SOURCE: StoneMor Partners L.P.

August 11, 2008 07:00 ET

StoneMor Partners L.P. Announces Significant Increases in Revenues, Adjusted Operating Profits, and Distributable Free Cash Flow for the 2008 Second Quarter

LEVITTOWN, PA--(Marketwire - August 11, 2008) - StoneMor Partners L.P. (NASDAQ: STON) today announced its operating results for the second quarter ended June 30, 2008.

We generated distributable free cash flow of $9.7 million in the second quarter, up $1.2 million, or a 14.1% increase over the $8.5 million reported in the second quarter of 2007. For the six months ended June 30, 2008, distributable free cash flow was $15.8 million, up $3.8 million or 31.7% from the same period last year.

As previously reported, we increased our cash distribution for the second quarter of 2008 by $0.02, or 3.9%. This distribution, which is now $0.535 this quarter, represents a quarterly distribution increase of 15.7% since the third quarter of 2005. Our operating philosophy is to achieve growth through accretive acquisitions, improve upon these properties with our pre-need sales program, and install and service the products we sell as soon as possible after acquisition. StoneMor notes that the strength of our growth in unitholder distributions reflects our ability to successfully execute this strategy. As our acquisitions mature, we expect to be able to continue to increase our quarterly distribution.

Revenues for the second quarter were $47.9 million, up $7.3 million or 17.9% over the $40.6 million reported in the second quarter of 2007. For the six months ended June 30, 2008, total revenues were $91.3 million, up $20.1 million or 28.2% over the same period last year.

When we make acquisitions, we immediately institute our pre-need sales program. During this time, we experience significant growth in accounts receivable and deferred revenue. As revenue recognition is dependent upon purchasing the goods or performing the services we have sold, our operating profits are negatively impacted during this integration phase. Based on these factors, operating profit for the second quarter of 2008 was $5.8 million, compared to $7.0 million in the second quarter of 2007. The decline in operating profit was largely due to increased expenses associated with the December 2007 acquisition of 45 cemeteries and 30 funeral homes resulting from the institution of our pre-need sales programs as previously discussed.

As indicated in previous press releases, we have not experienced any material reduction in our pre-need or at-need sales programs due to the current economic climate. Although there can be no assurance as to the future, based upon past experience no decline in revenue is expected due to the current economic downturn. Historically, sales declines related to economic conditions have only been experienced in geographic areas of significantly increased unemployment. If we were to experience these conditions in the markets where we operate, we would anticipate that there could be a decrease in local sales. That currently does not appear to be the economic situation in our geographic areas of operation.

At June 30, 2008 our backlog was $185.3 million. We consider our backlog to be an amount equal to our balance sheet account entitled "Deferred Cemetery Revenues, Net," which consists of unfulfilled customer sales contracts and cemetery merchandise trusts that we are not entitled to recognize for GAAP accounting purposes, less the amount of our balance sheet account entitled "Deferred Selling and Obtaining Costs." This backlog figure is important because it reflects the future operating profit benefit of customer contracts that have been executed, for the sale of cemetery products and services, where products have not yet been delivered and the services have not yet been rendered. We believe there are no material costs or significant uncertainties remaining to be determined or accrued for us to be able to realize the cash benefit of this future operating profit.

The following table summarizes comparative items relating to our operating performance for the periods presented.

                                 Three Months Ended     Six Months Ended
                                       June 30,              June 30,
                                --------------------- ---------------------
                                   2007       2008       2007       2008
                                ---------- ---------- ---------- ----------
                                    (in thousands)        (in thousands)
Total revenues                  $   40,664 $   47,936 $   71,204 $   91,349
Distributable free cash flow
 (a)                            $    8,528 $    9,711 $   11,978 $   15,777
Adjusted operating profit (a)   $    8,697 $   11,209 $   15,441 $   19,891
GAAP Operating profit           $    7,030 $    5,790 $    8,641 $    9,523
Net income                      $    4,663 $    2,232 $    4,012 $    2,690

-------------------------
(a)  This is a non-GAAP financial measure, as defined by the Securities and
     Exchange Commission. Please see the reconciliation to GAAP measures
     within this press release.

Revenues

Second quarter revenue of $47,936 represents the highest quarterly revenue in our history and represents a 17.9% increase over the same period last year. This growth is in large part due to our December 2007 acquisition of 45 cemeteries and 30 funeral homes.

