PRENEED TRUST INVESTMENT

Preneed Cemetery Trust Investments

Preneed cemetery trust investments represent trust fund assets that we are generally permitted to withdraw when the merchandise or services are provided. The components of Preneed cemetery trust investments in our Consolidated Balance Sheets at December 31, 2012 and June 30, 2013 are as follows (in thousands):



	December 31, 2012			June 30, 2013
Preneed cemetery trust investments, at fair value	$	73,126		$	68,784
Less: allowance for contract cancellation	(2,166		)	(2,035		)
Preneed cemetery trust investments, net	$	70,960		$	66,749

Upon cancellation of a preneed cemetery contract, a customer is generally entitled to receive a refund of the corpus and some or all of the earnings held in trust. In certain jurisdictions, we are obligated to fund any shortfall if the amounts deposited by the customer exceed the funds in trust, including some or all investment income. As a result, when realized or unrealized losses of a trust result in the trust being under-funded, we assess whether we are responsible for replenishing the corpus of the trust, in which case a loss provision is recorded.

Earnings from our preneed cemetery trust investments are recognized in revenue when a service is performed or merchandise is delivered. Trust management fees charged by our wholly-owned registered investment advisor are included in revenue in the period in which they are earned.

Where quoted prices are available in an active market, investments held by the trusts are classified as Level 1 investments pursuant to the three-level valuation hierarchy. Our Level 1 investments include cash, common stock, U.S. treasury debt, U.S. agency obligations and equity mutual funds. Where quoted market prices are not available for the specific security, then fair values are estimated by using quoted prices of similar securities in active markets or other inputs other than quoted prices that can corroborate observable market data. These investments are corporate debt, preferred stocks, foreign debt, mortgage backed securities and fixed income securities, all of which are classified within Level 2 of the valuation hierarchy. There were no significant transfers between Levels 1 and 2 for the three and six months ended June 30, 2013. There are no Level 3 investments in the preneed cemetery trust investment portfolio. See Note 11 for further information of the fair value measurement and the three-level valuation hierarchy.

The cost and fair market values associated with preneed cemetery trust investments at June 30, 2013 are detailed below (in thousands):



	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Fair Market Value
Cash and money market accounts	1	$	7,588	$	—	$	—		$	7,588
Fixed income securities:
Foreign debt	2	2,524		69		(71		)	2,522
Corporate debt	2	32,730		660		(947		)	32,443
Preferred stock	2	16,931		283		(33		)	17,181
Mortgage backed securities	2	—		—		—			—
Common stock	1	8,068		759		(646		)	8,181
Trust securities		$	67,841	$	1,771	$	(1,697	)	$	67,915
Accrued investment income		$	869						$	869
Preneed cemetery trust investments									$	68,784
Fair market value as a percentage of cost									100.1		%

The estimated maturities of the fixed income securities included above are as follows (in thousands):



Due in one year or less	$	—
Due in one to five years	8,400
Due in five to ten years	14,087
Thereafter	29,659
Total	$	52,146

The cost and fair market values associated with preneed cemetery trust investments at December 31, 2012 are detailed below (in thousands):



	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Fair Market Value
Cash and money market accounts	1	$	758	$	—	$	—		$	758
Fixed income securities:
Foreign debt	2	2,008		450		—			2,458
Corporate debt	2	38,299		863		(507		)	38,655
Preferred stock	2	22,362		824		(294		)	22,892
Mortgage backed securities	2	1		—		—			1
Common stock	1	8,759		34		(1,526		)	7,267
Trust securities		$	72,187	$	2,171	$	(2,327	)	$	72,031
Accrued investment income		$	1,095						$	1,095
Preneed cemetery trust investments									$	73,126
Market value as a percentage of cost									99.8		%

We determine whether or not the assets in the preneed cemetery trusts have an other-than-temporary impairment on a security-by-security basis. This assessment is made based upon a number of criteria including the length of time a security has been in a loss position, changes in market conditions and concerns related to the specific issuer. If a loss is considered to be other-than-temporary, the cost basis of the security is adjusted downward to its fair market value. Any reduction in the cost basis of the investment due to an other-than-temporary impairment is likewise recorded as a reduction in Deferred preneed cemetery receipts held in trust. There will be no impact on earnings unless and until such time as the investment is withdrawn from the trust in accordance with state regulations at an amount that is less than its original basis.

