MERCHANDISE TRUSTS

12 Months Ended

Dec. 31, 2020

Investments Debt And Equity Securities [Abstract]

7.	MERCHANDISE TRUSTS

At December 31, 2020 and 2019 the Company’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 18 Fair Value. There were no Level 3 assets in the Company’s merchandise trusts. When the Company receives a payment from a pre-need customer, the Company deposits the amount required by law into the merchandise trusts that may be subject to cancellation on demand by the pre-need customer. The Company’s merchandise trusts related to states in which pre-need customers may cancel contracts with the Company comprises 45.4% of the total merchandise trust as of December 31, 2020. The merchandise trusts are variable interest entities (“VIE”) of which the Company 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 Company may be required to fund this shortfall.

The Company included $10.0 million and $9.7 million of investments held in trust as required by law by the West Virginia Funeral Directors Association at December 31, 2020 and 2019, respectively, in its merchandise trust assets. These trusts are recognized at their account value, which approximates fair value.

A reconciliation of the Company’s merchandise trust activities for the years ended December 31, 2020 and 2019 is presented below (in thousands):

	Year ended December 31,
	2020			2019
Balance—beginning of period	$	523,865		$	488,248
Contributions		51,409			54,742
Distributions		(82,059	)		(59,776	)
Interest and dividends		34,232			29,367
Capital gain distributions		2,330			1,699
Realized gains and losses, net		(1,232	)		3,246
Other than temporary impairment		(26,714	)		(6,056	)
Taxes		(408	)		(556	)
Fees		(7,077	)		(4,268	)
Unrealized change in fair value		21,938			17,219
Total		516,284			523,865
Less: Assets held for sale		(14,831	)		(46,700	)
Balance—end of period	$	501,453		$	477,165

During the years ended December 31, 2020 and 2019, purchases of available for sale securities were approximately $52.9 million and $54.4 million, respectively. During the years ended December 31, 2020 and 2019, sales, maturities and paydowns of available for sale securities were approximately $56.4 million and $38.1 million, respectively. Cash flows from pre-need contracts are presented as operating cash flows in the Company’s consolidated statement of cash flows.

The cost and market value associated with the assets held in the merchandise trusts as of December 31, 2020 and 2019 were as follows (in thousands):

December 31, 2020	Fair Value Hierarchy Level	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Short-term investments	1	$	41,039	$	12	$	—		$	41,051
Fixed maturities:
U.S. governmental securities	2		1		—		—			1
Corporate debt securities	2		2,818		638		—			3,456
Other debt securities	2		23,165		1,578		(1,332	)		23,411
Total fixed maturities			25,984		2,216		(1,332	)		26,868
Mutual funds—debt securities	1		6,097		306		—			6,403
Mutual funds—equity securities	1		26,356		43		(154	)		26,245
Other investment funds⁽¹⁾			337,565		32,461		(8,812	)		361,214
Equity securities	1		35,055		5,544		(19	)		40,580
Other invested assets	2		3,875		79		—			3,954
Total investments			475,971		40,661		(10,317	)		506,315
West Virginia Trust Receivable			10,190		—		(221	)		9,969
Total		$	486,161	$	40,661	$	(10,538	)	$	516,284
Less: Assets held for sale										(14,831	)
Total		$	486,161	$	40,661	$	(10,538	)	$	501,453

⁽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 Company’s consolidated 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 zero to five years with three potential one year extensions at the discretion of the funds’ general partners. As of December 31, 2020, there were $47.8 million in unfunded investment commitments to the private credit funds, which are callable at any time.

