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 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 Sheets at December 31, 2016 and September 30, 2017 were as follows (in thousands):



	December 31, 2016			September 30, 2017
Preneed cemetery trust investments, at market value	$	71,834		$	73,889
Less: allowance for contract cancellation	(2,138		)	(2,161		)
Preneed cemetery trust investments, net	$	69,696		$	71,728

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 September 30, 2017, 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 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, 2017. There are no Level 3 investments in the preneed cemetery trust investment portfolio. See Note 7 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, 2017 are detailed below (in thousands):



	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Fair Market Value
Cash and money market accounts	1	$	4,698	$	—	$	—		$	4,698
Fixed income securities:
Foreign debt	2	4,834		275		(168		)	4,941
Corporate debt	2	19,335		1,145		(553		)	19,927
Preferred stock	2	16,329		383		(524		)	16,188
Mortgage-backed securities	2	1,089		240		(23		)	1,306
Common stock	1	24,574		3,376		(3,119		)	24,831
Mutual funds:
Fixed Income	2	1,200		81		—			1,281
Trust securities		$	72,059	$	5,501	$	(4,387	)	$	73,173
Accrued investment income		$	716						$	716
Preneed cemetery trust investments									$	73,889
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	$	15
Due in one to five years	2,718
Due in five to ten years	5,751
Thereafter	33,879
Total	$	42,363

The cost and fair market values associated with preneed cemetery trust investments at December 31, 2016 are detailed below (in thousands):



	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Fair Market Value
Cash and money market accounts	1	$	10,852	$	—	$	—		$	10,852
Fixed income securities:
Municipal bonds	2	496		18		(4		)	510
Foreign debt	2	7,574		160		(656		)	7,078
Corporate debt	2	20,621		1,569		(1,123		)	21,067
Preferred stock	2	16,287		8		(947		)	15,348
Mortgage-backed securities	2	949		372		(4		)	1,317
Common stock	1	13,250		2,191		(1,838		)	13,603
Mutual funds:
Fixed income		1,223		107		—			1,330
Trust securities		$	71,252	$	4,425	$	(4,572	)	$	71,105
Accrued investment income		$	729						$	729
Preneed cemetery trust investments									$	71,834
Market value as a percentage of cost									99.8		%

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, 2017. In the nine months ended September 30, 2016, we recorded a $0.8 million impairment and no impairments have been recorded in the nine months ended September 30, 2017. 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, 2017, 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 September 30, 2017 are shown in the following table (in thousands):



	September 30, 2017
	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	$	153	$	(2	)	$	1,657	$	(166	)	$	1,810	$	(168	)
Corporate debt	2,158		(410		)	624		(143		)	2,782		(553		)
Preferred stock	273		(2		)	8,111		(522		)	8,384		(524		)
Mortgage-backed securities	200		(23		)	—		—			200		(23		)
Common stock	8,473		(2,247		)	1,936		(872		)	10,409		(3,119		)
Mutual Funds:
Fixed Income	—		—			—		—			—		—
Total temporary impaired securities	$	11,257	$	(2,684	)	$	12,328	$	(1,703	)	$	23,585	$	(4,387	)

Our preneed cemetery trust investment unrealized losses, their associated fair market values, and the duration of unrealized losses as of December 31, 2016 are shown in the following table (in thousands):



	December 31, 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:
Municipal bonds	$	228	$	(4	)	$	—	$	—		$	228	$	(4	)
Foreign debt	2,523		(180		)	2,868		(475		)	5,391		(655		)
Corporate debt	6,939		(233		)	2,168		(890		)	9,107		(1,123		)
Preferred stock	3,217		(121		)	11,635		(826		)	14,852		(947		)
Mortgage-backed securities	51		(5		)	—		—			51		(5		)
Common stock	2,608		(202		)	3,385		(1,636		)	5,993		(1,838		)
Total temporary impaired securities	$	15,566	$	(745	)	$	20,056	$	(3,827	)	$	35,622	$	(4,572	)

Preneed cemetery trust investment security transactions recorded in Other, net on our Consolidated Statements of Operations for the three and nine months ended September 30, 2016 and 2017 were as follows (in thousands):



	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2016			2017			2016			2017
Investment income	$	578		$	474		$	1,546		$	1,755
Realized gains	126			—			415			2,215
Realized losses	(673		)	—			(4,081		)	(1,312		)
Expenses and taxes	(139		)	(336		)	(832		)	(1,213		)
Decrease (increase) in deferred preneed cemetery receipts held in trust	108			(138		)	2,952			(1,445		)
	$	—		$	—		$	—		$	—

Purchases and sales of investments in the preneed cemetery trusts for the three and nine months ended September 30, 2016 and 2017 were as follows (in thousands):



	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2016			2017			2016			2017
Purchases	$	(1,434	)	$	(915	)	$	(19,540	)	$	(19,355	)
Sales	$	5,973		$	—		$	18,003		$	13,189

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 Sheets at December 31, 2016 and September 30, 2017 were as follows (in thousands):



	December 31, 2016			September 30, 2017
Preneed funeral trust investments, at market value	$	91,980		$	92,151
Less: allowance for contract cancellation	(2,740		)	(2,707		)
Preneed funeral trust investments, net	$	89,240		$	89,444

