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Preneed Cemetery Activities Level 1 (Notes) (Cemetery [Member])
9 Months Ended
Sep. 30, 2011
Cemetery [Member]
 
Preneed Cemetery Activities Text Block
Preneed Cemetery Activities
 Preneed cemetery receivables, net and trust investments represent trust investments, including investment earnings, and customer receivables, net of unearned finance charges, for contracts sold in advance of when the property interment rights, merchandise, or services are needed. Our cemetery merchandise and service trusts are variable interest entities as defined in the Consolidation Topic of the ASC. In accordance with this guidance, we have determined that we are the primary beneficiary of these trusts, as we absorb a majority of the losses and returns associated with these trusts. The trust investments detailed in Notes 4 and 6 are also accounted for as variable interest entities. When we receive payments from the customer, we deposit the amount required by law into the trust and reclassify the corresponding amount from Deferred preneed cemetery revenues into Deferred preneed funeral and cemetery receipts held in trust. Amounts are withdrawn from the trusts when the contract obligations are performed. Cash flows from preneed cemetery contracts are presented as operating cash flows in our unaudited condensed consolidated statement of cash flows.
Preneed cemetery receivables, net and trust investments are reduced by the trust investment earnings (realized and unrealized) that we have been allowed to withdraw in certain states prior to maturity. These earnings are recorded in Deferred preneed cemetery revenues until the service is performed or the merchandise is delivered.
The table below sets forth certain investment-related activities associated with our preneed cemetery merchandise and service trusts:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2011
 
2010
 
2011
 
2010
 
(In thousands)
Deposits
$
25,946

 
$
30,565

 
$
76,442

 
$
79,984

Withdrawals
25,917

 
26,303

 
84,444

 
79,080

Purchases of available-for-sale securities
88,518

 
77,625

 
411,195

 
542,829

Sales of available-for-sale securities
78,721

 
90,148

 
407,272

 
502,508

Realized gains from sales of available-for-sale securities
10,134

 
6,838

 
51,225

 
31,899

Realized losses from sales of available-for-sale securities
(8,758
)
 
(9,828
)
 
(19,994
)
 
(47,093
)

The components of Preneed cemetery receivables, net and trust investments in our unaudited condensed consolidated balance sheet at September 30, 2011 and December 31, 2010 are as follows:
 
September 30, 2011
 
December 31, 2010
 
(In thousands)
Trust investments, at market
$
967,503

 
$
1,062,771

Cash and cash equivalents
127,137

 
122,866

Insurance backed fixed income securities
12

 
9,158

Trust investments
1,094,652

 
1,194,795

Receivables from customers
498,445

 
452,296

Unearned finance charges
(35,525
)
 
(39,205
)
 
1,557,572

 
1,607,886

Allowance for cancellation
(43,849
)
 
(43,993
)
Preneed cemetery receivables and trust investments
$
1,513,723

 
$
1,563,893



The cost and market values associated with our cemetery merchandise and service trust investments recorded at fair market value at September 30, 2011 and December 31, 2010 are detailed below. Cost reflects the investment (net of redemptions) of control holders in common trust funds, mutual funds, and private equity investments. Fair market value represents the value of the underlying securities held by the common trust funds, mutual funds at published values, and the estimated market value of private equity investments.
 
September 30, 2011
 
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Market
Value
 
 
 
(In thousands)
 
 
Fixed income securities:
 
 
 
 
 
 
 
U.S. Treasury
$
51,242

 
$
5,524

 
$
(305
)
 
$
56,461

Canadian government
17,067

 
492

 
(10
)
 
17,549

Corporate
41,828

 
1,441

 
(1,628
)
 
41,641

Residential mortgage-backed
168

 
5

 
(1
)
 
172

Equity securities:
 
 
 
 
 
 
 
Preferred stock
3,729

 
24

 
(462
)
 
3,291

Common stock:
 
 
 
 
 
 
 