We have determined that the unrealized losses in our preneed cemetery trust investments are considered temporary in nature, as the unrealized losses were due to temporary fluctuations in interest rates and equity prices. The investments are diversified across multiple industry segments using a balanced allocation strategy to minimize long-term risk. We believe that none of the securities are other-than-temporarily impaired based on our analysis of the investments. Our cemetery merchandise and service trust investment unrealized losses, their associated fair market values, and the duration of unrealized losses as of June 30, 2013 and December 31, 2012, respectively, are shown in the following tables (in thousands):



	June 30, 2013
	In Loss Position Less than 12 months					In Loss Position Greater than 12 months					Total
	Fair market value		Unrealized Losses			Fair market value		Unrealized Losses			Fair market value		Unrealized Losses
Fixed income securities:
Foreign debt	$	1,762	$	(71	)	$	—	$	—		$	1,762	$	(71	)
Corporate debt	14,850		(526		)	996		(420		)	15,846		(946		)
Preferred stock	3,267		(34		)	—		—			3,267		(34		)
Common stock	2,023		(402		)	752		(244		)	2,775		(646		)
Total temporary impaired securities	$	21,902	$	(1,033	)	$	1,748	$	(664	)	$	23,650	$	(1,697	)



	December 31, 2012
	In Loss Position Less than 12 months					In Loss Position Greater than 12 months					Total
	Fair market value		Unrealized Losses			Fair market value		Unrealized Losses			Fair market value		Unrealized Losses
Fixed income securities:
Corporate debt	$	11,363	$	(325	)	$	622	$	(182	)	$	11,985	$	(507	)
Preferred stock	1,040		(54		)	2,284		(240		)	3,324		(294		)
Common stock	5,088		(934		)	957		(592		)	6,045		(1,526		)
Total temporary impaired securities	$	17,491	$	(1,313	)	$	3,863	$	(1,014	)	$	21,354	$	(2,327	)

Preneed cemetery trust investment security transactions recorded in Interest expense, net of other income in the Consolidated Statements of Operations for the three and six months ended June 30, 2012 and 2013 are as follows (in thousands):



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2012			2013			2012			2013
Investment income	$	1,290		$	1,072		$	2,052		$	1,765
Realized gains	2,681			1,547			5,054			1,585
Realized losses	(2,195		)	(144		)	(2,309		)	(574		)
Expenses and taxes	(1,894		)	(1,684		)	(2,025		)	(2,065		)
Increase (decrease) in deferred preneed cemetery receipts held in trust	118			(791		)	(2,772		)	(711		)
	$	—		$	—		$	—		$	—

Purchases and sales of investments in the preneed cemetery trusts were as follows (in thousands):



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2012			2013			2012			2013
Purchases	$	(33,060	)	$	(11,543	)	$	(57,099	)	$	(15,705	)
Sales	33,404			13,811			57,492			18,820

Preneed Funeral Trust Investments

Preneed funeral trust investments represent trust fund assets that we are permitted to withdraw as services and merchandise are provided to customers. Preneed funeral contracts are secured by funds paid by the customer to us. Preneed funeral trust investments are reduced by the trust earnings we have been allowed to withdraw prior to our performance and amounts received from customers that are not required to be deposited into trust, pursuant to various state laws. The components of Preneed funeral trust investments in our Consolidated Balance Sheets at December 31, 2012 and June 30, 2013 are as follows (in thousands):



