News Column

STONEMOR PARTNERS LP - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

May 8, 2014

The words "we," "us," "our," "StoneMor," the "Partnership," the "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. ("Cornerstone"), (and, after its conversion, CFSI LLC), and its subsidiaries and thereafter refer to StoneMor Partners L.P. and its subsidiaries. This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto included in "Part I, Item 1" of this Quarterly Report on Form 10-Q.



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 our operating activities, the plans and objectives of our management, assumptions regarding our future performance and plans, and any financial guidance provided, as well as certain information in our other filings with the SEC and elsewhere are forward-looking statements. The words "believe," "may," "will," "estimate," "continue," "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 or implied, including, but not limited to, the following: uncertainties associated with future revenue and revenue growth; the effect of economic downturns; the impact of our significant leverage on our operating plans; our ability to service our debt and pay distributions; the decline in the fair value of certain equity and debt securities held in our trusts; our ability to attract, train and retain an adequate number of sales people; uncertainties associated with the volume and timing of pre-need sales of cemetery services and products; increased use of cremation; changes in the death rate; changes in the political or regulatory environments, including potential changes in tax accounting and trusting policies; our ability to successfully implement a strategic plan relating to achieving operating improvements, strong cash flows and further deleveraging; our ability to successfully compete in the cemetery and funeral home industry; uncertainties associated with the integration or anticipated benefits of our recent acquisitions or any future acquisitions; our ability to complete and fund additional acquisitions; litigation or legal proceedings that could expose us to significant liabilities and damage our reputation; the effects of cyber security attacks due to our significant reliance on information technology; uncertainties relating to the financial condition of third-party insurance companies that fund our pre-need funeral contracts; and various other uncertainties associated with the death care industry and our operations in particular. 26



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When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 ("2013 Form 10-K") and our other reports filed with the SEC. Except as required under applicable law, we assume no obligation to 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.



Organization

We were organized on April 2, 2004 to own and operate the cemetery and funeral home business conducted by Cornerstone and its subsidiaries. On September 20, 2004, in connection with our initial public offering of common units representing limited partner interests, Cornerstone contributed to us substantially all of its assets, liabilities and businesses, and then converted into CFSI LLC, a limited liability company. This transfer represented a reorganization of entities under common control and was recorded at historical cost. Cornerstone had been founded in 1999 by members of our management team and a private equity investment firm in order to acquire a group of 123 cemetery properties and 4 funeral homes. Since that time, Cornerstone, succeeded by us, has acquired additional cemeteries and funeral homes, entered into long term cemetery operating agreements, built funeral homes, and sold cemeteries and funeral homes, resulting in the operation of 278 cemeteries and 90 funeral homes as of March 31, 2014. Capitalization On September 20, 2004, we completed our initial public offering. Since that time, we have completed additional follow-on public offerings and debt offerings. On February 27, 2014, we completed our most recent follow-on public offering of 2,300,000 common units at a price of $24.45 per unit. Net proceeds of the offering, after deducting underwriting discounts and offering expenses, were approximately $53.2 million. The proceeds were used to pay down borrowings outstanding under our revolving credit facility.



Overview

Cemetery Operations

We are currently the second largest owner and operator of cemeteries in the United States. As of March 31, 2014, we operated 278 cemeteries in 27 states and Puerto Rico. We own 260 of these cemeteries, and we operate the remaining 18 under management or operating agreements with the nonprofit cemetery corporations that own the cemeteries. As a result of the agreements, other control arrangements and applicable accounting rules, we have treated 16 of these cemeteries as acquisitions for accounting purposes. We operate 2 cemeteries under long-term operating agreements that do not qualify as acquisitions for accounting purposes. As a result, we did not consolidate all of the existing assets and liabilities related to these cemeteries. We have consolidated the existing assets and liabilities of each of these cemeteries' merchandise and perpetual care trusts as variable interest entities since we control and receive the benefits and absorb any losses from operating these trusts. Under these long-term operating agreements, which are subject to certain termination provisions, we are the exclusive operator of these cemeteries. We earn revenues related to sales of merchandise, services, and interment rights and incur expenses related to such sales and the maintenance and upkeep of these cemeteries. Upon termination of these contracts, we will retain all of the benefits and related contractual obligations incurred from sales generated during the contract period. We have also recognized the existing merchandise liabilities assumed as part of these agreements. We sell cemetery products and services both at the time of death, which we refer to as at-need, and prior to the time of death, which we refer to as pre-need. Revenues from cemetery operations accounted for approximately 81.8% and 80.8% of our total revenues during the three months ended March 31, 2014 and 2013, respectively. Our results of operations for our cemetery operations are determined primarily by the volume of sales of products and services and the timing of product delivery and performance of services. We derive our cemetery revenues primarily from: • at-need sales of cemetery interment rights, merchandise and services,

which we recognize as revenue when we have delivered the related merchandise or performed the service;



• pre-need sales of cemetery interment rights, which we generally recognize

as revenues when we have collected 10% of the sales price from the customer; 27



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• pre-need sales of cemetery merchandise, which we recognize as revenues

when we satisfy the criteria specified below for delivery of the merchandise to the customer;



• pre-need sales of cemetery services which we recognize as revenues when we

perform the services for the customer; • investment income from assets held in our merchandise trust, which we



recognize as revenues when we deliver the underlying merchandise or

perform the underlying services and recognize the associated sales revenue

as discussed above; • investment income from perpetual care trust, excluding realized gains and

losses on the sale of trust assets, which we recognize as revenues as the income is earned in the trust; and



• other items, such as interest income on pre-need installment contracts and

sales of land.

The criteria for recognizing revenue related to the sale of cemetery merchandise is that such merchandise is "delivered" to our customer, which generally means that: • the merchandise is complete and ready for installation; or



• the merchandise is either installed or stored at an off-site location, at

no additional cost to us, and specifically identified with a particular

customer; and • the risks and rewards of ownership have passed to the customer. We generally satisfy these delivery criteria by purchasing the merchandise and either installing it on our cemetery property or storing it, at the customer's request, in third-party warehouses, at no additional cost to us, until the time of need. With respect to burial vaults, we install the vaults rather than storing them to satisfy the delivery criteria. When merchandise is stored for a customer, we may issue a certificate of ownership to the customer to evidence the transfer to the customer of the risks and rewards of ownership.



