XML 71 R12.htm IDEA: XBRL DOCUMENT v2.4.0.8
Preneed Funeral Activities (Notes) (Funeral)
 9 Months Ended
Sep. 30, 2014
Funeral
  
Preneed Funeral Activities
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. The 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 Amounts are withdrawn from the trusts after the contract obligations are performed.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,
 
2014
 
2013
 
2014
 
2013
 
(In thousands)
Deposits
$
23,618

 
$
20,187

 
$
76,490

 
$
63,802

Withdrawals
27,718

 
24,242

 
103,410

 
92,491

Purchases of available-for-sale securities
238,860

 
125,113

 
379,650

 
302,939

Sales of available-for-sale securities
274,630

 
91,064

 
445,880

 
337,714

Realized gains from sales of available-for-sale securities
18,935

 
12,953

 
50,947

 
41,654

Realized losses from sales of available-for-sale securities
(2,094
)
 
(2,212
)
 
(6,233
)
 
(8,378
)


The components of Preneed funeral receivables, net and trust investments in our unaudited condensed consolidated balance sheet at September 30, 2014 and December 31, 2013 are as follows:
 
September 30, 2014
 
December 31, 2013
 
(In thousands)
Trust investments, at fair value
$
1,262,940

 
$
1,442,418

Cash and cash equivalents
172,372

 
128,216

Assets associated with businesses held for sale
(34,755
)
 
(167,615
)
Insurance-backed fixed income securities
263,691

 
280,969

Trust investments
1,664,248

 
1,683,988

Receivables from customers
263,685

 
259,801

Unearned finance charge
(10,675
)
 
(10,179
)
 
1,917,258

 
1,933,610

Allowance for cancellation
(40,986
)
 
(45,339
)
Preneed funeral receivables, net and trust investments
$
1,876,272

 
$
1,888,271


Our funeral merchandise and service trust investments are recorded at fair value. The costs and fair values at September 30, 2014 and December 31, 2013 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, 2014
 
Fair Value Hierarchy Level
 
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
 
 
 
 
(In thousands)
 
 
Fixed income securities:
 
 
 
 
 
 
 
 
 
U.S. Treasury
2
 
$
104,517

 
$
1,365

 
$
(53
)
 
$
105,829

Canadian government
2
 
94,889

 
321

 
(922
)
 
94,288

Corporate
2
 
42,598

 
3,001

 
(126
)
 
45,473

Residential mortgage-backed
2
 
1,496

 
25

 
(21
)
 
1,500

Asset-backed
2
 
133

 
2

 
—

 
135

Equity securities:
 
 
 
 
 
 
 
 
 
Preferred stock
2
 
8,516

 
422

 
—

 
8,938

Common stock:
 
 
 
 
 
 
 
 
 
United States
1
 
252,015

 
57,523

 
(126
)
 
309,412

Canada
1
 
16,510

 
5,014

 
(282
)
 
21,242

Other international
1
 
21,202

 
4,130

 
(2
)
 
25,330

Mutual funds:
 
 
 
 
 
 
 
 
 
Equity
1
 
332,092

 
20,198

 
(586
)
 
351,704

Fixed income
1
 
259,964

 
4,651

 
(1,125
)
 
263,490

Private equity
3
 
33,470

 
3,577

 
(7,112
)
 
29,935

Other
3
 
5,204

 
482

 
(22
)
 
5,664

Trust investments
 
 
$
1,172,606

 
$
100,711

 
$
(10,377
)
 
$
1,262,940


 
December 31, 2013
 
Fair Value Hierarchy Level
 
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
 
 
 
 
(In thousands)
 
 
Fixed income securities:
 
 
 
 
 
 
 
 
 
U.S. Treasury
2
 
$
112,173

 
$
1,299

 
$
(5,599
)
 
$
107,873

Canadian government
2
 
100,263

 
81

 
(1,113
)
 
99,231

Corporate
2
 
64,721

 
3,515

 
(691
)
 
67,545

Residential mortgage-backed
2
 
2,446

 
23

 
(33
)
 
2,436

Asset-backed
2
 
3,419

 
—

 
(10
)
 
3,409

Equity securities:
 
 
 
 
 
 
 
 
 
Preferred stock
2
 
30,586

 
755

 
(235
)
 
31,106

Common stock:
 
 
 
 
 
 
 
 
 
United States
1
 
371,560

 
77,962

 
(2,928
)
 
446,594

Canada
1
 
27,730

 
4,346

 
(1,217
)
 
30,859

Other international
1
 
36,149

 
4,986

 
(198
)
 
40,937

Mutual funds:
 
 
 
 
 
 
 
 
 
Equity
1
 
261,598

 
22,530

 
(2,303
)
 
281,825

Fixed income
1
 
318,257

 
3,228

 
(19,577
)
 
301,908

Private equity
3
 
32,909

 
2,702

 
(8,726
)
 
26,885

Other
3
 
1,552

 
291

 
(33
)
 
1,810

Trust investments
 
 
$
1,363,363

 
$
121,718

 
$
(42,663
)
 
$
1,442,418


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. Private equity instruments are valued based on reported net asset values discounted by 0% to 20% for risk and 0% to 10% for liquidity. A significant increase (decrease) in the discount rates 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 the Investment Committee of the Board of Directors 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, 2014, our unfunded commitment for our private equity and other investments was $26.1 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, due to the nature of the investments in this category, 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:
 
Three Months Ended

September 30, 2014

September 30, 2013
 
Private Equity

Other

Private Equity

Other

(In thousands)
Fair value, beginning balance
$
27,339


$
4,476


$
26,333


$
1,457

Net unrealized gains included in Accumulated other comprehensive income(1)
265


1,071


1,830


256

Net realized losses included in Other (expense) income, net(2)
(7
)

