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Preneed Funeral Activities Level 1 (Notes) (Funeral [Member])
 9 Months Ended
Sep. 30, 2013
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 Amounts are withdrawn from the trusts after the contract obligations are performed.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,
 
2013
 
2012
 
2013
 
2012
 
(In thousands)
 
(In thousands)
Deposits
$
20,187

 
$
19,982

 
$
63,802

 
$
64,081

Withdrawals
24,242

 
22,943

 
92,491

 
78,034

Purchases of available-for-sale securities(1)
125,113

 
53,034

 
302,939

 
324,304

Sales of available-for-sale securities(1)
91,064

 
51,672

 
337,714

 
323,471

Realized gains from sales of available-for-sale securities
12,953

 
7,681

 
41,654

 
43,446

Realized losses from sales of available-for-sale securities
(2,212
)
 
(4,570
)
 
(8,378
)
 
(18,730
)

                                                                               
(1)
Reflects the rebalancing of Neptune Society trust assets during the current quarter.

The components of Preneed funeral receivables, net and trust investments in our unaudited condensed consolidated balance sheet at September 30, 2013 and December 31, 2012 are as follows:
 
September 30, 2013
 
December 31, 2012
 
(In thousands)
Trust investments, at fair value
$
1,005,320

 
$
977,973

Cash and cash equivalents
98,892

 
85,943

Insurance-backed fixed income securities
277,052

 
273,098

Trust investments
1,381,264

 
1,337,014

Receivables from customers
243,334

 
241,896

Unearned finance charge
(9,653
)
 
(8,645
)
 
1,614,945

 
1,570,265

Allowance for cancellation
(37,547
)
 
(34,333
)
Preneed funeral receivables, net and trust investments
$
1,577,398

 
$
1,535,932


The cost and fair values associated with our funeral merchandise and service trust investments recorded at fair value at September 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 (including debt as well as the estimated fair value related to the contract holder’s equity in majority-owned real estate investments).
 
September 30, 2013
 
Fair Value Hierarchy Level
 
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
 
 
 
 
(In thousands)
 
 
Fixed income securities:
 
 
 
 
 
 
 
 
 
U.S. Treasury
2
 
$
96,240

 
$
1,699

 
$
(4,499
)
 
$
93,440

Canadian government
2
 
105,784

 
48

 
(1,356
)
 
104,476

Corporate
2
 
50,520

 
2,864

 
(739
)
 
52,645

Residential mortgage-backed
2
 
2,362

 
20

 
(24
)
 
2,358

 
 
 
 
 
 
 
 
 
 
Equity securities:
 
 
 
 
 
 
 
 
 
Preferred stock
2
 
4,649

 
547

 
(50
)
 
5,146

Common stock:
 
 
 
 
 
 
 
 
 
United States
1
 
225,447

 
61,091

 
(3,989
)
 
282,549

Canada
1
 
23,793

 
2,912

 
(1,635
)
 
25,070

Other international
1
 
18,444

 
4,065

 
(509
)
 
22,000

Mutual funds:
 
 
 
 
 
 
 
 
 
Equity
1
 
175,783

 
17,256

 
(2,786
)
 
190,253

Fixed income
1
 
212,275

 
3,943

 
(17,339
)
 
198,879

Private equity
3
 
30,811

 
3,533

 
(7,359
)
 
26,985

Other
3
 
1,206

 
313

 
—

 
1,519

Trust investments
 
 
$
947,314

 
$
98,291

 
$
(40,285
)
 
$
1,005,320


 
December 31, 2012
 
Fair Value Hierarchy Level
 
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
 
 
 
 
(In thousands)
 
 
Fixed income securities:
 
 
 
 
 
 
 
 
 
U.S. Treasury
2
 
$
105,594

 
$
5,072

 
$
(880
)
 
$
109,786

Canadian government
2
 
110,399

 
861

 
(113
)
 
111,147

Corporate
2
 
51,611

 
2,531

 
(623
)
 
53,519

Residential mortgage-backed
2
 
3,123

 
57

 
(8
)
 
3,172

Asset-backed
2
 
129

 
3

 
—

 
132

Equity securities:
 
 
 
 
 
 
 
 
 
Preferred stock
2
 
3,603

 
211

 
(103
)
 
3,711

Common stock:
 
 
 
 
 
 
 
 
 
United States
1
 
230,971

 
38,514

 
(6,903
)
 
262,582

Canada
1
 
23,284

 
2,598

 
(1,271
)
 
24,611

Other international
1
 
18,089

 
1,874

 
(658
)
 
19,305

Mutual funds:
 
 
 
 
 
 
 
 
 
Equity
1
 
145,589

 
10,097

 
(6,728
)
 
148,958

Fixed income
1
 
225,365

 
7,314

 
(10,252
)
 
222,427

Private equity
3
 
36,626

 
221

 
(18,968
)
 
17,879

Other
3
 
542

 
202

 
—

 
744

Trust investments
 
 
$
954,925

 
$
69,555

 
$
(46,507
)
 
$
977,973


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 Fair Value Measurements and Disclosure (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, 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 September 30, 2013, our unfunded commitment for our private equity and other investments was $8.3 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