Pre-need Sales

As previously noted, we do not recognize revenue on pre-need sales of merchandise and services until we have delivered the merchandise or performed the services. Accordingly, deferred revenues from pre-need sales and related merchandise trust earnings are reflected as a liability on our unaudited condensed consolidated balance sheet in deferred cemetery revenues, net. Total deferred cemetery revenues, net, also includes deferred revenues from pre-need sales that were entered into by entities we acquired prior to the time we acquired them. This includes both those entities that we acquired at the time of the formation of Cornerstone and other subsequent acquisitions. Our profit margin on pre-need sales entered into by entities we subsequently acquired is generally less than our profit margin on other pre-need sales because, in accordance with industry practice at the time these acquired pre-need sales were made, none of the selling expenses were recognized at the time of sale. As a result, we are required to recognize all of the expenses (including deferred selling expenses) associated with these acquired pre-need sales when we recognize the revenues from that sale. Pre-need products and services are typically sold on an installment basis. Subject to state law, these contracts are normally subject to "cooling-off" periods, generally between three and thirty days, during which the customer may elect to cancel the contract and receive a full refund of amounts paid. Also, subject to applicable state law, we are generally permitted to retain the amounts already paid on contracts, including any amounts that were required to be deposited into trust, on contracts cancelled after the "cooling-off" period. Historical post "cooling-off" period cancellations total approximately 10% of our pre-need sales (based on contract dollar amounts). If the products and services purchased under a pre-need contract are needed for interment before payment has been made in full, generally the balance due must be immediately paid in full. Contracts related to pre-need installment sales are usually for a period not to exceed 60 months, with payments of principal and interest required. Pre-need sales contracts normally contain provisions for both principal and interest. For those contracts that do not bear a market rate of interest, we impute such interest based upon the prime rate plus 150 basis points, which resulted in a rate of 4.75% for the three months ended March 31, 2014 and 2013. We normally offer prepayment incentives to customers whose pre-need contracts are longer than 36 months and bear interest. If those customers pay their contracts in full in less than 12 months, we rebate the interest that we have collected from them. Even though this rebate policy reduces the amount of interest income we receive on our accounts receivable, the net effect is an increase in our immediate cash flow. In certain cases, pre-need contracts will be cancelled before they are fully paid. In these circumstances, we are generally permitted to retain amounts already paid to us, including any amounts that were required to be deposited into trust. In certain other cases, the products and services purchased under a pre-need contract are needed for interment before payment has been made in full. In these cases, we are generally entitled to be immediately paid in full for any amounts still outstanding. 28



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At-need Sales

Revenue on at-need merchandise sales is deferred until the time that such merchandise is delivered. The lag between the contract origination and delivery is normally minimal. At-need sales of products and services are generally required to be paid for in full at the time of sale. At that time, we will deposit amounts, as legally required, into our perpetual care trusts. We are not required to deposit any amounts from our at-need sales into merchandise trusts.



Expenses

We analyze and categorize our operating expenses as follows:

1. Cost of goods sold and selling expenses

Cost of goods sold reflects the actual cost of purchasing products and performing services. Sales of cemetery lots and interment rights, whether at-need or pre-need, typically have a lower cost of goods sold than other merchandise that we sell.

Selling expenses consist of salesperson and sales management payroll costs, including selling commissions, bonuses and employee benefits. We self-insure medical expenses of our employees up to certain individual and aggregate limits over which we have stop-loss insurance coverage. Our self-insurance policy may result in variability in our future operating expenses. Selling expenses also include other costs of obtaining product and service sales, such as advertising, marketing, postage and telephone. Direct costs associated with pre-need sales of cemetery merchandise and services, such as sales commissions and cost of goods sold, are reflected in the unaudited condensed consolidated balance sheet in deferred selling and obtaining costs and deferred cemetery revenues, net, respectively, and are expensed as the merchandise is delivered or the services are performed. Indirect costs, such as marketing and advertising costs, are expensed in the period in which they are incurred. 2. Cemetery Expenses Cemetery expenses represent the cost to maintain and repair our cemetery properties and consist primarily of labor and equipment, utilities, real estate taxes and other maintenance items. Repairs necessary to maintain our cemeteries are expensed as they are incurred. Other maintenance costs required over the long term to maintain the operating capacity of our cemeteries, such as to build roads and install sprinkler systems, are capitalized.



3. General and administrative expenses

General and administrative expenses, which do not include corporate overhead, primarily include personnel costs, insurance and other costs necessary to maintain our cemetery offices.

4. Depreciation and amortization

We depreciate our property and equipment on a straight-line basis over their estimated useful lives.

5. Acquisition related costs



Acquisition related costs, which include legal fees and other third party costs incurred in acquisition related activities, are expensed as incurred.

Funeral Home Operations

As of March 31, 2014, we owned and operated 90 funeral homes. These properties are located in 18 states and Puerto Rico. Forty-one of our funeral homes are located on the grounds of cemeteries that we own. We derive revenues at our funeral homes from the sale of funeral home merchandise, including caskets and related funeral merchandise, and services, including removal and preparation of remains, the use of our facilities for visitation, worship and performance of funeral services and transportation services. We sell these services and merchandise generally at the time of need utilizing salaried licensed funeral directors. Funeral home revenues accounted for approximately 18.2% of our total revenues during the three months ended March 31, 2014 as compared to 19.2% during the same periods last year. 29



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Pursuant to state law, a portion of proceeds received from pre-need funeral service contracts is put into trust while amounts used to defray the initial administrative costs are not. All investment earnings generated by the assets in the trust (including realized gains and losses) are deferred until the associated merchandise is delivered or the services are performed. The balance of the amounts in these trusts is included within the merchandise trusts. We generally include revenues from pre-need casket sales in the results of our cemetery operations. However, some states require that caskets be sold by funeral homes, and revenues from casket sales in those states are included in our funeral home results. Our funeral home operating expenses consist primarily of compensation to our funeral directors, day to day costs of managing the business and the cost of caskets. Corporate We incur fixed costs for corporate overhead primarily for centralized functions, such as payroll, accounting, collections and professional fees. We also incur expenses related to reporting requirements under U.S. federal securities laws and certain other additional expenses of being a public company.



