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Preneed Funeral Activities Level 1 (Notes) (Funeral [Member])
 12 Months Ended
Dec. 31, 2011
Funeral [Member]
  
Preneed Funeral Activities Text Block
Preneed Funeral Activities
Preneed funeral receivables, net and trust investments
Preneed funeral receivables, net and trust investments represent trust investments, including investment earnings, and customer receivables, net of unearned finance charges, related to unperformed, price-guaranteed preneed funeral contracts. Our funeral 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. Our cemetery trust investments detailed in Notes 5 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 funeral revenues into Deferred preneed funeral and cemetery receipts held in trust. Amounts are withdrawn from the trusts after the contract obligations are performed. Cash flows from preneed funeral contracts are presented as operating cash flows in our consolidated statement of cash flows.
Preneed funeral 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 funeral revenues until the service is performed or the merchandise is delivered.
The table below sets forth certain investment-related activities associated with our preneed funeral merchandise and service trusts for the years ended December 31:
 
2011
 
2010
 
2009
 
 
 
(In thousands)
 
 
Deposits
$
72,750

 
$
80,027

 
$
85,901

Withdrawals
109,013

 
103,418

 
104,437

Purchases of available-for-sale securities
527,681

 
467,221

 
372,058

Sales of available-for-sale securities
610,917

 
479,128

 
398,984

Realized gains from sales of available-for-sale securities
61,272

 
36,807

 
28,715

Realized losses from sales of available-for-sale securities
(41,162
)
 
(46,601
)
 
(57,118
)

The components of Preneed funeral receivables, net and trust investments in our consolidated balance sheet at December 31 were as follows:
 
2011
 
2010
 
(In thousands)
Trust investments, at market
$
892,685

 
$
875,043

Cash and cash equivalents
101,111

 
121,212

Insurance-backed fixed income securities
277,650

 
220,287

Trust investments
1,271,446

 
1,216,542

Receivables from customers
246,601

 
247,434

Unearned finance charge
(5,425
)
 
(5,620
)
 
1,512,622

 
1,458,356

Allowance for cancellation
(33,757
)
 
(33,799
)
Preneed funeral receivables and trust investments
$
1,478,865

 
$
1,424,557



The activity in Preneed funeral receivables, net and trust investments for the years ended December 31 was as follows:
 
2011
 
2010
 
2009
 
 
 
(In thousands)
 
 
Beginning balance — Preneed funeral receivables and trust investments
$
1,424,557

 
$
1,356,353

 
$
1,191,692

Net preneed contract sales
111,447

 
126,121

 
155,834

Cash receipts from customers, net of refunds
(106,489
)
 
(99,142
)
 
(118,049
)
Deposits to trust
72,750

 
80,027

 
85,901

Acquisitions (dispositions) of businesses, net
143,252

 
29,607

 
(6,226
)
Net undistributed investment (losses) earnings (1)
(11,348
)
 
82,097

 
164,003

Maturities and distributed earnings
(148,820
)
 
(140,593
)
 
(141,135
)
Change in cancellation allowance
(30
)
 
(1,140
)
 
(2,054
)
Effect of foreign currency and other
(6,454
)
 
(8,773
)
 
26,387

Ending balance — Preneed funeral receivables and trust investments
$
1,478,865

 
$
1,424,557

 
$
1,356,353

_________________________________
(1)
Includes both realized and unrealized investment earnings (losses).
The cost and market values associated with our funeral merchandise and service trust investments recorded at fair market value at December 31, 2011 and 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.
 
December 31, 2011
 
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Market
Value
 
 
 
(In thousands)
 
 
Fixed income securities:
 

 
 

 
 

 
 

U.S. Treasury
$
77,299

 
$
4,565

 
$
(373
)
 
$
81,491

Canadian government
114,586

 
838

 
(109
)
 
115,315

Corporate
49,210

 
1,849

 
(770
)
 
50,289

Residential mortgage-backed
3,292

 
71

 
(34
)
 
3,329

Asset-backed
126

 
6

 
—

 
132

Equity securities:
 

 
 

 
 

 
 

Preferred stock
2,041

 
50

 
(153
)
 
1,938

Common stock:
 

 
 

 
 

 
 

United States
258,738

 
40,992

 
(22,715
)
 
277,015

Canada
23,986

 
2,511

 
(1,771
)
 
24,726

Other international
18,954

 
1,045

 
(1,296
)
 
18,703

Mutual funds:
 

 
 

 
 

 
 

Equity
134,383

 
2,384

 
(18,982
)
 
117,785

Fixed income
193,134

 
5,044

 
(13,114
)
 
185,064

Private equity
35,017

 
218

 
(19,249
)
 
15,986

Other
484

 
428

 
—

 
912

Trust investments
$
911,250

 
$
60,001

 
$
(78,566
)
 
$
892,685

 
December 31, 2010
 
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Market
Value
 
 
 
(In thousands)
 
 
Fixed income securities:
 

 
 

 
 

 
 

U.S. Treasury
$
71,948

 
$
2,061

 
$
(334
)
 
