PRENEED TRUST INVESTMENTS

Preneed Cemetery Trust Investments

Preneed cemetery trust investments represent trust fund assets that we are generally permitted to withdraw as the 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 Sheet at December 31, 2018 and 2019 are as follows (in thousands):



	December 31, 2018			December 31, 2019
Preneed cemetery trust investments, at market value	$	64,549		$	74,572
Less: allowance for contract cancellation	(2,117		)	(2,190		)
Preneed cemetery trust investments, net	$	62,432		$	72,382

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 December 31, 2019, none of our preneed cemetery trust investments were underfunded.

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 as 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 stock, 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 year ended December 31, 2019. There are no Level 3 investments in the preneed cemetery trust investment portfolio. See Note 12 to the Consolidated Financial Statements included herein 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 December 31, 2019 are detailed below (in thousands):



	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Fair Market Value
Cash and money market accounts	1	$	5,729	$	—	$	—		$	5,729
Fixed income securities:
Foreign debt	2	5,609		312		(243		)	5,678
Corporate debt	2	16,916		1,044		(649		)	17,311
Preferred stock	2	14,206		904		(164		)	14,946
Mortgage-backed securities	2	517		—		(114		)	403
Common stock	1	28,569		2,766		(3,017		)	28,318
Mutual funds:
Fixed Income	2	1,463		72		(85		)	1,450
Trust securities		$	73,009	$	5,098	$	(4,272	)	$	73,835
Accrued investment income		$	737						$	737
Preneed cemetery trust investments									$	74,572
Market value as a percentage of cost									101.1		%

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	4,518
Due in five to ten years	10,395
Thereafter	23,425
Total fixed income securities	$	38,338

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



	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. We did not record any impairments in the year ended December 31, 2018 and 2019. There is 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 December 31, 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 December 31, 2019 are shown in the following tables (in thousands):



	December 31, 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	$	268	$	(42	)	$	758	$	(201	)	$	1,026	$	(243	)
Corporate debt	1,368		(168		)	4,520		(481		)	5,888		(649		)
Preferred stock	4,135		(164		)	—		—			4,135		(164		)
Mortgage-backed securities	—		—			402		(114		)	402		(114		)
Common stock	5,079		(652		)	4,178		(2,365		)	9,257		(3,017		)
Mutual funds:
Fixed Income	532		(85		)	—		—			532		(85		)
Total temporary impaired securities	$	11,382	$	(1,111	)	$	9,858	$	(3,161	)	$	21,240	$	(4,272	)

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 tables (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 years ended December 31, 2017, 2018 and 2019 are as follows (in thousands):



	Years ended December 31,
	2017			2018			2019
Investment income	$	2,250		$	1,596		$	1,743
Realized gains	2,218			4,546			6,353
Realized losses	(2,384		)	(5,817		)	(4,677		)
Expenses and taxes	(1,308		)	(907		)	(1,313		)
Net change in deferred preneed cemetery receipts held in trust	(776		)	582			(2,106		)
	$	—		$	—		$	—

Purchases and sales of investments in the preneed cemetery trusts for the years ended December 31, 2017, 2018 and 2019 are as follows (in thousands):



	Years ended December 31,
	2017			2018			2019
Purchases	$	(21,966	)	$	(27,006	)	$	(40,984	)
Sales	14,002			39,180			29,635

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 2019 are as follows (in thousands):



	December 31, 2018			December 31, 2019
Preneed funeral trust investments, at market value	$	84,803		$	99,246
Less: allowance for contract cancellation	(2,729		)	(2,911		)
Preneed funeral trust investments	$	82,074		$	96,335

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 December 31, 2019, none of our preneed funeral trust investments were underfunded.

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, 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 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 year ended December 31, 2019. There are no Level 3 investments in the preneed funeral trust investment portfolio. See Note 12 to the Consolidated Financial Statements included herein 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 December 31, 2019 are detailed below (in thousands):



	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Fair Market Value
Cash and money market accounts	1	$	24,160	$	—	$	—		$	24,160
Fixed income securities:
U. S. treasury debt	1	822		—		—			822
Foreign debt	2	5,587		309		(232		)	5,664
Corporate debt	2	16,109		992		(646		)	16,455
Preferred stock	2	14,094		874		(198		)	14,770
Mortgage-backed securities	2	585		—		(117		)	468
Common stock	1	27,652		2,773		(2,869		)	27,556
Mutual funds:
Equity	1	772		617		(4		)	1,385
Fixed income	2	4,364		107		(107		)	4,364
Other investments	2	2,902		—		—			2,902
Trust securities		$	97,047	$	5,672	$	(4,173	)	$	98,546
Accrued investment income		$	700						$	700
Preneed funeral trust investments									$	99,246
Market value as a percentage of cost									101.5		%

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	5,456
Due in five to ten years	9,656
Thereafter	23,067
Total fixed income securities	$	38,179

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



	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. We did not record any impairments in the year ended December 31, 2018 and 2019. 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 December 31, 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 December 31, 2019 are shown the the following tables (in thousands):



	December 31, 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	$	274	$	(43	)	$	723	$	(189	)	$	997	$	(232	)
Corporate debt	1,403		(172		)	4,433		(474		)	5,836		(646		)
Preferred stock	4,412		(198		)	—		—			4,412		(198		)
Mortgage-backed securities	—		—			439		(117		)	439		(117		)
Common Stock	4,732		(625		)	4,068		(2,244		)	8,800		(2,869		)
Mutual funds:
Equity and Other	—		—			48		(4		)	48		(4		)
Fixed income	668		(56		)	1,021		(51		)	1,689		(107		)
Total temporary impaired securities	$	11,489	$	(1,094	)	$	10,732	$	(3,079	)	$	22,221	$	(4,173	)

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 the the following tables (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 our Consolidated Statements of Operations for the years ended December 31, 2017, 2018 and 2019 are as follows (in thousands):



	Years ended December 31,
	2017			2018			2019
Investment income	$	2,420		$	1,623		$	1,753
Realized gains	2,386			6,662			6,214
Realized losses	(2,396		)	(5,882		)	(4,612		)
Expenses and taxes	(1,290		)	(885		)	(1,129		)
Net change in deferred preneed funeral receipts held in trust	(1,120		)	(1,518		)	(2,226		)
	$	—		$	—		$	—

Purchases and sales of investments in the preneed funeral trusts for the years ended December 31, 2017, 2018 and 2019 are as follows (in thousands):



	Years ended December 31,
	2017			2018			2019
Purchases	$	(21,954	)	$	(28,264	)	$	(38,984	)
Sales	14,463			39,955			29,983