United States
389,521

 
47,683

 
(48,239
)
 
388,965

Canada
17,177

 
2,857

 
(1,527
)
 
18,507

Other international
28,103

 
744

 
(4,028
)
 
24,819

Mutual funds:
 
 
 
 
 
 
 
Equity
181,246

 
1,883

 
(24,032
)
 
159,097

Fixed income
246,647

 
12,081

 
(15,832
)
 
242,896

Private equity
29,892

 
44

 
(16,258
)
 
13,678

Other
335

 
92

 
—

 
427

Trust investments
$
1,006,955

 
$
72,870

 
$
(112,322
)
 
$
967,503


 
December 31, 2010
 
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Market
Value
 
 
 
(In thousands)
 
 
Fixed income securities:
 
 
 
 
 
 
 
U.S. Treasury
$
50,884

 
$
2,493

 
$
(307
)
 
$
53,070

Canadian government
15,669

 
362

 
(4
)
 
16,027

Corporate
39,265

 
3,387

 
(402
)
 
42,250

Residential mortgage-backed
863

 
31

 
(1
)
 
893

Asset-backed
6,336

 
261

 
(5
)
 
6,592

Equity securities:
 
 
 
 
 
 
 
Preferred stock
4,577

 
453

 
(124
)
 
4,906

Common stock:
 
 
 
 
 
 
 
United States
386,537

 
82,385

 
(10,821
)
 
458,101

Canada
17,279

 
3,869

 
(850
)
 
20,298

Other international
31,466

 
2,485

 
(3,645
)
 
30,306

Mutual funds:
 
 
 
 
 
 
 
Equity
202,328

 
15,173

 
(18,569
)
 
198,932

Fixed income
226,567

 
8,537

 
(9,959
)
 
225,145

Private equity
19,596

 
13

 
(13,890
)
 
5,719

Other
874

 
43

 
(385
)
 
532

Trust investments
$
1,002,241

 
$
119,492

 
$
(58,962
)
 
$
1,062,771



Where quoted prices are available in an active market, securities held by the common trust funds and mutual funds are classified as Level 1 investments pursuant to the three-level valuation hierarchy as required by the FVM&D Topic of the ASC.
Where quoted market prices are not available for the specific security, fair values are estimated by using either quoted prices of securities with similar characteristics or an income approach fair value model with observable inputs that include a combination of interest rates, yield curves, credit risks, prepayment speeds, rating, and tax-exempt status. These funds are classified as Level 2 investments pursuant to the three-level valuation hierarchy as required by the FVM&D Topic of the ASC.
The valuation of private equity and other alternative investments requires significant management judgment due to the absence of quoted market prices, inherent lack of liquidity, and the long-term nature of such assets. The fair value of these investments is estimated based on the market value of the underlying real estate and private equity investments. The underlying real estate value is determined using the most recent available appraisals. Private equity investments are valued using market appraisals or a discounted cash flow methodology, which is an income approach fair value model, depending on the nature of the underlying assets. The appraisals assess value based on a combination of replacement cost, comparative sales analysis, and discounted cash flow analysis. These funds are classified as Level 3 investments pursuant to the three-level valuation hierarchy as required by the FVM&D Topic of the ASC.
As of September 30, 2011, our unfunded commitment for our private equity and other investments was $13.2 million which, if called, would be funded by the assets of the trusts. Our private equity and other investments include several funds that invest in limited partnerships, distressed debt, real estate, and mezzanine financing. These investments can never be redeemed by the funds. Instead, the nature of the investments in this category is that the distributions are received through the liquidation of the underlying assets of the funds. We estimate that the underlying assets will be liquidated over the next 2 to 10 years.
Our investments classified as Level 1 securities include common stock and mutual funds. Level 2 securities include U.S. Treasury, Canadian government, corporate, mortgage-backed and asset-backed fixed income securities, and preferred stock. Our private equity and other alternative investments are classified as Level 3 securities.
The inputs into the fair value of our market-based cemetery merchandise and service trust investments are categorized as follows:
 