While we believe that the revenue growth is significant, the full effect of the growth due to the acquisition has not as of yet been recognized in our financial statements, as we have not yet fully integrated performing the underlying services or delivering the merchandise that trigger revenue recognition. We have just started to purchase the merchandise and perform the services for the December 2007 acquisition and we expect to begin to see the effects in our statements of earnings and cash flow in the remaining quarters of 2008.

Adjusted Operating Profit

We are presenting Adjusted Operating Profit, which is a new measure of our financial performance. As indicated on many previous occasions, we evaluate our operating financial performance using accounting methods different from Generally Accepted Accounting Principles (GAAP). We believe that the concept of adjusted operating profit more closely aligns with the way we evaluate our financial performance.

We define Adjusted Operating Profit as GAAP Operating Profit before the change in deferred revenues and deferred selling and obtaining costs (excluding adjustments to deferred revenues related to the mark to market adjustment of merchandise trust assets). The table below reconciles GAAP Operating Profit (the GAAP financial measure the company believes is most directly comparable to Adjusted Operating Profit) to Adjusted Operating Profit.

                               Three Months Ended      Six Months Ended
                                    June 30,               June 30,
                            ----------------------- ----------------------
                               2007        2008        2007        2008
                            ----------- ----------  ----------  ----------
                                 (in thousands)         (in thousands)
Operating profit            $     7,030 $    5,790  $    8,641  $    9,523
Increase in applicable
 deferred revenues                1,637      7,077       8,018      13,654
(Increase) decrease in
 deferred selling and
 obtaining costs                     30     (1,658)     (1,218)     (3,286)
                            ----------- ----------  ----------  ----------
Adjusted operating profit   $     8,697 $   11,209  $   15,441  $   19,891
                            =========== ==========  ==========  ==========

The increase in Adjusted Operating Profit in the second quarter of 2008 compared to the same period last year is in large part due to a 26.8% increase in total contracts written at an average price increase of 5.3% per contract. These two factors resulted in an overall increase in the value of contracts written of $12.5 million, or 33.6%, in the second quarter of 2008.

These critical operating statistics are presented in the table below.

                                                       Three Months Ended
                                                             June 30,
                                                         2007       2008
                                                      ---------- ----------
Number of contracts written                               16,746     21,235
Average revenue per contract                          $    2,214 $    2,332
Aggregate value of contracts written (in thousands)   $   37,073 $   49,528

The growth in the number of contract written is primarily due to the previously mentioned December 2007 acquisition.

Adjusted Operating Profit is a non-GAAP financial measure, as defined by the Securities and Exchange Commission. Please see the discussion of non-GAAP financial measures within this press release.

GAAP Operating Profit

The reduction in GAAP operating profits for the quarter ended June 30, 2008, as compared to the same period last year ($1.2 million), was primarily caused by the fact that the increase in our expense base exceeded our increase in recognized revenues. Operating expenses increased by $8.5 million (25.0%), while revenues increased by $7.3 million (17.9%).

The growth in both our operating revenue and expense base was primarily caused by the previously mentioned December 2007 acquisition. The impact of the growth is currently more apparent in operating expenses than it is in operating revenues because many of the expense increases relate to items such as general and administrative expenses, various cemetery and funeral home expenses, and corporate overhead, which are not deferrable and impact current earnings while much of the growth in the value of total contracts written has not as of yet been reflected in revenue.

Net Income

The reduction in net income for the quarter ended June 30, 2008, as compared to the same period last year ($2.5 million), was primarily caused by the aforementioned reduction in GAAP operating profit and an increase in interest expense of $1.1 million (50.8%).

The increase in interest expense was primarily caused by an increase in average debt outstanding, the use of which was primarily the aforementioned December 2007 acquisition of 45 cemeteries and 30 funeral homes.

Distributable Free Cash Flow

We define Distributable Free Cash Flow as net cash provided by operating activities before appropriate reserves, if any, less maintenance capital expenditures and other expenditures not related to normal operating activities, plus working capital borrowings to fund pre-need growth during the period presented. A reconciliation between net cash provided by operating activities (the GAAP financial measure the company believes is most directly comparable to distributable free cash flow) and distributable free cash flow for the three months ended June 30, 2008 and 2007 follows:

                                               Three Months Ended June 30,
(in thousands)                                    2007           2008
                                              -------------  -------------

Net cash provided by operating activities     $       8,363  $       9,897

Maintenance capital expenditures                       (715)        (1,515)

Working Capital borrowings for pre-need
 growth                                                 420          1,500

Annual expenses paid, less quarterly reserves           460           (171)
                                              -------------  -------------

Distributable free cash flow                  $       8,528  $       9,711
                                              =============  =============

Distributions for the period                  $       4,610  $       6,207
                                              =============  =============

As we continue to integrate our acquisitions through our operating philosophy of purchasing and installing products before need, cash flow will continue to improve. The second quarter's cash flow is a reflection of that philosophy.

