8-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

(Amendment No. 1)

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): November 1, 2005

STONEMOR PARTNERS L.P.

(Exact name of registrant as specified in its charter)

Delaware	000-50910	80-0103159
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

155 Rittenhouse Circle

Bristol, PA 19007

(Address of principal executive offices) (Zip Code)

(215) 826-2800

(Registrant’s telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

ITEM 2.01 COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS.

On November 2, 2005, StoneMor Partners L.P. (the “Company”) filed a Current Report on Form 8-K (the “Initial Form 8-K”) reporting the completion of its acquisition of 22 cemeteries and 6 funeral homes, including certain related assets and certain related liabilities, from SCI Funeral Services, Inc. (“SCI”), a wholly-owned subsidiary of Service Corporation International, a Texas corporation, joined by certain of SCI’s direct and indirect subsidiary entities.

This Amendment No. 1 (“Amendment No. 1”) to the Initial Form 8-K amends and supplements the Initial Form 8-K to include financial statements and pro forma financial information permitted to be filed by amendment to the Initial Form 8-K not later than 71 calendar days after the date that the Initial Form 8-K was required to be filed. The Company recognizes that the financial statements included in this Amendment No. 1 omit the interim financial statements for the ten months ended October 31, 2004 (“Comparable interim period”) and intends to file another amendment which includes such comparable period. However, the filing of this Amendment No. 1 shall not be deemed an admission that the Company is required to file such Amendment No. 1 or any other amendments to the initial Form 8-K.

ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.

(a) Financial statements of businesses acquired.

The Predecessor Companies, Formerly Known as Certain Wholly-Owned Subsidiaries of Service Corporation International, Combined Financial Statements for the Years Ended December 31, 2004, 2003 and 2002 and Independent Auditors’ Report attached hereto as Exhibit 99.1 and incorporated herein by reference:

Independent Auditors’ Report

Combined Balance Sheets as of December 31, 2004 and 2003

Combined Statements of Operations for the Years Ended December 31, 2004, 2003 and 2002

Combined Statements of Stockholder’s Equity for the Years Ended December 31, 2004, 2003 and 2002

Combined Statements of Cash Flows for the Years Ended December 31, 2004, 2003 and 2002

Notes to Combined Financial Statements

The Predecessor Companies, Formerly Known as Certain Wholly-Owned Subsidiaries of Service Corporation International, Combined Financial Statements for the Period Ended October 31, 2005 and the Interim Review Report attached hereto as Exhibit 99.2 and incorporated herein by reference:

Independent Accountants Review Report

Combined Balance Sheet as of October 31, 2005

Combined Statement of Operations for the Ten Months Ended October 31, 2005

Combined Statement of Stockholder’s Equity for the Ten Months Ended October 31, 2005

Combined Statement of Cash Flows for the Ten Months Ended October 31, 2005

Notes to Combined Financial Statements

(b) Pro forma financial information.

Unaudited Pro Forma Condensed Combined Financial Information attached hereto as Exhibit 99.3 and incorporated herein by reference:

Basis of Presentation

Unaudited Pro Forma Condensed Combined Balance Sheet as of September 30, 2005

Unaudited Pro Forma Condensed Combined Statement of Operations for the Year Ended December 31, 2004

Unaudited Pro Forma Condensed Combined Statement of Operations for the Period Ended September 30, 2005

Notes to Unaudited Pro Forma Condensed Combined Financial Information

(c) Exhibits.

Exhibit No.	Description
23.1	Consent of Harper & Pearson Company, P.C.
99.1	The Predecessor Companies, Formerly Known as Certain Wholly-Owned Subsidiaries of Service Corporation International, Combined Financial Statements for the Years Ended December 31, 2004, 2003 and 2002 and Independent Auditors’ Report.
99.2	The Predecessor Companies, Formerly Known as Certain Wholly-Owned Subsidiaries of Service Corporation International, Combined Financial Statements for the Period Ended October 31, 2005 and the Interim Review Report.
99.3	Unaudited Pro Forma Condensed Combined Financial Information.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated: January 12, 2006	STONEMORPARTNERS L.P.
	By:	StoneMor GP LLC, its general partner
		By:	/s/ William R. Shane
		Name:	William R. Shane
		Title:	Executive Vice President and Chief Financial Officer

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EXHIBIT INDEX

Exhibit No.	Description
23.1	Consent of Harper & Pearson Company, P.C.
99.1	The Predecessor Companies, Formerly Known as Certain Wholly-Owned Subsidiaries of Service Corporation International, Combined Financial Statements for the Years Ended December 31, 2004, 2003 and 2002 and Independent Auditors’ Report.
99.2	The Predecessor Companies, Formerly Known as Certain Wholly-Owned Subsidiaries of Service Corporation International, Combined Financial Statements for the Period Ended October 31, 2005 and the Interim Review Report.
99.3	Unaudited Pro Forma Condensed Combined Financial Information.

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EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statement on Form S-3 (the “Registration Statement”) filed by StoneMor Partners L.P. on November 23, 2005, File No. 333-129916, of our independent auditors’ report dated December 13, 2005 relating to the combined financial statements for the years ended December 31, 2004, 2003 and 2002, respectively, and our interim review report dated January 5, 2006 relating to the combined financial statements for the period ended October 31, 2005 of the predecessor companies (the “Predecessor Companies”), formerly known as certain wholly-owned subsidiaries of Service Corporation International, appearing in Amendment No. 1 (“Amendment No. 1”) to the Current Report on Form 8-K of StoneMor Partners L.P. dated November 1, 2005.

The combined financial statements for the years ended December 31, 2004, 2003 and 2002, respectively, and the combined financial statements for the period ended October 31, 2005 (collectively, the “Combined Financial Statements”) of the Predecessor Companies, which are incorporated into the prospectus (the “Prospectus”), which is part of the Registration Statement, by reference from Amendment No. 1, have been audited or reviewed, as applicable, by us as stated in our reports dated December 13, 2005 and January 5, 2006 (collectively, the “Reports”), which are also incorporated by reference into the Prospectus; and the Combined Financial Statements are so incorporated by reference in reliance upon the Reports given upon our authority as experts in accounting and auditing.

/s/ Harper & Pearson Company, P.C.

Houston, Texas

January 12, 2006

EX-99.1

Exhibit 99.1

The Predecessor Companies of

Service Corporation International

(Formerly Known as Certain Wholly-Owned

Subsidiaries of Service Corporation International)

Combined Financial Statements for the Years Ended

December 31, 2004, 2003 and 2002 and

Report of Independent Registered Public Accounting Firm

INDEX TO COMBINED FINANCIAL STATEMENTS	Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	1
COMBINED BALANCE SHEETS AS OF DECEMBER 31, 2004 AND 2003	2
COMBINED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002	3
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDER’S (DEFICIT) EQUITY FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002	4
COMBINED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002	5
NOTES TO COMBINED FINANCIAL STATEMENTS	6

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of StoneMor GP LLC and Unitholders of StoneMor Partners L.P.

Bristol, Pennsylvania

We have audited the accompanying combined balance sheets of the Predecessor Companies of Service Corporation International as of December 31, 2004 and 2003, and the related combined statements of operations, changes in stockholder’s (deficit) equity and cash flows for each of the three years in the period ended December 31, 2004. These combined financial statements are the responsibility of the Service Corporation International management. Our responsibility is to express an opinion on these combined financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of the Predecessor Companies of Service Corporation International at December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with generally accepted accounting principles in the United States.

As discussed in Note 1 to the combined financial statements, the Predecessor Companies’ financial statements include certain intercompany charges from Service Corporation International. These combined financial statements are not representative of results that would have been attained if the Predecessor Companies had operated as a stand-alone entity.

HARPER & PEARSON COMPANY, P.C.

Houston, Texas

December 13, 2005

One Riverway • Suite 1000 • Houston, Texas 77056-1973 • 713.622.2310 • 713.622.5613 fax

harperpearson.com            

THE PREDECESSOR COMPANIES OF SERVICE CORPORATION INTERNATIONAL

COMBINED BALANCE SHEETS

(in thousands)

	December 31,
	2004			2003
Assets
Cash and Cash Equivalents	$	16		$	61
Accounts Receivable, Net		2,406			2,684
Inventories		429			489
Short-term Note Receivable		716			—
Total Current Assets		3,567			3,234
Long-term Accounts Receivable, Net		2,735			3,509
Investment in Trust - Funeral		1,371			1,412
Investment in Trust - Cemetery		11,939			—
Due from Merchandise Trusts		—			10,902
Cemetery Property		30,048			59,974
Property, Plant and Equipment		5,027			5,144
Other Assets and Intangibles, Net		1,038			1,064
Cemetery Perpetual Care Trusts		9,703			—
Total Assets	$	65,428		$	85,239
Liabilities and Stockholder’s (Deficit) Equity
Accounts Payable	$	369		$	377
Accrued Liabilities		218			187
Total Current Liabilities		587			564
Long-Term Debt		1,322			1,322
Deferred Income Taxes		7,274			19,472
Deferred Prearranged Contract Revenue		1,178			1,323
Deferred Cemetery Contract Revenue		22,613			22,316
Accrued Merchandise Liability		8,437			8,463
Due to Service Corporation International		14,852			14,729
Total Liabilities		56,263			68,189
Non-Controlling Interest in Perpetual Care Trusts		9,703			—
Stockholder’s (Deficit) Equity
Current Period Earnings (Losses)		(17,588	)		(1,890	)
Stockholder’s Equity Before Current Period Earnings (Losses)		17,050			18,940
Net Stockholder’s (Deficit) Equity		(538	)		17,050
Total Liabilities and Stockholder’s (Deficit) Equity	$	65,428		$	85,239

See Accompanying Notes to the Financial Statements.

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THE PREDECESSOR COMPANIES OF SERVICE CORPORATION INTERNATIONAL

COMBINED STATEMENTS OF OPERATIONS

(in thousands)

	Years Ended December 31,
	2004			2003			2002
REVENUES, NET:
Cemetery	$	10,102		$	8,615		$	10,459
Funeral		3,714			3,576			2,996
Total Revenues, net		13,816			12,191			13,455
COSTS AND EXPENSES:
Costs of Goods Sold:
Land and Crypts		440			431			827
Perpetual Care		84			140			150
Merchandise		1,031			907			1,636
Cemetery Expense		2,808			2,874			3,858
Selling Expense		1,895			1,803			2,453
General and Administrative Expense		2,393			2,292			2,018
Depreciation and Amortization		630			645			638
Funeral Home Expense		2,765			3,253			4,633
Total Cost and Expenses		12,046			12,345			16,213
OPERATING PROFIT (LOSS)		1,770			(154	)		(2,758	)
Impairment on Long Lived Assets		25,941			7			4
Interest Expense		70			70			70
Other Expense		5,545			2,968			3,792
Loss before taxes and cumulative effect of accounting changes		(29,786	)		(3,199	)		(6,624	)
Benefit for Income Taxes		(12,198	)		(1,309	)		(1,667	)
Cumulative Effects of Accounting Changes (net of income tax benefit of $160)		—			—			1,934
NET LOSS	$	(17,588	)	$	(1,890	)	$	(6,891	)

See Accompanying Notes to the Financial Statements.

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THE PREDECESSOR COMPANIES OF SERVICE CORPORATION INTERNATIONAL

COMBINED STATEMENTS OF CHANGES IN STOCKHOLDER’S (DEFICIT) EQUITY

(in thousands)

	Capital		Retained Earnings (Deficit)			Total Stockholder’s (Deficit) Equity
BALANCE, JANUARY 1, 2002	$	794	$	25,037		$	25,831
Net Loss		—		(6,891	)		(6,891	)
BALANCE, DECEMBER 31, 2002		794		18,146			18,940
Net Loss		—		(1,890	)		(1,890	)
BALANCE, DECEMBER 31, 2003		794		16,256			17,050
Net Loss		—		(17,588	)		(17,588	)
BALANCE, DECEMBER 31, 2004	$	794	$	(1,332	)	$	(538	)

See Accompanying Notes to the Financial Statements.

