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Preneed Funeral Activities (Notes)
 6 Months Ended
Jun. 30, 2015
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 merchandise and service trusts are variable interest entities as defined in the "Consolidation" accounting standard. In accordance with this standard, 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 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 receipts held in trust. Amounts are withdrawn from the trusts after the contract obligations are performed. Cash flows from preneed 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 merchandise is delivered or the service is performed.
The table below sets forth certain investment-related activities associated with these preneed merchandise and service trusts:
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2015
 
2014
 
2015
 
2014
 
(In thousands)
Deposits
$
32,485

 
$
24,949

 
$
62,480

 
$
52,872

Withdrawals
$
41,745

 
$
31,955

 
$
87,189

 
$
75,692

Purchases of available-for-sale securities
$
76,404

 
$
79,305

 
$
180,635

 
$
140,790

Sales of available-for-sale securities
$
89,998

 
$
107,199

 
$
172,318

 
$
171,250

Realized gains from sales of available-for-sale securities
$
9,856

 
$
15,911

 
$
14,205

 
$
32,012

Realized losses from sales of available-for-sale securities
$
(3,838
)
 
$
(2,665
)
 
$
(8,572
)
 
$
(4,139
)


The components of Preneed funeral receivables, net and trust investments in our unaudited condensed consolidated balance sheet at June 30, 2015 and December 31, 2014 are as follows:
 
June 30, 2015
 
December 31, 2014
 
(In thousands)
Trust investments, at fair value
$
1,193,718

 
$
1,205,747

Cash and cash equivalents
129,786

 
162,229

Assets associated with businesses held for sale
(178
)
 
—

Insurance-backed fixed income securities
273,618

 
260,899

Trust investments
1,596,944

 
1,628,875

Receivables from customers
282,664

 
262,700

Unearned finance charge
(11,428
)
 
(11,054
)
 
1,868,180

 
1,880,521

Allowance for cancellation
(39,109
)
 
(37,498
)
Preneed funeral receivables, net and trust investments
$
1,829,071

 
$
1,843,023


The costs and fair values associated with trust investments measured at fair value at June 30, 2015 and December 31, 2014 are detailed below. Cost reflects the investment (net of redemptions) of control holders in the trusts. Fair value represents the value of the underlying securities held by the trusts.
 
June 30, 2015
 
Fair Value Hierarchy Level
 
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
 
 
 
 
(In thousands)
 
 
Fixed income securities:
 
 
 
 
 
 
 
 
 
U.S. Treasury
2
 
$
84,838

 
$
278

 
$
(557
)
 
$
84,559

Canadian government
2
 
81,258

 
669

 
(538
)
 
81,389

Corporate
2
 
23,071

 
485

 
(185
)
 
23,371

Residential mortgage-backed
2
 
1,394

 
22

 
(20
)
 
1,396

Asset-backed
2
 
5

 
—

 
—

 
5

Equity securities:
 
 
 
 
 
 
 
 
 
Preferred stock
2
 
1,934

 
81

 
(81
)
 
1,934

Common stock:
 
 
 
 
 
 
 
 
 
United States
1
 
360,907

 
31,539

 
(12,507
)
 
379,939

Canada
1
 
13,769

 
3,427

 
(1,023
)
 
16,173

Other international
1
 
34,518

 
2,653

 
(2,736
)
 
34,435

Mutual funds:
 
 
 
 
 
 
 
 
 
Equity
1
 
303,237

 
5,085

 
(7,519
)
 
300,803

Fixed income
1
 
233,625

 
488

 
(5,876
)
 
228,237

Private equity
3
 
36,366

 
3,929

 
(5,929
)
 
34,366

Other
3
 
6,024

 
1,232

 
(145
)
 
7,111

Trust investments
 
 
$
1,180,946

 
$
49,888

 
$
(37,116
)
 
$
1,193,718


 
December 31, 2014
 
Fair Value Hierarchy Level
 
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
 
 
 
 
(In thousands)
 
 
Fixed income securities:
 
 
 
 
 
 
 
 
 