2014 Developments

Significant business developments for the three months ended March 31, 2014 include the following:

• On February 27, 2014, we completed a follow-on public offering of



2,300,000 common units at a price of $24.45 per unit. Net proceeds of the

offering, after deducting underwriting discounts and offering expenses,

were approximately $53.2 million. The proceeds were used to pay down borrowings outstanding on our revolving credit facility.



• On March 20, 2014, we entered into Amendment No. 1 to the Lease Agreement

with the Archdiocese of Philadelphia, which extended the period for satisfying certain conditions precedent under the Lease to May 30, 2014,



after which either party to the Amendment has the right to terminate the

Lease if the conditions precedent are not satisfied. For more details, see

Note 13 to the unaudited condensed consolidated financial statements

included in this Quarterly Report on Form 10-Q.

We entered into asset sale agreements on April 2, 2014 with Service Corporation International ("SCI") to acquire 9 funeral homes, 12 cemeteries, 2 crematories and certain related assets in Central Florida, North Carolina, Southeastern Pennsylvania and Virginia. In consideration for the transfer of the assets and in addition to the assumption of certain liabilities, we will pay an aggregate purchase price of $53.8 million, subject to certain adjustments. The closing of the transactions is subject to the satisfaction of certain closing conditions, including obtaining all necessary regulatory approvals, including the approval of the Federal Trade Commission ("FTC"), and financing for the purchase price. SCI can terminate the agreements if, among other conditions, (i) all regulatory approvals are not obtained by June 30, 2014, subject to certain extensions; or (ii) we do not obtain the necessary financing within 20 business days after all regulatory approvals are obtained. If the agreements are terminated due to our inability to obtain the financing for the purchase price within 20 business days after all regulatory approvals are obtained, and we did not use our best efforts to obtain such financing, we will be obligated to pay a break-up fee of $1.0 million.



Current Market Conditions and Economic Developments

In general, the financial markets have trended upward over the past few years. As of March 31, 2014, the market value of the assets in our merchandise trusts exceeded their amortized cost by 2.2%, which is a slight decline from December 31, 2013 when the market value of the assets exceeded their amortized cost by 2.6 %. As of March 31, 2014, the market value of the assets in our perpetual care trusts exceeded their amortized cost by 11.2%, which is an improvement from December 31, 2013 when the market value of the assets exceeded their amortized cost by 10.5%. As of March 31, 2014, the majority of our long-term debt consisted of $175.0 million in Senior Notes due 2021 and $77.4 million of borrowings under our revolving credit facility which expires in 2017. As of March 31, 2014, we had $62.6 million of availability under our revolving credit facility. Further, on February 27, 2014, we raised capital via a follow-on public offering of our common units, representing a limited partnership interest in us. 30



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The value of pre-need and at-need contracts written was $63.7 million for the three months ended March 31, 2014 as compared to $63.8 million during the same periods last year.



Impact on Our Ability to Meet Our Debt Covenants

Current market conditions have not negatively impacted our ability to meet our significant debt covenants. These covenants specifically relate to a certain measure of Consolidated EBITDA and certain coverage and leverage ratios as defined in the Credit Agreement described below. Consolidated EBITDA is primarily related to the current period value of contracts written, investment income from the merchandise and perpetual care trusts, and current expenses incurred. The revenue recognition rules we must follow in accordance with GAAP are not considered. We have two primary debt covenants that are dependent upon our financial results, the Consolidated Leverage Ratio and the Consolidated Debt Service Coverage Ratio. The Consolidated Leverage Ratio relates to the ratio of Consolidated Funded Indebtedness to Consolidated EBITDA. Our Consolidated Leverage Ratio was 3.42 at March 31, 2014 compared to a maximum allowed ratio of 3.875. The Consolidated Debt Service Coverage Ratio relates to the ratio of Consolidated EBITDA to Consolidated Debt Service. Our Consolidated Debt Service Coverage Ratio was 3.24 at March 31, 2014 compared to a minimum allowed ratio of 2.50.



Segment Reporting and Related 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.

We chose this level of organization and disaggregation of reportable segments due to the fact that a) each reportable segment has unique characteristics that set it apart from each other; b) we have organized our management personnel at these operational levels; and c) this is the level at which our 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. Our cemetery operations are disaggregated into three different geographically based segments. The nature of our 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. Our 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. Our Corporate segment includes various home office expenses, miscellaneous selling, cemetery and general administrative expenses that are not allocable to other operating segments, certain depreciation and amortization expenses and acquisition related costs.



Critical Accounting Policies and Estimates

The unaudited condensed consolidated financial statements are prepared in conformity with GAAP. The preparation of these financial statements required us to make estimates, judgments and assumptions that affected the reported amounts of assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods (see Note 1 to the unaudited condensed consolidated financial statements). Our critical accounting policies are those that are both important to the portrayal of our financial condition and results of operations and require management's most difficult, subjective and complex judgment. These critical accounting policies are discussed in the Management's Discussion and Analysis of Financial Condition and Results of Operations section of our 2013 Form 10-K. There have been no significant changes to our critical accounting policies since the filing of our 2013 Form 10-K. 31



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Results of Operations-Segments

We account for and analyze the results of operations for our segments on a basis of accounting that is different from GAAP. We reconcile these non-GAAP accounting results of operations to GAAP based amounts at the consolidated level. This reconciliation is included in Note 14 to the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. The method of accounting we utilize to analyze our overall results of operations, including segment results, provides for a production based view of our business. Under the production based view, we recognize revenues at their contract value at the point in time in which the contract is written, less a historic cancellation reserve. All related costs are expensed in the period the contract is recognized as revenue. In contrast, GAAP requires that we defer all revenues and the direct costs associated with these revenues, until we meet certain delivery and performance requirements. The nature of our business is such that there is no meaningful relationship between the time that elapses from the date a contract is executed and the date the underlying merchandise is delivered or the service, delivery and performance requirements are met. Further, certain factors affecting this time period, such as weather and supplier issues, are out of our control. As a result, during a period of growth, operating profits as defined by GAAP will tend to lag behind operating profits on a production based view because of the required deferral of revenues. Our performance based view ignores these delays and presents results based upon the underlying value of contracts written. We believe this is the most reliable indicator of our performance for a given period as the value of contracts written less a historical cancellation reserve reflects the economic value added during a given period of time. Accordingly, the ensuing segment discussion is on a basis of accounting that differs from generally accepted accounting principles. See Note 1 to the consolidated financial statements included in the 2013 Form 10-K for a more detailed discussion of our accounting policies under GAAP.



