5. 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, 2014 and March 31, 2015 were as follows (in thousands):



	December 31, 2014			March 31, 2015
Preneed cemetery trust investments, at fair value	$	74,198		$	74,742
Less: allowance for contract cancellation	(2,226		)	(2,208		)
Preneed cemetery trust investments, net	$	71,972		$	72,534

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 March 31, 2015, 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 months ended March 31, 2015. There are no Level 3 investments in the preneed cemetery trust investment portfolio. See Note 10 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 March 31, 2015 are detailed below (in thousands):



	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Fair Market Value
Cash and money market accounts	1	$	1,028	$	—	$	—		$	1,028
Fixed income securities:
Municipal bonds	2	348		—		(12		)	336
Foreign debt	2	6,060		72		(261		)	5,871
Corporate debt	2	29,393		494		(987		)	28,900
Preferred stock	2	18,828		343		(300		)	18,871
Common stock	1	17,952		2,235		(1,484		)	18,703
Trust securities		$	73,609	$	3,144	$	(3,044	)	$	73,709
Accrued investment income		$	1,033						$	1,033
Preneed cemetery trust investments									$	74,742
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	$	18
Due in one to five years	5,998
Due in five to ten years	7,154
Thereafter	40,808
Total	$	53,978

The cost and fair market values associated with preneed cemetery trust investments at December 31, 2014 are detailed below (in thousands):



	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Fair Market Value
Cash and money market accounts	1	$	5,591	$	—	$	—		$	5,591
Fixed income securities:
Municipal bonds	2	347		9		—			356
Foreign debt	2	5,874		—		(237		)	5,637
Corporate debt	2	30,108		362		(2,167		)	28,303
Preferred stock	2	19,154		199		(325		)	19,028
Mortgage backed securities	2	1		—		—			1
Common stock	1	13,128		2,357		(966		)	14,519
Trust securities		$	74,203	$	2,927	$	(3,695	)	$	73,435
Accrued investment income		$	763						$	763
Preneed cemetery trust investments									$	74,198
Market value as a percentage of cost									99.0		%

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. During the three months ended March 31, 2015, we recorded a $0.7 million impairment for other-than-temporary declines in the fair value related to unrealized losses on certain investments. We did not record any impairments in the three months ended March 31, 2014. 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 March 31, 2015, 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 March 31, 2015 and December 31, 2014, are shown in the following tables (in thousands):



	March 31, 2015
	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:
Municipal bonds	$	336	$	(12	)	$	—	$	—		$	336	$	(12	)
Foreign debt	3,579		(261		)	—		—			3,579		(261		)
Corporate debt	18,431		(448		)	2,488		(539		)	20,919		(987		)
Preferred stock	7,340		(235		)	4,734		(65		)	12,074		(300		)
Common stock	14,623		(1,360		)	139		(124		)	14,762		(1,484		)
Total temporary impaired securities	$	44,309	$	(2,316	)	$	7,361	$	(728	)	$	51,670	$	(3,044	)



	December 31, 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	$	5,629	$	(237	)	$	—	$	—		$	5,629	$	(237	)
Corporate debt	18,051		(778		)	2,016		(1,389		)	20,067		(2,167		)
Preferred stock	10,342		(289		)	3,236		(36		)	13,578		(325		)
Common stock	6,904		(911		)	65		(55		)	6,969		(966		)
Total temporary impaired securities	$	40,926	$	(2,215	)	$	5,317	$	(1,480	)	$	46,243	$	(3,695	)

Preneed cemetery trust investment security transactions recorded in Interest expense on our Consolidated Statements of Operations for the three months ended March 31, 2014 and 2015 were as follows (in thousands):



	For the Three Months Ended March 31,
	2014			2015
Investment income	$	543		$	517
Realized gains	539			358
Realized losses	(188		)	(798		)
Expenses and taxes	(558		)	(319		)
(Increase) decrease in deferred preneed cemetery receipts held in trust	(336		)	242
	$	—		$	—

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



	For the Three Months Ended March 31,
	2014			2015
Purchases	$	(8,160	)	$	(7,008	)
Sales	$	8,537		$	2,752

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, 2014 and March 31, 2015 were as follows (in thousands):



	December 31, 2014			March 31, 2015
Preneed funeral trust investments, at market value	$	100,579		$	100,162
Less: allowance for contract cancellation	(2,972		)	(2,922		)
Preneed funeral trust investments, net	$	97,607		$	97,240

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 March 31, 2015, 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, municipal bonds, 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 March 31, 2015. There are no Level 3 investments in the preneed funeral trust investment portfolio. See Note 10 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 March 31, 2015 are detailed below (in thousands):