(4
)

—


—

Purchases
289

 
—

 
—

 
—

Contributions
4,998


121


19


—

Distributions
(2,949
)

—


(1,197
)

(194
)
Fair value, ending balance
$
29,935


$
5,664


$
26,985


$
1,519



 
Nine Months Ended
 
September 30, 2014
 
September 30, 2013
 
Private Equity
 
Other
 
Private Equity
 
Other
 
(In thousands)
Fair value, beginning balance
$
26,885

 
$
1,810

 
$
17,879

 
$
744

Net unrealized (losses) gains included in Accumulated other comprehensive income(1)
(1,370
)
 
3,927

 
14,441

 
1,126

Net realized losses included in Other (expense) income, net(2)
(21
)
 
(5
)
 
(11
)
 
(2
)
Purchases
3,244

 
—

 
—

 
—

Contributions
5,955

 
121

 
2,221

 
—

Distributions
(4,758
)
 
(189
)
 
(7,545
)
 
(349
)
Fair value, ending balance
$
29,935

 
$
5,664

 
$
26,985

 
$
1,519


                                                                               
(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 (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 2014 to 2043. Maturities of fixed income securities, excluding mutual funds, at September 30, 2014 are estimated as follows:
 
Fair Value
 
(In thousands)
Due in one year or less
$
127,847

Due in one to five years
52,319

Due in five to ten years
37,248

Thereafter
29,811

 
$
247,225

   
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 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 in the period in which they are earned. Recognized trust fund income (realized and unrealized) related to these trust investments was $15.1 million and $11.4 million for the three months ended September 30, 2014 and 2013, respectively. Recognized trust fund income (realized and unrealized) related to these trust investments was $47.6 million and $35.7 million for the nine months ended September 30, 2014 and 2013, 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 three months ended September 30, 2014 and 2013, we recorded a $41.2 million and a $0.2 million impairment charge, respectively, for other-than-temporary declines in fair value related to unrealized losses on certain investments. For the nine months ended September 30, 2014 and 2013, we recorded a $41.6 million and a $0.8 million impairment charge, respectively, for other-than-temporary declines in fair value related to unrealized losses on certain investments. The third quarter 2014 impairment charges were recorded in anticipation of a strategic change in the management of our trust assets requiring the liquidation of a majority of our US trust assets subsequent to quarter end. This change does not impact our asset allocation, but does change the underlying legal structure housing the assets. These impairment charges reflect the unrealized loss positions on these liquidated assets as of September 30, 2014.
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, 2014 and December 31, 2013, respectively, are shown in the following tables:
 
September 30, 2014
 
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
$
10,030

 
$
(53
)
 
$
—

 
$
—

 
$
10,030

 
$
(53
)
Canadian government
4,216

 
(61
)
 
18,977

 
(861
)
 
23,193

 
(922
)
Corporate
9,001

 
(126
)
 
—

 
—

 
9,001

 
(126
)
Residential mortgage-backed
167


(2
)

412


(19
)

579


(21
)
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
Common stock:
 
 
 
 
 
 
 
 
 
 
 
United States
88,625

 
(126
)
 
—

 
—

 
88,625

 
(126
)
Canada
1,580

 
(252
)
 
1,678

 
(30
)
 
3,258

 
(282
)
Other international
7,964

 
(2
)
 
—

 
—

 
7,964

 
(2
)
Mutual funds:
 
 
 
 
 
 
 
 
 
 
 
Equity
151,716

 
(586
)
 
—

 
—

 
151,716

 
(586
)
Fixed income
102,035


(1,125
)

—


—


102,035


(1,125
)
Private equity
—

 
—

 
15,501

 
(7,112
)
 
15,501

 
(7,112
)
Other
714

 
(22
)
 
—

 
—

 
714

 
(22
)
Total temporarily impaired securities
$
376,048

 
$
(2,355
)
 
$
36,568

 
$
(8,022
)
 
$
412,616

 
$
(10,377
)

 
December 31, 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
$
29,092

 
$
(3,595
)
 
$
19,708

 
$
(2,004
)
 
$
48,800

 
$
(5,599
)
Canadian government
9,546

 
(120
)
 
18,981

 
(993
)
 
28,527

 
(1,113
)
Corporate
21,568

 
(346
)
 
5,668

 
(345
)
 
27,236

 
(691
)
Residential mortgage-backed
1,401

 
(25
)
 
175

 
(8
)
 
1,576

 
(33
)
Asset-backed
3,321

 
(10
)
 
—

 
—

 
3,321

 
(10
)
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
14,223

 
(235
)
 
—

 
—

 
14,223

 
(235
)
Common stock:
 
 
 
 
 
 
 
 
 
 
 
United States
47,190

 
(2,153
)
 
3,386

 
(775
)
 
50,576

 
(2,928
)
Canada
2,441

 
(576
)
 
1,992

 
(641
)
 
4,433

 
(1,217
)
Other international
3,443

 
(138
)
 
376

 
(60
)
 
3,819

 
(198
)
Mutual funds:
 
 
 
 
 
 
 
 
 
 
 
Equity
16,430

 
(337
)
 
12,686

 
(1,966
)
 
29,116

 
(2,303
)
Fixed income
145,845

 
(4,984
)
 
38,922

 
(14,593
)
 
184,767

 
(19,577
)
Private equity
—

 
—

 
13,002

 
(8,726
)
 
13,002

 
(8,726
)
Other
—

 
—

 
527

 
(33
)
 
527

 
(33
)
Total temporarily impaired securities
$
294,500

 
$
(12,519
)
 
$
115,423

 
$
(30,144
)
 
$
409,923

 
$
(42,663
)