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THE PREDECESSOR COMPANIES OF SERVICE CORPORATION INTERNATIONAL

COMBINED STATEMENTS OF CASH FLOWS

(in thousands)

	Years Ended December 31,
	2004			2003			2002
OPERATING ACTIVITIES:
Net Loss	$	(17,588	)	$	(1,890	)	$	(6,891	)
Adjustments to Reconcile Net Loss to Net Cash (Used) Provided by Operating Activities
Cost of Lots Sold		269			45			55
Depreciation and Amortization		630			645			638
Loss on Sale Cemetery Property		2,436			—			—
Deferred Income Tax (Benefit)		(12,198	)		(1,309	)		(1,667	)
Impairment of Long-Lived Assets		25,941			7			4
Changes in Assets and Liabilities
Accounts Receivable, Net		1,052			2,725			566
Merchandise Trust Fund		(996	)		(1,245	)		2,049
Other Current Assets		(656	)		61			387
Other Assets and Intangibles		416			(457	)		4,146
Accounts Payable and Accrued and Other Liabilities		146			1,567			1,147
Deferred Cemetery Revenue		152			276			(343	)
Merchandise Liability		(26	)		(185	)		93
Net Cash (Used) Provided by Operating Activities		(422	)		240			184
INVESTING ACTIVITIES:
Capital Expenditures		(339	)		(263	)		(183	)
Cash Received from Note Receivable		358			—			—
Proceeds From Sale of Cemetery Property		358			—			—
Net Cash Provided (Used) by Investing Activities		377			(263	)		(183	)
Net (decrease) increase in cash and cash equivalents		(45	)		(23	)		1
Cash and cash equivalents - beginning of period		61			84			83
Cash and cash equivalents - end of period	$	16		$	61		$	84
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest	$	66		$	66		$	66

See Accompanying Notes to the Financial Statements.

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THE PREDECESSOR COMPANIES OF SERVICE CORPORATION INTERNATIONAL

(Formerly Known as Certain Wholly-Owned Subsidiaries of

Service Corporation International)

NOTES TO COMBINED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

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

Nature of Operations and Basis of Presentation - The accompanying financial statements present the combined financial position, results of operations, changes in stockholder’s (deficit) equity and cash flows of the Predecessor Companies, formerly known as certain wholly-owned subsidiaries of Service Corporation International (Predecessor Companies). These financial statements include the accounts of 21 cemeteries and 6 funeral homes purchased by the StoneMor Partners LP (StoneMor) from Service Corporation International (SCI) on November 1, 2005 for $12.9 million. The combined financial statements of the Predecessor Companies owned and managed by SCI contained herein reflect the financial position at December 31, 2004, 2003, and 2002 and the changes in stockholder’s (deficit) equity, results of their operations and cash flows for the years ended December 31, 2004, 2003, and 2002 of the Predecessor Companies using SCI’s historical cost basis of accounting, net of impairment, for such Predecessor Companies.

Prior to each of the years presented, SCI consummated acquisitions of cemeteries and funeral homes that became part of the Predecessor Companies. All of these SCI acquisitions were accounted for under the purchase method of accounting, and the purchase prices, including transaction costs, were allocated to the assets based upon their respective fair values as determined as of the purchase dates.

The Predecessor Companies were wholly owned subsidiaries of SCI and operated as separate legal entities. The Predecessor Companies’ combined financial statements include SCI intercompany charges and allocations. The intercompany charges were usually allocated based on gross revenues of the separate entity. SCI allocated corporate charges such as interest, income taxes and management fees to all of the cemeteries and funeral homes it owned which included the Predecessor Companies acquired by StoneMor. These combined financial statements are not representative of results that would have been attained if the Predecessor Companies had operated as stand-alone entities under StoneMor management.

The Predecessor Companies are providers of death care services in the United States. At December 31, 2004, the Predecessor Companies operated 21 cemeteries and 6 funeral service locations located in Pennsylvania, Georgia, North Carolina and Alabama.

The cemetery operations and funeral service locations consist of the Predecessor Companies cemeteries, funeral homes and related businesses. The Predecessor Companies personnel at the funeral service locations provide all professional services relating to funerals, including the use of funeral facilities and motor vehicles. Funeral related merchandise is sold at each funeral service location and certain funeral service locations contain crematoria. The Predecessor Companies sell prearranged funeral services whereby a customer contractually agrees to the terms of a funeral to be performed in the future. The Predecessor Companies’ cemeteries provide cemetery interment rights (including lots, mausoleum spaces and lawn crypts) and sell cemetery-related merchandise. Cemetery items are sold on an at need or pre-need basis. The Predecessor Companies personnel at cemeteries perform interment services and provide management and maintenance of cemetery grounds. Two funeral service locations are connected with a Predecessor Company-owned cemetery.

Common Stock - The Predecessor Companies have authorized 53,000 shares of common stock at $1 par value per share. All common stock shares are issued and outstanding. The outstanding stock is held at the location level and pertains to only four locations.

Summary of Significant Accounting Policies - Significant accounting policies followed by the Predecessor Companies, as summarized below, are in conformity with generally accepted accounting principles in the United States.

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Principles of Combination - The combined financial statements include the accounts of the Predecessor Companies. Material intercompany balances and transactions between the Predecessor Companies have been eliminated in combination.

Cemetery Operations - Revenue associated with sales of cemetery merchandise and services is recognized when the service is performed or merchandise is delivered. The Predecessor Companies’ cemetery trade receivables consist of amounts due for services already performed and merchandise already delivered. An allowance for doubtful accounts has been provided based on historical experience. Revenue associated with sales of preneed cemetery interment rights is recognized in accordance with the retail land sales provisions of SFAS No. 66, “Accounting for the Sales of Real Estate” (SFAS 66). Under SFAS 66, revenue from constructed cemetery property is not recognized until a minimum percentage (10%) of the sales price has been collected. Revenue related to the preneed sale of unconstructed cemetery property is deferred until it is constructed and 10% of the sales price is collected. Revenue associated with sales of preneed merchandise and services is not recognized until the merchandise is delivered or the services are performed. Allowances for customer cancellations for preneed cemetery contracts are based upon historical experience.

Costs related to the sale of property interment rights include the property and development costs specifically identified by project. At the completion of the project, costs are charged to operations as revenue is recognized. Costs related to sales of merchandise and services are based on actual costs incurred.

Pursuant to state or provincial law, all or a portion of the proceeds from cemetery merchandise or services sold on a preneed basis may be required to be paid into trust funds. The Predecessor Company defers investment earnings related to these merchandise and services trusts until the associated merchandise is delivered or services are performed.

Additionally, a portion of the proceeds from the sale of cemetery property is required by state law to be paid into perpetual care trust funds. Earnings from these trusts are recognized in current cemetery revenues and are intended to defray cemetery maintenance costs, which are expensed as incurred. Perpetual care funds trusted at December 31, 2004 and 2003 were approximately $9,703,000 and $9,110,000, respectively, which approximates fair value (see Note 3). The principal of such perpetual care trust funds generally cannot be withdrawn by the Predecessor Companies. Prior to the adoption of FIN46R by the Predecessor Companies in 2004, the perpetual care trusts were not included in the combined balance sheets. Pursuant to state law, a portion of the proceeds from the sale of pre-need merchandise and services may also be required to be paid into trust funds, which are recorded as non-current merchandise trust funds on the combined balance sheets.

Prearranged Funeral Services - Revenue is recognized when the funeral services are performed and funeral merchandise is delivered. The Predecessor Companies’ funeral trade receivables consist of amounts due for services already performed and merchandise delivered. An allowance for doubtful accounts has been provided based on historical experience. The Predecessor Companies sells price guaranteed preneed funeral contracts through various programs providing for future funeral services at prices prevailing when the agreements are signed. Revenues associated with sales of preneed funeral contracts, which include accumulated trust earnings, are deferred until such time that the funeral services are performed. Allowances for customer cancellations are based upon historical experience. See Note 2 to the combined financial statements regarding prearranged funeral activities.

Pursuant to state or provincial law, all or a portion of the proceeds from funeral merchandise or services sold on a preneed basis may be required to be paid into trust funds. The Predecessor Companies defer investment earnings related to these merchandise and services trusts until the associated merchandise is delivered or services are performed.

Cash and Cash Equivalents - The Predecessor Companies consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Concentration of Credit Risk - The Predecessor Companies revenues and accounts receivable relate primarily to the sale of products and services to a customer base that is largely concentrated in the states where the Predecessor Companies have service locations. Credit is extended based on an evaluation of the customers’ financial condition and collateral is not required. Provision for uncollectible accounts and reserve for cancellations are provided for in the financial statements based on historical experience and the Predecessor Companies’ management judgment. A significant portion of accounts receivable are due from customers in the four states served by the Predecessor Companies.

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Inventories – Inventories include funeral and cemetery merchandise and are stated at the lower of average cost or market. Inventory costs are primarily relieved using specific identification.

Cemetery Property – Cemetery property consists of developed and undeveloped cemetery property and mausoleums and is valued at cost less the average cost of lots sold, which is not in excess of market value. Amounts are expensed to cost of goods sold as sales of cemetery plots occur.

Property and Equipment – Property and equipment is recorded at cost and depreciated on a straight-line basis. Maintenance and repairs are charged to expense as incurred, whereas renewals and major replacements are capitalized and depreciation is recorded over the estimated useful lives of the assets as follows:

Buildings and improvements	10 to 40 years
Furniture and equipment	6 to 10 years
Leasehold improvements	over the term of the lease

For the years ended December 31, 2004, 2003 and 2002, depreciation expense was $457,000, $472,000 and $458,000, respectively.

Names and Reputations – The amount paid for the names and reputations of funeral homes acquired is equivalent to the excess of the purchase price over the fair value of identifiable net assets acquired, as determined by management.

Covenants not to compete are included with names and reputations and are recorded under Other Assets and Intangibles, net on the combined balance sheets, representing amounts capitalized for non-competition agreements with certain key management personnel of acquired operations. Amortization of such prepaid covenants not to compete is provided on a straight-line basis over the terms of the relevant agreements, typically ten years.

Impairment of Long-lived Assets – The Predecessor Companies monitor the recoverability of long-lived assets, including cemetery properties, property and equipment, names and reputations and other assets, based on estimates using factors such as current market value, future asset utilization, business climate and future undiscounted cash flows expected to result from the use of the related assets. The Predecessor Companies’ policy is to record an impairment loss in the period when it is determined that the carrying amount of the asset may not be recoverable and the sum of future undiscounted cash flows is less than the carrying value of the asset. As part of the sale of the properties, the Predecessor Companies recognized an impairment of long lived assets in the amount of $25,941,000 for the year ended December 31, 2004 based on the acquisition price of the properties. See Note 14 for additional information pertaining to the sale of the Predecessor Companies.

Deferred Income Taxes – The Predecessor Companies follow the allocation method for accounting for income taxes. Under this method, recognition is given in the financial statements to the tax effects of timing differences between income for financial statement and income tax purposes. The differences arise primarily from receivables, purchase accounting adjustments and depreciation.

New Accounting Pronouncements

Other Than Temporary Impairments

In March 2004, the Financial Accounting Standards Board (“FASB”) reached consensus on the guidance provided by Emerging Issues Task Force Issue 03-1 (“EITF 03-1”), “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.” The guidance is applicable to debt and equity securities that are within the scope of FASB Statement of Financial Accounting Standard (“SFAS”) No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” EITF 03-1 specifies that an impairment would be considered other-than-temporary unless (a) the investor has the ability and intent to hold an investment for a reasonable period of time sufficient for the recovery of the fair value up to (or beyond) the cost of the investment and (b) evidence indicating the cost of the investment is recoverable within a reasonable period of time outweighs evidence to the contrary. EITF 03-1 was scheduled to be effective for reporting periods ending after June 15, 2004. The measurement and recognition provisions relating to debt and equity securities have been delayed until the FASB issues additional guidance. The Predecessor Companies adopted the disclosure

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provisions of EITF 03-1 during the period ended June 30, 2004. The adoption of the measurement and recognition provisions are not expected to have a material impact on the combined financial statements, results of operations, financial position, or cash flows of the Predecessor Companies.

Inventory Costs

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs – an amendment of ARB 43, Chapter 4” (SFAS 151). SFAS 151 amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material. SFAS 151 requires that those items be recognized as current-period charges, rather than as a portion of the inventory cost. In addition, SFAS 151 requires the allocation of fixed production overhead to the costs of conversion be based on the normal capacity of the production facilities. SFAS 151 will be effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Management does not expect this statement to have a material impact on the Predecessor Companies’ combined financial statements, results of operations, financial position, or cash flows.

Tax

In December 2004, the FASB issued Staff Position No. FAS 109-1 “Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities provided by the American Jobs Creation Act of 2004” (FAS 109-1). The American Jobs Creation Act of 2004, enacted on October 22, 2004, provides for a deduction for certain qualified production activities. FAS 109-1 provides guidance for the application of FASB Statement No. 109, Accounting for Income Taxes, to the deduction for certain qualified production activities, and was effective immediately upon issuance. The Predecessor Companies do not believe that the adoption of FAS 109-1 will have a significant impact on its combined financial statements, results of operations, financial position, or cash flows.

Variable Interest Entities

In January 2003, the FASB issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin (ARB) No. 51.” This interpretation clarifies the application of ARB No. 51, “Consolidated Financial Statements,” to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. In December 2003, the FASB revised FASB Interpretation No. 46 (FIN 46R).