Quoted Market
Prices in Active
Markets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable Inputs
(Level 3)
 
Fair Market Value
 
(In thousands)
Trust investments at September 30, 2011
$
834,284

 
$
119,114

 
$
14,105

 
$
967,503

Trust investments at December 31, 2010
$
932,782

 
$
123,738

 
$
6,251

 
$
1,062,771


The change in our market-based cemetery merchandise and service trust investments with significant unobservable inputs (Level 3) is as follows (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2011
 
2010
 
2011
 
2010
Fair market value, beginning balance
$
14,674

 
$
4,930

 
$
6,251

 
$
4,341

Net unrealized losses included in Accumulated other comprehensive income(1)
(8,530
)
 
(81
)
 
(1,545
)
 
(446
)
Net realized losses included in Other income, net(2)
(8
)
 
(18
)
 
(73
)
 
(41
)
Sales
—

 
(25
)
 
—

 
(48
)
Contributions
7,910

 
263

 
9,762

 
1,601

Distributions and other
59

 
(92
)
 
(290
)
 
(430
)
Fair market value, ending balance
$
14,105

 
$
4,977

 
$
14,105

 
$
4,977


                                                                               
(1)
All unrealized losses recognized in Accumulated other comprehensive income for our cemetery merchandise and service trust investments are attributable to our preneed customers and are offset by a corresponding reclassification in Accumulated other comprehensive income to Deferred preneed funeral and cemetery receipts held in trust. See Note 7 for further information related to our Deferred preneed funeral and cemetery receipts held in trust.
(2)
All losses recognized in Other income, net for our cemetery merchandise and service trust investments are attributable to our preneed customers and are offset by a corresponding reclassification in Other income, net to Deferred preneed funeral and cemetery receipts held in trust. See Note 7 for further information related to our Deferred preneed funeral and cemetery receipts held in trust.
Maturity dates of our fixed income securities range from 2011 to 2041. Maturities of fixed income securities, excluding mutual funds, at September 30, 2011 are estimated as follows:
 
Fair Market Value
 
(In thousands)
Due in one year or less
$
9,761

Due in one to five years
43,714

Due in five to ten years
31,960

Thereafter
30,388

 
$
115,823



Earnings from all our cemetery merchandise and service trust investments are recognized in current cemetery revenues when a service is performed or merchandise is delivered. In addition, we are entitled to retain, in certain jurisdictions, a portion of collected customer payments when a customer cancels a preneed contract; these amounts are also recognized in current revenues. Recognized earnings (realized and unrealized) related to these trust investments were $4.6 million and $2.8 million for the three months ended September 30, 2011 and 2010, respectively. Recognized earnings (realized and unrealized) related to these trust investments were $15.7 million and $9.4 million for the nine months ended September 30, 2011 and 2010, respectively.
We assess our trust investments for other-than-temporary declines in fair value on a quarterly basis. Impairment charges resulting from this assessment are recognized as investment losses in Other income, net and a decrease to Preneed cemetery receivables, net and trust investments. These investment losses, if any, are offset by the corresponding reclassification in Other income, net, which reduces Deferred preneed cemetery receipts held in trust. See Note 7 for further information related to our Deferred preneed cemetery receipts held in trust. For the three months ended September 30, 2011 and 2010, we recorded a $24.9 million and a $1.5 million impairment charge for other-than-temporary declines in fair value related to unrealized losses on certain investments, respectively. For the nine months ended September 30, 2011 and 2010, we recorded a $26.1 million and a $4.9 million impairment charge for other-than-temporary declines in fair value related to unrealized losses on certain investments, respectively.
We have determined that the remaining unrealized losses in our cemetery merchandise and service trust investments are considered temporary in nature, as the unrealized losses were due to temporary fluctuations in interest rates and equity prices. The investments are diversified across multiple industry segments using a balanced allocation strategy to minimize long-term risk. We believe that none of the securities are other-than-temporarily impaired based on our analysis of the investments. Our analysis included a review of the portfolio holdings and discussions with the individual money managers as to the sector exposures, credit ratings, and the severity and duration of the unrealized losses. Our cemetery merchandise and service trust investment unrealized losses, their associated fair market values and the duration of unrealized losses as of September 30, 2011 are shown in the following tables:
 