	December 31, 2012			June 30, 2013
Preneed funeral trust investments, at fair value	$	85,415		$	95,972
Less: allowance for contract cancellation	(2,519		)	(2,802		)
Preneed funeral trust investments, net	$	82,896		$	93,170

Upon cancellation of a preneed funeral contract, a customer is generally entitled to receive a refund of the corpus and some or all of the earnings held in trust. In certain jurisdictions, we are obligated to fund any shortfall if the amounts deposited by the customer exceed the funds in trust, including some or all investment income. As a result, when realized or unrealized losses of a trust result in the trust being under-funded, we assess whether we are responsible for replenishing the corpus of the trust, in which case a loss provision is recorded.

Earnings from our preneed funeral trust investments are recognized in revenue when a service is performed or merchandise is delivered. Trust management fees charged by our wholly-owned registered investment advisor are included in revenue in the period in which they are earned.

Where quoted prices are available in an active market, investments held by the trusts are classified as Level 1 investments pursuant to the three-level valuation hierarchy. Our Level 1 investments include cash, U. S. government, agencies and municipalities, common stocks and equity mutual funds. Where quoted market prices are not available for the specific security, then fair values are estimated by using quoted prices of similar securities in active markets or other inputs other than quoted prices that can corroborate observable market data. These investments are corporate debt, preferred stocks, foreign debt, mortgage backed securities and fixed income securities, all of which are classified within Level 2 of the valuation hierarchy. There were no significant transfers between Levels 1 and 2 for the three and six months ended June 30, 2013. There are no Level 3 investments in the preneed funeral trust investment portfolio. See Note 11 for further information of the fair value measurement and the three-level valuation hierarchy.

The cost and fair market values associated with preneed funeral trust investments at June 30, 2013 are detailed below (in thousands):



	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Fair Market Value
Cash and money market accounts	1	$	19,257	$	—	$	—		$	19,257
Fixed income securities:
U.S. treasury debt	1	2,752		61		(33		)	2,780
U.S. agency obligations	1	559		13		(6		)	566
Foreign debt	2	1,981		54		(56		)	1,979
Corporate debt	2	27,405		659		(787		)	27,277
Preferred stock	2	14,765		452		(59		)	15,158
Mortgage backed securities	2	1		—		—			1
Common stock	1	6,989		690		(553		)	7,126
Mutual funds:
Equity	1	11,598		1,610		(25		)	13,183
Fixed income	2	5,403		19		(145		)	5,277
Other investments	2	2,688		—		(26		)	2,662
Trust securities		$	93,398	$	3,558	$	(1,690	)	$	95,266
Accrued investment income		$	706						$	706
Preneed funeral trust investments									$	95,972
Fair market value as a percentage of cost									102.0		%

The estimated maturities of the fixed income securities included above are as follows (in thousands):



Due in one year or less	$	736
Due in one to five years	8,515
Due in five to ten years	12,603
Thereafter	25,907
Total	$	47,761

The cost and fair market values associated with preneed funeral trust investments at December 31, 2012 are detailed below (in thousands):



	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Fair Market Value
Cash and money market accounts	1	$	13,448	$	—	$	—		$	13,448
Fixed income securities:
U.S. treasury debt	1	3,001		75		—			3,076
U.S agency obligations	1	142		4		—			146
Foreign debt	2	1,217		273		—			1,490
Corporate debt	2	25,060		661		(331		)	25,390
Preferred stock	2	15,228		715		(193		)	15,750
Common stock	1	5,770		27		(996		)	4,801
Mutual funds:
Equity		11,843		487		(78		)	12,252
Fixed income	1	6,105		181		(40		)	6,246
Other investments	2	2,143		—		(15		)	2,128
Trust securities	2	$	83,957	$	2,423	$	(1,653	)	$	84,727
Accrued investment income		$	688						$	688
Preneed funeral trust investments									$	85,415
Market value as a percentage of cost									100.9		%

We determine whether or not the assets in the preneed funeral trusts have other-than-temporary impairments on a security-by-security basis. This assessment is made based upon a number of criteria including the length of time a security has been in a loss position, changes in market conditions and concerns related to the specific issuer. If a loss is considered to be other-than-temporary, the cost basis of the security is adjusted downward to its fair market value. Any reduction in the cost basis of the investment due to an other-than-temporary impairment is likewise recorded as a reduction to Deferred preneed funeral receipts held in trust. There will be no impact on earnings unless and until such time as the investment is withdrawn from the trust in accordance with state regulations at an amount that is less than its original basis.

