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Preneed Funeral Activities Level 1 (Notes) (Funeral [Member])
 9 Months Ended
Sep. 30, 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 Amounts are withdrawn from the trusts after the contract obligations are performed.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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
 
(In thousands)
 
(In thousands)
Deposits
$
19,982

 
$
18,960

 
$
64,081

 
$
55,189

Withdrawals
22,943

 
26,789

 
78,034

 
79,734

Purchases of available-for-sale securities
53,034

 
140,554

 
324,304

 
387,545

Sales of available-for-sale securities
51,672

 
114,476

 
323,471

 
448,988

Realized gains from sales of available-for-sale securities
7,681

 
11,353

 
43,446

 
49,618

Realized losses from sales of available-for-sale securities
(4,570
)
 
(6,586
)
 
(18,730
)
 
(18,215
)

The components of Preneed funeral receivables, net and trust investments in our unaudited condensed consolidated balance sheet at September 30, 2012 and December 31, 2011 are as follows:
 
September 30, 2012
 
December 31, 2011
 
(In thousands)
Trust investments, at fair value
$
968,394

 
$
892,685

Cash and cash equivalents
87,519

 
101,111

Insurance-backed fixed income securities
272,677

 
277,650

Trust investments
1,328,590

 
1,271,446

Receivables from customers
241,377

 
246,601

Unearned finance charge
(8,557
)
 
(5,425
)
 
1,561,410

 
1,512,622

Allowance for cancellation
(33,777
)
 
(33,757
)
Preneed funeral receivables, net and trust investments
$
1,527,633

 
$
1,478,865


The cost and fair values associated with our funeral merchandise and service trust investments recorded at fair value at September 30, 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 value represents the market value of the underlying securities held by the common trust funds, mutual funds at published values, and the estimated fair 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).
 
September 30, 2012
 
Fair Value Hierarchy Level
 
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
 
 
 
 
(In thousands)
 
 
Fixed income securities:
 
 
 
 
 
 
 
 
 
U.S. Treasury
2
 
$
104,430

 
$
5,093

 
$
(921
)
 
$
108,602

Canadian government
2
 
113,880

 
717

 
(84
)
 
114,513

Corporate
2
 
52,424

 
2,302

 
(574
)
 
54,152

Residential mortgage-backed
2
 
3,296

 
76

 
(4
)
 
3,368

Asset-backed
2
 
127

 
3

 
—

 
130

Equity securities:
 
 
 
 
 
 
 
 
 
Preferred stock
2
 
2,897

 
184

 
(135
)
 
2,946

Common stock:
 
 
 
 
 
 
 
 
 
United States
1
 
220,152

 
47,415

 
(8,259
)
 
259,308

Canada
1
 
23,081

 
2,036

 
(1,516
)
 
23,601

Other international
1
 
17,384

 
2,094

 
(574
)
 
18,904

Mutual funds:
 
 
 
 
 
 
 
 
 
Equity
1
 
147,131

 
6,464

 
(8,755
)
 
144,840

Fixed income
1
 
221,433

 
8,322

 
(8,908
)
 
220,847

Private equity
3
 
37,346

 
211

 
(21,288
)
 
16,269

Other
3
 
536

 
378

 
—

 
914

Trust investments
 
 
$
944,117

 
$
75,295

 
$
(51,018
)
 
$
968,394


 
December 31, 2011
 
Fair Value Hierarchy Level
 
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
 
 
 
 
(In thousands)
 
 
Fixed income securities:
 
 
 
 
 
 
 
 
 
U.S. Treasury
2
 
$
77,299

 
$
4,565

 
$
(373
)
 
$
81,491

Canadian government
2
 
114,586

 
838

 
(109
)
 
115,315

Corporate
2
 
49,210

 
1,849

 
(770
)
 
50,289

Residential mortgage-backed
2
 
3,292

 
71

 
(34
)
 
3,329

Asset-backed
2
 
126

 
6

 
—

 
132

Equity securities:
 
 
 
 
 
 
 
 
 
Preferred stock
2
 
2,041

 
50

 
(153
)
 
1,938

Common stock:
 
 
 
 
 
 
 