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 September 30, 2017, 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 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, 2017. There are no Level 3 investments in the preneed funeral trust investment portfolio. See Note 7 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, 2017 are detailed below (in thousands):



	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Fair Market Value
Cash and money market accounts	1	$	15,636	$	—	$	—		$	15,636
Fixed income securities:
U.S treasury debt	1	1,490		13		(4		)	1,499
Foreign debt	2	4,882		282		(166		)	4,998
Corporate debt	2	20,244		1,165		(571		)	20,838
Preferred stock	2	16,837		457		(526		)	16,768
Mortgage-backed securities	2	1,273		255		(25		)	1,503
Common stock	1	24,488		3,392		(3,133		)	24,747
Mutual funds:
Fixed income	2	1,998		87		(38		)	2,047
Other investments	2	3,374		—		—			3,374
Trust securities		$	90,222	$	5,651	$	(4,463	)	$	91,410
Accrued investment income		$	741						$	741
Preneed funeral trust investments									$	92,151
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	$	78
Due in one to five years	4,320
Due in five to ten years	6,208
Thereafter	35,000
Total	$	45,606

The cost and fair market values associated with preneed funeral trust investments at December 31, 2016 are detailed below (in thousands):



	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Fair Market Value
Cash and money market accounts	1	$	22,787	$	—	$	—		$	22,787
Fixed income securities:
U.S. treasury debt	1	1,491		21		(10		)	1,502
Municipal bonds	2	447		17		(4		)	460
Foreign debt	2	7,692		170		(677		)	7,185
Corporate debt	2	21,454		1,566		(1,134		)	21,886
Preferred stock	2	17,037		64		(970		)	16,131
Mortgage-backed securities	2	1,165		400		(5		)	1,560
Common stock	1	13,675		2,256		(1,850		)	14,081
Mutual funds:
Fixed income	2	2,124		115		(66		)	2,173
Other investments	2	3,463		—		—			3,463
Trust securities		$	91,335	$	4,609	$	(4,716	)	$	91,228
Accrued investment income		$	752						$	752
Preneed funeral trust investments									$	91,980
Market value as a percentage of cost									99.9		%

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 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, 2017. In the nine months ended September 30, 2016, we recorded a $0.9 million impairment and no impairments have been recorded in the nine months ended September 30, 2017. 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, 2017, 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, 2017 are shown in the following table (in thousands):



	September 30, 2017
	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	$	837	$	(4	)	$	—	$	—		$	837	$	(4	)
Foreign debt	170		(4		)	1,628		(163		)	1,798		(167		)
Corporate debt	2,273		(430		)	609		(141		)	2,882		(571		)
Preferred stock	191		(6		)	8,183		(520		)	8,374		(526		)
Mortgage-backed securities	234		(24		)	9		—			243		(24		)
Common stock	8,497		(2,241		)	1,934		(892		)	10,431		(3,133		)
Mutual Funds:
Fixed income	79		(1		)	608		(37		)	687		(38		)
Total temporary impaired securities	$	12,281	$	(2,710	)	$	12,971	$	(1,753	)	$	25,252	$	(4,463	)

Our preneed funeral trust investment unrealized losses, their associated fair market values, and the duration of unrealized losses as of December 31, 2016 are shown in the following table (in thousands):



	December 31, 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:
U.S. treasury debt	$	834	$	(10	)	$	—	$	—		$	834	$	(10	)
Municipal bonds	244		(5		)	—		—			244		(5		)
Foreign debt	2,654		(186		)	2,905		(490		)	5,559		(676		)
Corporate debt	6,977		(215		)	2,234		(919		)	9,211		(1,134		)
Preferred stock	3,420		(128		)	11,750		(842		)	15,170		(970		)
Mortgage-backed securities	55		(5		)	11		(1		)	66		(6		)
Common stock	2,795		(216		)	3,390		(1,634		)	6,185		(1,850		)
Mutual funds:
Fixed income	97		(7		)	644		(58		)	741		(65		)
Total temporary impaired securities	$	17,076	$	(772	)	$	20,934	$	(3,944	)	$	38,010	$	(4,716	)

Preneed funeral trust investment security transactions recorded in Other, net on the Consolidated Statements of Operations for the three and nine months ended September 30, 2016 and 2017 were as follows (in thousands):



	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2016			2017			2016			2017
Investment income	$	596		$	524		$	1,639		$	1,801
Realized gains	131			—			525			2,296
Realized losses	(716		)	(2		)	(4,090		)	(1,314		)
Expenses and taxes	(253		)	(390		)	(946		)	(1,106		)
Decrease (increase) in deferred preneed funeral receipts held in trust	242			(132		)	2,872			(1,677		)
	$	—		$	—		$	—		$	—

Purchases and sales of investments in the preneed funeral trusts for the three and nine months ended September 30, 2016 and 2017 were as follows (in thousands):



	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2016			2017			2016			2017
Purchases	$	(1,486	)	$	(966	)	$	(19,917	)	$	(19,548	)
Sales	$	6,336		$	23		$	19,005		$	13,266