PRENEED TRUST INVESTMENTS

Preneed Cemetery Trust Investments

Preneed cemetery trust investments represent trust fund assets that we are permitted to withdraw as services and merchandise are provided to customers. Preneed cemetery contracts are secured by payments from customers, less amounts not required by law to be deposited into trust. Preneed cemetery trust investments are reduced by the trust earnings we have been allowed to withdraw in certain states prior to our performance.

The components of Preneed cemetery trust investments on our Consolidated Balance Sheets at December 31, 2015 and September 30, 2016 were as follows (in thousands):



	December 31, 2015			September 30, 2016
Preneed cemetery trust investments, at market value	$	65,486		$	68,009
Less: allowance for contract cancellation	(2,195		)	(2,113		)
Preneed cemetery trust investments, net	$	63,291		$	65,896

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, 2016, none of our preneed cemetery trust investments were 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 CSV RIA 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, mortgage backed securities and fixed income mutual funds, 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, 2016. There are no Level 3 investments in the preneed cemetery trust investment portfolio. See Note 9 to the Consolidated Financial Statements included herein for further information on the fair value measurement and the three-level hierarchy.

The cost and fair market values associated with preneed cemetery trust investments at September 30, 2016 are detailed below (in thousands):



	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Fair Market Value
Cash and money market accounts	1	$	7,888	$	—	$	—		$	7,888
Fixed income securities:
Municipal bonds	2	498		—		—			498
Foreign debt	2	8,614		268		(741		)	8,141
Corporate debt	2	23,717		1,790		(1,413		)	24,094
Preferred stock	2	16,371		30		(704		)	15,697
Mortgage backed securities	2	245		—		(16		)	229
Common stock	1	11,888		440		(3,144		)	9,184
Mutual funds:
Fixed Income	2	1,229		129		—			1,358
Trust securities		$	70,450	$	2,657	$	(6,018	)	$	67,089
Accrued investment income		$	920						$	920
Preneed cemetery trust investments									$	68,009
Market value as a percentage of cost									95.2		%

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



Due in one year or less	$	303
Due in one to five years	8,065
Due in five to ten years	5,854
Thereafter	34,437
Total	$	48,659

The cost and fair market values associated with preneed cemetery trust investments at December 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	$	8,296	$	—	$	—		$	8,296
Fixed income securities:
Municipal bonds	2	458		—		(63		)	395
Foreign debt	2	4,803		—		(695		)	4,108
Corporate debt	2	22,968		85		(4,279		)	18,774
Preferred stock	2	16,236		29		(885		)	15,380
Common stock	1	20,387		682		(3,161		)	17,908
Trust securities		$	73,148	$	796	$	(9,083	)	$	64,861
Accrued investment income		$	625						$	625
Preneed cemetery trust investments									$	65,486
Market value as a percentage of cost									88.7		%

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. In the three months ended September 30, 2016, we recorded a $0.1 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 September 30, 2015. In the nine months ended September 30, 2015 and 2016, we recorded a $0.7 million and $0.8 million impairment for other-than-temporary declines in the fair value related to unrealized losses on certain investments, respectively. There is 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, 2016, 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, 2016 and December 31, 2015, are shown in the following tables (in thousands):



	September 30, 2016
	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	2,419		(138		)	2,909		(603		)	5,328		(741		)
Corporate debt	6,599		(197		)	4,707		(1,216		)	11,306		(1,413		)
Preferred stock	1,711		(10		)	11,830		(694		)	13,541		(704		)
Mortgage backed securities	229		(16		)	—		—			229		(16		)
Common stock	4,740		(1,407		)	2,677		(1,737		)	7,417		(3,144		)
Total temporary impaired securities	$	15,698	$	(1,768	)	$	22,123	$	(4,250	)	$	37,821	$	(6,018	)



	December 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	$	395	$	(63	)	$	—	$	—		$	395	$	(63	)
Foreign debt	3,680		(384		)	406		(312		)	4,086		(696		)
Corporate debt	14,468		(2,992		)	3,056		(1,287		)	17,524		(4,279		)
Preferred stock	10,285		(436		)	5,168		(448		)	15,453		(884		)
Common stock	12,029		(1,989		)	3,564		(1,172		)	15,593		(3,161		)
Total temporary impaired securities	$	40,857	$	(5,864	)	$	12,194	$	(3,219	)	$	53,051	$	(9,083	)

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, 2015 and 2016 were as follows (in thousands):



	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2015			2016			2015			2016
Investment income	$	471		$	578		$	1,762		$	1,546
Realized gains	1,170			126			2,844			415
Realized losses	(276		)	(673		)	(1,166		)	(4,081		)
Expenses and taxes	(361		)	(139		)	(1,455		)	(832		)
Decrease (increase) in deferred preneed cemetery receipts held in trust	(1,004		)	108			(1,985		)	2,952
	$	—		$	—		$	—		$	—

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,
	2015			2016			2015			2016
Purchases	$	(11,719	)	$	(1,434	)	$	(24,575	)	$	(19,540	)
Sales	$	4,417		$	5,973		$	14,610		$	18,003

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 payments from customers, less amounts not required by law to be deposited into trust. Preneed funeral trust investments are reduced by the trust earnings we have been allowed to withdraw in certain states prior to our performance.