The items in the chart above reflect an attempt to normalize certain items where more than one quarter's expense was included in the second quarter. We usually pay bonuses and taxes once a year and we have attempted to show the effect of these items on the second quarter cash flow in the caption "Annual expenses paid, less quarterly reserves."

Distributable free cash flow is a non-GAAP financial measure, as defined by the Securities and Exchange Commission. Please see the discussion of non-GAAP financial measures within this press release.

Merchandise and Perpetual Care Trusts

As required by the various state laws in the jurisdictions where we operate, merchandise and perpetual care trust funds are maintained. These funds consist of cash and marketable securities and have a combined market value at June 30, 2008, of $405.4 million. Currently, the overall market value of these funds is less than their cost. The details of these assets are included in our June 30, 2008 Quarterly Report on Form 10-Q to be filed with the Securities and Exchange Commission. In accordance with accounting principles, we have conducted an extensive review of our trust assets to determine if any material impairment, that is other-than-temporary, existed at June 30, 2008. We have determined that no such other-than-temporary impairment existed at June 30, 2008.

Investors' Conference Call

An investors' conference call to review the 2008 second quarter results (which will be released before this call) on Monday, August 11, 2008, at 10:00 a.m. Eastern Time. The conference call can be accessed by calling (888) 662-9069. An audio replay of the conference call will be available by calling (800) 633-8284 through 1:00 p.m. Eastern Time on August 25, 2008. The reservation number for the audio replay is as follows: 21389376. The audio replay of the conference call will also be archived on StoneMor's website at http://stonemor.com.

About StoneMor Partners L.P.

StoneMor Partners L.P., headquartered in Levittown, Pennsylvania, is an owner and operator of cemeteries and funeral homes in the United States, with 224 cemeteries and 57 funeral homes in 27 states and Puerto Rico. StoneMor is the only publicly traded deathcare company structured as a partnership. StoneMor's cemetery products and services, which are sold on both a pre-need (before death) and at-need (at death) basis, include: burial lots, lawn and mausoleum crypts, burial vaults, caskets, memorials, and all services which provide for the installation of this merchandise.

For additional information about StoneMor Partners L.P., please visit StoneMor's website, and the Investor Relations section, at http://stonemor.com.

Forward-Looking Statements

Certain statements contained in this press release, 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," "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, 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 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; uncertainties associated with the integration or the anticipated benefits of our acquisitions of assets; and various other uncertainties associated with the deathcare 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 Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q filed with the SEC. 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.

Non-GAAP Financial Measures

Adjusted Operating Profit

We present Adjusted Operating Profit because management believes it provides for a useful measure of economic value added by presenting an effective matching of the value of current and future revenue sources generated within a given period to the cost of producing such revenue and managing our day to day operations within that same period. It is a significant measure that we believe is an indicator of eventual profit generated within a given period of time.

Adjusted Operating Profit is a non-GAAP financial measure that may not be consistent with other similar non-GAAP financial measures presented by other publicly traded companies.

Distributable Free Cash Flow

We present Distributable Free Cash Flow because management believes this information is a useful adjunct to Net Cash Provided by (Used in) Operating Activities under GAAP. Distributable Free Cash Flow is a significant liquidity metric that we believe is an indicator of our ability to generate cash flow during any quarter at a level sufficient to pay the minimum quarterly cash distribution to the holders of our common units and subordinated units and for other purposes, such as repaying debt and expanding through strategic investments.

Distributable Free Cash Flow is similar to quantitative standards of free cash flow used throughout the deathcare industry and to quantitative standards of distributable cash flow used throughout the investment community with respect to publicly traded partnerships, but is not intended to be a prediction of the future. However, our calculation of distributable free cash flow may not be consistent with calculations of free cash flow, distributable cash flow or other similarly titled measures of other companies. Distributable Free Cash Flow is not a measure of financial performance and should not be considered as an alternative to cash flows from operating, investing, or financing activities.

