Detail)                                      
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                Funeral Home Second (Detail)                                     
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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended September 30, 2013

or

For the transition period from                      to                      .

Commission File Number: 001-32270

STONEMOR PARTNERS L.P.

(Exact name of registrant as specified in its charter)

(215) 826-2800

(Registrant’s telephone number, including area code)

Not Applicable

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

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

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

Table of Contents

The number of the registrant’s outstanding common units at November 1, 2013 was 21,374,037.

Index – Form 10-Q

Table of Contents

Part I – Financial Information

StoneMor Partners L.P.

Condensed Consolidated Balance Sheet

(in thousands)

(unaudited)

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

1

Table of Contents

StoneMor Partners L.P.

Condensed Consolidated Statement of Operations

(in thousands, except per unit data)

(unaudited)

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

2

Table of Contents

StoneMor Partners L.P.

Condensed Consolidated Statement of

Partners’ Capital

(in thousands)

(unaudited)

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

3

Table of Contents

StoneMor Partners L.P.

Condensed Consolidated Statement of Cash Flows

(in thousands)

(unaudited)

See Accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

4

Table of Contents

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, 2013, the Partnership owned 259 and operated 277 cemeteries in 27 states and Puerto Rico and owned and operated 90 funeral homes in 18 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”). All interim financial data is unaudited. However, in the opinion of management, the interim financial data as of September 30, 2013 and for the three and nine months ended September 30, 2013 and 2012 includes 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, 2012 condensed consolidated balance sheet data was derived from audited financial statements included in the Company’s 2012 Annual Report on Form 10-K (“2012 Form 10-K”), but does not include all disclosures required by GAAP, which are presented in the Company’s 2012 Form 10-K.

As of September 30, 2013, the Company’s presentation of income tax expense (benefit) within its unaudited condensed consolidated statement of operations has changed. The components of the income tax expense (benefit), “State” and “Federal,” previously presented as two subcaptions, have been collapsed into one caption “Income tax expense (benefit).” This change in the income tax expense (benefit) presentation has no effect on previously reported net income (loss).

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 18 cemeteries under long-term operating or management contracts. The operations of 16 of these managed cemeteries have been consolidated in accordance with the provisions of Accounting Standards Codification (ASC) 810.

The Company operates 2 cemeteries under long-term operating agreements that 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.

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 trusts and perpetual care trusts, 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 sheet.

5

Table of Contents

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

Activity in the allowance for contract cancellations is as follows:

Cemetery property consisted of the following:

Major classes of property and equipment follow:

6

Table of Contents

Depreciation expense was $2.0 million and $5.6 million for the three and nine months ended September 30, 2013, respectively, as compared to $1.7 million and $5.2 million during the same periods last year.

At September 30, 2013, the Company’s merchandise trusts consisted of the following types of assets:

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. See Note 15 for further details. 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 $7.9 million and $7.6 million of investments held in trust by the West Virginia Funeral Directors Association at September 30, 2013 and December 31, 2012, 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 their fair value.

The cost and market value associated with the assets held in merchandise trusts at September 30, 2013 and December 31, 2012 were as follows:

7

Table of Contents

The contractual maturities of debt securities as of September 30, 2013 were as follows:

8

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An aging of unrealized losses on the Company’s investments in fixed maturities and equity securities at September 30, 2013 and December 31, 2012 is presented below:

A reconciliation of the Company’s merchandise trust activities for the nine months ended September 30, 2013 is presented below:

The Company made net contributions into the trusts of approximately $13.8 million during the nine months ended September 30, 2013. During the nine months ended September 30, 2013, purchases and sales of securities available for sale included in trust investments were approximately $399.0 million and $411.0 million, respectively. Contributions include $10.3 million of assets that were acquired through acquisitions during the nine months ended September 30, 2013.

9

Table of Contents

Other-Than-Temporary Impairments of Trust Assets

During the three months ended September 30, 2013, the Company determined that there were 3 securities with an aggregate cost basis of approximately $1.2 million and an aggregate fair value of approximately $0.9 million, resulting in an impairment of $0.3 million, wherein such impairment was considered to be other-than-temporary. During the nine months ended September 30, 2013, the Company determined that there were 7 securities with an aggregate cost basis of approximately $2.6 million and an aggregate fair value of approximately $1.6 million, resulting in an impairment of $1.0 million, wherein such impairment was considered to be other-than-temporary. During the nine months ended September 30, 2012, the Company determined that there were six securities with an aggregate cost basis of approximately $1.6 million and an aggregate fair value of approximately $0.8 million, resulting in an impairment of $0.8 million, wherein such impairment was considered to be other-than-temporary. Accordingly, the Company adjusted the cost basis of these assets to their 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, 2012, the Company determined that there were no other than temporary impairments to the investment portfolio for merchandise trusts.

At September 30, 2013, the Company’s perpetual care trusts consisted of the following types of assets:

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. See Note 15 for further details. There were no Level 3 assets.

The cost and market value associated with the assets held in perpetual care trusts at September 30, 2013 and December 31, 2012 were as follows:

10

Table of Contents

The contractual maturities of debt securities as of September 30, 2013 were as follows:

An aging of unrealized losses on the Company’s investments in fixed maturities and equity securities at September 30, 2013 and December 31, 2012 held in perpetual care trusts is presented below:

11

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