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 on our Consolidated Balance Sheets at December 31, 2013 and September 30, 2014 were as follows (in thousands):



	December 31, 2013			September 30, 2014
Preneed cemetery trust investments, at fair value	$	70,386		$	75,271
Less: allowance for contract cancellation	(2,045		)	(2,199		)
Preneed cemetery trust investments, net	$	68,341		$	73,072

Upon cancellation of a preneed cemetery contract, a customer is generally entitled to receive a refund of the corpus, and in some cases, some or all of the earnings held in trust. In certain jurisdictions, we may be 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. At September 30, 2014, our preneed cemetery trust investments were not under-funded.

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 and common stock. Where quoted market prices are not available for the specific security, 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 fixed income securities including municipal bonds, foreign debt, corporate debt, preferred stocks and mortgage backed securities, all of which are classified within Level 2 of the valuation hierarchy. We review and update our fair value hierarchy classifications quarterly. There were no transfers between Levels 1 and 2 in the three and nine months ended September 30, 2014. 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 September 30, 2014 are detailed below (in thousands):



	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Fair Market Value
Cash and money market accounts	1	$	2,428	$	—	$	—		$	2,428
Fixed income securities:
Municipal bonds	2	344		12		—			356
Foreign debt	2	4,945		91		(102		)	4,934
Corporate debt	2	30,384		433		(1,984		)	28,833
Preferred stock	2	18,432		647		(203		)	18,876
Mortgage backed securities	2	1		—		—			1
Common stock	1	16,756		3,019		(948		)	18,827
Trust securities		$	73,290	$	4,202	$	(3,237	)	$	74,255
Accrued investment income		$	1,016						$	1,016
Preneed cemetery trust investments									$	75,271
Fair market value as a percentage of cost									101.3		%

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	6,299
Due in five to ten years	7,670
Thereafter	39,031
Total	$	53,000

The cost and fair market values associated with preneed cemetery trust investments at December 31, 2013 are detailed below (in thousands):



	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Fair Market Value
Cash and money market accounts	1	$	1,541	$	—	$	—		$	1,541
Fixed income securities:
Foreign debt	2	3,460		146		(3		)	3,603
Corporate debt	2	32,958		386		(1,150		)	32,194
Preferred stock	2	17,754		178		(273		)	17,659
Mortgage backed securities	2	1		—		—			1
Common stock	1	12,431		2,362		(267		)	14,526
Trust securities		$	68,145	$	3,072	$	(1,693	)	$	69,524
Accrued investment income		$	862						$	862
Preneed cemetery trust investments									$	70,386
Fair market value as a percentage of cost									102.0		%

We determine whether or not the assets in the preneed cemetery trust investments 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 on our Consolidated Balance Sheets. We did not record any impairments in the three months ended September 30, 2014. In the second quarter of 2014, we recorded a $0.2 million impairment charge for other-than temporary declines in fair value related to unrealized losses on certain investments. There will be no impact on earnings until such time that the loss is realized in the trusts, allocated to the preneed contracts and the services are performed or the merchandise is delivered causing the contract to be withdrawn from the trust in accordance with state regulations.

At September 30, 2014, we had certain investments within our preneed cemetery trust investments that had tax lots in loss positions for more than one year. Based on our analyses of these securities, the companies’ businesses and current market conditions, we determined that these investment losses were temporary in nature.

Our cemetery merchandise and service trust investment unrealized losses, their associated fair market values, and the duration of unrealized losses as of September 30, 2014 and December 31, 2013, are shown in the following tables (in thousands):



	September 30, 2014
	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	$	4,039	$	(102	)	$	—	$	—		$	4,039	$	(102	)
Corporate debt	19,306		(846		)	2,224		(1,137		)	21,530		(1,983		)
Preferred stock	6,456		(191		)	3,238		(12		)	9,694		(203		)
Common stock	9,520		(911		)	81		(38		)	9,601		(949		)
Total temporary impaired securities	$	39,321	$	(2,050	)	$	5,543	$	(1,187	)	$	44,864	$	(3,237	)