                          StoneMor Partners L.P.
                  Condensed Consolidated Balance Sheets
                              (in thousands)
                                (unaudited)

                                                    December 31,  June 30,
                                                        2007        2008
                                                    ------------- ---------

ASSETS
CURRENT ASSETS:
    Cash and cash equivalents                       $      13,800 $  10,792
    Accounts receivable, net of allowance                  32,063    34,677
    Prepaid expenses                                        2,707     3,856
    Other current assets                                    5,193     3,385
                                                    ------------- ---------
      Total current assets                                 53,763    52,710

LONG-TERM ACCOUNTS RECEIVABLE - net of allowance           40,081    41,678
CEMETERY PROPERTY                                         187,552   215,758
PROPERTY AND EQUIPMENT, net of accumulated
 depreciation                                              53,929    48,222
MERCHANDISE TRUSTS, restricted, at fair value             228,615   206,639
PERPETUAL CARE TRUSTS, restricted, at fair value          208,579   198,723
DEFERRED FINANCING COSTS - net of accumulated
 amortization                                               3,317     2,871
DEFERRED SELLING AND OBTAINING COSTS                       35,836    39,122
OTHER ASSETS                                                   85       646
                                                    ------------- ---------
TOTAL ASSETS                                        $     811,757 $ 806,369
                                                    ============= =========

LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES:
    Accounts payable and accrued liabilities        $      19,075 $  14,529
    Accrued interest                                          677     1,209
    Current portion, long-term debt                           386       488
                                                    ------------- ---------
      Total current liabilities                            20,138    16,226

OTHER LONG-TERM LIABILITIES                                     -     1,628
LONG-TERM DEBT                                            145,778   152,910
DEFERRED CEMETERY REVENUES, net                           220,942   224,445
MERCHANDISE LIABILITY                                      79,574    82,936
                                                    ------------- ---------
TOTAL LIABILITIES                                         466,432   478,145
                                                    ------------- ---------

COMMITMENTS AND CONTINGENCIES
NON-CONTROLLING INTEREST IN PERPETUAL CARE TRUSTS         208,579   198,723

PARTNERS' EQUITY
    General partner                                         2,737     2,601
    Limited partners:
      Common                                              118,598   114,054
      Subordinated                                         15,411    12,846
                                                    ------------- ---------
        Total partners' equity                            136,746   129,501
                                                    ------------- ---------

TOTAL LIABILITIES AND PARTNERS' EQUITY              $     811,757 $ 806,369
                                                    ============= =========

See accompanying notes to the Condensed Consolidated Financial Statements in Form 10-Q Report for the quarter ended June 30, 2008.

                          StoneMor Partners L.P.
              Condensed Consolidated Statement of Operations
                     (in thousands, except unit data)
                                (unaudited)

                                       Three months ended  Six months ended
                                             June 30,          June 30,
                                        ----------------- -----------------
                                          2007     2008     2007     2008
                                        -------- -------- -------- --------

Revenues:
  Cemetery
    Merchandise                         $ 23,274 $ 24,152 $ 37,854 $ 45,105
    Services                               7,276    9,755   14,343   18,989
    Investment and other                   7,611    8,382   13,474   15,447
  Funeral home
    Merchandise                            1,119    2,198    2,390    4,587
    Services                               1,384    3,449    3,143    7,221
                                        -------- -------- -------- --------
      Total revenues                      40,664   47,936   71,204   91,349
                                        -------- -------- -------- --------

Costs and Expenses:
  Cost of goods sold (exclusive of
   depreciation shown separately below):
    Perpetual care                           952    1,051    1,840    2,152
    Merchandise                            4,731    4,513    7,747    9,137
  Cemetery expense                         7,876   10,966   14,660   20,453
  Selling expense                          8,471    8,921   14,715   17,126
  General and administrative expense       3,693    5,300    7,431   10,529
  Corporate overhead (including $1,181
   and $642 in unit-based compensation
   for the three months ended June 30,
   2007 and 2008 and $2,339 and $1,256
   for the six months ended June 30,
   2007 and June 30, 2008)                 4,951    5,568   10,233   11,017
  Depreciation and amortization              915    1,042    1,789    2,007
  Funeral home expense
    Merchandise                              381      881      855    1,863
    Services                               1,011    2,294    2,015    4,515
    Other                                    653    1,610    1,278    3,027
                                        -------- -------- -------- --------
    Total cost and expenses               33,634   42,146   62,563   81,826
                                        -------- -------- -------- --------

OPERATING PROFIT                           7,030    5,790    8,641    9,523

INTEREST EXPENSE                           2,132    3,215    4,178    6,319
                                        -------- -------- -------- --------

INCOME BEFORE INCOME TAXES                 4,898    2,575    4,463    3,204

INCOME TAXES:
    State                                    145      245      278      411
    Federal                                   90       98      173      103
                                        -------- -------- -------- --------
      Total income taxes                     235      343      451      514
                                        -------- -------- -------- --------

