MERCHANDISE TRUSTS

9 Months Ended

12 Months Ended

Sep. 30, 2019

Dec. 31, 2018

Investments Debt And Equity Securities [Abstract]

6.	MERCHANDISE TRUSTS

At September 30, 2019 and December 31, 2018, the Partnership’s merchandise trusts consisted of investments in debt and equity marketable securities and cash equivalents, both directly and through mutual and investment funds. All of these investments are carried at fair value. All of these investments are subject to the fair value hierarchy and considered either Level 1 or Level 2 assets pursuant to the three-level hierarchy described in Note 13 Fair Value of Financial Instruments. There were no Level 3 assets. When the Partnership receives a payment from a pre-need customer, the Partnership deposits the amount required by law into the merchandise trusts that may be subject to cancellation on demand by the pre-need customer. The Partnership’s merchandise trusts related to states in which pre-need customers may cancel contracts with the Partnership comprises 53.6% of the total merchandise trust as of September 30, 2019. The merchandise trusts are variable interest entities (“VIE”) of which the Partnership is deemed the primary beneficiary. The assets held in the merchandise trusts are required to be used to purchase the merchandise and provide the services to which they relate. If the value of these assets falls below the cost of purchasing such merchandise and providing such services, the Partnership may be required to fund this shortfall.

The Partnership included $9.3 million and $8.7 million of investments held in trust as required by law by the West Virginia Funeral Directors Association at September 30, 2019 and December 31, 2018 respectively, in its merchandise trust assets. These trusts are recognized at their account value, which approximates fair value.

A reconciliation of the Partnership’s merchandise trust activities for the nine months ended September 30, 2019 and 2018 is presented below (in thousands):

	Nine months ended September 30,
	2019			2018
Balance—beginning of period	$	488,248		$	515,456
Contributions		40,440			49,762
Distributions		(45,256	)		(53,321	)
Interest and dividends		22,537			20,486
Capital gain distributions		363			405
Realized gains and losses, net		2,063			(258	)
Other than temporary impairment		(2,816	)		(11,977	)
Taxes		(655	)		(337	)
Fees		(3,206	)		(3,049	)
Unrealized change in fair value		17,811			2,860
Balance—end of period	$	519,529		$	520,027

During the nine months ended September 30, 2019 and 2018, purchases of available for sale securities were approximately $42.2 million and $78.3 million, respectively. During the nine months ended September 30, 2019 and 2018, sales, maturities and paydowns of available for sale securities were approximately $30.7 million and $66.6 million, respectively. Cash flows from pre-need contracts are presented as operating cash flows in the Partnership’s unaudited condensed consolidated statement of cash flows.

The cost and market value associated with the assets held in the merchandise trusts as of September 30, 2019 and December 31, 2018 were as follows (in thousands):

September 30, 2019	Fair Value Hierarchy Level	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Short-term investments	1	$	182,560	$	—	$	—		$	182,560
Fixed maturities:
U.S. governmental securities	2		488		10		(95	)		403
Corporate debt securities	2		816		13		(116	)		713
Total fixed maturities			1,304		23		(211	)		1,116
Mutual funds—debt securities	1		117,566		4,937		(79	)		122,424
Mutual funds—equity securities	1		47,346		3,035		(1	)		50,380
Other investment funds⁽¹⁾			130,952		2,410		(2,524	)		130,838
Equity securities	1		13,293		1,175		(4	)		14,464
Other invested assets	2		8,403		16		—			8,419
Total investments		$	501,424	$	11,596	$	(2,819	)	$	510,201
West Virginia Trust Receivable			9,328		—		—			9,328
Total		$	510,752	$	11,596	$	(2,819	)	$	519,529

⁽¹⁾

Other investment funds are measured at fair value using the net asset value per share practical expedient and have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the balance sheet. This asset class is composed of fixed income funds and equity funds, which have redemption periods ranging from 1 to 30 days, and private credit funds, which have lockup periods of one to seven years with three potential one year extensions at the discretion of the funds’ general partners. As of September 30, 2019, there were $63.3 million in unfunded investment commitments to the private credit funds, which are callable at any time.