September 30, 2013

September 30, 2012
 
Private Equity

Other

Private Equity

Other
Fair market value, beginning balance
$
26,333


$
1,457


$
16,359


$
909

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


256


(758
)

10

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


—


(11
)

(1
)
Contributions
19


—


995


—

Distributions and other
(1,197
)

(194
)

(316
)

(4
)
Fair market value, ending balance
$
26,985


$
1,519


$
16,269


$
914



 
Nine Months Ended
 
September 30, 2013
 
September 30, 2012
 
Private Equity
 
Other
 
Private Equity
 
Other
Fair market value, beginning balance
$
17,879

 
$
744

 
$
15,986

 
$
912

Net unrealized gains (losses) included in Accumulated other comprehensive income(1)
14,441

 
1,126

 
(2,342
)
 
10

Net realized losses included in Other income, net(2)
(11
)
 
(2
)
 
(27
)
 
(1
)
Sales
—

 
—

 
(9
)
 
—

Contributions
2,221

 
—

 
3,554

 
—

Distributions and other
(7,545
)
 
(349
)
 
(893
)
 
(7
)
Fair market value, ending balance
$
26,985

 
$
1,519

 
$
16,269

 
$
914


                                                                               
(1)
All unrealized gains (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 2013 to 2053. Maturities of fixed income securities, excluding mutual funds, at September 30, 2013 are estimated as follows:
 
Fair Value
 
(In thousands)
Due in one year or less
$
132,664

Due in one to five years
44,840

Due in five to ten years
44,962

Thereafter
30,453

 
$
252,919

   
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 trust fund income (realized and unrealized) related to these trust investments were $11.4 million and $8.5 million for the three months ended September 30, 2013 and 2012, respectively. Recognized trust fund income (realized and unrealized) related to these trust investments were $35.7 million and $27.7 million for the nine months ended September 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 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 both the three months ended September 30, 2013 and 2012, we recorded a $0.2 million impairment charge for other-than-temporary declines in fair value related to unrealized losses on certain investments. For the nine months ended September 30, 2013 and 2012, we recorded a $0.8 million and a $0.7 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 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 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 funeral merchandise and service trust investment unrealized losses, their associated fair values, and the duration of unrealized losses as of September 30, 2013 and December 31, 2012, respectively, are shown in the following tables:
 
September 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
$
29,033

 
$
(3,230
)
 
$
17,445

 
$
(1,269
)
 
$
46,478

 
$
(4,499
)
Canadian government
23,989

 
(1,100
)
 
6,252

 
(256
)
 
30,241

 
(1,356
)
Corporate
18,650

 
(446
)
 
4,317

 
(293
)
 
22,967

 
(739
)
Residential mortgage-backed
1,322

 
(23
)
 
19

 
(1
)
 
1,341

 
(24
)
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
1,214

 
(50
)
 
—

 
—

 
1,214

 
(50
)
Common stock:
 
 
 
 
 
 
 
 
 
 
 
United States
46,129

 
(3,097
)
 
4,069

 
(892
)
 
50,198

 
(3,989
)
Canada
4,590

 
(696
)
 
2,686

 
(939
)
 
7,276

 
(1,635
)
Other international
4,820

 
(358
)
 
740

 
(151
)
 
5,560

 
(509
)
Mutual funds:
 
 
 
 
 
 
 
 
 
 
 
Equity
15,211

 
(122
)
 
13,344

 
(2,664
)
 
28,555

 
(2,786
)
Fixed income
65,418

 
(3,149
)
 
53,809

 
(14,190
)
 
119,227

 
(17,339
)
Private equity
—

 
—

 
13,687

 
(7,359
)
 
13,687

 
(7,359
)
Total temporarily impaired securities
$
210,376

 
$
(12,271
)
 
$
116,368

 
$
(28,014
)
 
$
326,744

 
$
(40,285
)

 
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
$
22,357

 
$
(803
)
 
$
6,741

 
$
(77
)
 
$
29,098

 
$
(880
)
Canadian government
7,912

 
(113
)
 
—

 
—

 
7,912

 
(113
)
Corporate
7,809

 
(347
)
 
4,283

 
(276
)
 
12,092

 
(623
)
Residential mortgage-backed
956

 
(8
)
 
—

 
—

 
956

 
(8
)
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
1,220

 
(93
)
 
52

 
(10
)
 
1,272

 
(103
)
Common stock:
 
 
 
 
 
 
 
 
 
 
 
United States
70,752

 
(4,694
)
 
9,089

 
(2,209
)
 
79,841

 
(6,903
)
Canada
6,592

 
(652
)
 
2,516

 
(619
)
 
9,108

 
(1,271
)
Other international
7,606

 
(521
)
 
608

 
(137
)
 
8,214

 
(658
)
Mutual funds:
 
 
 
 
 
 
 
 
 
 
 
Equity
6,779

 
(126
)
 
26,340

 
(6,602
)
 
33,119

 
(6,728
)
Fixed income
38,686

 
(1,021
)
 
24,131

 
(9,231
)
 
62,817

 
(10,252
)
Private equity
—

 
—

 
17,389

 
(18,968
)
 
17,389

 
(18,968
)
Total temporarily impaired securities
$
170,669

 
$
(8,378
)
 
$
91,149

 
$
(38,129
)
 
$
261,818

 
$
(46,507
)