 
 
United States
1
 
258,738

 
40,992

 
(22,715
)
 
277,015

Canada
1
 
23,986

 
2,511

 
(1,771
)
 
24,726

Other international
1
 
18,954

 
1,045

 
(1,296
)
 
18,703

Mutual funds:
 
 
 
 
 
 
 
 
 
Equity
1
 
134,383

 
2,384

 
(18,982
)
 
117,785

Fixed income
1
 
193,134

 
5,044

 
(13,114
)
 
185,064

Private equity
3
 
35,017

 
218

 
(19,249
)
 
15,986

Other
3
 
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 September 30, 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 investment 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 September 30, 2012, our unfunded commitment for our private equity and other investments was $12.3 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.
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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
Fair value, beginning balance
$
17,268

 
$
29,031

 
$
16,898

 
$
21,359

Net unrealized losses included in Accumulated other comprehensive income(1)
(748
)
 
(7,757
)
 
(2,332
)
 
(1,001
)
Net realized losses included in Other income, net(2)
(12
)
 
(8
)
 
(28
)
 
(67
)
Purchases
—

 
18

 
—

 
18

Sales
—

 
(7,970
)
 
(9
)
 
(8,156
)
Contributions
995

 
7,615

 
3,554

 
9,397

Distributions and other
(320
)
 
(522
)
 
(900
)
 
(1,143
)
Fair value, ending balance
$
17,183

 
$
20,407

 
$
17,183

 
$
20,407


                                                                               
(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 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 2053. Maturities of fixed income securities, excluding mutual funds, at September 30, 2012 are estimated as follows:
 
Fair Value
 
(In thousands)
Due in one year or less
$
132,075

Due in one to five years
60,638

Due in five to ten years
52,893

Thereafter
35,159

 
$
280,765


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 $8.5 million and $10.2 million for the three months ended September 30, 2012 and 2011, respectively. Recognized earnings (realized and unrealized) related to these trust investments were $27.7 million and $28.9 million for the nine months ended September 30, 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 September 30, 2012 and 2011, we recorded a $0.2 million and a $17.5 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, 2012 and 2011, we recorded a $0.7 million and a $20.8 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 values, and the duration of unrealized losses as of September 30, 2012 and December 31, 2011, respectively, are shown in the following tables:
 
September 30, 2012
 
In Loss Position
Less Than 12 Months
 
In Loss Position
Greater Than 12 Months
 
Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
 
 
 
 
(In thousands)
 
 
 
 
Fixed income securities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury
$
23,489

 
$
(844
)
 
$
6,279

 
$
(77
)
 
$
29,768

 
$
(921
)
Canadian government
8,475

 
(84
)
 
—

 
—

 
8,475

 
(84
)
Corporate
11,083

 
(403
)
 
3,093

 
(171
)
 
14,176

 
(574
)
Residential mortgage-backed
712

 
(4
)
 
—

 
—

 
712

 
(4
)
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
824

 
(55
)
 
233

 
(80
)
 
1,057

 
(135
)
Common stock:
 
 
 
 
 
 
 
 
 
 
 
United States
47,144

 
(4,921
)
 
10,298

 
(3,338
)
 
57,442

 
(8,259
)
Canada
6,431

 
(877
)
 
2,385

 
(639
)
 
8,816

 
(1,516
)
Other international
3,855

 
(253
)
 
1,555

 
(321
)
 
5,410

 
(574
)
Mutual funds:
 
 
 
 
 
 
 
 
 
 
 
Equity
31,439

 
(406
)
 
32,304

 
(8,349
)
 
63,743

 
(8,755
)
Fixed income
47,052

 
(1,011
)
 
13,760

 
(7,897
)
 
60,812

 
(8,908
)
Private equity
614

 
(1,790
)
 
15,294

 
(19,498
)
 
15,908

 
(21,288
)
Total temporarily impaired securities
$
181,118

 
$
(10,648
)
 
$
85,201

 
$
(40,370
)
 
$
266,319

 
$
(51,018
)

 
December 31, 2011
 
In Loss Position
Less Than 12 Months
 
In Loss Position
Greater Than 12 Months
 
Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
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
)