XML 119 R13.htm IDEA: XBRL DOCUMENT v2.4.0.8
Preneed Cemetery Activities Level 1 (Notes) (Cemetery [Member])
 6 Months Ended
Jun. 30, 2013
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 Amounts are withdrawn from the trusts when the contract obligations are performed.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
 
Six Months Ended
 
June 30,
 
June 30,
 
2013
 
2012
 
2013
 
2012
 
(In thousands)
 
(In thousands)
Deposits
$
28,344

 
$
25,512

 
$
53,612

 
$
50,707

Withdrawals
33,458

 
22,630

 
63,339

 
47,363

Purchases of available-for-sale securities
190,675

 
58,981

 
296,397

 
329,064

Sales of available-for-sale securities
208,589

 
61,270

 
334,332

 
316,687

Realized gains from sales of available-for-sale securities
29,743

 
8,610

 
46,319

 
47,882

Realized losses from sales of available-for-sale securities
(6,885
)
 
(4,296
)
 
(9,055
)
 
(18,066
)

The components of Preneed cemetery receivables, net and trust investments in our unaudited condensed consolidated balance sheet at June 30, 2013 and December 31, 2012 are as follows:
 
June 30, 2013
 
December 31, 2012
 
(In thousands)
Trust investments, at fair value
$
1,229,781

 
$
1,204,084

Cash and cash equivalents
101,801

 
86,923

Insurance-backed fixed income securities
15

 
9

Trust investments
1,331,597

 
1,291,016

Receivables from customers
655,167

 
614,599

Unearned finance charges
(29,930
)
 
(29,471
)
 
1,956,834

 
1,876,144

Allowance for cancellation
(52,694
)
 
(49,309
)
Preneed cemetery receivables, net and trust investments
$
1,904,140

 
$
1,826,835


The cost and fair values associated with our cemetery merchandise and service trust investments recorded at fair value at June 30, 2013 and December 31, 2012 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.
 
June 30, 2013
 
Fair Value Hierarchy Level
 
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
 
 
 
 
(In thousands)
 
 
Fixed income securities:
 
 
 
 
 
 
 
 
 
U.S. Treasury
2
 
$
106,573

 
$
2,183

 
$
(7,027
)
 
$
101,729

Canadian government
2
 
16,588

 
245

 
(169
)
 
16,664

Corporate
2
 
45,657

 
3,079

 
(807
)
 
47,929

Residential mortgage-backed
2
 
141

 
2

 
(1
)
 
142

Equity securities:
 
 
 
 
 
 
 
 
 
Preferred stock
2
 
7,114

 
694

 
(34
)
 
7,774

Common stock:
 
 
 
 
 
 
 
 
 
United States
1
 
351,487

 
94,150

 
(6,416
)
 
439,221

Canada
1
 
14,429

 
3,192

 
(1,297
)
 
16,324

Other international
1
 
38,736

 
5,316

 
(1,445
)
 
42,607

Mutual funds:
 
 
 
 
 
 
 
 
 
Equity
1
 
280,278

 
22,846

 
(9,366
)
 
293,758

Fixed income
1
 
262,374

 
5,948

 
(32,574
)
 
235,748

Private equity
3
 
28,275

 
3,093

 
(4,741
)
 
26,627

Other
3
 
1,093

 
196

 
(31
)
 
1,258

Trust investments
 
 
$
1,152,745

 
$
140,944

 
$
(63,908
)
 
$
1,229,781


 
December 31, 2012
 
Fair Value Hierarchy Level
 
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
 
 
 
 
(In thousands)
 
 
Fixed income securities:
 
 
 
 
 
 
 
 
 
U.S. Treasury
2
 
$
99,630

 
$
7,925

 
$
(841
)
 
$
106,714

Canadian government
2
 
17,562

 
402

 
(83
)
 
17,881

Corporate
2
 
43,515

 
2,456

 
(775
)
 
45,196

Residential mortgage-backed
2
 
150

 
4

 
—

 
154

Equity securities:
 
 
 
 
 
 
 
 
 
Preferred stock
2
 
5,840

 
334

 
(196
)
 
5,978

Common stock:
 
 
 
 
 
 
 
 
 
United States
1
 
363,190

 
71,613

 
(7,716
)
 
427,087

Canada
1
 
16,026

 
2,862

 
(846
)
 
18,042

Other international
1
 
29,889

 
3,687

 
(857
)
 
32,719

Mutual funds:
 
 
 
 
 
 
 
 
 
Equity
1
 
279,265

 
19,520

 
(9,921
)
 
288,864

Fixed income
1
 
251,687

 
10,975

 
(19,350
)
 
243,312

Private equity
3
 
32,785

 
77

 
(15,175
)
 
17,687

Other
3
 
407

 
44

 
(1
)
 
450

Trust investments
 
 
$
1,139,946

 
$
119,899

 
$
(55,761
)
 
$
1,204,084


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 June 30, 2013, private equity instruments are valued based on reported net asset values discounted by 0% to 20% for risk and 0% to 10% for liquidity. As of December 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 Trust Services 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 June 30, 2013, our unfunded commitment for our private equity and other investments was $9.3 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 cemetery merchandise and service trust investments with significant unobservable inputs (Level 3) is as follows (in thousands):
 
Three Months Ended
 
June 30, 2013
 
June 30, 2012
 
Private Equity
 
Other
 
Private Equity
 
Other
Fair market value, beginning balance
$
25,957

 
$
1,035

 
$
14,935

 
$
443

Net unrealized gains (losses) included in Accumulated other comprehensive income(1)
1,830