December 31, 2019	Fair Value Hierarchy Level	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Short-term investments	1	$	144,610	$	—	$	—		$	144,610
Fixed maturities:
U.S. governmental securities	2		456		6		(65	)		397
Corporate debt securities	2		783		14		(133	)		664
Total fixed maturities			1,239		20		(198	)		1,061
Mutual funds—debt securities	1		67,801		1,857		(6	)		69,652
Mutual funds—equity securities	1		46,609		1,744		-			48,353
Other investment funds⁽¹⁾			213,024		6,366		(2,953	)		216,437
Equity securities	1		24,386		1,327		(4	)		25,709
Other invested assets	2		8,360		32		—			8,392
Total investments			506,029		11,346		(3,161	)		514,214
West Virginia Trust Receivable			9,651		—		—			9,651
Total		$	515,680	$	11,346	$	(3,161	)	$	523,865
Less: Assets held for sale										(46,700	)
Total		$	515,680	$	11,346	$	(3,161	)	$	477,165

⁽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 Company’s consolidated 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 six years with three potential one year extensions at the discretion of the funds’ general partners. As of December 31, 2019, there were $57.3 million in unfunded investment commitments to the private credit funds, which are callable at any time.

The contractual maturities of debt securities as of December 31, 2020 and 2019 were as follows (in thousands):

December 31, 2020	Less than 1 year		1 year through 5 years		6 years through 10 years		More than 10 years
U.S. governmental securities	$	—	$	1	$	—	$	—
Corporate debt securities		—		3,456		—		—
Other debt securities		18,392		5,019		—		—
Total fixed maturities	$	18,392	$	8,476	$	—	$	—

December 31, 2019	Less than 1 year		1 year through 5 years		6 years through 10 years		More than 10 years
U.S. governmental securities	$	112	$	78	$	193	$	13
Corporate debt securities		101		546		16		—
Total fixed maturities	$	213	$	624	$	209	$	13

Temporary Declines in Fair Value

The Company 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 Company’s investments in debt and equity securities within the merchandise trusts as of December 31, 2020 and 2019 is presented below (in thousands):

	Less than 12 months				12 months or more				Total
December 31, 2020	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Fixed maturities:
U.S. governmental securities	$	—	$	—	$	—	$	—	$	—	$	—
Corporate debt securities		—		—		—		—		—		—
Other debt securities		18,392		1,332		—		—		18,392		1,332
Total fixed maturities		18,392		1,332		—		—		18,392		1,332
Mutual funds—debt securities		—		—		—		—		—		—
Mutual funds—equity securities		128		154		—		—		128		154
Other investment funds		75,799		8,812		—		—		75,799		8,812
Equity securities		82		19		—		—		82		19
Total	$	94,401	$	10,317	$	—	$	—	$	94,401	$	10,317

	Less than 12 months				12 months or more				Total
December 31, 2019	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Fixed maturities:
U.S. governmental securities	$	90	$	1	$	397	$	64	$	487	$	65
Corporate debt securities		198		29		424		104		622		133
Total fixed maturities		288		30		821		168		1,109		198
Mutual funds—debt securities		241		6		—		—		241		6
Mutual funds—equity securities		—		—		—		—		—		—
Other investment funds		54,782		2,953		—		—		54,782		2,953
Equity securities		3		4		—		—		3		4
Total	$	55,314	$	2,993	$	821	$	168	$	56,135	$	3,161

For all securities in an unrealized loss position, the Company 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 Company 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 Company assesses its merchandise trust assets for other-than-temporary declines in fair value on a quarterly basis. During the year ended December 31, 2020, the Company determined, based on its review, that there were 57 securities with an aggregate cost basis of approximately $106.4 million and an aggregate fair value of approximately $79.7 million, resulting in an impairment of $26.7 million, with such impairment considered to be other-than-temporary due to credit indicators. During the year ended December 31, 2019, the Company determined, based on its review, that there were 102 securities with an aggregate cost basis of approximately $178.2 million and an aggregate fair value of approximately $172.2 million, resulting in an impairment of $6.1 million, with such impairment considered to be other-than-temporary due to credit indicators. Accordingly, the Company 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 Company’s consolidated statements of operations in future periods as the underlying merchandise is delivered or the underlying service is performed.