Three Months Ended March 31, 2014 Compared to Three Months Ended March 31, 2013

Cemetery Segments

Cemetery Operations-Southeast

Since March 31, 2013, we have acquired two properties in our Cemetery Operations - Southeast segment. The first acquisition occurred during the third quarter of 2013, and the second occurred during the first quarter of 2014. The results of operations for these acquired properties have no impact on the results for the three months ended March 31, 2013, but are included in the results for the three months ended March 31, 2014. The acquisitions contributed approximately $0.8 million of revenues and $0.4 million of costs and expenses of the segment in 2014. The table below compares the results of operations for our Cemetery Operations - Southeast for the three months ended March 31, 2014 to the same period last year: Three months ended March 31, 2014 2013 Change ($) Change (%) (in thousands) (non-GAAP) Total revenues $ 33,727$ 32,975$ 752 2.3 % Total costs and expenses 23,164 22,075 1,089 4.9 % Operating profit $ 10,563$ 10,900$ (337 ) -3.1 % Revenues The increase in revenues was primarily related to an increase of $0.7 million in income from our trusts and $0.1 million in the value of pre-need contracts written. Absent our two recent acquisitions, the value of contracts written would have decreased $0.5 million. This decrease was caused in part by lost sales days due to difficult weather conditions. Our investment results can vary from period to period based on a number of factors including realized income and the timing of the recognition of gains within the trusts.



Total costs and expenses

The net increase in costs and expenses was primarily related to:

• A $0.4 million increase in cost of goods sold primarily attributable to

the corresponding increase in the value of contracts written and product mix. 32



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• A $0.4 million increase in cemetery expenses due to a $0.3 million

increase in repair and maintenance expenses and a $0.1 million increase in

utility expenses. • A $0.1 million increase in general and administrative expenses due to marginal increases in rent, personnel costs and professional fees. • A $0.1 million increase in depreciation expense.



Cemetery Operations-Northeast

The table below compares the results of operations for our Cemetery Operations - Northeast for the three months ended March 31, 2014 to the same period last year: Three months ended March 31, 2014 2013 Change ($) Change (%) (in thousands) (non-GAAP) Total revenues $ 18,014$ 15,528$ 2,486 16.0 % Total costs and expenses 9,443 10,064 (621 ) -6.2 % Operating profit $ 8,571$ 5,464$ 3,107 56.9 % Revenues The increase in revenues was primarily caused by an increase in other income of $4.4 million primarily related to one land sale during the first quarter of 2014. This increase was partially offset by decreases of $1.3 million and $0.6 million in the value of pre-need contracts written and at-need contracts written, respectively. The decrease in the value of contracts written was caused in part by lost sales days due to difficult weather conditions.



Total costs and expenses

The net decrease in costs and expenses was primarily related to:

• A $0.2 million decrease in cost of goods sold primarily attributable to

the corresponding decrease in the value of contracts written and product

mix.



• A $0.4 million decrease in selling expenses attributable to a decrease in

commissions and personnel expenses.

Cemetery Operations-West

The table below compares the results of operations for our Cemetery Operations - West for the three months ended March 31, 2014 to the same period last year: Three months ended March 31, 2014 2013 Change ($) Change (%) (in thousands) (non-GAAP) Total revenues $ 20,744$ 18,889$ 1,855 9.8 % Total costs and expenses 12,288 10,735 1,553 14.5 % Operating profit $ 8,456$ 8,154$ 302 3.7 % 33



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Revenues

The increase in revenues was primarily related to increases of $1.8 million in income from our trusts and $0.2 million in the value of pre-need contracts written, partially offset by a $0.2 million decrease in the value of at-need contracts written. Our investment results can vary from period to period based on a number of factors including realized income and the timing of the recognition of gains within the trusts.



Total costs and expenses

The net increase in costs and expenses was primarily related to:

• A $1.3 million increase in cost of goods sold primarily related to product

mix. • A $0.1 million increase in cemetery expenses due to an increase in repair

and maintenance costs.



• A $0.1 million increase in selling expenses primarily due to increases in

commissions and personnel expenses.

Funeral Home Segment

In the first quarter of 2013 we acquired six funeral homes. Therefore, the results of operations for these properties have a lesser impact on the results for the three months ended March 31, 2013, but are included in the results for the three months ended March 31, 2014. These additions are responsible for the increases to revenues and costs and expenses for the Funeral Homes segment.



The table below compares the results of operations for our Funeral Home segment for the three months ended March 31, 2014 to the same period last year:

Three months ended March 31, 2014 2013 Change ($) Change (%) (in thousands) (non-GAAP) Total revenues $ 13,254$ 12,827$ 427 3.3 % Total costs and expenses 10,240 9,582 658 6.9 % Operating profit $ 3,014$ 3,245$ (231 ) -7.1 % Revenues The increase in revenues was primarily attributable to a $0.6 million increase in pre-need revenues, partially offset by a $0.2 million decrease in at-need revenues. Total costs and expenses



The increase in costs and expenses was primarily attributable to increases of $0.2 million in personnel expenses, $0.2 million in merchandise costs, $0.3 million in facility related costs and $0.1 million in depreciation and amortization expense, partially offset by a decrease of $0.1 million in advertising expense.