September 30, 2011
 
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
 
 
 
 
 
(In thousands)
 
 
 
 
Fixed income securities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury
$
1,817

 
$
(41
)
 
$
3,042

 
$
(264
)
 
$
4,859

 
$
(305
)
Canadian government
3,307

 
(10
)
 
—

 
—

 
3,307

 
(10
)
Corporate
18,660

 
(1,628
)
 
—

 
—

 
18,660

 
(1,628
)
Residential mortgage-backed
—

 
—

 
15

 
(1
)
 
15

 
(1
)
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
2,428

 
(462
)
 
—

 
—

 
2,428

 
(462
)
Common stock:
 
 
 
 
 
 
 
 
 
 
 
United States
172,584

 
(43,555
)
 
19,470

 
(4,684
)
 
192,054

 
(48,239
)
Canada
5,448

 
(966
)
 
457

 
(561
)
 
5,905

 
(1,527
)
Other international
14,670

 
(2,454
)
 
3,426

 
(1,574
)
 
18,096

 
(4,028
)
Mutual funds:
 
 
 
 
 
 
 
 
 
 
 
Equity
83,652

 
(13,461
)
 
58,659

 
(10,571
)
 
142,311

 
(24,032
)
Fixed income
49,081

 
(4,293
)
 
10,872

 
(11,539
)
 
59,953

 
(15,832
)
Private equity
426

 
(275
)
 
12,776

 
(15,983
)
 
13,202

 
(16,258
)
Total temporarily impaired securities
$
352,073

 
$
(67,145
)
 
$
108,717

 
$
(45,177
)
 
$
460,790

 
$
(112,322
)


 
December 31, 2010
 
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
 
 
 
 
 
(In thousands)
 
 
 
 
Fixed income securities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury
$
6,057

 
$
(295
)
 
$
315

 
$
(12
)
 
$
6,372

 
$
(307
)
Canadian government
2,908

 
(4
)
 
—

 
—

 
2,908

 
(4
)
Corporate
8,577

 
(402
)
 
—

 
—

 
8,577

 
(402
)
Residential mortgage-backed
—

 
—

 
20

 
(1
)
 
20

 
(1
)
Asset-backed
766

 
(4
)
 
56

 
(1
)
 
822

 
(5
)
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
1,749

 
(124
)
 
—

 
—

 
1,749

 
(124
)
Common stock:
 
 
 
 
 
 
 
 
 
 
 
United States
63,027

 
(4,450
)
 
31,108

 
(6,371
)
 
94,135

 
(10,821
)
Canada
3,131

 
(181
)
 
1,475

 
(669
)
 
4,606

 
(850
)
Other international
8,542

 
(1,403
)
 
5,259

 
(2,242
)
 
13,801

 
(3,645
)
Mutual funds:
 
 
 
 
 
 
 
 
 
 
 
Equity
5,107

 
(112
)
 
92,630

 
(18,457
)
 
97,737

 
(18,569
)
Fixed income
25,887

 
(354
)
 
14,600

 
(9,605
)
 
40,487

 
(9,959
)
Private equity
—

 
—

 
5,557

 
(13,890
)
 
5,557

 
(13,890
)
Other
7

 
(1
)
 
303

 
(384
)
 
310

 
(385
)
Total temporarily impaired securities
$
125,758

 
$
(7,330
)
 
$
151,323

 
$
(51,632
)
 
$
277,081

 
$
(58,962
)