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Preneed Funeral Activities Level 1 (Notes)
 12 Months Ended
Dec. 31, 2015
Funeral [Member]  
Preneed Funeral Activities Text Block
Preneed Funeral Activities
Preneed funeral receivables, net and trust investments
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. 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 4 and 5 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 Amounts are withdrawn from the trusts after the contract obligations are performed.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 funeral contracts are presented as operating cash flows in our 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 our preneed funeral merchandise and service trusts for the years ended December 31:
 
2015
 
2014
 
2013
 
 
 
(In thousands)
 
 
Deposits
$
121,109

 
$
102,553

 
$
82,168

Withdrawals
$
160,135

 
$
131,352

 
$
125,914

Purchases of available-for-sale securities(1)
$
453,092

 
$
1,238,257

 
$
393,169

Sales of available-for-sale securities(1)
$
458,236

 
$
1,318,512

 
$
435,267

Realized gains from sales of available-for-sale securities(1)
$
42,034

 
$
168,567

 
$
65,011

Realized losses from sales of available-for-sale securities(1)
$
(31,403
)
 
$
(113,748
)
 
$
(9,732
)

(1)
The increase in activity in 2014 is the result of changing the legal structure of the trust investments.
The components of Preneed funeral receivables, net and trust investments in our Consolidated Balance Sheet at December 31 were as follows:
 
2015
 
2014
 
(In thousands)
Trust investments, at market
$
1,109,394

 
$
1,205,747

Cash and cash equivalents
134,642

 
162,229

Assets associated with businesses held for sale
(39
)
 
—

Insurance-backed fixed income securities
271,116

 
260,899

Trust investments
1,515,113

 
1,628,875

Receivables from customers
290,689

 
262,700

Unearned finance charge
(11,235
)
 
(11,054
)
 
1,794,567

 
1,880,521

Allowance for cancellation
(34,270
)
 
(37,498
)
Preneed funeral receivables and trust investments
$
1,760,297

 
$
1,843,023



    
The activity in Preneed funeral receivables, net and trust investments for the years ended December 31 was as follows:
 
2015
 
2014
 
2013
 
 
 
(In thousands)
 
 
Beginning balance — Preneed funeral receivables and trust investments
$
1,843,023

 
$
1,870,243

 
$
1,536,257

Net preneed contract sales
283,927

 
247,994

 
192,712

Cash receipts from customers, net of refunds
(234,413
)
 
(211,830
)
 
(170,921
)
Deposits to trust
121,109

 
102,553

 
82,168

Acquisitions (divestitures) of businesses, net
1,400

 
(19,203
)
 
271,395

Net undistributed investment (losses) earnings (1)
(38,510
)
 
22,480

 
125,986

Maturities and distributed earnings
(200,635
)
 
(162,059
)
 
(153,446
)
Change in cancellation allowance
2,787

 
7,644

 
(3,245
)
Effect of foreign currency and other
(18,391
)
 
(14,799
)
 
(10,663
)
Ending balance — Preneed funeral receivables and trust investments
$
1,760,297

 
$
1,843,023

 
$
1,870,243

(1)
Includes both realized and unrealized investment earnings.
The cost and market values associated with our funeral merchandise and service trust investments recorded at fair value at December 31, 2015 and 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.
 
 
December 31, 2015
 
Fair Value Hierarchy Level
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
 
 
 
(In thousands)
 
 
Fixed income securities:
 
 

 
 

 
 

 
 

U.S. Treasury
2
$
82,417

 
$
107

 
$
(1,331
)
 
$
81,193

Canadian government
2
72,488

 
532

 
(655
)
 
72,365

Corporate
2
19,036

 
235

 
(284
)
 
18,987

Residential mortgage-backed
2
1,297

 
29

 
(22
)
 
1,304

Asset-backed
2
5

 
—

 
—

 
5

Equity securities:
 
 

 
 

 
 

 
 