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Corporate Segment

The table below compares expenses incurred by the Corporate segment for the three months ended March 31, 2014 to the same period last year:

Three months ended March 31, 2014 2013 Change ($) Change (%) (in thousands) (non-GAAP) Selling, cemetery and general and administrative expenses $ 545$ 372$ 173 46.5 % Depreciation and amortization 242 380 (138 ) -36.3 % Acquisition related costs, net of recoveries 349 1,283 (934 ) -72.8 % Corporate expenses Corporate personnel expenses 3,243 4,304 (1,061 ) -24.7 % Other corporate expenses 4,213 3,684 529 14.4 % Total corporate overhead 7,456 7,988 (532 ) -6.7 % Total corporate expenses $ 8,592$ 10,023$ (1,431 ) -14.3 % The decrease in corporate expenses was primarily driven by decreases in corporate overhead and acquisition related costs. The decrease in corporate overhead was due to a decrease of $1.0 million in personnel expenses, partially offset by an increase of $0.4 million in professional fees and a net increase of $0.1 million in other miscellaneous corporate expenses. Acquisition related costs will vary from period to period depending on the amount of acquisition activity that takes place.



Reconciliation of Segment Results of Operations to Consolidated Results of Operations

As discussed in the segment sections of this Management's Discussion and Analysis of Financial Condition and Results of Operations, cemetery revenues and their associated costs as reported at the segment level are not deferred until such time that we satisfy the delivery criteria for revenue recognition.



Periodic consolidated revenues recorded in accordance with GAAP reflect the amount of total merchandise and services which were delivered during the period. Accordingly, period over period changes to revenues can be impacted by:

• Changes in the value of contracts written and other revenues generated

during a period that are delivered in their period of origin and are

recognized as revenue and not deferred as of the end of their period of

origination. • Changes in merchandise and services that are delivered during a period that had been originated during a prior period. 35



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The table below analyzes results of operations and the changes therein for the three months ended March 31, 2014 as compared to the same period last year. The table is structured so that our readers can determine whether changes were based upon changes in the level of merchandise and services and other revenues generated during each period and/ or changes in the timing of when merchandise and services were delivered: Three months ended Three months ended March 31, 2014 March 31, 2013 (in thousands) (in thousands) Segment Segment Change in Change in Results GAAP GAAP Results GAAP GAAP GAAP results GAAP results (non-GAAP) Adjustments Results (non-GAAP) Adjustments Results ($) (%)



Revenues

Pre-need cemetery revenues $ 29,976$ (9,268 )$ 20,708$ 30,941$ (9,429 )$ 21,512$ (804 )

-3.7 % At-need cemetery revenues 19,848 (1,225 ) 18,623 20,743 (1,364 ) 19,379 (756 ) -3.9 % Investment income from trusts 15,628 (9,651 ) 5,977 13,102 (8,472 ) 4,630 1,347 29.1 % Interest income 2,007 - 2,007 1,865 - 1,865 142 7.6 % Funeral home revenues 13,254 (1,507 ) 11,747 12,827 (1,409 ) 11,418 329 2.9 % Other cemetery revenues 5,026 299 5,325 741 67 808 4,517 559.0 % Total revenues 85,739 (21,352 ) 64,387 80,219 (20,607 ) 59,612 4,775 8.0 % Costs and expenses Cost of goods sold 9,247 (1,743 ) 7,504 7,753 (1,463 ) 6,290 1,214 19.3 % Cemetery expense 13,329 - 13,329 12,785 - 12,785 544 4.3 % Selling expense 13,829 (2,640 ) 11,189 13,835 (2,611 ) 11,224 (35 ) -0.3 % General and administrative expense 7,645 - 7,645 7,582 - 7,582 63 0.8 % Corporate overhead 7,456 - 7,456 7,988 - 7,988 (532 ) -6.7 % Depreciation and amortization 2,368 - 2,368 2,330 - 2,330 38 1.6 % Funeral home expense 9,504 (218 ) 9,286 8,923 (187 ) 8,736 550 6.3 % Acquisition related costs, net of recoveries 349 - 349 1,283 - 1,283 (934 ) -72.8 % Total costs and expenses 63,727 (4,601 ) 59,126 62,479 (4,261 ) 58,218 908 1.6 % Operating profit $ 22,012$ (16,751 )$ 5,261$ 17,740$ (16,346 )$ 1,394$ 3,867 277.4 % Revenues



Pre-need cemetery revenues were $20.7 million for the three months ended March 31, 2014, a decrease of $0.8 million, or 3.7%, as compared to $21.5 million during the same period last year. The decrease was the result of a decrease of $1.0 million in the value of cemetery contracts written, partially offset by a decrease of $0.2 million in deferred revenue.

At-need cemetery revenues were $18.6 million for the three months ended March 31, 2014, a decrease of $0.8 million, or 3.9%, as compared to $19.4 million during the same period last year. The decrease was primarily caused by a decrease of $0.9 million in the value of cemetery contracts written, partially offset by a decrease of $0.1 million in deferred revenue. Investment income from trusts was $6.0 million for the three months ended March 31, 2014, an increase of $1.4 million, or 29.1%, as compared to $4.6 million during the same period last year. On a segment basis, we had an increase of $2.5 million primarily related to an increase in realized gains on our investments, which was offset by an adjustment of $1.1 million related to funds for which we have not met the requirements that would allow us to recognize them as revenue. Interest income on accounts receivable was $2.0 million for the three months ended March 31, 2014, an increase of $0.1 million, or 7.6%, as compared to $1.9 million during the same period last year. Funeral home revenues were $11.7 million for the three months ended March 31, 2014, an increase of $0.3 million, or 2.9%, as compared to $11.4 million during the same period last year. The increase was primarily caused by an increase of $0.4 million in the value of contracts written and other revenue, which was partially offset by an increase of $0.1 million in deferred revenue. The increase in the value of contracts written was attributable to funeral home acquisitions that occurred during the first quarter of 2013. Other cemetery revenues were $5.3 million for the three months ended March 31, 2014, an increase of $4.5 million, as compared to $0.8 million during the same period last year. The increase was primarily caused by one land sale during the first quarter of 2014. Costs and Expenses Cost of goods sold was $7.5 million for the three months ended March 31, 2014, an increase of $1.2 million, or 19.3%, as compared to $6.3 million during the same period last year. The ratio of cost of goods sold to pre-need and at-need cemetery revenues was 19.1% during the three months ended March 31, 2014 as compared to 15.4% during the same period last year. The increase in the ratio is due to the inclusion of the cost of property sold as part of a land sale that is presented within "Other cemetery revenues." Cemetery expenses were $13.3 million during the three months ended March 31, 2014, an increase of $0.5 million, or 4.3%, compared to $12.8 million during the same period last year. Within this category, there were increases of $0.3 million in utility expenses and $0.3 million in general repair and maintenance expenses, partially offset by a decrease of $0.1 million in other miscellaneous cemetery costs. Cemetery expenses relate to the current costs of managing and maintaining our 36