Under the provisions of FIN 46R, the Predecessor Companies are required to consolidate certain cemeteries and trust assets. Merchandise and service trusts and cemetery perpetual care trusts are considered variable interest entities because the trusts meet the conditions of paragraphs 5(a) and 5(b)(l) of FIN 46R. That is, as a group, the equity investors (if any) do not have sufficient equity at risk and do not have the direct or indirect ability through voting or similar rights to make decisions about the trusts’ activities that have a significant effect on the success of the trusts. FIN 46R requires the Predecessor Companies to consolidate merchandise and service trusts and cemetery perpetual care trusts for which the Predecessor Companies are the primary beneficiary (i.e., those for which the Predecessor Companies absorbs a majority of the trusts’ expected losses). The Predecessor Companies are the primary beneficiary of a trust whenever a majority of the assets of the trust are attributable to deposits of customers of the Predecessor Companies.

Consolidation of Trusts: The Predecessor Companies implemented FIN 46R as of March 31, 2004, which resulted in the consolidation of the Predecessor Companies’ preneed funeral and cemetery merchandise and service trust assets and the Predecessor Companies’ cemetery perpetual care trusts. No cumulative effect of an accounting change was recognized by the Predecessor Companies as a result of the implementation of FIN 46R as it relates to the consolidation of the trusts. The implementation of FIN 46R affects certain line items on the Predecessor Companies’ combined balance sheets and statements of operations as described below; however, there is no impact to net income in the statement of operations as a result of the implementation. Additionally, the implementation of FIN 46R did not result in any net changes to the Predecessor Companies’ combined statements of cash flows; however, it does require certain financing and investing activities to be disclosed. See Notes 2 and 3 to the combined financial statements.

Although FIN 46R requires consolidation of most of the merchandise and service and perpetual care trusts, it does not change the legal relationships among the trusts, the Predecessor Companies and its customers. In the

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case of merchandise and service trusts, the customers are the legal beneficiaries. In the case of cemetery perpetual care trusts, the Predecessor Companies do not have a legal right to the perpetual care trust assets. For these reasons, upon consolidation of the trusts, the Predecessor Companies recognizes non-controlling interests in its financial statements to reflect third party interests in these trusts in accordance with FASB Statement No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liability and Equity” (SFAS 150). The Predecessor Companies classify deposits to merchandise and service trusts as non-controlling liability interests and classify deposits to cemetery perpetual care trusts as non-controlling equity interests.

The Predecessor Companies record cash received from customers, that is payable to the trusts but not yet required to be deposited in the trusts, as restricted cash in Deferred charges and other assets in its combined balance sheets. At December 31, 2004, these pending deposits totaled $11,000. The Predecessor Companies continue to account for amounts received from customers prior to delivery of merchandise or services that are not required to be deposited in merchandise and service trusts as deferred revenue.

Beginning March 31, 2004, the Predecessor Companies recognized net realized investment earnings of the merchandise and service trusts and perpetual care trusts, as well as the related trustee investment expenses and taxes, within Other income, net. The Predecessor Companies then recognized a corresponding expense within Other income, net representing the net realized earnings of those trusts that are attributable to the non-controlling interest holders. The corresponding credit for this expense is reflected in the Predecessor Companies’ combined balance sheets in Deferred cemetery contract revenue for merchandise and service trusts or Non-controlling interest in perpetual care trusts for cemetery perpetual care trusts. The sum of these expenses recorded in Other income, net offset the net realized earnings of such trusts also recognized within Other income, net. Accordingly, the Predecessor Companies’ net income in the combined statements of operations is not affected by consolidation of the trusts in accordance with FIN 46R.

To the extent the earnings of the trusts are distributed prior to the delivery of merchandise and/or services, a corresponding amount of non-controlling interest is reclassified to deferred revenue until the corresponding revenues are recognized. In the case of merchandise and service trusts, the Predecessor Companies recognizes amounts previously attributed to non-controlling interests and deferred revenues as revenues upon the performance of services and delivery of merchandise, including earnings accumulated in these trusts. In the case of the cemetery perpetual care trusts, distributable earnings are recognized in cemetery revenues to the extent of qualifying cemetery maintenance costs.

Prior to the implementation of FIN 46R and the consolidation of the trusts, monies received from customers and deposited into merchandise and service trusts until maturity of the preneed contract were recorded as receivables due from trust assets. Upon implementation of FIN 46R, the Predecessor Companies replaced receivables due from merchandise trust assets with the trust assets, at market, to the extent the Predecessor Companies were required to consolidate the trusts.

An allowance for contract cancellation is provided based on historical experience. An allowance is no longer provided on the monies associated with the preneed contracts that are held in trust, currently recorded as trust assets, but previously recorded as receivables due from merchandise trust assets. As such, the amount has decreased since the implementation of FIN 46R.

Both the merchandise and services trusts and the cemetery perpetual care trusts hold investments in marketable securities that are classified as available-for-sale by the Predecessor Companies under the requirements of Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities” (“SFAS 115”). In accordance with SFAS 115, available-for-sale securities of the trusts are recorded at fair value, with unrealized gains and losses excluded from earnings and initially recorded as a component of Accumulated other comprehensive loss in the Predecessor Companies’ combined balance sheets. Using the guidance in EITF Topic D-41, “Adjustments in Assets and Liabilities for Holding Gains and Losses as Related to the Implementation of FASB Statement No. 115” (“Topic D-41”), unrealized gains and losses on available-for-sale securities of the trusts attributable to the non-controlling interest holders are not recorded as Accumulated other comprehensive income (loss), but are recorded as an adjustment to either Deferred cemetery contract revenue or Non-controlling interest in perpetual care trusts. Therefore, unrealized gains and losses attributable to the non-controlling interest holders are reclassified from Accumulated other comprehensive income (loss) to either Deferred cemetery contract revenue or Non-controlling interest in perpetual care trusts.

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Insurance Funded Preneed Funeral Contracts

Effective January 1, 2003, the Predecessor Companies have changed its method of accounting for insurance funded preneed contracts as the Predecessor Companies have concluded that its insurance funded preneed funeral contracts are not assets and liabilities as defined by Statement of Financial Accounting Concepts No. 6, “Elements in Financial Statements.” Therefore, the Predecessor Companies have removed from its combined balance sheet amounts relating to insurance funded preneed funeral contracts previously recorded in Preneed funeral receivables and trust investments and Deferred preneed funeral revenues, which at December 31, 2003, were $3,505,000. The removal of these amounts did not have an impact on the Predecessor Companies’ combined stockholder’s equity, results of operations or cash flows.

Use of Estimates - The preparation of combined financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the combined financial statements and the reported amounts of revenue and expense during the reporting period. As a result, actual results could differ from those estimates. The most significant estimates in the financial statements are the allowance for cancellations and the merchandise liability.

Segment Reporting and Related Information - The Predecessor Companies’ operations are product based and the reportable operating segments presented below include funeral and cemetery operations. The Predecessor Companies have reclassified certain prior period amounts to conform to the current period presentation with no effect on previously reported results of operations, financial condition or cash flows.

In 2002, the Predecessor Companies changed its allocation methodology of overhead costs in North America to be based on funeral and cemetery reporting unit revenues. The change in overhead allocation has not impacted the Predecessor Companies’ combined results of operations, financial position or cash flows.

Disclosure of Reported Segment Revenue:

	Year Ended December 31,
	2004		2003		2002
			(in thousands)
Revenues:
Cemetery pre-need and at-need	$	8,764	$	7,332	$	8,166
Service and other		206		215		954
Investment income from trust funds and receivables		1,048		928		1,189
Perpetual care		84		140		150
Funeral revenues		3,714		3,576		2,996
Total Revenues	$	13,816	$	12,191	$	13,455

2. PREARRANGED SERVICES AND MERCHANDISE TRUST FUNDS

Cemetery

Pre-need sales of cemetery interment rights are recorded as revenue when 10% of the purchase price is received from the customer and the property is developed and ready for burial. Pre-need sales of cemetery merchandise are deferred until the merchandise is delivered or the services are performed. In connection with the sale, the customer borrows the funds from the seller. The financing arrangement is usually for a period not to exceed 60 months with payments required. Interest is imputed at a market rate for contracts that do not bear a market rate of interest at rates ranging from 7% to 11%. An allowance for cancellations and refunds is provided at the date of sale based on historic experience and management’s estimates. The allowance is reviewed quarterly and changes in estimates are reflected for current and prior contracts as a result of recent cancellation experience. Actual cancellation rates in the future may result in a change in estimate.

A portion of the proceeds from cemetery sales is generally required by law to be paid into perpetual or endowment care trust funds. Cemetery revenue is recorded net of the amount to be deposited into perpetual or endowment care trust funds. Earnings of perpetual or endowment care trust funds are used to defray the

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maintenance costs of cemeteries. Additionally, pursuant to various state and provincial laws, a portion of the proceeds from the sale of pre-need merchandise and services may also be required to be paid into trust funds which are recorded as non-current Investment in trust – cemetery in 2004 and Due from merchandise trusts in 2003 on the combined balance sheets.

Merchandise trust funds represent amounts deposited in accordance with state trusting laws with various financial institutions together with accrued earnings. The Predecessor Companies will receive the merchandise trust amounts when the merchandise is transferred to the customer or the interment services are performed. The funds deposited in trust, which are stated at estimated fair value, are summarized as follows:

	2003
	Cost		Market
	(in thousands)
Short-term investments	$	379	$	379
Common trust fund		6,075		6,894
Mutual funds - fixed income		2,776		2,815
Other		170		142
Intercompany receivable for under-funding		81		672
	$	9,481	$	10,902

At December 31, 2003, the Predecessor Companies had an intercompany receivable for the under-funding of the merchandise trust at year end. The under-funding of the trust was subsequently funded into the appropriate trust accounts during 2004.

At December 31, 2004 the cost and market value associated with the assets held in merchandise and service trust follows:

	Cost		Gross Unrealized Gains		Gross Unrealized Gains			Market
			(in thousands)
Short-term investment	$	561	$	—	$	—		$	561
Common trust fund		7,386		1,104		—			8,490
Mutual funds - Fixed income		2,786		—		(22	)		2,764
Other Equity		157		—		(33	)		124
Total	$	10,890	$	1,104	$	(55	)	$	11,939

An aging of unrealized losses on the Predecessor Companies’ investments in fixed maturities and equity securities at December 31, 2004 is presented below:

	Less than 12 months					12 Months or more					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(in thousands)
Mutual funds - fixed income	$	2,303	$	(12	)	$	461	$	(10	)	$	2,764	$	(22	)
Other equity		—		—			124		(33	)		124		(33	)
Total	$	2,303	$	(12	)	$	585	$	(43	)	$	2,888	$	(55	)

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The Predecessor Companies recognized income of approximately $567,000, $339,000 and $454,000 from the merchandise trust funds during 2004, 2003 and 2002, respectively, which is classified as cemetery revenue in the combined statements of operations.

Funeral - Prearranged funeral services provide for future funeral services generally determined by prices prevailing at the time that the contract is signed. The payments made under the contracts, in part, are placed in trust. The balance of these trusts totaled approximately $1,371,000 and $1,412,000 at December 31, 2004 and 2003, respectively, and is not included in the merchandise trust schedule above. Except for amounts not required to be trusted, which are used to defray initial costs of administration, no income is recognized until the performance of a contracted funeral. Trust fund principal amounts, together with trust fund investment earnings retained in trust, are deferred until the service is performed. The Predecessor Companies management believes that trust fund investment earnings exceed the increase in cost over time of providing the related services. Upon performance of the contracted funeral service, the Predecessor Companies recognize the trust fund principal amount together with the accumulated trust earnings as funeral revenues.

3. PERPETUAL TRUST FUNDS

At December 31, 2003, the perpetual care trusts (which are not reflected on the Predecessor Companies’ combined balance sheet at December 31, 2003) were composed of the following investment categories stated at estimated fair value:

	December 31, 2003
	(in thousands)
Short-term investments	$	315
Common trust fund		6,649
Fixed income		1,232
Mutual funds - equity		57
Mutual funds - fixed income		487
Other		370
	$	9,110

At March 31, 2004, in accordance with FIN 46R, the Predecessor Companies consolidated the perpetual care trusts. As a result, the Predecessor Companies now record the perpetual care trusts, at fair value, as trust investments.

At December 31, 2004 the cost and market value associated with the assets held in cemetery perpetual care trusts are as follows:

	Cost		Gross Unrealized Gains		Gross Unrealized Gains			Market
			(in thousands)
Short-term investment	$	266	$	—	$	—		$	266
Common trust fund		6,861		356		(9	)		7,208
Fixed income		1,272		45		—			1,317
Mutual funds - Fixed income		539		17		(3	)		553
Other Equity		413		—		(54	)		359
Total	$	9,351	$	418		(66	)	$	9,703

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An aging of unrealized losses on the Predecessor Companies’ investments in fixed maturities and equity securities at December 31, 2004 is presented below:

	Less than 12 months					12 Months or more					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
						(in thousands)
Mutual funds - fixed income	$	97	$	(3	)	$	—	$	—		$	97	$	(3	)
Common trust funds		4		—			586		(9	)		590		(9	)
Other equity		—		—			359		(54	)		359		(54	)
Total	$	101	$	(3	)	$	945	$	(63	)	$	1,046	$	(66	)

The Predecessor Companies report income received from the perpetual care trust funds net of expenses on the combined statements of operations.

