PRENEED TRUST INVESTMENTS

Preneed Cemetery Trust Investments

Preneed cemetery trust investments represent trust fund assets that we are permitted to withdraw as merchandise and services are provided to customers. Preneed cemetery contracts are secured by payments from customers, less retained amounts not required to be deposited into trust. Preneed cemetery trust investments can be 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 Sheet at December 31, 2018 and June 30, 2019 are as follows (in thousands):



	December 31, 2018			June 30, 2019
Preneed cemetery trust investments, at market value	$	64,549		$	72,151
Less: allowance for contract cancellation	(2,117		)	(2,181		)
Preneed cemetery trust investments, net	$	62,432		$	69,970

Upon cancellation of a preneed cemetery contract, a customer is generally entitled to receive a refund of the corpus, and in some instances, a portion of 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 investment income. As a result, when realized or unrealized losses of a trust result in the trust being underfunded, we assess whether we are responsible for replenishing the corpus of the trust, in which case a loss provision is recorded. At June 30, 2019, none of our preneed cemetery trust investments were underfunded.

Earnings from our preneed cemetery trust investments are recognized as 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 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 six months ended June 30, 2019. There are no Level 3 investments in the preneed cemetery trust investment portfolio. See Note 8 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 June 30, 2019 are detailed below (in thousands, except percentages):



	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Fair Market Value
Cash and money market accounts	1	$	9,544	$	—	$	—		$	9,544
Fixed income securities:
Foreign debt	2	5,688		107		(273		)	5,522
Corporate debt	2	13,492		603		(526		)	13,569
Preferred stock	2	13,188		620		(334		)	13,474
Mortgage-backed securities	2	608		11		(81		)	538
Common stock	1	28,895		2,141		(3,366		)	27,670
Mutual funds:
Fixed Income	2	1,288		37		(58		)	1,267
Trust securities		$	72,703	$	3,519	$	(4,638	)	$	71,584
Accrued investment income		$	567						$	567
Preneed cemetery trust investments									$	72,151
Market value as a percentage of cost									98.5		%

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	2,550
Due in five to ten years	9,014
Thereafter	21,539
Total	$	33,103

The cost and fair market values associated with preneed cemetery trust investments at December 31, 2018 are detailed below (in thousands, except percentages):



	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Fair Market Value
Cash and money market accounts	1	$	16,194	$	—	$	—		$	16,194
Fixed income securities:
Foreign debt	2	3,802		43		(511		)	3,334
Corporate debt	2	13,987		362		(1,026		)	13,323
Preferred stock	2	11,068		54		(1,146		)	9,976
Mortgage-backed securities	2	666		161		(14		)	813
Common stock	1	24,867		903		(5,436		)	20,334
Trust securities		$	70,584	$	1,523	$	(8,133	)	$	63,974
Accrued investment income		$	575						$	575
Preneed cemetery trust investments									$	64,549
Market value as a percentage of cost									90.6		%

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 Sheet. In the three and six months ended June 30, 2018 and 2019, we did not record any impairments for other-than-temporary declines in the fair value related to unrealized losses on certain investments. 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 June 30, 2019, 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 preneed cemetery trust investment unrealized losses, their associated fair market values, and the duration of unrealized losses as of June 30, 2019 are shown in the following table (in thousands):



	June 30, 2019
	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	$	1,229	$	(37	)	$	1,161	$	(236	)	$	2,390	$	(273	)
Corporate debt	1,925		(89		)	4,571		(437		)	6,496		(526		)
Preferred stock	553		(6		)	6,953		(328		)	7,506		(334		)
Mortgage-backed securities	—		—			350		(81		)	350		(81		)
Common stock	11,890		(2,133		)	2,363		(1,233		)	14,253		(3,366		)
Mutual Funds:
Fixed Income	442		(58		)	—		—			442		(58		)
Total temporary impaired securities	$	16,039	$	(2,323	)	$	15,398	$	(2,315	)	$	31,437	$	(4,638	)

Our preneed cemetery trust investment unrealized losses, their associated fair market values, and the duration of unrealized losses as of December 31, 2018 are shown in the following table (in thousands):



	December 31, 2018
	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	$	2,140	$	(245	)	$	895	$	(266	)	$	3,035	$	(511	)
Corporate debt	9,918		(813		)	443		(213		)	10,361		(1,026		)
Preferred stock	5,253		(399		)	3,767		(747		)	9,020		(1,146		)
Mortgage-backed securities	—		—			51		(14		)	51		(14		)
Common stock	14,191		(4,012		)	1,190		(1,424		)	15,381		(5,436		)
Total temporary impaired securities	$	31,502	$	(5,469	)	$	6,346	$	(2,664	)	$	37,848	$	(8,133	)

Preneed cemetery trust investment security transactions recorded in Other, net on our Consolidated Statements of Operations for the three and six months ended June 30, 2018 and 2019 are as follows (in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2019			2018			2019
Investment income	$	474		$	414		$	899		$	985
Realized gains	18			2,363			871			3,821
Realized losses	(750		)	(1,001		)	(1,357		)	(1,636		)
Expenses and taxes	(221		)	(407		)	(272		)	(685		)
Net change in deferred preneed cemetery receipts held in trust	479			(1,369		)	(141		)	(2,485		)
	$	—		$	—		$	—		$	—

Purchases and sales of investments in the preneed cemetery trusts for the three and six months ended June 30, 2018 and 2019 are as follows (in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2019			2018			2019
Purchases	$	(6,882	)	$	(8,186	)	$	(10,258	)	$	(19,812	)
Sales	6,340			10,026			13,899			13,018

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 retained amounts not required 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 Sheet at December 31, 2018 and June 30, 2019 are as follows (in thousands):



	December 31, 2018			June 30, 2019
Preneed funeral trust investments, at market value	$	84,803		$	91,459
Less: allowance for contract cancellation	(2,729		)	(2,763		)
Preneed funeral trust investments, net	$	82,074		$	88,696

Upon cancellation of a preneed funeral contract, a customer is generally entitled to receive a refund of the corpus and in some instances, a portion of all 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 investment income. As a result, when realized or unrealized losses of a trust result in the trust being underfunded, we assess whether we are responsible for replenishing the corpus of the trust, in which case a loss provision is recorded. At June 30, 2019, none of our preneed funeral trust investments were underfunded.

