XML 72 R13.htm IDEA: XBRL DOCUMENT v3.3.0.814
Preneed Cemetery Activities (Notes)
 9 Months Ended
Sep. 30, 2015
Cemetery  
Preneed Cemetery Activities
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 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. 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 revenue into Deferred preneed 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 Amounts are withdrawn from the trusts when the contract obligations are performed.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 revenue 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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
 
(In thousands)
Deposits
$
40,327

 
$
34,018

 
$
116,581

 
$
95,421

Withdrawals
$
33,260

 
$
33,669

 
$
115,930

 
$
96,238

Purchases of available-for-sale securities
$
165,025

 
$
247,853

 
$
389,219

 
$
458,176

Sales of available-for-sale securities
$
150,804

 
$
285,411

 
$
389,747

 
$
481,258

Realized gains from sales of available-for-sale securities
$
10,318

 
$
40,635

 
$
33,859

 
$
86,822

Realized losses from sales of available-for-sale securities
$
(11,948
)
 
$
(4,439
)
 
$
(25,375
)
 
$
(10,564
)

The components of Preneed cemetery receivables, net and trust investments in our unaudited condensed consolidated balance sheet at September 30, 2015 and December 31, 2014 are as follows:
 
September 30, 2015
 
December 31, 2014
 
(In thousands)
Trust investments, at fair value
$
1,317,018

 
$
1,404,298

Cash and cash equivalents
120,805

 
122,355

Trust investments
1,437,823

 
1,526,653

Receivables from customers
935,844

 
881,082

Unearned finance charges
(33,477
)
 
(31,524
)
 
2,340,190

 
2,376,211

Allowance for cancellation
(72,384
)
 
(69,542
)
Preneed cemetery receivables, net and trust investments
$
2,267,806

 
$
2,306,669


The costs and fair values associated with the trust investments measured at fair value at September 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 market value of the underlying securities held by the trusts.
 
September 30, 2015
 
Fair Value Hierarchy Level
 
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
 
 
 
 
(In thousands)
 
 
Fixed income securities:
 
 
 
 
 
 
 
 
 
U.S. Treasury
2
 
$
67,552

 
$
41

 
$
(1,258
)
 
$
66,335

Canadian government
2
 
25,546

 
306

 
(86
)
 
25,766

Corporate
2
 
5,293

 
31

 
(112
)
 
5,212

Residential mortgage-backed
2
 
135

 
3

 
(2
)
 
136

Asset-backed
2
 
170

 
18

 
—

 
188

Equity securities:
 
 
 
 
 
 
 
 
 
Common stock:
 
 
 
 
 
 
 
 
 
United States
1
 
546,840

 
27,293

 
(47,051
)
 
527,082

Canada
1
 
9,077

 
3,737

 
(1,191
)
 
11,623

Other international
1
 
56,256

 
2,102

 
(9,341
)
 
49,017

Mutual funds:
 
 
 
 
 
 
 
 
 
Equity
1
 
352,117

 
1,525

 
(48,602
)
 
305,040

Fixed income
1
 
302,920

 
322

 
(13,353
)
 
289,889

Private equity
3
 
30,896

 
6,462

 
(2,976
)
 
34,382

Other
3
 
2,089

 
259

 
—

 
2,348

Trust investments
 
 
$
1,398,891

 
$
42,099

 
$
(123,972
)
 
$
1,317,018


 
December 31, 2014
 
Fair Value Hierarchy Level
 
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
 
 
 
 
(In thousands)
 
 
Fixed income securities:
 
 
 
 
 
 
 
 
 
U.S. Treasury
2
 
$
63,447

 
$
257

 
$
(605
)
 
$
63,099

Canadian government
2
 
21,687

 
261

 
(134
)
 
21,814

Corporate
2
 
8,725

 
122

 
(116
)
 
8,731

Residential mortgage-backed
2
 
111

 
3

 
(1
)
 
113

Asset-backed
2
 
170

 
16

 
—

 
186

Equity securities:
 
 
 
 
 
 
 
 
 
Preferred stock
2
 
10

 
1

 
—

 
11

Common stock:
 
 
 
 
 
 
 
 
 
United States
1
 
557,955

 
22,746

 
(11,706
)
 
568,995

Canada
1
 
10,962

 
5,011

 
(841
)
 
15,132

Other international
1
 
55,632

 
1,605

 
(2,395
)
 
54,842

Mutual funds:
 
 
 
 
 
 
 
 
 
Equity
1
 
344,443

 
4,244

 
(18,430
)
 
330,257

Fixed income
1
 
314,600

 
679

 
(4,702
)
 
310,577

Private equity
3
 
32,342

 
3,185

 
(6,183
)
 
29,344

Other
3
 
1,082

 
186

 
(71
)
 
1,197

Trust investments
 
 
$
1,411,166

 
$
38,316

 
$
(45,184
)
 
$
1,404,298


Where quoted prices are available in an active market, securities held by the trusts 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 September 30, 2015, our unfunded commitment for our private equity and other investments was $46.8 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
 
September 30, 2015
 
September 30, 2014
 
Private Equity
 
Other
 
Private Equity
 
Other
 
(In thousands)
Fair value, beginning balance
$
34,867

 
$
2,448

 
$
27,557

 
$
1,078

Net unrealized gains (losses) included in Accumulated other comprehensive income(1)
1,779