4. CEMETERY PROPERTY

Cemetery property at December 31 consists of the following:

	Year Ended December 31,
	2004		2003
	(in thousands)
Developed land and lawn crypts	$	4,926	$	5,778
Undeveloped land		23,147		51,681
Mausoleums		1,556		1,830
Other		419		685
Total cemetery property	$	30,048	$	59,974

The Predecessor Companies recognized an impairment for long-lived assets in conjunction with the sale of the locations as reflected in Note 14. The impairment recorded for the year ended December 31, 2004 was $25,941,000 and was primarily offset against undeveloped land. In addition, one Predecessor Company sold excess undeveloped cemetery land during 2004 for a loss of $2,436,000 which is included in Other expenses on the combined statements of operations. The Predecessor Company received $358,000 and financed $1,074,000 of the purchase with semi-annual principal plus interest payments of $358,000. Current outstanding short-term note receivable related to this transaction is $716,000 at December 31, 2004.

5. LONG-TERM ACCOUNTS RECEIVABLE, NET OF ALLOWANCE

Accounts receivable at December 31, consist of the following:

	Year ended December 31,
	2004			2003
	(in thousands)
Customer receivables	$	6,850		$	8,268
Unearned finance income		(1,002	)		(1,227	)
Allowance for contract cancellations		(707	)		(848	)
		5,141			6,193
Less current portion, net of allowance		(2,406	)		(2,684	)
Long-term portion, net of allowance	$	2,735		$	3,509

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The activity in the allowance for contract cancellations is as follows:

	Year ended December 31,
	2004			2003
	(in thousands)
Balance, beginning of period	$	848		$	373
Acquired reserve		14			(12	)
Provisions for cancellation		(121	)		499
Charge-offs, net		(48	)		(49	)
Collections on charge-offs, net		14			37
Balance, end of period	$	707		$	848

6. PROPERTY AND EQUIPMENT

Major classes of property and equipment at December 31 are summarized as follows:

	Year ended December 31,
	2004			2003
	(in thousands)
Buildings and improvements	$	6,796		$	6,636
Furniture and equipment		1,641			1,650
Vehicles		126			126
		8,563			8,412
Less accumulated depreciation		(3,536	)		(3,268	)
Total	$	5,027		$	5,144

7. LONG-TERM DEBT

Long-term debt consists of notes payable related to non-competition agreements to former owners in conjunction with the acquisition of properties. The interest rate on the notes payable is 5% and the notes are unsecured. In connection with various acquisitions, SCI entered into non-competition agreements (covenants not to compete) with certain key management personnel of operations acquired. The Predecessor Companies’ payments under the agreements may be made at closing or over future periods and are expensed over the terms of the specific contracts. Amounts that are paid at closing are in other assets and intangibles, net on the combined balance sheets. At December 31, 2004, the agreements in place will result in future payments in the following approximate amounts:

	(in thousands)
2005	$	—
2006		1,322
2007		—
2008		—
2009		—
Thereafter		—
Total	$	1,322

The long-term debt was not assumed as part of the purchase of the Predecessor Companies.

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8. FAIR VALUE OF FINANCIAL INSTRUMENTS AND CREDIT RISK

Fair value of the Predecessor Companies’ financial instruments (long-term debt) at December 31, 2004 was approximately $1,240,000.

The fair value of the fixed rate long-term borrowings was estimated by discounting the future cash flows, including interest payments, using rates currently available for debt of similar terms and maturity, based on the Predecessor Companies’ credit standing and other market factors.

It is not practicable to estimate the fair value of receivables due on cemetery contracts or prearranged funeral contracts (other than cemetery merchandise trust funds and prearranged funeral trust funds, see Note 2) without incurring excessive costs because of the large number of individual contracts with varying terms.

There is no estimate of the fair value of the due to SCI payable since there is no stated maturity and interest rate.

The carrying values of the Predecessor Companies’ investments supporting merchandise trust funds and prearranged service contract approximate fair value because the investments are carried at quoted market values.

The Predecessor Companies grant credit in the normal course of business and the credit risk with respect to funeral, cemetery and prearranged funeral receivables due from customers is generally considered minimal because of the wide dispersion of the customers served. Procedures are in effect to monitor the creditworthiness of customers and bad debts have not been significant in relation to the volume of revenues.

Customer payments on prearranged funeral contracts that are placed in state regulated trusts or used to pay premiums on life insurance contracts issued by third party insurance companies generally do not subject the Predecessor Companies to collection risk.

9. COMMITMENTS AND CONTINGENCIES

Legal

The Predecessor Companies are parties to legal proceedings in the ordinary course of its business but management does not expect the outcome of any proceedings, individually or in the aggregate, to have a material adverse effect on the Predecessor Companies’ financial position, results of operations or liquidity.

Leases

At December 31, 2004, the Predecessor Companies were committed to operating lease payments for automobiles, equipment and office equipment under various operating leases with initial terms ranging from one to seven years and options to renew at varying terms. Rent expense under operating leases was approximately $228,000, $249,000 and $213,000 in 2004, 2003, and 2002, respectively. As of December 31, 2004, future minimum lease payments are as follows:

	(in thousands)
2005	$	168
2006		108
2007		80
2008		53
2009		23
Thereafter		11
Total	$	443

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10. DEFERRED CEMETERY REVENUES—NET

In accordance with SAB No. 104, the Predecessor Companies defer the revenues and all direct costs associated with the sale of pre-need cemetery merchandise and services until the merchandise is delivered or the services are performed. The Predecessor Companies also defer the costs to obtain new pre-need cemetery business as well as the investment earnings on the prearranged services and merchandise trusts.

At December 31, 2004 and December 31, 2003, deferred cemetery revenues, net, consisted of the following:

	Year ended December 31,
	2004			2003
	(in thousands)
Deferred cemetery revenue	$	29,407		$	29,413
Deferred merchandise trust revenue		2,327			1,769
Deferred pre-acquisition margin		4,593			4,891
Deferred merchandise costs		(8,395	)		(8,461	)
Deferred cost of good sold		(1,198	)		(1,440	)
Deferred selling and obtaining costs		(4,121	)		(3,856	)
Total	$	22,613		$	22,316

11. RETIREMENT PLANS

SCI has a defined contribution retirement plan covering substantially all United States employees. There are no required future contributions under this plan in respect to past service. Employer cost as it relates to this retirement plan was approximately $102,000, $131,000 and $29,000 in 2004, 2003, and 2002, respectively. The Predecessor Companies have a 401(k) Retirement Savings Plan for United States employees who may defer between 1% and 50% of their eligible wages. Certain IRS restrictions govern the maximum contribution. The Predecessor Companies match 75% of employee contributions for 0 – 5 years vested service, 110% for 6 – 10 years of vested service and 135% for 11 or more years of vested service to a maximum of 6% of employees’ eligible compensation which amounted to approximately $228,000, $249,000 and $213,000 in 2004, 2003, and 2002, respectively.

12. INCOME TAXES

The Predecessor Companies file a federal tax return on a consolidated basis with its parent, SCI. The deferred tax liability is recorded through the intercompany payable.

Income tax (benefit) consisted of the following:

	Year ended December 31,
	2004			2003			2002
				(in thousands)
Current
Federal	$	—		$	—		$	—
State and local		—			—			—
Total		—			—			—
Deferred
Federal		(9,471	)		(1,017	)		(1,324	)
State and local		(2,727	)		(292	)		(343	)
Total tax benefit	$	(12,198	)	$	(1,309	)	$	(1,667	)

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The differences between the U.S. federal statutory tax rate and the effective rate were as follows:

	Year ended December 31,
	2004			2003			2002
				(in thousands)
Computed tax benefit at the applicable federal statutory income tax rate	$	(10,475	)	$	(1,120	)	$	(2,995	)
State and local taxes, net		(1,723	)		(189	)		(223	)
Goodwill write-off		—			—			1,551
Income taxes (benefit)	$	(12,198	)	$	(1,309	)	$	(1,667	)

Deferred tax (assets) and liabilities result from the following:

	December 31
	2004			2003
	(in thousands)
Receivables	$	(1,447	)	$	(1,746	)
Cemetery property		8,582			20,014
Property, plant and equipment		206			565
Prearranged funeral home		(61	)		(68	)
Accrued liabilities		(249	)		(333	)
Names and reputations		(142	)		(172	)
Other		385			1,212
Net deferred tax liabilities	$	7,274		$	19,472

13. RELATED PARTY TRANSACTIONS

The Predecessor Companies’ financial statements include various SCI intercompany charges and allocations (see Note 1). The following are the significant intercompany items as of and for the years ended December 31, 2004, 2003 and 2002:

	Year ended December 31,
	2004			2003			2002
				(in thousands)
Due to SCI payable	$	14,852		$	14,729		$	11,990
Interest expense	$	70		$	70		$	70
Income taxes	$	(12,198	)	$	(1,309	)	$	(1,667	)

The Due to SCI payable has no stated maturity date or interest rate. The Predecessor Companies are allocated interest expense based on their pro-rated share of SCI’s debt expense. The Due to SCI payable was not assumed as part of the purchase of the Predecessor Companies.

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14. SUBSEQUENT EVENTS

Subsequent to the close of business on November 1, 2005, StoneMor completed its purchase of the funeral and cemetery properties referred to herein as the Predecessor Companies from Service Corporation International at a price of approximately $12,748,000. No intercompany payables or long term debt were assumed in the purchase of the Predecessor Companies. The accompanying combined financials statements are presented at Service Corporation International’s historical cost basis, net of impairment, and include the impact of the purchase of the Predecessor Companies by StoneMor as disclosed in Note 4. StoneMor paid $6,848,000 in cash and 280,952 StoneMor Limited Partner units, representing additional value of $5,900,000. In addition, StoneMor will assume the merchandise and service liabilities, as reflected on the accompanying balance sheets, associated with certain preneed bonded contracts related to the properties.

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EX-99.2

Exhibit 99.2

The Predecessor Companies of

Service Corporation International

(Formerly Known as Certain Wholly-Owned Subsidiaries

of Service Corporation International)

Combined Financial Statements for the Period Ended

October 31, 2005 and Report of Independent

Registered Public Accounting Firm

INDEX TO COMBINED FINANCIAL STATEMENTS	Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	1
COMBINED BALANCE SHEET AS OF OCTOBER 31, 2005	2
COMBINED STATEMENT OF INCOME FOR THE TEN MONTHS ENDED OCTOBER 31, 2005	3
COMBINED STATEMENT OF CHANGES IN STOCKHOLDER’S (DEFICIT) FOR THE TEN MONTHS ENDED OCTOBER 31, 2005	4
COMBINED STATEMENT OF CASH FLOWS FOR THE TEN MONTHS ENDED OCTOBER 31, 2005	5
NOTES TO COMBINED FINANCIAL STATEMENTS	6

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of StoneMor GP LLC and Unitholders of StoneMor Partners L.P.

Bristol, Pennsylvania

We have reviewed the accompanying combined balance sheet of the Predecessor Companies of Service Corporation International as of October 31, 2005 and the related combined statements of income, changes in stockholder’s (deficit) and cash flows for the ten months ended October 31, 2005. These combined financial statements are the responsibility of the Service Corporation International management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying interim combined financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 1 to the combined financial statements, the Predecessor Companies’ financial statements include certain intercompany charges from Service Corporation International. These combined financial statements are not representative of results that would have been attained if the Predecessor Companies had operated as a stand-alone entity.

HARPER & PEARSON COMPANY, P.C.

