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Preneed Funeral Activities Level 1 (Notes) (Funeral [Member])
 3 Months Ended
Mar. 31, 2012
Funeral [Member]
  
Preneed Funeral Activities Text Block
Preneed Funeral Activities
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 Amounts are withdrawn from the trusts after the contract obligations are performed.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 unaudited condensed 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:
 
Three Months Ended
 
March 31,
 
2012
 
2011
 
(In thousands)
Deposits
$
22,178

 
$
17,316

Withdrawals
30,912

 
23,758

Purchases of available-for-sale securities
188,059

 
83,757

Sales of available-for-sale securities
184,902

 
109,707

Realized gains from sales of available-for-sale securities
26,011

 
12,877

Realized losses from sales of available-for-sale securities
(9,748
)
 
(4,034
)

The components of Preneed funeral receivables, net and trust investments in our unaudited condensed consolidated balance sheet at March 31, 2012 and December 31, 2011 are as follows:
 
March 31, 2012
 
December 31, 2011
 
(In thousands)
Trust investments, at market
$
954,986

 
$
892,685

Cash and cash equivalents
92,970

 
101,111

Insurance-backed fixed income securities
269,149

 
277,650

Trust investments
1,317,105

 
1,271,446

Receivables from customers
241,685

 
246,601

Unearned finance charge
(5,428
)
 
(5,425
)
 
1,553,362

 
1,512,622

Allowance for cancellation
(36,394
)
 
(33,757
)
Preneed funeral receivables and trust investments
$
1,516,968

 
$
1,478,865


The cost and market values associated with our funeral merchandise and service trust investments recorded at fair market value at March 31, 2012 and December 31, 2011 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 (including debt as well as the estimated fair value related to the contract holder’s equity in majority-owned real estate investments).
 
March 31, 2012
 
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Market
Value
 
 
 
(In thousands)
 
 
Fixed income securities:
 
 
 
 
 
 
 
U.S. Treasury
$
106,997

 
$
4,731

 
$
(2,130
)
 
$
109,598

Canadian government
113,298

 
367

 
(73
)
 
113,592

Corporate
51,266

 
2,453

 
(577
)
 
53,142

Residential mortgage-backed
3,294

 
65

 
(4
)
 
3,355

Asset-backed
127

 
5

 
—

 
132

Equity securities:
 
 
 
 
 
 
 
Preferred stock
1,885

 
81

 
(111
)
 
1,855

Common stock:
 
 
 
 
 
 
 
United States
219,926

 
50,121

 
(8,221
)
 
261,826

Canada
23,261

 
2,851

 
(1,352
)
 
24,760

Other international
17,232

 
1,695

 
(538
)
 
18,389

Mutual funds:
 
 
 
 
 
 
 
Equity
146,494

 
7,339

 
(8,898
)
 
144,935

Fixed income
215,124

 
4,849

 
(13,174
)
 
206,799

Private equity
36,605

 
214

 
(21,135
)
 
15,684

Other
507

 
412

 
—

 
919

Trust investments
$
936,016

 
$
75,183

 
$
(56,213
)
 
$
954,986


 
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


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 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. As of March 31, 2012, private equity instruments are valued based on reported net asset values discounted by 0% to 60% for risk and 0% to 25% for liquidity. A significant increase (decrease) in the discounts results in a directionally opposite change in the fair value of the instruments. Valuation policies and procedures are determined by our Treasury department, which reports to our Chief Financial Officer.  Additionally, valuations are reviewed by our audit committee quarterly. 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 March 31, 2012, our unfunded commitment for our private equity and other investments was $14.5 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 fixed income securities, and preferred stock equity securities. 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 March 31, 2012
$
656,709

 
$
281,674

 
$
16,603

 
$
954,986

Trust investments at December 31, 2011
$
623,293

 
$
252,494

 
$
16,898

 
$
892,685


The change in our market-based funeral merchandise and service trust investments with significant unobservable inputs (Level 3) is as follows (in thousands):
 
Three Months Ended
 
March 31,
 
2012
 
2011
Fair market value, beginning balance
$
16,898

 
$
21,359

Net unrealized (losses) gains included in Accumulated other comprehensive income(1)
(1,300
)
 
3,870

Net realized losses included in Other income, net(2)
(10
)
 
(7
)
Purchases
—

 
—

Sales
(9
)
 
(194
)
Contributions
1,278

 
486

Distributions and other
(254
)
 
(144
)
Fair market value, ending balance
$
16,603

 
$
25,370


                                                                               
(1)
All unrealized (losses) gains 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 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 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 2012 to 2042. Maturities of fixed income securities, excluding mutual funds, at March 31, 2012 are estimated as follows:
 
Fair Market Value
 
(In thousands)
Due in one year or less
$
134,939

Due in one to five years
60,065

Due in five to ten years
50,180

Thereafter
34,635

 
$
279,819


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 these trust investments were $9.9 million and $9.6 million for the three months ended March 31, 2012 and 2011, 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 funeral receivables, net and trust investments. These investment losses, if any, are offset by the corresponding reclassification in Other 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 three months ended March 31, 2012 and 2011, we recorded a $0.3 million and a $3.1 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 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 as of March 31, 2012 and December 31, 2011, respectively, are shown in the following tables:
 
March 31, 2012
 
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
$
36,336

 
$
(1,930
)
 
$
7,853

 
$
(200
)
 
$
44,189

 
$
(2,130
)
Canadian government
7,069

 
(73
)
 
—

 
—

 
7,069

 
(73
)
Corporate
13,340

 
(465
)
 
609

 
(112
)
 
13,949

 
(577
)
Residential mortgage-backed
945

 
(4
)
 
—

 
—

 
945

 
(4
)
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
778

 
(102
)
 
90

 
(9
)
 
868

 
(111
)
Common stock:
 
 
 
 
 
 
 
 
 
 
 
United States
42,370

 
(4,865
)
 
10,229

 
(3,356
)
 
52,599

 
(8,221
)
Canada
4,039

 
(1,024
)
 
973

 
(328
)
 
5,012

 
(1,352
)
Other international
4,702

 
(177
)
 
1,837

 
(361
)
 
6,539

 
(538
)
Mutual funds:
 
 
 
 
 
 
 
 
 
 
 
Equity
33,514

 
(1,774
)
 
22,122

 
(7,124
)
 
55,636

 
(8,898
)
Fixed income
108,720

 
(5,684
)
 
6,836

 
(7,490
)
 
115,556

 
(13,174
)
Private equity
2,078

 
(3,705
)
 
13,244

 
(17,430
)
 
15,322

 
(21,135
)
Total temporarily impaired securities
$
253,891

 
$
(19,803
)
 
$
63,793

 
$
(36,410
)
 
$
317,684

 
$
(56,213
)

 
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
)
Asset-backed
—

 
—

 
—

 
—

 
—

 
—

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
)
Other
—

 
—

 
—

 
—

 
—

 
—

Total temporarily impaired securities
$
282,821

 
$
(39,446
)
 
$
76,375

 
$
(39,120
)
 
$
359,196

 
$
(78,566
)