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cemetery properties. These costs are expensed as incurred and are not deferred. Accordingly, from a margin standpoint, the most effective gauge of measuring cemetery expenses is as a ratio of segment level pre-need and at-need cemetery revenues. Changes in this ratio give an indication of our ability to manage and control our operating costs relative to our overall cemetery operations. An increase in the ratio indicates that expense increases related to the operation and maintenance of our cemetery properties exceeded increases in the value of contracts written, while a decrease in the ratio indicates that expense growth did not exceed increases in the value of contracts written. In the short-term, this ratio can be positively or negatively impacted by our acquisitions, including such factors as how long it takes us to fully implement our pre-need sales programs and whether there are any unanticipated costs. Over the long-term, we would expect this ratio to slightly decline as many of the expenses in this category are fixed in nature. The ratio of cemetery expenses to segment level pre-need and at-need cemetery revenues was 26.8% during the three months ended March 31, 2014 as compared to 24.7% during the same period last year. Selling expenses were $11.2 million during the three months ended March 31, 2014 and the same period last year. The ratio of selling expenses to cemetery revenues was 28.4% during the three months ended March 31, 2014 as compared to 27.4% during the same period last year, largely due to an increase in advertising costs and the reduction pre-need and at-need cemetery revenues. This ratio gives some indication of how effectively the money we invest in selling efforts is translating into sales. However, most of our selling expenses are directly related to sales commissions and bonuses, which would be directly related to changes in the value of pre-need and at-need contracts written. As a result, we would expect this ratio to remain fairly consistent. General and administrative expenses were $7.6 million during the three months ended March 31, 2014 and the same period last year. General and administrative expenses are expensed as incurred and are not deferred. Accordingly, from a margin standpoint, the most effective gauge of measuring general and administrative expenses is as a ratio of segment level pre-need and at-need cemetery revenues. Changes in this ratio give an indication of our ability to manage and control our general and administrative costs relative to our overall cemetery operations. An increase in the ratio indicates that general and administrative percentage expense increases related to our cemetery properties exceeded percent increases in the value of contracts written, while a decrease in the ratio indicates that expense growth on a percentage basis did not exceed percentage increases in the value of contracts written. In the short-term, this ratio can be positively or negatively impacted by our acquisitions, including such factors as how long it takes us to fully implement our pre-need sales programs and whether there are any unanticipated costs. Over the long-term, we would expect this ratio to slightly decrease as many of the expenses in this category are fixed in nature. The ratio of general and administrative expenses to segment level pre-need and at-need cemetery revenues was 15.3% during the three months ended March 31, 2014 as compared to 14.7% during the same period last year. Total corporate overhead was $7.5 million for the three months ended March 31, 2014, a decrease of $0.5 million, or 6.7% compared to $8.0 million during the same period last year. The decrease in corporate overhead was driven by a decrease of $1.0 million in personnel expenses, partially offset by an increase of $0.4 million in professional fees and a net increase of $0.1 million in other miscellaneous corporate expenses.



Depreciation and amortization was $2.4 million during the three months ended March 31, 2014, an increase of $0.1 million, or 1.6%, as compared to $2.3 million during the same period last year. The increase was primarily due to additional depreciation and amortization from our acquisitions.

Funeral home expenses were $9.3 million for the three months ended March 31, 2014, an increase of $0.6 million, or 6.3%, compared to $8.7 million during the same period last year. The increase was primarily driven by our most recent acquisitions and was attributable to segment level increases of $0.2 million in personnel expenses, $0.2 million in merchandise costs and $0.3 million in facility related costs, partially offset by a decrease of $0.1 million in advertising expense. Acquisition related costs were $0.3 million for the three months ended March 31, 2014, a decrease of $1.0 million, or 72.8%, as compared to $1.3 million during the same period last year. These costs will vary from period to period depending on the amount of acquisition activity that takes place.



Non-segment Allocated Results

Certain statement of operations amounts are not allocated to segment operations. These amounts are those line items that can be found on our unaudited condensed consolidated statement of operations below operating profit and above net income (loss). 37



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The table below summarizes these items and the changes between the three months ended March 31, 2014 and 2013:

Three months ended March 31, 2014 2013 Change ($) Change (%) (in thousands) Gain on acquisition $ 412 $ - $ 412 100.0 % Gain on settlement agreement - 912 (912 ) -100.0 % Interest expense 5,574 5,463 111 2.0 % Income tax expense (benefit) $ (310 )$ (957 )$ 647 -67.6 % The gain on acquisition recorded during the three months ended March 31, 2014 relates to our first quarter 2014 acquisition. Refer to Note 13 of our unaudited condensed consolidated financial statements in Item 1 of this Form 10-Q for a more detailed discussion. During the three months ended March 31, 2013, we had funds placed into trust of approximately $1.3 million related to the partial settlement of claims from locations we acquired in 2010. A gain of $0.9 million had been recorded as gain on settlement agreement, which was net of legal fees of $0.4 million. Interest expense has increased during the three months ended March 31, 2014 as compared to the same period last year. This increase is primarily caused by an increase in the rates on our revolving credit facility and a higher overall effective interest rate due to the amortization of financing costs and debt discounts related to our senior notes. These increases are partially offset by a net reduction in interest expense due to retirement of our 10.25% senior notes and related issuance of our 7.875% senior notes in the second quarter of 2013, as well as a reduction in the average amounts outstanding under our revolving credit facility. Average amounts outstanding under the credit facility were $100.6 million and $109.7 million during the three months ended March 31, 2014 and 2013, respectively. We had an income tax benefit of $0.3 million for the three months ended March 31, 2014, as compared to a benefit of $1.0 million during the same period last year. Our effective tax rate differs from our statutory tax rate primarily because our legal entity structure includes different tax filing entities, including a significant number of partnerships that are not subject to paying tax. Supplemental Data The following table presents supplemental operating data for the periods presented: Three months ended March 31, 2014 2013 Operating Data: Interments performed 11,313 12,119 Interment rights sold (1): Lots 5,277 5,759 Mausoleum crypts (including pre-construction) 564