	December 31, 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	$	802	$	(3	)	$	—	$	—		$	802	$	(3	)
Corporate debt	11,561		(553		)	769		(597		)	12,330		(1,150		)
Preferred stock	9,601		(273		)	—		—			9,601		(273		)
Common stock	1,077		(171		)	705		(96		)	1,782		(267		)
Total temporary impaired securities	$	23,041	$	(1,000	)	$	1,474	$	(693	)	$	24,515	$	(1,693	)

Preneed cemetery trust investment security transactions recorded in Interest expense on our Consolidated Statements of Operations for the three and nine months ended September 30, 2013 and 2014 were as follows (in thousands):



	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2013			2014			2013			2014
Investment income	$	671		$	504		$	2,436		$	1,936
Realized gains	835			1,970			2,420			3,670
Realized losses	(94		)	(124		)	(668		)	(952		)
Expenses and taxes	(436		)	(387		)	(2,501		)	(1,329		)
Increase in deferred preneed cemetery receipts held in trust	(976		)	(1,963		)	(1,687		)	(3,325		)
	$	—		$	—		$	—		$	—

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



	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2013			2014			2013			2014
Purchases	$	(18,569	)	$	(17,814	)	$	(34,273	)	$	(39,472	)
Sales	$	16,409		$	18,061		$	35,229		$	40,981

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 on our Consolidated Balance Sheets at December 31, 2013 and September 30, 2014 were as follows (in thousands):



	December 31, 2013			September 30, 2014
Preneed funeral trust investments, at market value	$	100,005		$	101,480
Less: allowance for contract cancellation	(2,861		)	(2,955		)
Preneed funeral trust investments, net	$	97,144		$	98,525

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 may be 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. At September 30, 2014, our preneed funeral trust investments were not under-funded.

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. treasury debt, common stock 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 fixed income securities including U.S. agency obligations, foreign debt, corporate debt, preferred stocks, mortgage backed securities and fixed income mutual funds and other investments, all of which are classified within Level 2 of the valuation hierarchy. We review and update our fair value hierarchy classifications quarterly. There were no transfers between Levels 1 and 2 for the three months ended September 30, 2014. During the first quarter of 2014, we reclassified $0.4 million of U.S. Agency obligations from Level 1 investments to Level 2 investments due to reduced trading activity of these securities which caused the fair market price to be determined by other inputs other than quoted prices. 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 September 30, 2014 are detailed below (in thousands):



	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Fair Market Value
Cash and money market accounts	1	$	14,018	$	—	$	—		$	14,018
Fixed income securities:
U.S. treasury debt	1	2,602		34		(34		)	2,602
U.S. agency obligations	2	31		—		(1		)	30
Foreign debt	2	3,961		73		(82		)	3,952
Corporate debt	2	25,294		527		(1,595		)	24,226
Preferred stock	2	15,777		588		(163		)	16,202
Mortgage backed securities	2	323		9		(3		)	329
Common stock	1	13,611		2,475		(782		)	15,304
Mutual funds:
Equity	1	13,991		1,237		(118		)	15,110
Fixed income	2	5,280		105		(85		)	5,300
Other investments	2	3,614		—		(31		)	3,583
Trust securities		$	98,502	$	5,048	$	(2,894	)	$	100,656
Accrued investment income		$	824						$	824
Preneed funeral trust investments									$	101,480
Fair market value as a percentage of cost									102.2		%

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



Due in one year or less	$	855
Due in one to five years	6,162
Due in five to ten years	7,013
Thereafter	33,311
Total	$	47,341

The cost and fair market values associated with preneed funeral trust investments at December 31, 2013 are detailed below (in thousands):