Earnings from our preneed funeral trust investments are recognized as 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 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 six months ended June 30, 2019. There are no Level 3 investments in the preneed funeral trust investment portfolio. See Note 8 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 June 30, 2019 are detailed below (in thousands, except percentages):



	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Fair Market Value
Cash and money market accounts	1	$	25,145	$	—	$	—		$	25,145
Fixed income securities:
U.S treasury debt	1	944		1		(3		)	942
Foreign debt	2	5,683		106		(264		)	5,525
Corporate debt	2	13,482		595		(525		)	13,552
Preferred stock	2	13,543		646		(333		)	13,856
Mortgage-backed securities	2	698		10		(85		)	623
Common stock	1	28,227		1,921		(3,258		)	26,890
Mutual funds:
Fixed income	2	1,419		38		(50		)	1,407
Other investments	2	2,959		—		—			2,959
Trust securities		$	92,100	$	3,317	$	(4,518	)	$	90,899
Accrued investment income		$	560						$	560
Preneed funeral trust investments									$	91,459
Market value as a percentage of cost									98.7		%

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



Due in one year or less	$	121
Due in one to five years	3,457
Due in five to ten years	9,164
Thereafter	21,756
Total	$	34,498

The cost and fair market values associated with preneed funeral trust investments at December 31, 2018 are detailed below (in thousands, except percentages):



	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Fair Market Value
Cash and money market accounts	1	$	31,375	$	—	$	—		$	31,375
Fixed income securities:
U.S. treasury debt	1	1,319		3		(19		)	1,303
Foreign debt	2	3,748		44		(503		)	3,289
Corporate debt	2	14,195		294		(1,025		)	13,464
Preferred stock	2	11,500		54		(1,194		)	10,360
Mortgage-backed securities	2	772		168		(18		)	922
Common stock	1	24,803		887		(5,389		)	20,301
Mutual funds:
Fixed income	2	275		—		(29		)	246
Other investments	2	3,006		—		—			3,006
Trust securities		$	90,993	$	1,450	$	(8,177	)	$	84,266
Accrued investment income		$	537						$	537
Preneed funeral trust investments									$	84,803
Market value as a percentage of cost									92.6		%

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 Sheet. In the three and six months ended June 30, 2018 and 2019, we did not record any impairments for other-than-temporary declines in the fair value related to unrealized losses on certain investments. 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 June 30, 2019, 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 June 30, 2019 are shown in the following table (in thousands):



	June 30, 2019
	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. treasury debt	$	—	$	—		$	821	$	(3	)	$	821	$	(3	)
Foreign debt	1,271		(38		)	1,116		(226		)	2,387		(264		)
Corporate debt	1,990		(93		)	4,518		(432		)	6,508		(525		)
Preferred stock	347		(4		)	6,924		(329		)	7,271		(333		)
Mortgage-backed securities	9		—			396		(85		)	405		(85		)
Common stock	11,905		(2,131		)	2,267		(1,127		)	14,172		(3,258		)
Mutual Funds:
Fixed income	293		(36		)	261		(14		)	554		(50		)
Other Investments	430		—			—		—			430		—
Total temporary impaired securities	$	16,245	$	(2,302	)	$	16,303	$	(2,216	)	$	32,548	$	(4,518	)

Our preneed funeral trust investment unrealized losses, their associated fair market values, and the duration of unrealized losses as of December 31, 2018 are shown in the following table (in thousands):



	December 31, 2018
	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. treasury debt	$	—	$	—		$	1,181	$	(19	)	$	1,181	$	(19	)
Foreign debt	2,180		(251		)	850		(252		)	3,030		(503		)
Corporate debt	9,990		(814		)	434		(211		)	10,424		(1,025		)
Preferred stock	5,967		(460		)	3,673		(734		)	9,640		(1,194		)
Mortgage-backed securities	11		—			120		(18		)	131		(18		)
Common stock	14,327		(4,035		)	1,155		(1,354		)	15,482		(5,389		)
Mutual funds:
Fixed income	—		—			246		(29		)	246		(29		)
Total temporary impaired securities	$	32,475	$	(5,560	)	$	7,659	$	(2,617	)	$	40,134	$	(8,177	)

Preneed funeral trust investment security transactions recorded in Other, net on the Consolidated Statements of Operations for the three and six months ended June 30, 2018 and 2019 are as follows (in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2019			2018			2019
Investment income	$	479		$	409		$	891		$	982
Realized gains	11			2,486			2,907			3,806
Realized losses	(782		)	(1,007		)	(1,391		)	(424		)
Expenses and taxes	(334		)	(513		)	(478		)	(285		)
Net change in deferred preneed funeral receipts held in trust	626			(1,375		)	(1,929		)	(4,079		)
	$	—		$	—		$	—		$	—

Purchases and sales of investments in the preneed funeral trusts for the three and six months ended June 30, 2018 and 2019 are as follows (in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2019			2018			2019
Purchases	$	(7,153	)	$	(8,436	)	$	(10,439	)	$	(19,195	)
Sales	6,617			10,816			14,212			13,601