	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Fair Market Value
Cash and money market accounts	1	$	13,589	$	—	$	—		$	13,589
Fixed income securities:
U.S treasury debt	1	2,035		40		—			2,075
U.S. agency obligations	2	30		1		—			31
Municipal bonds	2	272		—		(10		)	262
Foreign debt	2	4,740		56		(206		)	4,590
Corporate debt	2	23,619		556		(771		)	23,404
Preferred stock	2	15,721		397		(235		)	15,883
Mortgage backed securities	2	295		6		(2		)	299
Common stock	1	14,179		1,803		(1,183		)	14,799
Mutual funds:
Equity	1	14,082		1,547		(97		)	15,532
Fixed income	2	5,296		139		(54		)	5,381
Other investments	2	3,529		—		(31		)	3,498
Trust securities		$	97,387	$	4,545	$	(2,589	)	$	99,343
Accrued investment income		$	819						$	819
Preneed funeral trust investments									$	100,162
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	$	562
Due in one to five years	5,415
Due in five to ten years	6,476
Thereafter	34,091
Total	$	46,544

The cost and fair market values associated with preneed funeral trust investments at December 31, 2014 are detailed below (in thousands):



	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Fair Market Value
Cash and money market accounts	1	$	17,501	$	—	$	—		$	17,501
Fixed income securities:
U.S. treasury debt	1	2,037		32		(15		)	2,054
U.S. agency obligations	2	30		—		—			30
Foreign debt	2	4,653		—		(188		)	4,465
Corporate debt	2	24,761		469		(1,718		)	23,512
Preferred stock	2	16,166		256		(261		)	16,161
Mortgage backed securities	2	309		8		(3		)	314
Common stock	1	10,544		1,926		(783		)	11,687
Mutual funds:
Equity	1	14,126		1,370		(181		)	15,315
Fixed income	2	5,351		115		(72		)	5,394
Other investments	2	3,560		—		(29		)	3,531
Trust securities		$	99,038	$	4,176	$	(3,250	)	$	99,964
Accrued investment income		$	615						$	615
Preneed funeral trust investments									$	100,579
Market value as a percentage of cost									100.9		%

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. In the three months ended March 31, 2015, we recorded a $0.6 million impairment for other-than-temporary declines in the fair value related to unrealized losses on certain investments. We did not have any impairments in the three months ended March 31, 2014. 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 March 31, 2015, 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 March 31, 2015 and December 31, 2014 are shown in the following tables (in thousands):



	March 31, 2015
	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	$	259	$	—		$	—	$	—		$	259	$	—
Municipal bonds	262		(10		)	—		—			262		(10		)
Foreign debt	2,825		(206		)	—		—			2,825		(206		)
Corporate debt	14,413		(350		)	1,946		(422		)	16,359		(772		)
Preferred stock	5,754		(184		)	3,711		(51		)	9,465		(235		)
Mortgage backed securities	—		—			45		(2		)	45		(2		)
Mutual funds:
Equity	11,655		(1,084		)	110		(98		)	11,765		(1,182		)
Equity and other	6,576		(97		)	1,114		—			7,690		(97		)
Fixed income	2,784		(23		)	701		(31		)	3,485		(54		)
Other investments	—		—			42		(31		)	42		(31		)
Total temporary impaired securities	$	44,528	$	(1,954	)	$	7,669	$	(635	)	$	52,197	$	(2,589	)



	December 31, 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	$	500	$	—		$	836	$	(15	)	$	1,336	$	(15	)
Foreign debt	4,471		(188		)	—		—			4,471		(188		)
Corporate debt	14,310		(617		)	1,598		(1,101		)	15,908		(1,718		)
Preferred stock	8,300		(232		)	2,597		(29		)	10,897		(261		)
Mortgage backed securities	—		—			51		(3		)	51		(3		)
Mutual funds:
Equity	5,594		(739		)	53		(44		)	5,647		(783		)
Equity and other	4,204		(180		)	6		(1		)	4,210		(181		)
Fixed income	888		(19		)	1,026		(53		)	1,914		(72		)
Other investments	—		—			42		(29		)	42		(29		)
Total temporary impaired securities	$	38,267	$	(1,975	)	$	6,209	$	(1,275	)	$	44,476	$	(3,250	)

Preneed funeral trust investment security transactions recorded in Interest expense on the Consolidated Statements of Operations for the three months ended March 31, 2014 and 2015 were as follows (in thousands):



	For the Three Months Ended March 31,
	2014			2015
Investment income	$	645		$	556
Realized gains	494			294
Realized losses	(198		)	(625		)
Expenses and taxes	(405		)	(260		)
(Increase) decrease in deferred preneed funeral receipts held in trust	(536		)	35
	$	—		$	—

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



	For the Three Months Ended March 31,
	2014			2015
Purchases	$	(6,990	)	$	(5,489	)
Sales	$	7,537		$	2,302