	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Fair Market Value
Cash and money market accounts	1	$	14,631	$	—	$	—		$	14,631
Fixed income securities:
U.S. treasury debt	1	2,212		47		(54		)	2,205
U.S. agency obligations	1	401		8		(7		)	402
Foreign debt	2	2,726		115		(2		)	2,839
Corporate debt	2	27,993		375		(957		)	27,411
Preferred stock	2	15,949		292		(282		)	15,959
Mortgage backed securities	2	1		—		—			1
Common stock	1	10,681		2,092		(237		)	12,536
Mutual funds:
Equity	1	11,632		2,708		(22		)	14,318
Fixed income	2	5,455		88		(179		)	5,364
Other investments	2	3,686		—		(26		)	3,660
Trust securities		$	95,367	$	5,725	$	(1,766	)	$	99,326
Accrued investment income		$	679						$	679
Preneed funeral trust investments									$	100,005
Fair market value as a percentage of cost									104.2		%

We determine whether or not the assets in the preneed funeral trust investments 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 on our Consolidated Balance Sheets. We did not record any impairments in the three months ended September 30, 2014. During the second quarter of 2014, we recorded a $0.1 million impairment charge for other-than temporary declines in fair value related to unrealized losses on certain investments. There will be no impact on earnings until such time that the loss is realized in the trusts, allocated to preneed contracts and the services are performed or the merchandise is delivered causing the contract to be withdrawn from the trust in accordance with state regulations.

At September 30, 2014, we had certain investments within our preneed funeral trust investments that had tax lots in loss positions for more than one year. Based on our analyses of these securities, the companies’ businesses and current market conditions, we determined that these investment losses were temporary in nature.

Our preneed funeral trust investment unrealized losses, their associated fair market values, and the duration of unrealized losses as of September 30, 2014 and December 31, 2013 are shown in the following tables (in thousands):



	September 30, 2014
	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	$	1,320	$	(6	)	$	822	$	(29	)	$	2,142	$	(35	)
U.S. agency obligations	30		—			—		—			30		—
Foreign debt	3,234		(82		)	—		—			3,234		(82		)
Corporate debt	15,519		(680		)	1,787		(914		)	17,306		(1,594		)
Preferred stock	5,195		(154		)	2,606		(10		)	7,801		(164		)
Mortgage backed securities	—		—			63		(3		)	63		(3		)
Mutual funds:
Equity	7,848		(751		)	67		(31		)	7,915		(782		)
Equity and other	9,315		(116		)	1,917		(2		)	11,232		(118		)
Fixed income	462		(9		)	4,838		(76		)	5,300		(85		)
Other investments	—		—			44		(31		)	44		(31		)
Total temporary impaired securities	$	42,923	$	(1,798	)	$	12,144	$	(1,096	)	$	55,067	$	(2,894	)



	December 31, 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	$	—	$	—		$	816	$	(54	)	$	816	$	(54	)
U.S. agency obligations	—		—			211		(7		)	211		(7		)
Foreign debt	632		(2		)	—		—			632		(2		)
Corporate debt	9,620		(460		)	640		(497		)	10,260		(957		)
Preferred stock	9,918		(282		)	—		—			9,918		(282		)
Mutual funds:
Equity	954		(152		)	626		(85		)	1,580		(237		)
Equity and other	314		(13		)	195		(9		)	509		(22		)
Fixed income	865		(43		)	1,420		(136		)	2,285		(179		)
Other investments	—		—			44		(26		)	44		(26		)
Total temporary impaired securities	$	22,303	$	(952	)	$	3,952	$	(814	)	$	26,255	$	(1,766	)

Preneed funeral trust investment security transactions recorded in Interest expense on the Consolidated Statements of Operations for the three and nine months ended September 30, 2013 and 2014 were as follows (in thousands):



	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2013			2014			2013			2014
Investment income	$	709		$	576		$	2,232		$	2,067
Realized gains	942			1,605			7,156			5,036
Realized losses	(111		)	(105		)	(5,664		)	(841		)
Expenses and taxes	(269		)	(260		)	(1,324		)	(1,158		)
Increase in deferred preneed funeral receipts held in trust	(1,271		)	(1,816		)	(2,400		)	(5,104		)
	$	—		$	—		$	—		$	—

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



	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2013			2014			2013			2014
Purchases	$	(17,266	)	$	(14,630	)	$	(28,355	)	$	(44,147	)
Sales	$	15,697		$	14,691		$	29,924		$	44,840