Houston, Texas

January 5, 2006

One Riverway • Suite 1000 • Houston, Texas 77056-1973 • 713.622.2310 • 713.622.5613 fax

harperpearson.com            

THE PREDECESSOR COMPANIES OF SERVICE CORPORATION INTERNATIONAL

COMBINED BALANCE SHEET

OCTOBER 31, 2005

(in thousands)

Assets
Cash and Cash Equivalents	$	3
Accounts Receivable, Net		2,151
Inventories		463
Total Current Assets		2,617
Long-term Accounts Receivable, Net		2,504
Investment in Trust - Funeral		1,146
Investment in Trust - Cemetery		12,245
Cemetery Property		30,140
Property, Plant and Equipment		4,879
Deferred Charges and Other Assets		1,141
Cemetery Perpetual Care Trusts		9,676
Total Assets	$	64,348
Liabilities and Stockholder’s (Deficit)
Accounts Payable	$	55
Accrued Liabilities		38
Total Current Liabilities		93
Long-Term Debt		1,322
Deferred Income Taxes		7,486
Deferred Prearranged Contract Revenue		1,069
Deferred Cemetery Contract Revenue		21,491
Accrued Merchandise Liability		8,388
Due to Service Corporation International		15,013
Total Liabilities		54,862
Non-Controlling Interest in Perpetual Care Trusts		9,676
Stockholder’s (Deficit)
Current Period Earnings		348
Stockholder’s (Deficit)		(538	)
Net Stockholder’s (Deficit)		(190	)
Total Liabilities & Stockholder’s (Deficit)	$	64,348

See Report of Independent Registered Public Accounting Firm and Accompanying Notes to the Financial Statements

2

THE PREDECESSOR COMPANIES OF SERVICE CORPORATION INTERNATIONAL

COMBINED STATEMENT OF INCOME

FOR THE TEN MONTHS ENDED OCTOBER 31, 2005

(in thousands)

REVENUES, NET:
Cemetery	$	9,143
Funeral		3,306
Total Revenues, net		12,449
COSTS AND EXPENSES:
Costs of Goods Sold:
Land and Crypts		270
Perpetual Care		226
Merchandise		1,036
Cemetery Expense		2,313
Selling Expense		1,225
General and Administrative Expense		2,201
Depreciation and Amortization		504
Funeral Home Expense		2,160
Total Cost and Expenses		9,935
OPERATING PROFIT		2,514
Interest Expense		55
Other Expense		1,899
Income before taxes		560
Provision for Income Taxes		212
NET INCOME	$	348

See Report of Independent Registered Public Accounting Firm and Accompanying Notes to the Financial Statements

3

THE PREDECESSOR COMPANIES OF SERVICE CORPORATION INTERNATIONAL

COMBINED STATEMENT OF CHANGES IN STOCKHOLDER’S (DEFICIT)

FOR THE TEN MONTHS ENDED OCTOBER 31, 2005

(in thousands)

	Capital		Retained (Deficit)			Total Stockholder’s (Deficit)
BALANCE, JANUARY 1, 2005	$	794	$	(1,332	)	$	(538	)
Net Income		—		348			348
BALANCE, OCTOBER 31, 2005	$	794	$	(984	)	$	(190	)

See Report of Independent Registered Public Accounting Firm and Accompanying Notes to the Financial Statements

4

THE PREDECESSOR COMPANIES OF SERVICE CORPORATION INTERNATIONAL

COMBINED STATEMENT OF CASH FLOWS

FOR THE TEN MONTHS ENDED OCTOBER 31, 2005

(in thousands)

OPERATING ACTIVITIES:
Net Income	$	348
Adjustments to Reconcile Net Income to Net Cash Used by Operating Activities
Cost of Lots Sold		38
Depreciation and Amortization		504
Deferred Income Tax		212
Changes in Assets and Liabilities
Accounts Receivable, Net		486
Merchandise Trust Fund		(81	)
Other Current Assets		(34	)
Other Assets		(353	)
Accounts Payable and Accrued and Other Liabilities		(360	)
Deferred Cemetery Revenue		(1,231	)
Merchandise Liability		(49	)
Net Cash Used by Operating Activities		(520	)
INVESTING ACTIVITIES:
Capital Expenditures		(209	)
Cash Received from Note Receivable		716
Net Cash Provided by Investing Activities		507
Net decrease in cash and cash equivalents		(13	)
Cash and cash equivalents - beginning of period		16
Cash and cash equivalents - end of period	$	3
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest	$	55

See Report of Independent Registered Public Accounting Firm and Accompanying Notes to the Financial Statements

5

THE PREDECESSOR COMPANIES OF SERVICE CORPORATION INTERNATIONAL

(Formerly Known as Certain Wholly-Owned Subsidiaries of

Service Corporation International)

NOTES TO COMBINED FINANCIAL STATEMENTS

OCTOBER 31, 2005

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

Nature of Operations and Basis of Presentation - The accompanying financial statements present the combined financial position, results of operations, changes in stockholder’s (deficit) and cash flows of the Predecessor Companies, formerly known as certain wholly-owned subsidiaries of Service Corporation International (Predecessor Companies). These financial statements include the accounts of 21 cemeteries and 6 funeral homes purchased by the StoneMor Partners LP (StoneMor) from Service Corporation International (SCI) on November 1, 2005 for $12.9 million. The combined financial statements of the Predecessor Companies owned and managed by SCI contained herein reflect the financial position at October 31, 2005 and changes in stockholder’s (deficit), the results of their operations and cash flows for the 10 months ended October 31, 2005 of the Predecessor Companies using SCI’s historical cost basis of accounting for such Predecessor Companies.

Prior to 2005, SCI consummated acquisitions of cemeteries that became part of the Predecessor Companies. All of these SCI acquisitions were accounted for under the purchase method of accounting, and the purchase prices, including transaction costs, were allocated to the assets based upon their respective fair values as determined as of the purchase dates.

The Predecessor Companies were wholly owned subsidiaries of SCI and operated as separate legal entities. The Predecessor Companies’ combined financial statements include SCI intercompany charges and allocations. The intercompany charges were usually allocated based on gross revenues of the separate entities. SCI allocated corporate charges such as interest, income taxes and management fees to all of the cemeteries and funeral homes it owned which included the Predecessor Companies acquired by StoneMor. These combined financial statements are not representative of results that would have been attained if the Predecessor Companies had operated as stand-alone entities under StoneMor management.

The Predecessor Companies are providers of death care services in the United States. At October 31, 2005, the Predecessor Companies operated 21 cemeteries and 6 funeral service locations located in Pennsylvania, Georgia, North Carolina and Alabama.

The cemetery operations and funeral service locations consist of the Predecessor Companies cemeteries, funeral homes and related businesses. The Predecessor Companies personnel at the funeral service locations provide all professional services relating to funerals, including the use of funeral facilities and motor vehicles. Funeral related merchandise is sold at each funeral service location and certain funeral service locations contain crematoria. The Predecessor Companies sell prearranged funeral services whereby a customer contractually agrees to the terms of a funeral to be performed in the future. The Predecessor Companies’ cemeteries provide cemetery interment rights (including lots, mausoleum spaces and lawn crypts) and sell cemetery-related merchandise. Cemetery items are sold on an at need or pre-need basis. The Predecessor Companies personnel at cemeteries perform interment services and provide management and maintenance of cemetery grounds. Two funeral service locations are connected with a Predecessor Company-owned cemetery.

Common Stock - The Predecessor Companies have authorized 53,000 shares of common stock at $1 par value per share. All common stock shares are issued and outstanding. The outstanding stock is held at the location level and pertains to only four locations.

Summary of Significant Accounting Policies - Significant accounting policies followed by the Predecessor Companies, as summarized below, are in conformity with generally accepted accounting principles in the United States.

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Principles of Combination - The combined financial statements include the accounts of the Predecessor Companies. Material intercompany balances and transactions between the Predecessor Companies have been eliminated in combination.

Cemetery Operations - Revenue associated with sales of cemetery merchandise and services is recognized when the service is performed or merchandise is delivered. The Predecessor Companies’ cemetery trade receivables consist of amounts due for services already performed and merchandise already delivered. An allowance for doubtful accounts has been provided based on historical experience. Revenue associated with sales of preneed cemetery interment rights is recognized in accordance with the retail land sales provisions of SFAS No. 66, “Accounting for the Sales of Real Estate” (SFAS 66). Under SFAS 66, revenue from constructed cemetery property is not recognized until a minimum percentage (10%) of the sales price has been collected. Revenue related to the preneed sale of unconstructed cemetery property is deferred until it is constructed and 10% of the sales price is collected. Revenue associated with sales of preneed merchandise and services is not recognized until the merchandise is delivered or the services are performed. Allowances for customer cancellations for preneed cemetery contracts are based upon historical experience.

Costs related to the sale of property interment rights include the property and development costs specifically identified by project. At the completion of the project, costs are charged to operations as revenue is recognized. Costs related to sales of merchandise and services are based on actual costs incurred.

Pursuant to state or provincial law, all or a portion of the proceeds from cemetery merchandise or services sold on a preneed basis may be required to be paid into trust funds. The Predecessor Company defers investment earnings related to these merchandise and services trusts until the associated merchandise is delivered or services are performed.

Additionally, a portion of the proceeds from the sale of cemetery property is required by state law to be paid into perpetual care trust funds. Earnings from these trusts are recognized in current cemetery revenues and are intended to defray cemetery maintenance costs, which are expensed as incurred. Perpetual care funds trusted at October 31, 2005 were approximately $9,676,000, which approximates fair value (see Note 3). The principal of such perpetual care trust funds generally cannot be withdrawn by the Predecessor Companies. Prior to the adoption of FIN46R by the Predecessor Companies in 2004, the perpetual care trusts were not included in the combined balance sheets. Pursuant to state law, a portion of the proceeds from the sale of pre-need merchandise and services may also be required to be paid into trust funds, which are recorded as non-current merchandise trust funds on the combined balance sheets.

Prearranged Funeral Services - Revenue is recognized when the funeral services are performed and funeral merchandise is delivered. The Predecessor Companies’ funeral trade receivables consist of amounts due for services already performed and merchandise delivered. An allowance for doubtful accounts has been provided based on historical experience. The Predecessor Companies sell price guaranteed preneed funeral contracts through various programs providing for future funeral services at prices prevailing when the agreements are signed. Revenues associated with sales of preneed funeral contracts, which include accumulated trust earnings, are deferred until such time that the funeral services are performed. Allowances for customer cancellations are based upon historical experience. See Note 2 to the combined financial statements regarding prearranged funeral activities.

Pursuant to state or provincial law, all or a portion of the proceeds from funeral merchandise or services sold on a preneed basis may be required to be paid into trust funds. The Predecessor Companies defer investment earnings related to these merchandise and services trusts until the associated merchandise is delivered or services are performed.

Cash and Cash Equivalents - The Predecessor Companies consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Concentration of Credit Risk - The Predecessor Companies revenues and accounts receivable relate primarily to the sale of products and services to a customer base that is largely concentrated in the states where the Predecessor Companies have service locations. Credit is extended based on an evaluation of the customers’ financial condition and collateral is not required. Provision for uncollectible accounts and reserve for cancellations are provided for in the financial statements based on historical experience and the Predecessor Companies’ management judgment. A significant portion of accounts receivable are due from customers in the four states served by the Predecessor Companies.

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Inventories - Inventories include funeral and cemetery merchandise and are stated at the lower of average cost or market. Inventory costs are primarily relieved using specific identification.

Cemetery Property - Cemetery property consists of developed and undeveloped cemetery property and mausoleums and is valued at cost less the average cost of lots sold, which is not in excess of market value. Amounts are expensed to cost of goods sold as sales of cemetery plots occur.

Property and Equipment - Property and equipment is recorded at cost and depreciated on a straight-line basis. Maintenance and repairs are charged to expense as incurred, whereas renewals and major replacements are capitalized and depreciation is recorded over the estimated useful lives of the assets as follows:

Buildings and improvements	10 to 40 years
Furniture and equipment	6 to 10 years
Leasehold improvements	over the term of the lease

For the 10 months ended October 31, 2005, depreciation expense was $357,000.

Names and Reputations - The amount paid for the names and reputations of funeral homes acquired is equivalent to the excess of the purchase price over the fair value of identifiable net assets acquired, as determined by management.

Covenants not to compete are included with names and reputations and are recorded under Other assets and intangibles, net on the combined balance sheets, representing amounts capitalized for non-competition agreements with certain key management personnel of acquired operations. Amortization of such prepaid covenants not to compete is provided on a straight-line basis over the terms of the relevant agreements, typically ten years.

Impairment of Long-lived Assets - The Predecessor Companies monitor the recoverability of long-lived assets, including cemetery properties, property and equipment, names and reputations and other assets, based on estimates using factors such as current market value, future asset utilization, business climate and future undiscounted cash flows expected to result from the use of the related assets. The Predecessor Companies’ policy is to record an impairment loss in the period when it is determined that the carrying amount of the asset may not be recoverable and the sum of future undiscounted cash flows is less than the carrying value of the asset. As part of the sale of the properties, the Predecessor Companies recognized an impairment of long lived assets in the amount of $25,941,000 for the year ended December 31, 2004 based on the acquisition price of the properties. See Note 14 for additional information pertaining to the sale of the Predecessor Companies.

Deferred Income Taxes - The Predecessor Companies follow the allocation method for accounting for income taxes. Under this method, recognition is given in the financial statements to the tax effects of timing differences between income for financial statement and income tax purposes. The differences arise primarily from receivables, purchase accounting adjustments and depreciation.

