STONEMOR PARTNERS LP - 10-Q Quarterly Report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

FOR THE QUARTERLY PERIOD ENDED September 30, 2004

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

FOR THE TRANSITION PERIOD FROM TO .

Commission File Number: 000-50910

STONEMOR PARTNERS L.P.

(Exact name of registrant as specified in its charter)

Delaware

80-0103159

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

155 Rittenhouse Circle

Bristol, Pennsylvania

19007

(Address of principal executive offices)

(Zip Code.)

(215) 826-2800

(Registrant’s telephone number, including area code)

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

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

The number of the registrant’s outstanding common units at November 1, 2004 was 4,239,782.

Index – Form 10-Q


		Page
Part I	Financial Information

Item 1.	Financial Statements	2

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35

Item 4.	Controls and Procedures	36

Part II	Other Information

Item 1.	Legal Proceedings	38

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38

Item 6.	Exhibits	40

	Signatures	41

Part I – Financial Information

The words “we,” “us,” “our,” “Company” and similar words, when used in a historical context prior to the closing of the initial public offering of StoneMor Partners L.P. on September 20, 2004, refer to Cornerstone Family Services, Inc. (and, after its conversion, CFSI LLC) and its subsidiaries and thereafter refer to StoneMor Partners L.P. and its subsidiaries.

Forward-Looking Statements

Certain statements contained in this quarterly report on Form 10-Q, including, but not limited to, information regarding the status and progress of the Company’s operating activities, the plans and objectives of the Company’s management, assumptions regarding the Company’s future performance and plans, and any financial guidance provided, as well as certain information in other filings with the SEC and elsewhere are forward-looking statements within the meaning of Section 27A(i) of the Securities Act of 1933 and Section 21E(i) of the Securities Exchange Act of 1934. The words “believe,” “may,” “will,” “estimate,” “continues,” “anticipate,” “intend,” “project”, “expect”, “predict” and similar expressions identify these forward-looking statements. These forward-looking statements are made subject to certain risks and uncertainties that could cause actual results to differ materially from those stated, including, but not limited to, the following: uncertainties associated with future revenue and revenue growth; the impact of the Company’s significant leverage on its operating plans; the ability of the Company to service its debt; the Company’s ability to attract, train and retain an adequate number of sales people; uncertainties associated with the volume and timing of pre-need sales of cemetery services and products; variances in death rates; variances in the use of cremation; changes in the political or regulatory environments, including potential changes in tax accounting and trusting policies; the Company’s ability to successfully implement a strategic plan relating to producing operating improvement, strong cash flows and further deleveraging; and various other uncertainties associated with the death care industry and the Company’s operations in particular.

When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements set forth in our registration statement on Form S-1, as amended, filed with the SEC which became effective September 14, 2004. (No. 333-114354) We assume no obligation to publicly update or revise any forward-looking statements made herein or any other forward-looking statements made by us, whether as a result of new information, future events or otherwise.

Item 1.

Financial Statements

STONEMOR PARTNERS L.P.

Successor to Cornerstone Family Services, Inc. (Predecessor)

Condensed Consolidated Balance Sheets

(In thousands, except share data)

(Unaudited)


	September 30, 2004		December 31, 2003
Assets
CURRENT ASSETS:
Cash and cash equivalents	$	13,637	$	5,554
Accounts receivable, net of allowance		24,961		22,447
Prepaid expenses		1,579		1,476
Merchandise trust receivable		—		1,861
Other current assets		846		779

Total current assets		41,023		32,117
LONG-TERM ACCOUNTS RECEIVABLE – net of allowance		33,088		33,720
CEMETERY PROPERTY		150,994		151,200
PROPERTY AND EQUIPMENT		21,930		23,411
DUE FROM MERCHANDISE TRUSTS		—		109,785
MERCHANDISE TRUSTS, restricted, at fair value		117,589		—
PERPETUAL CARE TRUSTS, restricted, at fair value		124,677		—
DEFERRED FINANCING COSTS – net of accumulated amortization		2,744		3,450
OTHER ASSETS		32		2,002

TOTAL ASSETS	$	492,077	$	355,685

LIABILITIES AND STOCKHOLDERS’, PARTNERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities	$	8,581	$	5,988
Accrued interest		208		735
Current portion of long-term debt		169		7,814