December 31, 2018	Fair Value Hierarchy Level	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Short-term investments	1	$	16,903	$	—	$	—		$	16,903
Fixed maturities:
U.S. governmental securities	2		392		—		(147	)		245
Corporate debt securities	2		1,311		29		(328	)		1,012
Total fixed maturities			1,703		29		(475	)		1,257
Mutual funds—debt securities	1		187,840		262		(2,645	)		185,457
Mutual funds—equity securities	1		45,023		110		(18	)		45,115
Other investment funds⁽¹⁾			210,655		388		(7,784	)		203,259
Equity securities	1		18,097		1,327		(213	)		19,211
Other invested assets	2		8,398		2		(17	)		8,383
Total investments		$	488,619	$	2,118	$	(11,152	)	$	479,585
West Virginia Trust Receivable			8,663		—		—			8,663
Total		$	497,282	$	2,118	$	(11,152	)	$	488,248

⁽¹⁾

Other investment funds are measured at fair value using the net asset value per share practical expedient and have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the balance sheet. This asset class is composed of fixed income funds and equity funds, which have redemption periods ranging from 1 to 30 days, and private credit funds, which have lockup periods of two to seven years with three potential one year extensions at the discretion of the funds’ general partners. As of December 31, 2018, there were $71.0 million in unfunded investment commitments to the private credit funds, which are callable at any time.

The contractual maturities of debt securities as of September 30, 2019 and December 31, 2018 were as follows below (in thousands):

September 30, 2019	Less than 1 year		1 year through 5 years		6 years through 10 years		More than 10 years
U.S. governmental securities	$	112	$	30	$	246	$	16
Corporate debt securities		96		598		18		—
Total fixed maturities	$	208	$	628	$	264	$	16

December 31, 2018	Less than 1 year		1 year through 5 years		6 years through 10 years		More than 10 years
U.S. governmental securities	$	—	$	137	$	108	$	—
Corporate debt securities		68		873		55		16
Total fixed maturities	$	68	$	1,010	$	163	$	16

Temporary Declines in Fair Value The Partnership evaluates declines in fair value below cost for each asset held in the merchandise trusts on a quarterly basis.

An aging of unrealized losses on the Partnership’s investments in debt and equity securities within the merchandise trusts as of September 30, 2019 and December 31, 2018 is presented below (in thousands):

	Less than 12 months				12 months or more				Total
September 30, 2019	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Fixed maturities:
U.S. governmental securities	$	110	$	—	$	397	$	95	$	507	$	95
Corporate debt securities		75		6		424		110		499		116
Total fixed maturities		185		6		821		205		1,006		211
Mutual funds—debt securities		15,178		79		—		—		15,178		79
Mutual funds—equity securities		242		1		—		—		242		1
Other investment funds		69,464		2,524		—		—		69,464		2,524
Equity securities		5		4		—		—		5		4
Other invested assets		—		—		—		—		—		—
Total	$	85,074	$	2,614	$	821	$	205	$	85,895	$	2,819

	Less than 12 months				12 months or more				Total
December 31, 2018	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Fixed maturities:
U.S. governmental securities	$	—	$	—	$	243	$	147	$	243	$	147
Corporate debt securities		103		2		549		326		652		328
Total fixed maturities		103		2		792		473		895		475
Mutual funds—debt securities		46,005		2,011		1,195		634		47,200		2,645
Mutual funds—equity securities		131		18		—		—		131		18
Other investment funds		169,929		7,784		—		—		169,929		7,784
Equity securities		—		—		597		213		597		213
Other invested assets		—		4		790		13		790		17
Total	$	216,168	$	9,819	$	3,374	$	1,333	$	219,542	$	11,152

For all securities in an unrealized loss position, the Partnership evaluated the severity of the impairment and length of time that a security has been in a loss position and concluded the decline in fair value below the asset’s cost was temporary in nature. In addition, the Partnership is not aware of any circumstances that would prevent the future market value recovery for these securities.

Other-Than-Temporary Impairment of Trust Assets

The Partnership assesses its merchandise trust assets for other-than-temporary declines in fair value on a quarterly basis. During the three months ended September 30, 2019, the Partnership determined, based on its review, that there were 62 securities with an aggregate cost basis of approximately $4.8 million and an aggregate fair value of approximately $4.3 million, resulting in an impairment of $0.5 million, with such impairment considered to be other-than-temporary. During the three months ended September 30, 2018, the Partnership determined, based on its review, that there were 37 securities with an aggregate cost basis of approximately $62.1 million and an aggregate fair value of approximately $61.3 million, resulting in an impairment of $0.8 million, with such impairment considered to be other-than-temporary. During the nine months ended September 30, 2019, the Partnership determined, based on its review, that there were 87 securities with an aggregate cost basis of approximately $96.7 million and an aggregate fair value of approximately $93.9 million, resulting in an impairment of $2.8 million, with such impairment considered to be other-than-temporary. During the nine months ended September 30, 2018, the Partnership determined, based on its review, that there were 122 securities with an aggregate cost basis of approximately $227.9 million and an aggregate fair value of approximately $215.9 million, resulting in an impairment of $12.0 million, with such impairment considered to be other-than-temporary due to credit indicators. Accordingly, the Partnership adjusted the cost basis of these assets to their current value and offset these changes against deferred merchandise trust revenue. These adjustments to deferred revenue will be reflected within the Partnership’s unaudited condensed consolidated statements of operations in future periods as the underlying merchandise is delivered or the underlying service is performed.