New Accounting Pronouncements

Other Than Temporary Impairments

In March 2004, the Financial Accounting Standards Board (“FASB”) reached consensus on the guidance provided by Emerging Issues Task Force Issue 03-1 (“EITF 03-1”), “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.” The guidance is applicable to debt and equity securities that are within the scope of FASB Statement of Financial Accounting Standard (“SFAS”) No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” EITF 03-1 specifies that an impairment would be considered other-than-temporary unless (a) the investor has the ability and intent to hold an investment for a reasonable period of time sufficient for the recovery of the fair value up to (or beyond) the cost of the investment and (b) evidence indicating the cost of the investment is recoverable within a reasonable period of time outweighs evidence to the contrary. EITF 03-1 was scheduled to be effective for reporting periods ending after June 15, 2004. The measurement and recognition provisions relating to debt and equity securities have been delayed until the FASB issues additional guidance. The Predecessor Companies adopted the disclosure provisions of EITF 03-1 during the period ended June 30, 2004. The adoption of the measurement and

8

recognition provisions are not expected to have a material impact on the combined financial statements, results of operations, financial position, or cash flows of the Predecessor Companies.

Inventory Costs

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs – an amendment of ARB 43, Chapter 4” (SFAS 151). SFAS 151 amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material. SFAS 151 requires that those items be recognized as current-period charges, rather than as a portion of the inventory cost. In addition, SFAS 151 requires the allocation of fixed production overhead to the costs of conversion be based on the normal capacity of the production facilities. SFAS 151 will be effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Management does not expect this statement to have a material impact on the Predecessor Companies’ combined financial statements, results of operations, financial position, or cash flows.

Tax

In December 2004, the FASB issued Staff Position No. FAS 109-1 “Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities provided by the American Jobs Creation Act of 2004” (FAS 109-1). The American Jobs Creation Act of 2004, enacted on October 22, 2004, provides for a deduction for certain qualified production activities. FAS 109-1 provides guidance for the application of FASB Statement No. 109, Accounting for Income Taxes, to the deduction for certain qualified production activities, and was effective immediately upon issuance. The Predecessor Companies do not believe that the adoption of FAS 109-1 will have a significant impact on its combined financial statements, results of operations, financial position, or cash flows.

Variable Interest Entities

In January 2003, the FASB issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin (ARB) No. 51.” This interpretation clarifies the application of ARB No. 51, “Consolidated Financial Statements,” to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. In December 2003, the FASB revised FASB Interpretation No. 46 (FIN 46R).

Under the provisions of FIN 46R, the Predecessor Companies are required to consolidate certain cemeteries and trust assets. Merchandise and service trusts and cemetery perpetual care trusts are considered variable interest entities because the trusts meet the conditions of paragraphs 5(a) and 5(b)(l) of FIN 46R. That is, as a group, the equity investors (if any) do not have sufficient equity at risk and do not have the direct or indirect ability through voting or similar rights to make decisions about the trusts’ activities that have a significant effect on the success of the trusts. FIN 46R requires the Predecessor Companies to consolidate merchandise and service trusts and cemetery perpetual care trusts for which the Predecessor Companies are the primary beneficiary (i.e., those for which the Predecessor Companies absorbs a majority of the trusts’ expected losses). The Predecessor Companies are the primary beneficiary of a trust whenever a majority of the assets of the trust are attributable to deposits of customers of the Predecessor Companies.

Consolidation of Trusts: The Predecessor Companies implemented FIN 46R as of March 31, 2004, which resulted in the consolidation of the Predecessor Companies’ preneed funeral and cemetery merchandise and service trust assets and the Predecessor Companies’ cemetery perpetual care trusts. No cumulative effect of an accounting change was recognized by the Predecessor Companies as a result of the implementation of FIN 46R as it relates to the consolidation of the trusts. The implementation of FIN 46R affects certain line items on the Predecessor Companies’ combined balance sheets and statements of operations as described below; however, there is no impact to net income in the statement of operations as a result of the implementation. Additionally, the implementation of FIN 46R did not result in any net changes to the Predecessor Companies’ combined statements of cash flows; however, it does require certain financing and investing activities to be disclosed. See Notes 2 and 3 to the combined financial statements.

Although FIN 46R requires consolidation of most of the merchandise and service and perpetual care trusts, it does not change the legal relationships among the trusts, the Predecessor Companies and its customers. In the case of merchandise and service trusts, the customers are the legal beneficiaries. In the case of cemetery perpetual care trusts, the Predecessor Companies do not have a legal right to the perpetual care trust assets. For

9

these reasons, upon consolidation of the trusts, the Predecessor Companies recognizes non-controlling interests in its financial statements to reflect third party interests in these trusts in accordance with FASB Statement No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liability and Equity” (SFAS 150). The Predecessor Companies classify deposits to merchandise and service trusts as non-controlling liability interests and classify deposits to cemetery perpetual care trusts as non-controlling equity interests.

The Predecessor Companies record cash received from customers, that is payable to the trusts but not yet required to be deposited in the trusts, as restricted cash in Deferred charges and other assets in its combined balance sheets. The Predecessor Companies continue to account for amounts received from customers prior to delivery of merchandise or services that are not required to be deposited in merchandise and service trusts as deferred revenue.

Beginning March 31, 2004, the Predecessor Companies recognized net realized investment earnings of the merchandise and service trusts and perpetual care trusts, as well as the related trustee investment expenses and taxes, within Other income, net. The Predecessor Companies then recognized a corresponding expense within Other income, net representing the net realized earnings of those trusts that are attributable to the non-controlling interest holders. The corresponding credit for this expense is reflected in the Predecessor Companies’ combined balance sheets in Deferred Cemetery Contract Revenue for merchandise and service trusts or Non-controlling interest in perpetual care trusts for cemetery perpetual care trusts. The sum of these expenses recorded in Other income, net offset the net realized earnings of such trusts also recognized within Other income, net. Accordingly, the Predecessor Companies’ net income in the combined statements of operations is not affected by consolidation of the trusts in accordance with FIN 46R.

To the extent the earnings of the trusts are distributed prior to the delivery of merchandise and/or services, a corresponding amount of non-controlling interest is reclassified to deferred revenue until the corresponding revenues are recognized. In the case of merchandise and service trusts, the Predecessor Companies recognizes amounts previously attributed to non-controlling interests and deferred revenues as revenues upon the performance of services and delivery of merchandise, including earnings accumulated in these trusts. In the case of the cemetery perpetual care trusts, distributable earnings are recognized in cemetery revenues to the extent of qualifying cemetery maintenance costs.

Prior to the implementation of FIN 46R and the consolidation of the trusts, monies received from customers and deposited into merchandise and service trusts until maturity of the preneed contract were recorded as receivables due from merchandise trust assets. Upon implementation of FIN 46R, the Predecessor Companies replaced receivables due from merchandise trust assets with the trust assets, at market, to the extent the Predecessor Companies were required to consolidate the trusts.

An allowance for contract cancellation is provided based on historical experience. An allowance is no longer provided on the monies associated with the preneed contracts that are held in trust, currently recorded as trust assets, but previously recorded as receivables due from trust assets. As such, the amount has decreased since the implementation of FIN 46R.

Both the merchandise and services trusts and the cemetery perpetual care trusts hold investments in marketable securities that are classified as available-for-sale by the Predecessor Companies under the requirements of Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities” (“SFAS 115”). In accordance with SFAS 115, available-for-sale securities of the trusts are recorded at fair value, with unrealized gains and losses excluded from earnings and initially recorded as a component of Accumulated other comprehensive loss in the Predecessor Companies’ combined balance sheets. Using the guidance in EITF Topic D-41, “Adjustments in Assets and Liabilities for Holding Gains and Losses as Related to the Implementation of FASB Statement No. 115” (“Topic D-41”), unrealized gains and losses on available-for-sale securities of the trusts attributable to the non-controlling interest holders are not recorded as Accumulated other comprehensive income (loss), but are recorded as an adjustment to either Deferred cemetery contract revenue or Non-controlling interest in perpetual care trusts. Therefore, unrealized gains and losses attributable to the non-controlling interest holders are reclassified from Accumulated other comprehensive income (loss) to either Deferred cemetery contract revenue or Non-controlling interest in perpetual care trusts.

10

Insurance Funded Preneed Funeral Contracts

Effective January 1, 2003, the Predecessor Companies have changed its method of accounting for insurance funded preneed contracts as the Predecessor Companies have concluded that its insurance funded preneed funeral contracts are not assets and liabilities as defined by Statement of Financial Accounting Concepts No. 6, “Elements in Financial Statements.” Therefore, the Predecessor Companies have removed from its combined balance sheet amounts relating to insurance funded preneed funeral contracts previously recorded in Preneed funeral receivables and trust investments and Deferred preneed funeral revenues, which at December 31, 2003, were $3,505,000. The removal of these amounts did not have an impact on the Predecessor Companies’ combined stockholder’s equity, results of operations or cash flows.

Use of Estimates - The preparation of combined financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the combined financial statements and the reported amounts of revenue and expense during the reporting period. As a result, actual results could differ from those estimates. The most significant estimates in the financial statements are the allowance for cancellations and the merchandise liability.

Segment Reporting and Related Information - The Predecessor Companies’ operations are product based and the reportable operating segments presented below include funeral and cemetery operations.

In 2002, the Predecessor Companies changed its allocation methodology of overhead costs in North America to be based on funeral and cemetery reporting unit revenues. The change in overhead allocation has not impacted the Predecessor Companies’ combined results of operations, financial position or cash flows.

Disclosure of Reported Segment Revenue for the ten months ended October 31, 2005:

	(in thousands)
Revenues:
Cemetery pre-need and at-need	$	8,003
Service and other		161
Investment income from trust funds and receivables		753
Perpetual care		226
Funeral revenues		3,306
Total Revenues	$	12,449

2. PREARRANGED SERVICES AND MERCHANDISE TRUST FUNDS

Cemetery

Pre-need sales of cemetery interment rights are recorded as revenue when 10% of the purchase price is received from the customer and the property is developed and ready for burial. Pre-need sales of cemetery merchandise are deferred until the merchandise is delivered or the services are performed. In connection with the sale, the customer borrows the funds from the seller. The financing arrangement is usually for a period not to exceed 60 months with payments required. Interest is imputed at a market rate for contracts that do not bear a market rate of interest at rates ranging from 7% to 11%. An allowance for cancellations and refunds is provided at the date of sale based on historic experience and management’s estimates. The allowance is reviewed quarterly and changes in estimates are reflected for current and prior contracts as a result of recent cancellation experience. Actual cancellation rates in the future may result in a change in estimate.

A portion of the proceeds from cemetery sales is generally required by law to be paid into perpetual or endowment care trust funds. Cemetery revenue is recorded net of the amount to be deposited into perpetual or endowment care trust funds. Earnings of perpetual or endowment care trust funds are used to defray the maintenance costs of cemeteries. Additionally, pursuant to various state and provincial laws, a portion of the proceeds from the sale of pre-need merchandise and services may also be required to be paid into trust funds which are recorded as non-current Investment in Trust – Cemetery.

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Merchandise trust funds represent amounts deposited in accordance with state trusting laws with various financial institutions together with accrued earnings. The Predecessor Companies will receive the merchandise trust amounts when the merchandise is transferred to the customer or the interment services are performed.

At October 31, 2005 the cost and market value associated with the assets held in merchandise and service trust follows:

	Cost		Gross Unrealized Gains		Gross Unrealized Gains		Market
			(in thousands)
Short-term investment	$	12,245	$	—	$	—	$	12,245

The Predecessor Companies recognized income of approximately $419,000 from the merchandise trust funds during the 10 months ended October 31, 2005 which is classified as cemetery revenue in the combined statements of operations.

Funeral - Prearranged funeral services provide for future funeral services generally determined by prices prevailing at the time that the contract is signed. The payments made under the contracts, in part, are placed in trust. The balance of these trusts totaled approximately $1,146,000 at October 31, 2005 and is not included in the merchandise trust schedule above. Except for amounts not required to be trusted, which are used to defray initial costs of administration, no income is recognized until the performance of a contracted funeral. Trust fund principal amounts, together with trust fund investment earnings retained in trust, are deferred until the service is performed. The Predecessor Companies management believes that trust fund investment earnings exceed the increase in cost over time of providing the related services. Upon performance of the contracted funeral service, the Predecessor Companies recognize the trust fund principal amount together with the accumulated trust earnings as funeral revenues.

3. PERPETUAL TRUST FUNDS

At March 31, 2004, in accordance with FIN 46R, the Predecessor Companies consolidated the perpetual care trusts. As a result, the Predecessor Companies now record the perpetual care trusts, at fair value, as trust investments.

At October 31, 2005, the cost and market value associated with the assets held in cemetery perpetual care trusts are as follows:

	Cost		Gross Unrealized Gains		Gross Unrealized Gains			Market
			(in thousands)
Short-term investment	$	7,967	$	—	$	—		$	7,967
Common trust fund		25		—		—			25
Fixed income		1,120		1		—			1,121
Mutual funds - Fixed income		115		4		—			119
Other Equity		447		—		(3	)		444
Total	$	9,674	$	5	$	(3	)	$	9,676

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An aging of unrealized losses on the Predecessor Companies’ investments in fixed maturities and equity securities at October 31, 2005 is presented below:

	Less than 12 months					12 Months or more				Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
						(in thousands)
Other equity		444		(3	)		—		—		444		(3	)
Total	$	444	$	(3	)	$	—	$	—	$	444	$	(3	)

The Predecessor Companies report income received from the perpetual care trust funds net of expenses on the combined statement of operations.