U.S. Treasury
2
 
$
85,775

 
$
468

 
$
(455
)
 
$
85,788

Canadian government
2
 
90,430

 
449

 
(874
)
 
90,005

Corporate
2
 
24,765

 
423

 
(126
)
 
25,062

Residential mortgage-backed
2
 
1,325

 
29

 
(12
)
 
1,342

Asset-backed
2
 
6

 
—

 
—

 
6

Equity securities:
 
 
 
 
 
 
 
 
 
Preferred stock
2
 
2,503

 
113

 
(113
)
 
2,503

Common stock:
 
 
 
 
 
 
 
 
 
United States
1
 
377,441

 
18,533

 
(7,405
)
 
388,569

Canada
1
 
14,708

 
4,292

 
(895
)
 
18,105

Other international
1
 
38,035

 
1,175

 
(1,560
)
 
37,650

Mutual funds:
 
 
 
 
 
 
 
 
 
Equity
1
 
308,548

 
3,332

 
(15,901
)
 
295,979

Fixed income
1
 
229,414

 
869

 
(3,576
)
 
226,707

Private equity
3
 
35,094

 
2,649

 
(9,418
)
 
28,325

Other
3
 
5,084

 
726

 
(104
)
 
5,706

Trust investments
 
 
$
1,213,128

 
$
33,058

 
$
(40,439
)
 
$
1,205,747


Where quoted prices are available in an active market, securities are classified as Level 1 investments pursuant to the fair value measurements hierarchy.
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, ratings, and tax-exempt status. These funds are classified as Level 2 investments pursuant to the fair value measurements hierarchy.
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 investments are valued based on reported net asset values. 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 fair value measurements hierarchy.
As of June 30, 2015, our unfunded commitment for our private equity and other investments was $35.5 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, 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 trust investments measured at fair value with significant unobservable inputs (Level 3) is as follows:
 
Three Months Ended

June 30, 2015

June 30, 2014
 
Private Equity

Other

Private Equity

Other

(In thousands)
Fair value, beginning balance
$
31,043


$
7,324


$
27,514


$
3,839

Net unrealized gains (losses) included in Accumulated other comprehensive income(1)
713


(868
)

(1,165
)

820

Net realized losses included in Other (expense) income, net(2)
(21
)

(5
)

(6
)

(1
)
Purchases
—

 
23

 
1,068

 
—

Sales
(36
)
 
—

 
—

 
—

Contributions
4,092


975


490


—

Distributions
(1,425
)

(338
)

(562
)

(189
)
Fair value, ending balance
$
34,366


$
7,111


$
27,339


$
4,469



 
Six Months Ended
 
June 30, 2015
 
June 30, 2014
 
Private Equity
 
Other
 
Private Equity
 
Other
 
(In thousands)
Fair value, beginning balance
$
28,325

 
$
5,706

 
$
26,885

 
$
1,803

Net unrealized gains (losses) included in Accumulated other comprehensive income(1)
4,189

 
1,084

 
(1,635
)
 
2,856

Net realized losses included in Other (expense) income, net(2)
(38
)
 
(13
)
 
(14
)
 
(1
)
Purchases
—

 
23

 
2,955

 
—

Sales
(36
)
 
—

 
—

 
—

Contributions
4,632

 
1,226

 
957

 
—

Distributions
(2,706
)
 
(915
)
 
(1,809
)
 
(189
)
Fair value, ending balance
$
34,366

 
$
7,111

 
$
27,339

 
$
4,469


______________________________________________
(1)
All unrealized gains (losses) recognized in Accumulated other comprehensive income for our 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 receipts held in trust. See Note 7 for further information related to our Deferred preneed receipts held in trust.
(2)
All net losses recognized in Other (expense) income, net for our 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 receipts held in trust. See Note 7 for further information related to our Deferred preneed receipts held in trust.
Maturity dates of our fixed income securities range from 2015 to 2045. Maturities of fixed income securities, excluding mutual funds, at June 30, 2015 are estimated as follows:
 