$
73,675

Canadian government
121,137

 
1,004

 
(20
)
 
122,121

Corporate
33,627

 
2,751

 
(285
)
 
36,093

Residential mortgage-backed
5,310

 
135

 
(22
)
 
5,423

Asset-backed
2,984

 
97

 
(2
)
 
3,079

Equity securities:
 

 
 

 
 

 
 

Preferred stock:
2,835

 
296

 
(78
)
 
3,053

Common stock:
 

 
 

 
 

 
 

United States
268,650

 
63,301

 
(8,391
)
 
323,560

Canada
22,452

 
4,542

 
(798
)
 
26,196

Other international
21,611

 
2,240

 
(2,330
)
 
21,521

Mutual funds:
 

 
 

 
 

 
 

Equity
116,260

 
6,123

 
(18,289
)
 
104,094

Fixed income
134,181

 
6,316

 
(5,628
)
 
134,869

Private equity
27,864

 
1,395

 
(16,890
)
 
12,369

Other
8,833

 
615

 
(458
)
 
8,990

Trust investments
$
837,692

 
$
90,876

 
$
(53,525
)
 
$
875,043


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 December 31, 2011, our unfunded commitment for our private equity and other investments was $11.4 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. The majority of the investments can be redeemed at discount; others can be redeemed without a discount. Generally, however, 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 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 funeral 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 December 31, 2011
$
623,293

 
$
252,494

 
$
16,898

 
$
892,685

Trust investments at December 31, 2010
$
610,240

 
$
243,444

 
$
21,359

 
$
875,043


The change in our market-based funeral merchandise and service trust investments with significant unobservable inputs (Level 3) is as follows for the years ended December 31, 2011, 2010, and 2009 (in thousands):
 
2011
 
2010
 
2009
Fair market value, beginning balance at January 1,
$
21,359

 
$
12,052

 
$
40,880

Net unrealized losses included in Accumulated other comprehensive income(1)
(5,234
)
 
(3,949
)
 
(9,205
)
Net realized losses included in Other (expense) income, net(2)
(92
)
 
(530
)
 
(27
)
Purchases
18

 
7,343

 
—

Sales
(8,156
)
 
(108
)
 
—

Contributions
10,392

 
7,213

 
2,779

Distributions and other
(1,389
)
 
(662
)
 
(484
)
Transfers out of Level 3
—

 
—

 
(21,891
)
Fair market value, ending balance at December 31,
$
16,898

 
$
21,359

 
$
12,052

_______________________________________
(1)
All unrealized losses recognized in Accumulated other comprehensive income for our funeral 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 (expense) income, net for our funeral merchandise and service trust investments are attributable to our preneed customers and are offset by a corresponding reclassification in Other (expense) 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 at December 31, 2011 are estimated as follows:
 
Fair Market Value
 
(In thousands)
Due in one year or less
$
140,654

Due in one to five years
49,267

Due in five to ten years
39,232

Thereafter
21,403

 
$
250,556


Earnings from all our funeral merchandise and service trust investments are recognized in funeral revenues when a service is performed or merchandise is delivered. Fees charged by our wholly-owned registered investment advisor are also included in current revenues in the period in which they are earned. 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 our funeral merchandise and service trust investments were $37.7 million, $29.5 million, and $23.7 million for the years ended December 31, 2011, 2010, and 2009, 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 (expense) income, net and a decrease to Preneed funeral receivables, net and trust investments. These investment losses, if any, are offset by the corresponding reclassification in Other (expense) income, net, which reduces Deferred preneed funeral receipts held in trust. See Note 7 for further information related to our Deferred preneed funeral receipts held in trust. For the years ended December 31, 2011, 2010, and 2009, we recorded a $24.7 million, an $8.1 million, and a $22.5 million impairment charge for other-than-temporary declines in fair value related to unrealized losses on certain investments.
We have determined that the remaining unrealized losses in our funeral 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 funeral merchandise and service trust investment unrealized losses, their associated fair market values, and the duration of unrealized losses for the years ended December 31, 2011 and 2010, are shown in the following tables.
 
December 31, 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
$
6,977

 
$
(90
)
 
$
8,709

 
$
(283
)
 
$
15,686

 
$
(373
)
Canadian government
9,597

 
(109
)
 
—

 
—

 
9,597

 
(109
)
Corporate
17,328

 
(692
)
 
662

 
(78
)
 
17,990

 
(770
)
Residential mortgage-backed
600

 
(4
)
 
295

 
(30
)
 
895

 
(34
)
Equity securities:
 

 
 

 
 

 
 

 


 


Preferred Stock
1,244

 
(153
)
 
—

 
—

 
1,244

 
(153
)
Common stock:
 

 
 

 
 

 
 

 
 

 
 

United States
84,450

 
(18,120
)
 
14,924

 
(4,595
)
 
99,374

 
(22,715
)
Canada
8,448

 
(1,491
)
 
513

 
(280
)
 
8,961

 
(1,771
)
Other international
7,263

 
(615
)
 
2,403

 
(681
)
 