456

Niches 261



287

Net interment rights sold (1) 6,102



6,502

Number of contracts written 23,831



24,494

Aggregate contract amount, in thousands (excluding interest)

$ 63,672$ 63,824 Average amount per contract (excluding interest) $ 2,672$ 2,606 Number of pre-need contracts written 11,928



11,942

Aggregate pre-need contract amount, in thousands (excluding interest) $ 41,762$ 41,299 Average amount per pre-need contract (excluding interest) $ 3,501$ 3,458 Number of at-need contracts written 11,903



12,552

Aggregate at-need contract amount, in thousands (excluding interest) $ 21,910$ 22,525 Average amount per at-need contract (excluding interest) $ 1,841



$ 1,795

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

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Liquidity and Capital Resources

Overview

Our primary short-term liquidity needs are to fund general working capital requirements, repay our debt obligations, service our debt, make routine maintenance capital improvements and pay distributions. We will need additional liquidity to construct mausoleum and lawn crypts on the grounds of our cemetery properties. Our primary sources of liquidity are cash flow from operations and amounts available under our revolving credit facility as described below. In the past, we have been able to increase our liquidity through long-term bank borrowings and the issuance of additional common units and other partnership securities, including debt, subject to the restrictions in our revolving credit facility and under our senior notes. We believe that cash generated from operations and our borrowing capacity under our revolving credit facility, which is discussed below, will be sufficient to meet our working capital requirements as well as our anticipated capital expenditures for the foreseeable future. In addition to macroeconomic conditions, our ability to satisfy our debt service obligations, fund planned capital expenditures, make acquisitions and pay distributions to partners will depend upon our future operating performance. Our operating performance is primarily dependent on the sales volume of customer contracts, the cost of purchasing cemetery merchandise that we have sold, the amount of funds withdrawn from merchandise trusts and perpetual care trusts and the timing and amount of collections on our pre-need installment contracts.



Long-term Debt

7.875% Senior Notes due 2021

On May 28, 2013, we issued $175.0 million aggregate principal amount of 7.875% Senior Notes due 2021 (the "Senior Notes"). We pay 7.875% interest per annum on the principal amount of the Senior Notes, payable in cash semi-annually in arrears on June 1 and December 1 of each year, commencing on December 1, 2013. The net proceeds from the offering were used to retire a $150.0 million aggregate principal amount of 10.25% Senior Notes due 2017 (the "Prior Senior Notes") and the remaining proceeds were used for general corporate purposes. The Senior Notes were issued at 97.832% of par resulting in gross proceeds of $171.2 million with an original issue discount of approximately $3.8 million. We incurred debt issuance costs and fees of approximately $4.6 million. These costs and fees are deferred and will be amortized over the life of these notes. As of March 31, 2014, we were in compliance with all applicable covenants of the Senior Notes.



Credit Facility

On January 19, 2012, we entered into the Third Amended and Restated Credit Agreement (the "Credit Agreement"). The terms of the Credit Agreement are substantially the same as the terms of the Second Amended and Restated Credit Agreement, as amended. 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 was amended three times in 2013. As amended, we have a revolving credit facility (the "Credit Facility") with a borrowing limit of $140.0 million and a maturity date of January 19, 2017. The Credit Facility may be used to finance working capital requirements, Permitted Acquisitions and Capital Expenditures. The Maximum Consolidated Leverage Ratio was 4.00 through December 31, 2013, 3.875 at March 31, 2014, and will be 3.750 for the measurement period ending on June 30, 2014 and thereafter. The Minimum Consolidated Debt Service Coverage Ratio is 2.50 for all measurement periods. The ranges of the Applicable Rates are 3.00%, 4.00%, and .800% for Base Rate Loans, Eurodollar Rate Loans and Letter of Credit Fees, and Commitment Fees, respectively, when the Consolidated Leverage Ratio is greater than or equal to 3.75 to 1.0. We are not allowed to permit Consolidated EBITDA for any most recently completed four fiscal quarters to be less than the sum of (i) $57.8 million plus (ii) 80% of the aggregate of all Consolidated EBITDA for each Permitted Acquisition completed after March 31, 2013. The amount of aggregate consideration we may pay for a Permitted Acquisition after March 31, 2014, without Required Lender approval, is $10.0 million on an individual basis and $50.0 million when aggregated with the total Aggregate Consideration paid by or on behalf of us for all other Permitted Acquisitions which closed within the immediately preceding 365 days. In case of a Significant Permitted Acquisition Transaction, a Permitted Acquisition in which the Aggregate Consideration exceeds $35.0 million when aggregated with the total Aggregate Consideration for all other Permitted 39



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Acquisitions which closed within the immediately preceding 180 days, the Borrowers are permitted, subject to certain limitations, to temporarily increase the Consolidated Leverage Ratio to 4.00 to 1.0 for one or more of the four immediately succeeding covenant measurement periods.

The interest rates on amounts outstanding under the Credit Facility were approximately 4.2% at March 31, 2014. Amounts borrowed may be either Base Rate Loans or Eurodollar Rate Loans and amounts repaid or prepaid during the term may be reborrowed. Depending on the type of loan, borrowings bear interest at the Base Rate or Eurodollar Rate, plus applicable margins ranging from 1.25% to 3.00% and 2.25% to 4.00%, respectively, depending on our 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 the British Bankers Association LIBOR Rate. Amounts outstanding under the Credit Facility approximate their fair value.