Total current liabilities		8,958		14,537
LONG-TERM DEBT		80,000		122,894
DEFERRED INCOME TAXES		—		1,415
DEFERRED CEMETERY REVENUES, Net		123,303		115,233
MERCHANDISE LIABILITY		40,129		44,112

Total liabilities		252,390		298,191

COMMITMENTS AND CONTINGENCIES
NON-CONTROLLING INTEREST IN PERPETUAL CARE TRUSTS		124,677		—
REDEEMABLE PREFERRED STOCK (par value $0.01; 15,514 shares issued and outstanding at December 31, 2003)		—		15,514
COMMON STOCKHOLDERS’ / PARTNERS’ EQUITY
Common stock (par value $0.01; 880,000 shares issued and outstanding at December 31, 2003)		—		9
Additional paid-in capital		—		91,213
Accumulated other comprehensive income		—		—
Employee stock loans		—		(150	)
Retained deficit		—		(49,092	)
General partner		1,633		—
Limited partners:
Common		73,338		—
Subordinated		40,039		—

Total common stockholders’ / partners’ equity		115,010		41,980

TOTAL LIABILITIES, PREFERRED STOCK AND COMMON STOCKHOLDERS’ / PARTNERS’ EQUITY	$	492,077	$	355,685

See Accompanying Notes to the Condensed Consolidated Financial Statements.

STONEMOR PARTNERS L.P.

Successor to Cornerstone Family Services, Inc. (Predecessor)

Condensed Consolidated Statements of Operations

(In thousands, except unit and per unit data)

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2004			2003			2004			2003
REVENUES:
Cemetery	$	20,694		$	18,311		$	63,790		$	55,739
Funeral home		395			425			1,407			1,284

Total revenues		21,089			18,736			65,197			57,023
COSTS AND EXPENSES:
Cost of goods sold (exclusive of depreciation shown separately below):
Land and crypts		1,398			1,306			3,622			3,710
Perpetual care		686			642			2,036			1,921
Merchandise		1,012			665			3,634			2,461
Cemetery expense		5,031			4,489			14,765			13,088
Selling expense		4,413			3,955			13,958			11,609
General and administrative expense		2,489			2,293			7,353			6,910
Corporate overhead (including $433 in stock-based compensation in 2004)		2,968			2,819			7,959			7,524
Depreciation and amortization		1,073			1,294			3,554			3,667
Funeral home expense		419			359			1,309			1,100

Total cost and expenses		19,489			17,822			58,190			51,990

OPERATING PROFIT		1,600			914			7,007			5,033
EXPENSE RELATED TO REFINANCING		4,200			—			4,200			—
INTEREST EXPENSE		2,623			2,629			7,907			8,696

LOSS BEFORE INCOME TAXES		(5,223	)		(1,715	)		(5,100	)		(3,663	)
INCOME TAXES (BENEFIT):
State and franchise taxes		(507	)		1,101			207			1,406
Federal		(217	)		1,318			7			976

Total income taxes (benefit)		(724	)		2,419			214			2,382

NET LOSS	$	(4,499	)	$	(4,134	)	$	(5,314	)	$	(6,045	)

Supplemental Information:
General partner’s interest in net income for the period from September 20 through September 30, 2004	$	17					$	17
Limited partners’ interest in net income for the period from September 20 through September 30, 2004:
Common	$	436					$	436
Subordinated	$	436					$	436
Net income per limited partner unit (basic and diluted)	$	.10					$	.10
Weighted average number of limited partners’ units outstanding (basic and diluted)		8,480						8,480

See Accompanying Notes to the Condensed Consolidated Financial Statements.

STONEMOR PARTNERS L.P.

Successor to Cornerstone Family Services, Inc. (Predecessor)

Condensed Consolidated Statements of

Common Stockholders’ / Partners’ Equity

(In thousands)


	Common Stockholders’ Equity			Partners’ Capital								Total
				Limited Partners						General Partner
				Common		Subordinated		Total		General Partner
Additional paid in capital	$	91,213		$	—	$	—	$	—	$	—	$	91,213
Employee loans		(150	)		—		—		—		—		(150	)
Common stock		9			—		—		—		—		9
Retained deficit		(49,092	)		—		—		—		—		(49,092	)

Balance at December 31, 2003		41,980			—		—		—		—		41,980
Dividends paid in kind		(1,564	)		—		—		—		—		(1,564	)
Stock-based compensation		433			—		—		—		—		433
Net loss January 1, 2004 though September 19, 2004		(6,203	)		—

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