NET INCOME                              $  4,663 $  2,232 $  4,012 $  2,690
                                        -------- -------- -------- --------

General partner's interest in net
 income for the period                  $     93 $     45 $     80 $     54

Limited partners' interest in net
 Income for the period
    Common                              $  2,426 $  1,597 $  2,087 $  1,925
    Subordinated                        $  2,144 $    590 $  1,845 $    711

Net income per limited partner unit
 (basic and diluted)                    $    .54 $    .18 $    .46 $    .22

Weighted average number of limited
 partners' units outstanding
 (basic and diluted)                       9,036   11,801    9,036   11,793

See accompanying notes to the Condensed Consolidated Financial Statements in Form 10-Q Report for the quarter ended June 30, 2008.

                          StoneMor Partners L.P.
              Condensed Consolidated Statement of Cash Flows
                              (in thousands)
                                (unaudited)

                                    Three months ended   Six months ended
                                         June 30,            June 30,
                                    ------------------  ------------------
                                      2007      2008      2007      2008
                                    --------  --------  --------  --------

OPERATING ACTIVITIES:
  Net income                        $  4,663  $  2,232  $  4,012  $  2,690
  Adjustments to reconcile net
   income to net cash provided by
   operating activity:
    Cost of lots sold                  1,133     1,425     2,350     3,385
    Depreciation and amortization        915     1,042     1,789     2,007
    Stock-based compensation           1,181       642     2,339     1,258
    Changes in assets and
     liabilities that provided
     (used) cash:
      Accounts receivable             (3,178)   (3,622)   (5,151)   (8,821)
      Allowance for doubtful
       accounts                        1,051       650     1,524     1,829
      Merchandise trust fund             976     2,597      (292)     (868)
      Prepaid expenses                  (954)     (780)     (317)      529
      Other current assets              (388)       29      (452)      377
      Other assets                        (9)     (173)     (116)     (567)
      Accounts payable and accrued
       and other liabilities           1,346     1,344    (2,609)   (2,174)
      Deferred selling and obtaining
       costs                              30    (1,658)   (1,292)   (3,286)
      Deferred cemetery revenue        1,662     7,067     8,148    13,668
      Merchandise liability              (65)     (898)     (202)     (997)
                                    --------  --------  --------  --------
        Net cash provided by
         operating activities          8,363     9,897     9,731     9,030
                                    ========  ========  ========  ========
INVESTING ACTIVITIES:
   Cost associated with potential
    acquisitions                        (514)     (790)   (1,036)   (1,285)
   Additions to cemetery property       (666)     (942)   (1,161)   (1,472)
   Purchase of subsidiaries, net of
    common units issued                    -         -         -    (1,238)
   Additions to property and
    equipment                           (324)   (1,295)     (972)   (2,930)
                                    --------  --------  --------  --------
      Net cash used in investing
       activities                     (1,504)   (3,027)   (3,169)   (6,925)
                                    --------  --------  --------  --------
FINANCING ACTIVITIES:
  Cash distribution                   (4,610)   (6,207)   (9,220)  (12,415)
  Additional borrowings on
   long-term debt                      3,490     9,112     5,490    14,762
  Repayments of long-term debt          (464)   (7,346)     (921)   (7,528)
  Cost of financing activities          (266)        -      (266)       68
                                    --------  --------  --------  --------
      Net cash used in financing
       activities                     (1,850)   (4,441)   (4,917)   (5,113)
                                    --------  --------  --------  --------
NET INCREASE (DECREASE) IN CASH AND
 CASH EQUIVALENTS                      5,009     2,429     1,645    (3,008)
CASH AND CASH EQUIVALENTS -
 Beginning of period                   6,550     8,363     9,914    13,800
                                    --------  --------  --------  --------
CASH AND CASH EQUIVALENTS -
 End of period                      $ 11,559  $ 10,792  $ 11,559  $ 10,792
                                    ========  ========  ========  ========

SUPPLEMENTAL DISCLOSURE OF CASH
 FLOW INFORMATION
  Cash paid during the period for
   interest                         $  1,688  $  3,729  $  3,460  $  5,787
                                    ========  ========  ========  ========
  Cash paid during the period for
   income taxes                     $  1,353  $  1,927  $  3,024  $  3,081
                                    --------  --------  --------  --------
NON-CASH INVESTING AND FINANCING
 ACTIVITIES
  Issuance of limited partner
   units to fund cemetery
   acquisitions                    $      -  $      -  $      -  $    500

See accompanying notes to the Condensed Consolidated Financial Statements in Form 10-Q Report for the quarter ended June 30, 2008.

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