We have determined that the unrealized losses in our preneed funeral trust investments are considered temporary in nature, as the unrealized losses were due to temporary fluctuations in interest rates and equity prices. The investments are diversified across multiple industry segments using a balanced allocation strategy to minimize long-term risk. We believe that none of the securities are other-than-temporarily impaired based on our analysis of the investments. Our preneed funeral trust investment unrealized losses, their associated fair market values, and the duration of unrealized losses as of June 30, 2013 and December 31, 2012, respectively, are shown in the following tables (in thousands):



	June 30, 2013
	In Loss Position Less than 12 months					In Loss Position Greater than 12 months					Total
	Fair market value		Unrealized Losses			Fair market value		Unrealized Losses			Fair market value		Unrealized Losses
Fixed income securities:
U.S. debt	$	838	$	(33	)	$	—	$	—		$	838	$	(33	)
U.S. agency obligations	206		(6		)	—		—			206		(6		)
Foreign debt	1,383		(56		)	—		—			1,383		(56		)
Corporate debt	12,342		(438		)	828		(349		)	13,170		(787		)
Preferred stock	5,860		(59		)	—		—			5,860		(59		)
Common stock	—		—			—		—			—		—
Mutual funds:
Equity	1,732		(344		)	644		(209		)	2,376		(553		)
Equity and other	33		—			542		(25		)	575		(25		)
Fixed income	2,691		(145		)	—		—			2,691		(145		)
Other investments	—		—			44		(26		)	44		(26		)
Total temporary impaired securities	$	25,085	$	(1,081	)	$	2,058	$	(609	)	$	27,143	$	(1,690	)



	December 31, 2012
	In Loss Position Less than 12 months					In Loss Position Greater than 12 months					Total
	Fair market value		Unrealized Losses			Fair market value		Unrealized Losses			Fair market value		Unrealized Losses
Fixed income securities:
Corporate debt	$	7,419	$	(212	)	$	406	$	(119	)	$	7,825	$	(331	)
Preferred stock	685		(35		)	1,504		(158		)	2,189		(193		)
Common stock	3,323		(609		)	625		(387		)	3,948		(996		)
Mutual funds:
Equity	1,613		(25		)	632		(53		)	2,245		(78		)
Fixed income	3,085		(40		)	—		—			3,085		(40		)
Other investments	—		—			30		(15		)	30		(15		)
Total temporary impaired securities	$	16,125	$	(921	)	$	3,197	$	(732	)	$	19,322	$	(1,653	)

Preneed funeral trust investment security transactions recorded in Interest expense, net of other income in the Consolidated Statements of Operations for the three and six months ended June 30, 2012 and 2013 are as follows (in thousands):



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2012			2013			2012			2013
Investment income	$	1,089		$	917		$	1,951		$	1,523
Realized gains	603			1,087			1,338			6,214
Realized losses	(1,727		)	(221		)	(2,177		)	(5,553		)
Expenses and taxes	(793		)	(807		)	(1,003		)	(1,055		)
Increase (decrease) in deferred preneed funeral receipts held in trust	828			(976		)	(109		)	(1,129		)
	$	—		$	—		$	—		$	—

Purchases and sales of investments in the preneed funeral trusts are as follows (in thousands):



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2012			2013			2012			2013
Purchases	$	(13,721	)	$	(7,903	)	$	(31,594	)	$	(11,089	)
Sales	13,619			10,313			31,793			14,228