Fair Value
 
(In thousands)
Due in one year or less
$
111,750

Due in one to five years
31,879

Due in five to ten years
32,174

Thereafter
14,917

 
$
190,720

 
Earnings from all our merchandise and service trust investments are recognized in revenues when merchandise is delivered or a service is performed. 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 $14.0 million and $17.1 million for the three months ended June 30, 2015 and 2014, respectively. Recognized trust fund income (realized and unrealized) related to these trust investments was $28.4 million and $32.5 million for the six months ended June 30, 2015 and 2014, 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 receipts held in trust. See Note 7 for further information related to our Deferred preneed receipts held in trust. For the three months ended June 30, 2015 and 2014, we recorded a $1.0 million and a $0.1 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, 2015 and 2014, we recorded a $1.5 million and a $0.4 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 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 merchandise and service trust investment unrealized losses, their associated fair values, and the duration of unrealized losses as of June 30, 2015 and December 31, 2014, respectively, are shown in the following tables:
 
June 30, 2015
 
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
$
33,733

 
$
(501
)
 
$
4,846

 
$
(56
)
 
$
38,579

 
$
(557
)
Canadian government
242

 
(4
)
 
13,526

 
(534
)
 
13,768

 
(538
)
Corporate
5,587

 
(78
)
 
2,861

 
(107
)
 
8,448

 
(185
)
Residential mortgage-backed
335


(5
)

232


(15
)

567


(20
)
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
176

 
(81
)
 
—

 
—

 
176

 
(81
)
Common stock:
 
 
 
 
 
 
 
 
 
 
 
United States
140,010

 
(12,507
)
 
—

 
—

 
140,010

 
(12,507
)
Canada
3,196

 
(679
)
 
881

 
(344
)
 
4,077

 
(1,023
)
Other international
14,091

 
(2,736
)
 
—

 
—

 
14,091

 
(2,736
)
Mutual funds:
 
 
 
 
 
 
 
 
 
 
 
Equity
170,796

 
(7,149
)
 
3,836

 
(370
)
 
174,632

 
(7,519
)
Fixed income
195,304

 
(5,350
)
 
9,945

 
(526
)
 
205,249

 
(5,876
)
Private equity
—

 
—

 
18,452

 
(5,929
)
 
18,452

 
(5,929
)
Other
—

 
—

 
1,143

 
(145
)
 
1,143

 
(145
)
Total temporarily impaired securities
$
563,470

 
$
(29,090
)
 
$
55,722

 
$
(8,026
)
 
$
619,192

 
$
(37,116
)

 
December 31, 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
$
32,243

 
$
(412
)
 
$
4,978

 
$
(43
)
 
$
37,221

 
$
(455
)
Canadian government
2,894

 
(52
)
 
14,904

 
(822
)
 
17,798

 
(874
)
Corporate
4,988

 
(56
)
 
2,420

 
(70
)
 
7,408

 
(126
)
Residential mortgage-backed
217

 
(10
)
 
106

 
(2
)
 
323

 
(12
)
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
26

 
(113
)
 
—

 
—

 
26

 
(113
)
Common stock:
 
 
 
 
 
 
 
 
 
 
 
United States
126,527

 
(7,403
)
 
438

 
(2
)
 
126,965

 
(7,405
)
Canada
1,752

 
(379
)
 
1,085

 
(516
)
 
2,837

 
(895
)
Other international
19,593

 
(1,557
)
 
2

 
(3
)
 
19,595

 
(1,560
)
Mutual funds:
 
 
 
 
 
 
 
 
 
 
 
Equity
233,827

 
(13,219
)
 
23,717

 
(2,682
)
 
257,544

 
(15,901
)
Fixed income
112,160

 
(3,128
)
 
11,452

 
(448
)
 
123,612

 
(3,576
)
Private equity
203

 
(461
)
 
13,870

 
(8,957
)
 
14,073

 
(9,418
)
Other
5

 
(11
)
 
464

 
(93
)
 
469

 
(104
)
Total temporarily impaired securities
$
534,435

 
$
(26,801
)
 
$
73,436

 
$
(13,638
)
 
$
607,871

 
$
(40,439
)