MERCHANDISE TRUSTS

3 Months Ended

Mar. 31, 2021

Investments Debt And Equity Securities [Abstract]

6.	MERCHANDISE TRUSTS

At March 31, 2021 and December 31, 2020, 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 13 Fair Value of Financial Instruments. There were no Level 3 assets. 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 50.3% of the total merchandise trust as of March 31, 2021. 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 $10.1 million and $10.0 million of investments held in trust as required by law by the West Virginia Funeral Directors Association at March 31, 2021 and December 31, 2020, 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 three months ended March 31, 2021 and 2020 is presented below (in thousands):

	Three months ended March 31,
	2021			2020
Balance—beginning of period	$	516,284		$	517,192
Contributions		13,089			10,697
Distributions		(14,801	)		(14,029	)
Interest and dividends		9,594			5,704
Capital gain distributions		379			68
Realized gains and losses, net		223			218
Other than temporary impairment		(136	)		—
Taxes		(247	)		118
Fees		(805	)		(3,022	)
Unrealized change in fair value		16,454			(59,181	)
Total		540,034			457,765
Less: Assets held for sale		(15,411	)		(20,127	)
Balance—end of period	$	524,623		$	437,638

During the three months ended March 31, 2021 and 2020, purchases of available for sale securities were approximately $21.6 million and $13.2 million, respectively. During the three months ended March 31, 2021 and 2020, sales, maturities and paydowns of available for sale securities were approximately $4.9 million and $11.1 million, respectively. Cash flows from pre-need contracts are presented as operating cash flows in the Company’s unaudited condensed consolidated statements of cash flows.

The cost and market value associated with the assets held in the merchandise trusts as of March 31, 2021 and December 31, 2020 were as follows (in thousands):

March 31, 2021	Fair Value Hierarchy Level	Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Short-term investments	1	$	78,231	$	12	$	—		$	78,243
Fixed maturities:
U.S. governmental securities	2		1		—		—			1
Corporate debt securities	2		2,883		695		(2	)		3,576
Other debt securities	2		23,703		3,397		—			27,100
Total fixed maturities			26,587		4,092		(2	)		30,677
Mutual funds—debt securities	1		6,097		134		(2	)		6,229
Mutual funds—equity securities	1		26,237		5,066		—			31,303
Other investment funds⁽¹⁾			303,414		32,832		(5,749	)		330,497
Equity securities	1		38,768		11,630		(1,299	)		49,099
Other invested assets	2		3,812		84		—			3,896
Total investments			483,146		53,850		(7,052	)		529,944
West Virginia Trust Receivable			10,311		—		(221	)		10,090
Total		$	493,457	$	53,850	$	(7,273	)		540,034
Less: Assets held for sale										(15,411	)
Total									$	524,623

⁽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 zero to ten years with three potential one year extensions at the discretion of the funds’ general partners. As of March 31, 2021, there were $74.6 million in unfunded investment commitments to the private credit funds, which are callable at any time.

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									$	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 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.

The contractual maturities of debt securities as of March 31, 2021 and December 31, 2020 were as follows (in thousands):

March 31, 2021	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		—		3,576		—		—
Other debt securities		21,875		5,225		—		—
Total fixed maturities	$	21,875	$	8,802	$	—	$	—

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	$	—	$	—

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 March 31, 2021 and December 31, 2020 is presented below (in thousands):

	Less than 12 months				12 months or more				Total
March 31, 2021	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Fixed maturities:
U.S. governmental securities	$	—	$	—	$	297	$	—	$	297	$	—
Corporate debt securities		—		—		620		2		620		2
Other debt securities		—		—		—		—		—		—
Total fixed maturities		—		—		917		2		917		2
Mutual funds—debt securities		3		2		—		—		3		2
Mutual funds—equity securities		—		—		—		—		—		—
Other investment funds		32,593		5,749		—		—		32,593		5,749
Equity securities		2,627		1,299		—		—		2,627		1,299
Total	$	35,223	$	7,050	$	917	$	2	$	36,140	$	7,052

	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

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 three months ended March 31, 2021, the Company determined, based on its review, that there were 6 securities with an aggregate cost basis of approximately $0.3 million and an aggregate fair value of approximately $0.2 million, resulting in an impairment of $0.1 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 unaudited condensed consolidated statements of operations in future periods as the underlying merchandise is delivered or the underlying service is performed. During the three months ended March 31, 2020, the Company determined, based on its review, that there were no other than temporary impairments to the investment portfolio in the merchandise trusts.