4. CEMETERY PROPERTY

Cemetery property at October 31, 2005 consists of the following:

	(in thousands)
Developed land and lawn crypts	$	4,664
Undeveloped land		23,140
Mausoleums		1,700
Other		636
Total cemetery property	$	30,140

5. LONG-TERM ACCOUNTS RECEIVABLE, NET OF ALLOWANCE

Accounts receivable at October 31, 2005, consist of the following:

	(in thousands)
Customer receivables	$	6,097
Unearned finance income		(883	)
Allowance for contract cancellations		(559	)
		4,655
Less current portion, net of allowance		(2,151	)
Long-term portion, net of allowance	$	2,504

The activity in the allowance for contract cancellations is as follows:

	(in thousands)
Balance, beginning of period	$	707
Acquired reserve		—
Provisions for cancellation		(50	)
Charge-offs, net		(417	)
Collections on charge-offs, net		319
Balance, end of period	$	559

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6. PROPERTY AND EQUIPMENT

Major classes of property and equipment at October 31, 2005 are summarized as follows:

	(in thousands)
Buildings and improvements	$	6,889
Furniture and equipment		1,736
Vehicles		110
		8,735
Less accumulated depreciation		(3,856	)
Total	$	4,879

7. LONG-TERM DEBT

Long-term debt consists of notes payable related to non-competition agreements to former owners in conjunction with the acquisition of properties. The interest rate on the notes payable is 5% and the notes are unsecured. In connection with various acquisitions, SCI entered into non-competition agreements (covenants not to compete) with certain key management personnel of operations acquired. The Predecessor Companies’ payments under the agreements may be made at closing or over future periods and are expensed over the terms of the specific contracts. Amounts that are paid at closing are in other assets and intangibles, net on the combined balance sheets. At October 31, 2005, the agreements in place will result in future payments in the following approximate amounts:

	(in thousands)
2005	$	—
2006		1,322
2007		—
2008		—
2009		—
Thereafter		—
Total	$	1,322

The long-term debt was not assumed as part of the purchase of the Predecessor Companies.

8. FAIR VALUE OF FINANCIAL INSTRUMENTS AND CREDIT RISK

Fair value of the Predecessor Companies’ financial instruments (long-term debt) at October 31, 2005 was approximately $1,274,000.

The fair value of the fixed rate long-term borrowings was estimated by discounting the future cash flows, including interest payments, using rates currently available for debt of similar terms and maturity, based on the Predecessor Companies’ credit standing and other market factors.

It is not practicable to estimate the fair value of receivables due on cemetery contracts or prearranged funeral contracts (other than cemetery merchandise trust funds and prearranged funeral trust funds, see Note 2) without incurring excessive costs because of the large number of individual contracts with varying terms.

There is no estimate of the fair value of the due to SCI payable since there is no stated maturity and interest rate.

The carrying values of the Predecessor Companies’ investments supporting merchandise trust funds and prearranged service contract approximate fair value because the investments are carried at quoted market values.

14

The Predecessor Companies grant credit in the normal course of business and the credit risk with respect to funeral, cemetery and prearranged funeral receivables due from customers is generally considered minimal because of the wide dispersion of the customers served. Procedures are in effect to monitor the creditworthiness of customers and bad debts have not been significant in relation to the volume of revenues.

Customer payments on prearranged funeral contracts that are placed in state regulated trusts or used to pay premiums on life insurance contracts issued by third party insurance companies generally do not subject the Predecessor Companies to collection risk.

9. COMMITMENTS AND CONTINGENCIES

Legal

The Predecessor Companies are parties to legal proceedings in the ordinary course of its business but management does not expect the outcome of any proceedings, individually or in the aggregate, to have a material adverse effect on the Predecessor Companies’ financial position, results of operations or liquidity.

Leases

At October 31, 2005, the Predecessor Companies were committed to operating lease payments for automobiles, equipment and office equipment under various operating leases with initial terms ranging from one to seven years and options to renew at varying terms. Rent expense under operating leases was approximately $165,000 for the 10 months ended October 31, 2005. As of October 31, 2005, future minimum annual lease payments are as follows with the exception for 2005 which represents the remaining two months of the year:

	(in thousands)
2005 (Two months)	$	27
2006		108
2007		80
2008		53
2009		23
Thereafter		11
Total	$	302

10. DEFERRED CEMETERY REVENUES-NET

In accordance with SAB No. 104, the Predecessor Companies defer the revenues and all direct costs associated with the sale of pre-need cemetery merchandise and services until the merchandise is delivered or the services are performed. The Predecessor Companies also defer the costs to obtain new pre-need cemetery business as well as the investment earnings on the prearranged services and merchandise trusts.

At October 31, 2005, deferred cemetery revenues, net, consisted of the following:

	(in thousands)
Deferred cemetery revenue	$	28,880
Deferred merchandise trust revenue		2,863
Deferred pre-acquisition margin		4,420
Deferred merchandise costs		(8,388	)
Deferred cost of good sold		(1,325	)
Deferred selling and obtaining costs		(4,959	)
Total	$	21,491

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11. RETIREMENT PLANS

SCI has a defined contribution retirement plan covering substantially all United States employees. There are no required future contributions under this plan in respect to past service. Employer cost as it relates to this retirement plan was approximately $35,000 in 2005. The Predecessor Companies have a 401(k) Retirement Savings Plan for United States employees who may defer between 1% and 50% of their eligible wages. Certain IRS restrictions govern the maximum contribution. The Predecessor Companies match 75% of employee contributions for 0 – 5 years vested service, 110% for 6 – 10 years of vested service and 135% for 11 or more years of vested service to a maximum of 6% of employees’ eligible compensation which amounted to approximately $107,000 for the 10 months ended October 31, 2005.

12. INCOME TAXES

The Predecessor Companies file a federal tax return on a consolidated basis with its parent, SCI. The deferred tax liability is recorded through the intercompany payable.

Income tax expense consisted of the following for the ten months ended October 31, 2005:

	(in thousands)
Current
Federal	$	—
State and local		—
Total		—
Deferred
Federal		196
State and local		16
Total tax expense	$	212

The differences between the U.S. federal statutory tax rate and the effective rate were as follows for the ten months ended October 31, 2005:

	(in thousands)
Computed tax provision at the applicable federal statutory income tax rate	$	187
State and local taxes, net		25
Income tax expense	$	212

Deferred tax (assets) and liabilities at October 31, 2005:

	(in thousands)
Receivables	$	(1,447	)
Cemetery property		8,759
Property, plant and equipment		206
Prearranged funeral home		(61	)
Accrued liabilities		(249	)
Names and reputations		(142	)
Other		420
Net deferred tax liabilities	$	7,486

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13. RELATED PARTY TRANSACTIONS

The Predecessor Companies’ financial statements include various SCI intercompany charges and allocations (see Note 1). The following are the significant intercompany items as of and for the ten months ended October 31, 2005.

	(in thousands)
Due to SCI payable	$	15,013
Interest expense	$	55
Income taxes	$	212

The Due to SCI payable has no stated maturity date or interest rate. The Predecessor Companies are allocated interest expense based on their pro-rated share of SCI’s debt expense. The Due to SCI payable was not assumed as part of the purchase of the Predecessor Companies.

14. SUBSEQUENT EVENTS

Subsequent to the close of business on November 1, 2005, StoneMor completed its purchase of the funeral and cemetery properties referred to herein as the Predecessor Companies from Service Corporation International at a price of approximately $12,748,000. No intercompany payables or long term debt were assumed in the purchase of the Predecessor Companies. The accompanying combined financial statements are presented at Service Corporation International’s historical cost basis, net of impairment. StoneMor paid $6,848,000 in cash and 280,952 StoneMor Limited Partner units, representing additional value of $5,900,000. In addition, StoneMor will assume the merchandise and service liabilities associated with certain preneed bonded contracts related to the properties.

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EX-99.3

Exhibit 99.3

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

TABLE OF CONTENTS

	Page No.
Basis of Presentation	1
Unaudited Pro Forma Condensed Combined Balance Sheet as of September 30, 2005	3
Unaudited Pro Forma Condensed Combined Statement of Operations for the Year Ended December 31, 2004	4
Unaudited Pro Forma Condensed Combined Statement of Operations for the Period Ended September 30, 2005	5
Notes to Unaudited Pro Forma Condensed Combined Financial Information	6

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

BASIS OF PRESENTATION

The following Unaudited Pro Forma Condensed Combined Balance Sheet as September 30, 2005 and the Unaudited Pro Forma Condensed Combined Statements of Operations for the year ended December 31, 2004 and the period ended September 30, 2005 are based on the historical financial statements of StoneMor Partners L.P. (“StoneMor”) and Certain Wholly-Owned Subsidiaries of Service Corporation International (“SCI locations”) after giving effect to the purchase of SCI locations by StoneMor based on the assumptions and adjustments described in the accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Statements.

The Unaudited Pro Forma Condensed Consolidated Financial Statements have been prepared using the purchase method of accounting as if the transaction had been completed as of January 1, 2004 for purposes of the Unaudited Pro Forma Condensed Combined Statements of Operations and on September 30, 2005, for purposes of the Unaudited Pro Forma Condensed Combined Balance Sheet. Additionally, the interim financial information provided by Service Corporation International for the SCI locations is as of October 31, 2005 for the Unaudited Pro Forma Condensed Combined Balance Sheet and for the ten months ended October 31, 2005 for the Unaudited Pro Forma Condensed Combined Statements of Operations. For balance sheet presentation purposes, this information is being combined with the financial information provided in StoneMor’s most recent Quarterly Report filed on form 10-Q for the period ended September 30, 2005 and for income statement purposes, one additional month of StoneMor activity is presented.

The Unaudited Pro Forma Condensed Consolidated Financial Statements should be read in conjunction with the separate historical Consolidated Financial Statements and accompanying notes included in StoneMor’s Annual Report on Form 10-K for the year ended December 31, 2004 and Quarterly Report on Form 10-Q for the nine months ended September 30, 2005. The Unaudited Pro Forma Condensed Consolidated Financial Statements are not intended to be indicative of the consolidated results of operations or the financial condition of StoneMor that would have been reported had the acquisition been completed as of the dates presented and should not be taken as representative of future consolidated results or financial condition of StoneMor. The accompanying Unaudited Pro Forma Condensed Consolidated Financial Statements are presented in accordance with Article 11 of Regulation S-X.

Under the purchase method of accounting, the purchase price is allocated to the underlying assets acquired and liabilities assumed based on their respective fair market values. The pro forma purchase price allocation has been derived from estimates of the fair market value of the tangible assets and liabilities of the SCI locations based upon management’s estimates

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using established valuation techniques. The total purchase price of the SCI locations has been allocated on a preliminary basis to identifiable assets acquired and liabilities assumed based upon valuation procedures performed to date. This allocation is subject to change pending a final analysis of the total purchase price paid, including the direct costs of the acquisition and the estimated fair value of the assets acquired and liabilities assumed; however, the Company does not believe that the impact of these changes will be material.

The Unaudited Pro Forma Condensed Combined Financial Statements do not reflect any effect of operating efficiencies, cost savings, and other benefits anticipated by StoneMor’s management as a result of the acquisition. Additionally, certain integration costs may be recorded subsequent to the merger that under purchase accounting will not be treated as part of the SCI locations purchase price. These costs have not been reflected in these Unaudited Pro Forma Condensed Combined Statements of Operations because they are not expected to have a continuing impact on the combined results.

2

StoneMor Partners L.P.