 
389

 
(126
)
 
(6
)
Net realized losses included in Other income, net(2)
(6
)
 
(1
)
 
(7
)
 
—

Contributions
1,673

 
—

 
1,360

 
—

Distributions and other
(2,827
)
 
(165
)
 
(366
)
 
(4
)
Fair market value, ending balance
$
26,627

 
$
1,258

 
$
15,796

 
$
433



 
Six Months Ended
 
June 30, 2013
 
June 30, 2012
 
Private Equity
 
Other
 
Private Equity
 
Other
Fair market value, beginning balance
$
17,687

 
$
450

 
$
15,219

 
$
436

Net unrealized gains (losses) included in Accumulated other comprehensive income(1)
13,230

 
976

 
(1,479
)
 
2

Net realized losses included in Other income, net(2)
(13
)
 
(3
)
 
(18
)
 
(1
)
Contributions
2,335

 
—

 
2,716

 
—

Distributions and other
(6,612
)
 
(165
)
 
(642
)
 
(4
)
Fair market value, ending balance
$
26,627

 
$
1,258

 
$
15,796

 
$
433


                                                                             
(1)
All unrealized gains (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 2013 to 2043. Maturities of fixed income securities, excluding mutual funds, at June 30, 2013 are estimated as follows:
 
Fair Value
 
(In thousands)
Due in one year or less
$
25,379

Due in one to five years
49,652

Due in five to ten years
44,845

Thereafter
46,588

 
$
166,464


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. 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 trust fund income (realized and unrealized) related to these trust investments were $9.7 million and $5.8 million for the three months ended June 30, 2013 and 2012, respectively. Recognized trust fund income (realized and unrealized) related to these trust investments were $18.9 million and $13.3 million for the six months ended June 30, 2013 and 2012, 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 June 30, 2013 and 2012, we recorded a $0.9 million and a $0.3 million impairment charge, respectively, for other-than-temporary declines in fair value related to unrealized losses on certain investments. For the six months ended June 30, 2013 and 2012, we recorded a $1.3 million and a $0.6 million impairment charge, respectively, 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 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 remaining 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 values and the duration of unrealized losses as of June 30, 2013 are shown in the following tables:
 
June 30, 2013
 
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
$
52,474

 
$
(5,504
)
 
$
16,491

 
$
(1,523
)
 
$
68,965

 
$
(7,027
)
Canadian government
3,341

 
(84
)
 
2,878

 
(85
)
 
6,219

 
(169
)
Corporate
15,974

 
(624
)
 
2,268

 
(183
)
 
18,242

 
(807
)
      Residential mortgage-backed
67

 
(1
)
 
—

 
—

 
67

 
(1
)
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
1,143

 
(34
)
 
—

 
—

 
1,143

 
(34
)
Common stock:
 
 
 
 
 
 
 
 
 
 
 
United States
61,271

 
(4,934
)
 
7,359

 
(1,482
)
 
68,630

 
(6,416
)
Canada
2,693

 
(473
)
 
1,830

 
(824
)
 
4,523

 
(1,297
)
Other international
13,549

 
(1,194
)
 
1,203

 
(251
)
 
14,752

 
(1,445
)
Mutual funds:
 
 
 
 
 
 
 
 
 
 
 
Equity
75,468

 
(3,484
)
 
32,146

 
(5,882
)
 
107,614

 
(9,366
)
Fixed income
121,882

 
(10,602
)
 
24,748

 
(21,972
)
 
146,630

 
(32,574
)
Private equity
—

 
—

 
7,690

 
(4,741
)
 
7,690

 
(4,741
)
Other
—

 
—

 
348

 
(31
)
 
348

 
(31
)
Total temporarily impaired securities
$
347,862

 
$
(26,934
)
 
$
96,961

 
$
(36,974
)
 
$
444,823

 
$
(63,908
)


 
December 31, 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
$
28,626

 
$
(841
)
 
$
—

 
$
—

 
$
28,626

 
$
(841
)
Canadian government
5,319

 
(83
)
 
—

 
—

 
5,319

 
(83
)
Corporate
14,060

 
(571
)
 
2,137

 
(204
)
 
16,197

 
(775
)
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
1,497

 
(143
)
 
126

 
(53
)
 
1,623

 
(196
)
Common stock:
 
 
 
 
 
 
 
 
 
 
 
United States
82,989

 
(5,624
)
 
11,131

 
(2,092
)
 
94,120

 
(7,716
)
Canada
3,114

 
(461
)
 
1,115

 
(385
)
 
4,229

 
(846
)
Other international
9,056

 
(655
)
 
741

 
(202
)
 
9,797

 
(857
)
Mutual funds:
 
 
 
 
 
 
 
 
 
 
 
Equity
28,132

 
(1,427
)
 
43,172

 
(8,494
)
 
71,304

 
(9,921
)
Fixed income
54,533

 
(2,205
)
 
29,104

 
(17,145
)
 
83,637

 
(19,350
)
Private equity
46

 
(17
)
 
17,136

 
(15,158
)
 
17,182

 
(15,175
)
Other
8

 
—

 
378

 
(1
)
 
386

 
(1
)
Total temporarily impaired securities
$
227,380

 
$
(12,027
)
 
$
105,040

 
$
(43,734
)
 
$
332,420

 
$
(55,761
)