The Credit Agreement requires us 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 0.375% to 0.800% depending on our 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 us to maintain certain financial covenants, including specified financial ratios. A material decrease in revenues could cause us to breach certain of our financial covenants. Any such breach could allow the Lenders to accelerate our debt (and cause cross-default) which would have a material adverse effect on our business, financial condition or results of operations. Our covenants include a certain measure of Consolidated EBITDA, a Consolidated Leverage Ratio and a Consolidated Debt Service Coverage Ratio. As of March 31, 2014, we were in compliance with all applicable financial covenants. Amounts outstanding under our Credit Facility fluctuated during the three months ended March 31, 2014 and 2013. At the beginning of 2014, we had $114.0 million outstanding on our Credit Facility. During the first quarter of 2014, we reduced our borrowings on the Credit Facility by $36.6 million as we had borrowed $17.0 million prior to February 27, 2014 and then we used the net proceeds from our February 27, 2014 follow-on public offering and other available cash to repay $53.6 million of amounts outstanding on our Credit Facility, resulting in outstanding borrowings of $77.4 million at March 31, 2014. At the beginning of 2013, we had $101.7 million outstanding on our Credit Facility. During the first quarter of 2013, we reduced our borrowings on the Credit Facility by $19.8 million as we had borrowed $18.6 million prior to March 26, 2013 and then we used the net proceeds of approximately $38.4 million from our March 26, 2013 follow-on public offering to repay amounts outstanding on our Credit Facility, resulting in outstanding borrowings of $81.9 million at March 31, 2013. The average amounts borrowed under our Credit Facility were $100.6 million and $109.7 million for the three months ended March 31, 2014 and 2013, respectively.



For a more detailed description of our long-term debt agreements, see our 2013 Form 10-K.

Pending transactions



Agreements with the Archdiocese of Philadelphia

On September 26, 2013, we entered into a Lease Agreement and a Management Agreement with the Archdiocese of Philadelphia under which we will operate 13 cemeteries in Pennsylvania for a term of 60 years. The closing of the transaction is contingent, among other matters, upon us obtaining financing for an upfront rental payment of $53.0 million. On March 20, 2014, we entered into the Amendment to the Lease, which extended the period for satisfying certain conditions precedent under the Lease to May 30, 2014. For more details, see Note 13 to the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.



Agreements with the Service Corporation International

We entered into asset sale agreements on April 2, 2014 with Service Corporation International ("SCI") to acquire 9 funeral homes, 12 cemeteries, 2 crematories and certain related assets in Central Florida, North Carolina, Southeastern Pennsylvania and Virginia. In consideration for the transfer of the assets and in addition to the assumption of certain liabilities, we will pay an aggregate purchase price of $53.8 million, subject to certain adjustments. The closing of the transactions is subject to the satisfaction of certain closing conditions, including obtaining all necessary regulatory approvals, including the approval of the Federal Trade Commission ("FTC"), and financing for the purchase price. SCI can terminate the agreements if, among other conditions, (i) all regulatory approvals are not obtained by June 30, 2014, subject to certain 40



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extensions; or (ii) we do not obtain the necessary financing within 20 business days after all regulatory approvals are obtained. If the agreements are terminated due to our inability to obtain the financing for the purchase price within 20 business days after all regulatory approvals are obtained, and we did not use our best efforts to obtain such financing, we will be obligated to pay a break-up fee of $1.0 million.



Cash Flow from Operating Activities

Cash flows used in operating activities were $2.9 million during the three months ended March 31, 2014, compared to $6.9 million of cash flows provided by operating activities during the same period last year. The key factors contributing to the net decrease in cash flows were the increased amount of cash we used to settle accounts payable and accrued liabilities and increased inflows into our trusts. These reductions in cash flow were partially offset by more cash generated from normal revenue producing activities during the first quarter of 2014 compared to the same period in 2013.



Cash Flow from Investing Activities

Net cash used in investing activities was $2.3 million during the three months ended March 31, 2014 as compared to $11.9 million during the same period last year. Cash flows used for investing activities during the three months ended March 31, 2014 were $0.2 million for the acquisition of one cemetery and $2.1 million for other capital expenditures. Cash flows used for investing activities during the three months ended March 31, 2013 were $9.1 million for the acquisition of 6 funeral homes and $2.8 million for other capital expenditures.



Cash Flow from Financing Activities

Cash flows provided by financing activities were $1.3 million during the three months ended March 31, 2014 as compared to $5.7 million during the same period last year. Cash flows provided by financing activities for the three months ended March 31, 2014 consisted of $53.2 million of proceeds from our follow-on public offering, partially offset by net repayments of long-term debt of $38.5 million, and cash distributions to unit holders of $13.4 million. Cash flows provided by financing activities for the three months ended March 31, 2013 consisted of $38.4 million of proceeds from our follow-on public offering offset by net repayments of long-term debt of $20.6 million and cash distributions to unit holders of $12.0 million.



Capital Expenditures

The following table summarizes total maintenance capital expenditures and expansion capital expenditures, including expenditures for the construction of mausoleums and for acquisitions, for the periods presented:

Three months ended March 31, 2014 2013 (in thousands) Maintenance capital expenditures $ 1,330$ 1,771 Expansion capital expenditures 948 10,176 Total capital expenditures $ 2,278$ 11,947 Pursuant to our partnership agreement, in connection with determining operating cash flows available for distribution, costs to construct mausoleum crypts and lawn crypts may be considered to be a combination of maintenance capital expenditures and expansion capital expenditures depending on the purposes for construction. Our general partner, with the concurrence of its Conflicts Committee, has the discretion to determine how to allocate a capital expenditure for the construction of a mausoleum crypt or a lawn crypt between maintenance capital expenditures and expansion capital expenditures. In addition, maintenance capital expenditures for the construction of a mausoleum crypt or a lawn crypt are not subtracted from operating surplus in the quarter incurred but rather are subtracted from operating surplus ratably during the estimated number of years it will take to sell all of the available spaces in the mausoleum or lawn crypt. Estimated life is determined by our general partner, with the concurrence of its Conflicts Committee. 41



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Seasonality

The death care business is relatively stable and predictable. Although we experience seasonal increases in deaths due to extreme weather conditions and winter flu, these increases have not historically had any significant impact on our results of operations. In addition, we perform fewer initial openings and closings in the winter when the ground is frozen.


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