9,666

 
(1,296
)
Mutual funds:
 

 
 

 
 

 
 

 


 


Equity
76,559

 
(9,173
)
 
26,053

 
(9,809
)
 
102,612

 
(18,982
)
Fixed income
68,378

 
(5,500
)
 
9,314

 
(7,614
)
 
77,692

 
(13,114
)
Private equity
1,977

 
(3,499
)
 
13,502

 
(15,750
)
 
15,479

 
(19,249
)
Total temporarily impaired securities
$
282,821

 
$
(39,446
)
 
$
76,375

 
$
(39,120
)
 
$
359,196

 
$
(78,566
)
 
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
$
10,433

 
$
(316
)
 
$
393

 
$
(18
)
 
$
10,826

 
$
(334
)
Canadian government
1,632

 
(2
)
 
668

 
(18
)
 
2,300

 
(20
)
Corporate
5,619

 
(285
)
 
—

 
—

 
5,619

 
(285
)
Mortgage-backed
836

 
(9
)
 
263

 
(13
)
 
1,099

 
(22
)
Asset-backed
225

 
(1
)
 
53

 
(1
)
 
278

 
(2
)
Equity securities:
 

 
 

 
 

 
 

 
 

 
 

Preferred Stock
1,045

 
(78
)
 
—

 
—

 
1,045

 
(78
)
Common stock:
 

 
 

 
 

 
 

 
 

 
 

United States
41,491

 
(3,019
)
 
24,919

 
(5,372
)
 
66,410

 
(8,391
)
Canada
4,493

 
(324
)
 
1,361

 
(474
)
 
5,854

 
(798
)
Other international
5,251

 
(862
)
 
3,446

 
(1,468
)
 
8,697

 
(2,330
)
Mutual funds:
 

 
 

 
 

 
 

 
 

 
 

Equity
3,778

 
(110
)
 
61,844

 
(18,179
)
 
65,622

 
(18,289
)
Fixed income
9,630

 
(156
)
 
8,818

 
(5,472
)
 
18,448

 
(5,628
)
Private equity
214

 
(71
)
 
6,715

 
(16,819
)
 
6,929

 
(16,890
)
Other
8

 
(2
)
 
309

 
(456
)
 
317

 
(458
)
Total temporarily impaired securities
$
84,655

 
$
(5,235
)
 
$
108,789

 
$
(48,290
)
 
$
193,444

 
$
(53,525
)

Deferred Preneed Funeral Revenues
At December 31, 2011 and 2010, Deferred preneed funeral revenues, net of allowance for cancellation, represent future funeral revenues, including distributed trust investment earnings associated with unperformed trust-funded preneed funeral contracts that are not held in trust accounts. Deferred preneed funeral revenues are recognized in current funeral revenues when the service is performed or merchandise is delivered. Future funeral service revenues and net trust investment earnings that are held in trust accounts are included in Deferred preneed funeral receipts held in trust.
The following table summarizes the activity in Deferred preneed funeral revenues for the years ended December 31 were as follows:
 
2011
 
2010
 
2009
 
(In thousands)
Beginning balance — Deferred preneed funeral revenues, net
$
580,223

 
$
596,966

 
$
588,198

Net preneed contract sales
105,866

 
112,678

 
141,752

Acquisitions (dispositions) of businesses, net
142,026

 
26,816

 
(794
)
Net investment (losses) earnings (1)
(12,164
)
 
83,605

 
135,842

Recognized deferred preneed revenues
(182,408
)
 
(151,484
)
 
(153,382
)
Change in cancellation allowance
(1,526
)
 
(761
)
 
(2,972
)
Change in deferred preneed funeral receipts held in trust
(57,936
)
 
(69,694
)
 
(117,181
)
Effect of foreign currency and other
1,465

 
(17,903
)
 
5,503

Ending balance — Deferred preneed funeral revenues, net
$
575,546

 
$
580,223

 
$
596,966

_________________________________
(1)
Includes both realized and unrealized investment earnings (losses).
Insurance-Funded Preneed Funeral Contracts
Not included in our consolidated balance sheet are insurance-funded preneed funeral contracts that will be funded by life insurance or annuity contracts issued by third party insurers. Where permitted by state or provincial law, customers may arrange their preneed funeral contract by purchasing a life insurance or annuity policy from third-party insurance companies, for which we earn a commission as general sales agent for the insurance company. These general agency commissions (GA revenues) are based on a percentage per contract sold and are recognized as funeral revenues when the insurance purchase transaction between the customer and third-party insurance provider is completed. GA revenues recognized in 2011, 2010, and 2009 were $86.8 million, $68.3 million, and $57.3 million, respectively. Direct selling costs incurred pursuant to the sale of insurance-funded preneed funeral contracts are expensed as incurred. The policy amount of the insurance contract between the customer and the third-party insurance company generally equals the amount of the preneed funeral contract. We do not reflect the unfulfilled insurance-funded preneed funeral contract amounts in our consolidated balance sheet. The proceeds of the life insurance policies or annuity contracts will be reflected in funeral revenues as these funerals are performed by the Company.