7.	MERCHANDISE TRUSTS

At December 31, 2018 and 2017, the Partnership’s merchandise trusts consisted of investments in debt and equity marketable securities and cash equivalents, both directly as well as through mutual and investment funds.

All of these investments are carried at fair value. All of these investments subject to the fair value hierarchy are considered either Level 1 or Level 2 assets pursuant to the three-level hierarchy described in Note 15. There were no Level 3 assets.

As discussed in Note 1, when we receive a payment from a customer, we deposit the amount required by law into the merchandise trusts that may be subject to cancellation on demand by the customer. The Partnership’s merchandise trusts related to states in which customers may cancel contracts with us comprise 53.3% of the total merchandise trust as of December 31, 2018.

The merchandise trusts are variable interest entities (“VIE”) of which the Partnership is deemed the primary beneficiary. The assets held in the merchandise trusts are required to be used to purchase the merchandise and provide the services to which they relate. If the value of these assets falls below the cost of purchasing such merchandise and providing such services, the Partnership may be required to fund this shortfall.

The Partnership included $8.7 million and $9.1 million of investments held in trust as required by law by the West Virginia Funeral Directors Association at December 31, 2018 and December 31, 2017, respectively in its merchandise trust assets. These trusts are recognized at their account value, which approximates fair value.

A reconciliation of the Partnership’s merchandise trust activities for the years ended December 31, 2018 and 2017 is presented below (in thousands):

	Years Ended December 31,
	2018			2017
Balance—beginning of period	$	515,456		$	507,079
Contributions		66,408			59,983
Distributions		(79,862	)		(81,634	)
Interest and dividends		27,228			24,762
Capital gain distributions		543			1,149
Realized gains and losses, net		(1,012	)		17,762
Other than temporary impairment		(28,555	)		—
Taxes		(347	)		(1,272	)
Fees		(3,855	)		(3,095	)
Unrealized change in fair value		(7,756	)		(9,278	)
Balance—end of period	$	488,248		$	515,456

During the years ended December 31, 2018 and 2017, purchases of available for sale securities were approximately $117.7 million and $374.5 million, respectively. During the years ended December 31, 2018 and 2017, sales, maturities and paydowns of available for sale securities were approximately $109.5 million and $368.1 million, respectively. Cash flows from pre-need contracts are presented as operating cash flows in our consolidated statement of cash flows.

The cost and market value associated with the assets held in the merchandise trusts as of December 31, 2018 and 2017 were as follows (in thousands):

December 31, 2018	Fair Value Hierarchy Level		Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Short-term investments		1	$	16,903	$	—	$	—		$	16,903
Fixed maturities:
U.S. governmental securities		2		392		-		(147	)		245
Corporate debt securities		2		1,311		29		(328	)		1,012
Total fixed maturities				1,703		29		(475	)		1,257
Mutual funds—debt securities		1		187,840		262		(2,645	)		185,457
Mutual funds—equity securities		1		45,023		110		(18	)		45,115
Other investment funds (1)				210,655		388		(7,784	)		203,259
Equity securities		1		18,097		1,327		(213	)		19,211
Other invested assets		2		8,398		2		(17	)		8,383
Total investments			$	488,619	$	2,118	$	(11,152	)	$	479,585
West Virginia Trust Receivable				8,663		—		—			8,663
Total			$	497,282	$	2,118	$	(11,152	)	$	488,248

(1)

Other investment funds are measured at fair value using the net asset value per share practical expedient and have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the balance sheet. This asset class is composed of fixed income funds and equity funds, which have redemption periods ranging from 1 to 30 days, and private credit funds, which have lockup periods of two to seven years with three potential one year extensions at the discretion of the funds’ general partners. As of December 31, 2018, there were $71.0 million in unfunded commitments to the private credit funds, which are callable at any time.