Pro Forma Condensed Combined Balance Sheets

(in thousands, except share data)

(unaudited)

	StoneMor as Reported		Service Corporation International Locations as Provided			Pro Forma Adjustments			Note 2	Consolidated Pro Forma
	as of September 30, 2005		as of October 31, 2005
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	10,225	$	3		$	(1,660	)	a	$	8,568
Accounts receivable, net of allowance		27,053		2,151							29,204
Prepaid expenses		2,644		—							2,644
Other current assets		2,819		463							3,282
Total current assets		42,741		2,617			(1,660	)			43,698
LONG-TERM ACCOUNTS RECEIVABLE—net of allowance		30,507		2,504							33,011
CEMETERY PROPERTY		149,421		30,140			(17,447	)	b		159,555
							(2,559	)	c
PROPERTY AND EQUIPMENT		22,461		4,879							27,340
MERCHANDISE TRUSTS, restricted, at fair value		106,753		13,391							120,144
PERPETUAL CARE TRUSTS, restricted, at fair value		128,992		9,676							138,668
DEFERRED FINANCING COSTS—net of accumulated amortization		2,170		—							2,170
OTHER ASSETS		1,354		1,141			(1,141	)	d		1,354
TOTAL ASSETS	$	484,399	$	64,348		$	(22,807	)		$	525,940
LIABILITIES AND STOCKHOLDERS’ / PARTNERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities	$	4,776	$	93		$	(93	)	e	$	4,776
Accrued interest		222		—							222
Total current liabilities		4,998		93			(93	)			4,998
LONG-TERM DEBT		82,400		1,322			3,928		f		87,650
DEFERRED INCOME TAXES		—		7,486			(5,435	)	h		2,051
DEFERRED PREARRANGED CONTRACT REVENUE		—		1,069							1,069
DEFERRED CEMETERY REVENUES, net		129,981		21,491			(12,404	)	g		139,068
MERCHANDISE LIABILITY		32,123		8,388							40,511
DUE TO SERVICE CORP INTL		—		15,013			(15,013	)	e		—
Total liabilities		249,502		54,862			(29,017	)			275,347
COMMITMENTS AND CONTINGENCIES
NON-CONTROLLING INTEREST IN PERPETUAL CARE TRUSTS		128,992		9,676							138,668
STOCKHOLDERS’ EQUITY
Current Period Earnings		—		348			(348	)	I		—
Stockholders Deficit		—		(538	)		538		I		—
PARTNERS’ EQUITY
General partner		1,475		—			120		a		1,595
Limited partners:
Common		68,280		—			5,900		j		74,180
Subordinated		36,150		—			—				36,150
Total common stockholders’ / partners’ equity		105,905		(190	)		6,210				111,925
TOTAL LIABILITIES AND STOCKHOLDERS’ / PARTNERS’ EQUITY	$	484,399	$	64,348		$	(22,807	)		$	525,940

See accompanying notes to unaudited pro forma condensed combined financial information

3

StoneMor Partners L.P.

Pro Forma Condensed Combined Statement of Operations

(in thousands, except unit data)

(unaudited)

	StoneMor as Reported			Service Corporation International Locations as Provided			Proforma Adjustments			Note 3	Consolidated Proforma
	Year Ended December 31, 2004			Year Ended December 31, 2004
Revenues:
Cemetery	$	87,305		$	10,102		$	—			$	97,407
Funeral home		1,953			3,714			—				5,667
Total revenues		89,258			13,816			—				103,074
Costs and Expenses:
Cost of goods sold (exclusive of depreciation shown seperately below):
Land and crypts		4,539			440			(255	)	a		4,724
Perpetual care		2,692			84			—				2,776
Merchandise		5,143			1,031			—				6,174
Cemetery expense		19,648			2,808			—				22,456
Selling expense		19,158			1,895			—				21,053
General and administrative expense		9,797			2,393			—				12,190
Corporate overhead (including $433 in stock-based								—				—
compensation in 2004)		12,458			—			—				12,458
Depreciation and amortization		4,547			630			—				5,177
Funeral home expense		1,712			2,765			—				4,477
Total cost and expenses		79,694			12,046			(255	)			91,485
OPERATING PROFIT		9,564			1,770			255				11,589
EXPENSES RELATED TO REFINANCING		4,200			—			—				4,200
INTEREST EXPENSE		9,480			70			332		b		9,882
IMPAIRMENT ON LONG LIVED ASSETS		—			25,941			—				25,941
OTHER EXPENSE		—			5,545			—				5,545
INCOME / (LOSS) BEFORE INCOME TAXES		(4,116	)		(29,786	)		(77	)			(33,979	)
INCOME TAXES (BENEFIT):
State and franchise taxes		863			(10,475	)		10,475		c		863
Federal		(1,141	)		(1,723	)		1,723		c		(1,141	)
Total income taxes (benefit)		(278	)		(12,198	)		12,198				(278	)
NET INCOME (LOSS)	$	(3,838	)	$	(17,588	)	$	(12,275	)		$	(33,701	)
Net income per limited partner unit for the year ended December 31, 2004
Net income per limited partner unit (basic and diluted)										d

See accompanying notes to unaudited pro forma condensed combined financial information

4

StoneMor Partners L.P.

Pro Forma Condensed Combined Statement of Operations

(in thousands, except unit data)

(unaudited)

	StoneMor as Reported		StoneMor			Service Corporation International Locations as Provided		Proforma Adjustments			Note 4	Consolidated Proforma
	Period Ended September 30, 2005		One Month Ended October 31, 2005			Ten Months Ended October 31, 2005
Revenues:
Cemetery	$	69,887	$	5,611		$	9,143	$	—			$	84,641
Funeral home		1,662		115			3,306		—				5,083
Total revenues		71,549		5,726			12,449		—				89,724
Costs and Expenses:
Cost of goods sold (exclusive of depreciation shown separately below):
Land and crypts		4,209		513			270		(156	)	a		4,836
Perpetual care		2,094		50			226		—				2,370
Merchandise		3,857		283			1,036		—				5,176
Cemetery expense		15,872		1,628			2,313		—				19,813
Selling expense		14,717		1,309			1,225		—				17,251
General and administrative expense		7,658		798			2,201		—				10,657
Corporate overhead (including $433 in stock-based compensation in 2004)		10,391		1,198			—		—				11,589
Depreciation and amortization		2,580		259			504		—				3,343
Funeral home expense		1,366		137			2,160		—				3,663
Total cost and expenses		62,744		6,175			9,935		(156	)			78,698
OPERATING PROFIT		8,805		(449	)		2,514		156				11,026
EXPENSES RELATED TO REFINANCING		—		—			—		—				—
INTEREST EXPENSE		4,800		542			55		247		b		5,644
OTHER EXPENSE		—		—			1,899		—				1,899
INCOME / (LOSS) BEFORE INCOME TAXES		4,005		(991	)		560		(91	)			3,483
INCOME TAXES (BENEFIT):
State and franchise taxes		620		179			187		(26	)	c		960
Federal		358		155			25		(3	)	c		535
Total income taxes (benefit)		978		334			212		(30	)			1,494
NET INCOME (LOSS)	$	3,027	$	1,325		$	348	$	(61	)		$	1,989
Net income per limited partner unit for the nine months ended September 30, 2005
Net income per limited partner unit (basic and diluted)	$	.34	$	(.15	)	$	.04	$	(.01	)	d	$	.22

See accompanying notes to unaudited pro forma condensed combined financial information

5

STONEMOR PARTNERS L.P.

NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

(UNAUDITED)

NOTE 1.     DESCRIPTION OF TRANSACTION

Effective November 1, 2005 (the “Closing Date”), StoneMor completed the acquisition of the Seller’s Business, as defined below. SCI Funeral Services, Inc., an Iowa corporation (“SCI”) and a wholly-owned subsidiary of Service Corporation International, a Texas corporation, joined by certain of SCI’s direct and indirect subsidiary entities (collectively, the “Seller”), is a company engaged in the funeral and cemetery business. Pursuant to the Purchase Agreement, StoneMor acquired from the Seller 22 cemeteries and 6 funeral homes (collectively, the “Properties”), including certain related assets (together with the Properties, the “Acquired Assets”) and certain related liabilities (the “Assumed Liabilities” and, together with the Acquired Assets, the “Business”). The Properties that comprise the Business are located in North Carolina (9 cemeteries and 1 funeral home), Pennsylvania (7 cemeteries and 5 funeral homes), Georgia (5 cemeteries) and Alabama (1 cemetery).

On the Closing Date, the Buyer, in consideration for the transfer and delivery to it of the Acquired Assets and in addition to the assumption of the Assumed Liabilities, paid to the Seller, upon proper adjustments, the sum of $12,926,868.88 (the “Closing Purchase Price”) as follows: (i) the sum of $7,026,876.88 in cash and (ii) 280,952 common units (the “Common Units”) representing limited partner interests in the Company, in the aggregate, based on the closing price per Common Unit of $21 on The NASDAQ National Market on October 28, 2005. The Seller acknowledged that it had acquired the Common Units for investment, for its own account only and not with a view to, or for resale in connection with, any distribution thereof within the meaning of the Securities Act, except as set forth in the Registration Rights Agreement.

NOTE 2.     UNAUDITED PROFORMA CONDENSED COMBINED BALANCE SHEET

The Unaudited Pro Forma Condensed Combined Balance Sheet as of September 30, 2005 gives effect to the acquisition as if it had occurred on September 30, 2005. Under purchase accounting, the purchase price is allocated to assets acquired and liabilities assumed based on their relative fair values.

The following information on the components and allocation of the purchase price is based on StoneMor Partners’ preliminary evaluation and review of the assets acquired and liabilities assumed and may change as those evaluations and reviews are completed. Among other things, the consideration paid by StoneMor may be different than the estimated purchase price below as a result of the result of certain adjustments in the Purchase Agreement and the Registration Rights Agreement. These elements include, but are not limited to, adjustments for accounts receivable amounts, merchandise trust amounts and perpetual care trust amounts above or below an agreed upon level, as provided in the

6

Purchase Agreement and increased by any amounts which may become payable pursuant to the Registration Rights Agreement.

The components of the purchase price were as follows (in thousands):

Paid to Seller	$	7,027
Value of Common Units paid to seller		5,900
Acquisition Costs		2,559
Total Consideration	$	15,486

The allocation of the purchase price is as follows:

Total Consideration	$	15,486
Allocated to:
Accounts Receivable	$	4,655
Inventories		463
Investment in Trust—Funeral		1,146
Investment in Trust—Cemetery		12,245
Cemetery Property		12,693
Property, Plant and Equipment		4,879
Cemetery Perpetual Care Trusts		9,676
Deferred Income Taxes		(2,051	)
Deferred Prearranged Contract Revenue		(1,069	)
Deferred Margin		(9,087	)
Merchandise Liability		(8,388	)
Non-Controlling Interest in Perpetual Care Trusts		(9,676	)

The following adjustments have been reflected in the Unaudited Pro Forma Condensed Combined Balance Sheet:

a. To adjust cash and cash equivalents and long-term debt for the cash portion of the purchase price, to record cash provided by the general partner to maintain its 2% equity interest, and sellers cash not purchased. (in thousands)

Cash From StoneMor	$	(7,027	)
Borrowings under acquisition line of credit		5,250
General Partner contribution		120
Sellers cash		(3	)
Total		(1,660	)

7

b. To adjust cemetery property to represent approximated fair value and allocate pre-acquisition costs to the total purchase consideration.

		Approximated
		Fair		Net Book
(in thousands)		Value		Value		Adjustment
Cemetery Property	$	12,693	$	30,140	$	(17,447	)
Fair Value Adjustment (above)					$	(17,447	)
Allocated Acquisition Costs						(2,559	)
Total					$	(20,006	)

c. To allocate StoneMor’s acquisition costs carried in cemetery property.

d. To eliminate other assets not included in the transaction.

e. To eliminate liabilities not included in the transaction.

Total Current Liabilities	$	(93	)
Due to Service Corporation International		(15,013	)
Total	$	(15,106	)

f. To record long-term debt used to purchase the acquisition and eliminate seller’s debt not acquired.

Long-term Debt	$	5,250
Predecessor Long-term Debt		(1,322	)
Total	$	3,928

g. To reflect a reasonable profit margin to account for the future costs of delivering products and providing services on pre-need contracts due to this acquisition.

8

h. To record the effect on income taxes provision (benefit) resulting from the change to our structure of a limited partnership.

i. To eliminate stockholders deficit and current period earnings.

j. To record issuance of additional common units given to seller as a portion of the purchase price.

NOTE 3. UNAUDITED PROFORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2004

The following adjustments have been reflected in the Unaudited Pro Forma Condensed Combined Statement of Operations for the year ended December 31, 2004:

a. To revise cost of goods sold land and crypts based on the approximated fair market value of the cemetery property acquired.

b. To increase due to borrowing of $5.25 million in acquisition principal and eliminate sellers interest expense.

c. To eliminate the benefit from taxes due to the impairment charge recorded on the predecessor company’s financial statements. StoneMor would not have received similar benefit had it written down the value of the assets due to its structure as a master limited partnership.

d. The limited partner net income per unit calculation has been excluded from the pro forma as StoneMor Partners did not become a public partnership until September 20, 2004 rendering any full-year earnings per unit not meaningful.

9

NOTE 4. UNAUDITED PROFORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005

The following adjustments have been reflected in the Unaudited Pro Forma Condensed Combined Statement of Operations for the nine months ended September 30, 2005:

a. To revise cost of goods sold land and crypts based on the approximated fair market value of the cemetery property acquired.

b. To increase due to borrowing of $5.25 million in acquisition principal and eliminate sellers interest expense.

c. To reflect the income tax impact of the pro forma adjustments above.

d. The weighted average limited partners’ units outstanding used in the net income per limited partner unit calculation includes the limited partners’ common and subordinated units, including the common units issued in connection with this acquisition and excludes the general partner interest.

10