1,045


1,056


(186
)
Net realized losses included in Other income (expense), net(2)
(6
)
 
(4
)
 
(8
)
 
(5
)
Purchases
—

 
(26
)
 
—

 
—

Contributions
—

 
—

 
5,379

 
127

Distributions and other
(2,258
)
 
(1,115
)
 
(3,147
)
 
—

Fair value, ending balance
$
34,382

 
$
2,348

 
$
30,837

 
$
1,014



 
Nine Months Ended
 
September 30, 2015
 
September 30, 2014
 
Private Equity
 
Other
 
Private Equity
 
Other
 
(In thousands)
Fair value, beginning balance
$
29,344

 
$
1,197

 
$
26,844

 
$
1,245

Net unrealized gains (losses) included in Accumulated other comprehensive income(1)
5,312

 
590

 
2,666

 
(149
)
Net realized losses included in Other income (expense), net(2)
(46
)
 
(17
)
 
(23
)
 
(6
)
Purchases
—

 
1,348

 
—

 
—

Contributions
4,830

 
1,294

 
6,404

 
127

Distributions and other
(5,058
)
 
(2,064
)
 
(5,054
)
 
(203
)
Fair value, ending balance
$
34,382

 
$
2,348

 
$
30,837

 
$
1,014


________________________________________
(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 realized losses recognized in Other income (expense), net for our merchandise and service trust investments are attributable to our preneed customers and are offset by a corresponding reclassification in Other income (expense), 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 September 30, 2015 are estimated as follows:
 
Fair Value
 
(In thousands)
Due in one year or less
$
26,631

Due in one to five years
25,881

Due in five to ten years
26,261

Thereafter
18,864

 
$
97,637


Earnings from all our merchandise and service trust investments are recognized in current revenue when merchandise is delivered or a service is performed. Fees charged by our wholly-owned registered investment advisor are also included in current revenue. 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 revenue in the period in which they are earned. Recognized trust fund income (realized and unrealized) related to these trust investments was $10.7 million and $12.2 million for the three months ended September 30, 2015 and 2014, respectively. Recognized trust fund income (realized and unrealized) related to these trust investments was $34.9 million and $36.2 million for the nine months ended September 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 income (expense), 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 (expense), 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 September 30, 2015 and 2014, we recorded a $1.8 million and a $59.3 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, 2015 and 2014, we recorded a $3.8 million and a $59.8 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 during the fourth quarter of 2014. This change did not impact our asset allocation, but did 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 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 September 30, 2015 are shown in the following tables:
 
September 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
$
55,492

 
$
(1,257
)
 
$
13

 
$
(1
)
 
$
55,505

 
$
(1,258
)
Canadian government
1,242

 
(20
)
 
879

 
(66
)
 
2,121

 
(86
)
Corporate
204

 
(8
)
 
2,441

 
(104
)
 
2,645

 
(112
)
Residential mortgage-backed
27

 
—

 
19

 
(2
)
 
46

 
(2
)
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
Common stock:
 
 
 
 
 
 
 
 
 
 
 
United States
300,606

 
(47,051
)
 
—

 
—

 
300,606

 
(47,051
)
Canada
789

 
(442
)
 
1,231

 
(749
)
 
2,020

 
(1,191
)
Other international
28,359

 
(9,341
)
 
—

 
—

 
28,359

 
(9,341
)
Mutual funds:
 
 
 
 
 
 
 
 
 
 
 
Equity
296,807

 
(48,088
)
 
1,889

 
(514
)
 
298,696

 
(48,602
)
Fixed income
259,288

 
(12,800
)
 
13,519

 
(553
)
 
272,807

 
(13,353
)
Private equity
—

 
—

 
8,325

 
(2,976
)
 
8,325

 
(2,976
)
Total temporarily impaired securities
$
942,814

 
$
(119,007
)
 
$
28,316

 
$
(4,965
)
 
$
971,130

 
$
(123,972
)


 
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
$
45,072

 
$
(605
)
 
$
—

 
$
—

 
$
45,072

 
$
(605
)
Canadian government
—

 
—

 
4,858

 
(134
)
 
4,858

 
(134
)
Corporate
2,017

 
(61
)
 
1,936

 
(55
)
 
3,953

 
(116
)
Residential mortgage-backed
33

 
(1
)
 
—

 
—

 
33

 
(1
)
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
Common stock:
 
 
 
 
 
 
 
 
 
 
 
United States
192,015

 
(11,706
)
 
585

 
—

 
192,600

 
(11,706
)
Canada
2,069

 
(319
)
 
778

 
(522
)
 
2,847

 
(841
)
Other international
28,308

 
(2,395
)
 
—

 
—

 
28,308

 
(2,395
)
Mutual funds:
 
 
 
 
 
 
 
 
 
 
 
Equity
303,211

 
(18,329
)
 
1,577

 
(101
)
 
304,788

 
(18,430
)
Fixed income
159,572

 
(4,106
)
 
15,113

 
(596
)
 
174,685

 
(4,702
)
Private equity
88

 
(100
)
 
7,518

 
(6,083
)
 
7,606

 
(6,183
)
Other
2

 
(3
)
 
259

 
(68
)
 
261

 
(71
)
Total temporarily impaired securities
$
732,387

 
$
(37,625
)
 
$
32,624

 
$
(7,559
)
 
$
765,011

 
$
(45,184
)