December 31, 2017	Fair Value Hierarchy Level		Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Short-term investments		1	$	10,421	$	—	$	—		$	10,421
Fixed maturities:
U.S. governmental securities		2		196		1		(65	)		132
Corporate debt securities		2		1,204		52		(242	)		1,014
Total fixed maturities				1,400		53		(307	)		1,146
Mutual funds—debt securities		1		222,450		1,522		(1,211	)		222,761
Mutual funds—equity securities		1		71,500		2,399		(6,292	)		67,607
Other investment funds (1)				171,044		522		(401	)		171,165
Equity securities		1		21,808		2,715		(277	)		24,246
Other invested assets		2		9,013		—		—			9,013
Total investments			$	507,636	$	7,211	$	(8,488	)	$	506,359
West Virginia Trust Receivable				9,097		—		—			9,097
Total			$	516,733	$	7,211	$	(8,488	)	$	515,456

(1)

Other investment funds are measured at fair value using the net asset value per share practical expedient and have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the balance sheet. This asset class is composed of fixed income funds and equity funds which have redemption periods ranging from 1 to 90 days, and private credit funds, which have lockup periods of four to eight years with two potential one year extensions at the discretion of the funds’ general partners. As of December 31, 2017, there were $52.1 million in unfunded commitments to the private credit funds, which are callable at any time.

The contractual maturities of debt securities as of December 31, 2018 and 2017 were as follows below (in thousands):

December 31, 2018	Less than 1 year		1 year through 5 years		6 years through 10 years		More than 10 years
U.S. governmental securities	$	—	$	137	$	108	$	—
Corporate debt securities		68		873		55		16
Total fixed maturities	$	68	$	1,010	$	163	$	16

December 31, 2017	Less than 1 year		1 year through 5 years		6 years through 10 years		More than 10 years
U.S. governmental securities	$	—	$	78	$	54	$	—
Corporate debt securities		76		801		125		11
Total fixed maturities	$	76	$	879	$	179	$	11

Temporary Declines in Fair Value

The Partnership evaluates declines in fair value below cost for each asset held in the merchandise trusts on a quarterly basis.

An aging of unrealized losses on the Partnership’s investments in debt and equity securities within the merchandise trusts as of December 31, 2018 and 2017 is presented below (in thousands):

	Less than 12 months				12 months or more				Total
December 31, 2018	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Fixed maturities:
U.S. governmental securities	$	—	$	—	$	243	$	147	$	243	$	147
Corporate debt securities		103		2		549		326		652		328
Total fixed maturities		103		2		792		473		895		475
Mutual funds—debt securities		46,005		2,011		1,195		634		47,200		2,645
Mutual funds—equity securities		131		18		—		—		131		18
Other investment funds		169,929		7,784		—		—		169,929		7,784
Equity securities		-		-		597		213		597		213
Other invested assets		-		4		790		13		790		17
Total	$	216,168	$	9,819	$	3,374	$	1,333	$	219,542	$	11,152

	Less than 12 months				12 months or more				Total
December 31, 2017	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Fixed maturities:
U.S. governmental securities	$	—	$	—	$	112	$	65	$	112	$	65
Corporate debt securities		150		50		361		192		511		242
Total fixed maturities		150		50		473		257		623		307
Mutual funds—debt securities		102,526		912		1,462		299		103,988		1,211
Mutual funds—equity securities		51,196		6,292		—		—		51,196		6,292
Other investment funds		48,140		401		—		—		48,140		401
Equity securities		2,906		255		390		22		3,296		277
Total	$	204,918	$	7,910	$	2,325	$	578	$	207,243	$	8,488

Other-Than-Temporary Impairment of Trust Assets

The Partnership assesses its merchandise trust assets for other-than-temporary declines in fair value on a quarterly basis. During the year ended December 31, 2018, the Partnership determined, based on its review, that there were 214 securities with an aggregate cost basis of approximately $285.5 million and an aggregate fair value of approximately $256.9 million, resulting in an impairment of $28.6 million, with such impairment considered to be other-than-temporary due to credit indicators. Accordingly, the Partnership adjusted the cost basis of these assets to their current value and offset this change against deferred merchandise trust revenue. This adjustment to deferred revenue will be reflected within the Partnership’s consolidated statement of operations in future periods as the underlying merchandise is delivered or the underlying service is performed. During the year ended December 31, 2017, the Partnership determined that there were no other than temporary impairments to the investment portfolio in the merchandise trust.