The components of Preneed funeral trust investments on our Consolidated Balance Sheets at December 31, 2015 and September 30, 2016 were as follows (in thousands):



	December 31, 2015			September 30, 2016
Preneed funeral trust investments, at market value	$	88,444		$	88,281
Less: allowance for contract cancellation	(2,891		)	(2,721		)
Preneed funeral trust investments, net	$	85,553		$	85,560

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, 2016, none of our preneed funeral trust investments were 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 CSV RIA 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 and common stock. 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 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 and nine months ended September 30, 2016. There are no Level 3 investments in the preneed funeral trust investment portfolio. See Note 9 to the Consolidated Financial Statements included herein for further information on the fair value measurement and the three-level hierarchy.

The cost and fair market values associated with preneed funeral trust investments at September 30, 2016 are detailed below (in thousands):



	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Fair Market Value
Cash and money market accounts	1	$	21,030	$	—	$	—		$	21,030
Fixed income securities:
U.S treasury debt	1	1,491		48		—			1,539
Municipal bonds	2	441		—		—			441
Foreign debt	2	8,640		255		(748		)	8,147
Corporate debt	2	24,292		1,800		(1,429		)	24,663
Preferred stock	2	16,815		103		(705		)	16,213
Mortgage backed securities	2	409		4		(17		)	396
Common stock	1	11,981		413		(3,198		)	9,196
Mutual funds:
Fixed income	2	2,139		138		(19		)	2,258
Other investments	2	3,468		—		—			3,468
Trust securities		$	90,706	$	2,761	$	(6,116	)	$	87,351
Accrued investment income		$	930						$	930
Preneed funeral trust investments									$	88,281
Market value as a percentage of cost									96.3		%

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



Due in one year or less	$	318
Due in one to five years	9,348
Due in five to ten years	6,061
Thereafter	35,672
Total	$	51,399

The cost and fair market values associated with preneed funeral trust investments at December 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	$	21,458	$	—	$	—		$	21,458
Fixed income securities:
U.S. treasury debt	1	1,492		24		(12		)	1,504
Municipal bonds	2	478		—		(66		)	412
Foreign debt	2	4,938		—		(711		)	4,227
Corporate debt	2	24,787		133		(4,711		)	20,209
Preferred stock	2	17,496		158		(914		)	16,740
Mortgage backed securities	2	273		4		(4		)	273
Common stock	1	20,864		738		(3,114		)	18,488
Mutual funds:
Fixed income	2	959		—		(82		)	877
Other investments	2	3,598		—		(30		)	3,568
Trust securities		$	96,343	$	1,057	$	(9,644	)	$	87,756
Accrued investment income		$	688						$	688
Preneed funeral trust investments									$	88,444
Market value as a percentage of cost									91.1		%

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 September 30, 2016, we recorded a $0.1 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 September 30, 2015. In the nine months ended September 30, 2015 and 2016, we recorded a $0.6 million and $0.9 million impairment for other-than-temporary declines in the fair value related to unrealized losses on certain investments, respectively. There is 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, 2016, 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, 2016 and December 31, 2015 are shown in the following tables (in thousands):



	September 30, 2016
	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	2,492		(141		)	2,901		(608		)	5,393		(749		)
Corporate debt	6,673		(199		)	4,759		(1,228		)	11,432		(1,427		)
Preferred stock	1,749		(10		)	11,729		(695		)	13,478		(705		)
Mortgage backed securities	241		(16		)	13		(1		)	254		(17		)
Mutual funds:
Equity	4,928		(1,466		)	2,589		(1,732		)	7,517		(3,198		)
Fixed income	301		(4		)	439		(16		)	740		(20		)
Total temporary impaired securities	$	16,384	$	(1,836	)	$	22,430	$	(4,280	)	$	38,814	$	(6,116	)



	December 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	$	—	$	—		$	1,504	$	(12	)	$	1,504	$	(12	)
Municipal bonds	413		(66		)	—		—			413		(66		)
Foreign debt	3,763		(392		)	416		(319		)	4,179		(711		)
Corporate debt	15,929		(3,294		)	3,364		(1,417		)	19,293		(4,711		)
Preferred stock	10,623		(451		)	5,338		(463		)	15,961		(914		)
Mortgage backed securities	—		—			272		(4		)	272		(4		)
Mutual funds:
Equity	11,848		(1,959		)	3,510		(1,154		)	15,358		(3,113		)
Fixed income	1		—			876		(82		)	877		(82		)
Other investments	—		—			42		(31		)	42		(31		)
Total temporary impaired securities	$	42,577	$	(6,162	)	$	15,322	$	(3,482	)	$	57,899	$	(9,644	)

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, 2015 and 2016 were as follows (in thousands):



	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2015			2016			2015			2016
Investment income	$	554		$	596		$	1,982		$	1,639
Realized gains	1,218			131			3,791			525
Realized losses	(504		)	(716		)	(1,374		)	(4,090		)
Expenses and taxes	140			(253		)	(694		)	(946		)
Decrease (increase) in deferred preneed funeral receipts held in trust	(1,408		)	242			(3,705		)	2,872
	$	—		$	—		$	—		$	—

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,
	2015			2016			2015			2016
Purchases	$	(12,323	)	$	(1,486	)	$	(23,668	)	$	(19,917	)
Sales	$	10,998		$	6,336		$	33,736		$	19,005