Preferred stock
2
1,949

 
41

 
(158
)
 
1,832

Common stock:
 
 

 
 

 
 

 
 

United States
1
344,116

 
30,885

 
(19,149
)
 
355,852

Canada
1
11,930

 
2,652

 
(1,077
)
 
13,505

Other international
1
32,156

 
2,636

 
(3,907
)
 
30,885

Mutual funds:
 
 

 
 

 
 

 
 

Equity
1
323,884

 
1,263

 
(43,975
)
 
281,172

Fixed income
1
155,717

 
154

 
(13,092
)
 
142,779

Commingled funds:
 
 
 
 
 
 
 
 
Fixed income
2
69,148

 
—

 
(442
)
 
68,706

Private equity
3
38,201

 
3,703

 
(6,467
)
 
35,437

Other
3
4,226

 
1,146

 
—

 
5,372

Trust investments
 
$
1,156,570

 
$
43,383

 
$
(90,559
)
 
$
1,109,394

 
 
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, rating, and tax-exempt status. Commingled funds are measured at and readily redeemable for net asset value. These securities 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 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. 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 securities are classified as Level 3 investments pursuant to the fair value measurements hierarchy.
As of December 31, 2015, our unfunded commitment for our private equity and other investments was $41.9 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 for the years ended December 31, 2015, 2014, and 2013:
 
2015
 
2014
 
2013
 
Private Equity
 
Other
 
Private Equity
 
Other
 
Private Equity
 
Other
 
 
 
 
 
(In thousands)
 
 
 
 
Fair value, beginning balance at January 1,
$
28,325

 
$
5,706

 
$
26,885

 
$
1,808

 
$
17,879

 
$
744

Net unrealized gains included in Accumulated other comprehensive income(1)
6,449

 
214

 
2,242

 
826

 
13,429

 
1,442

Net realized losses included in Other income (expense), net(2)
(44
)
 
(15
)
 
(39
)
 
(6
)
 
(43
)
 
(3
)
Purchases
—

 
32

 
—

 
3,214

 
1,188

 
—

Sales
(36
)
 
—

 
—

 
—

 
—

 
—

Contributions
7,464

 
1,297

 
6,122

 
4

 
3,229

 
—

Distributions and other
(6,721
)
 
(1,862
)
 
(6,885
)
 
(140
)
 
(9,245
)
 
(393
)
Acquisitions
—

 
—

 
—

 
—

 
448

 
18

Fair value, ending balance at December 31,
$
35,437

 
$
5,372

 
$
28,325

 
$
5,706

 
$
26,885

 
$
1,808

(1)
All unrealized gains 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 receipts held in trust. See Note 6 for further information related to our Deferred preneed receipts held in trust.
(2)
All losses recognized in Other income (expense), 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 (expense), net to Deferred preneed receipts held in trust. See Note 6 for further information related to our Deferred preneed receipts held in trust.
Maturity dates of our fixed income securities range from 2016 to 2045. Maturities of fixed income securities at December 31, 2015 are estimated as follows:
 
Fair Value
 
(In thousands)
Due in one year or less
$
107,784

Due in one to five years
25,635

Due in five to ten years
26,390

Thereafter
14,045

 
$
173,854


Earnings from all our funeral merchandise and service trust investments are recognized in funeral 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 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 earnings (realized and unrealized) related to our funeral merchandise and service trust investments were $52.9 million, $62.8 million, and $48.5 million for the years ended December 31, 2015, 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 income (expense), 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 6 for further information related to our Deferred preneed receipts held in trust. For the years ended December 31, 2015, 2014, and 2013, we recorded a $3.5 million, a $41.8 million, and a $0.8 million, respectively, impairment charge 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 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 for the years ended December 31, 2015 and 2014, are shown in the following tables.
 
December 31, 2015
 
In Loss Position
Less Than 12 Months
 
In Loss Position
Greater Than 12 Months
 
Total
 
Fair
Market
Value
 
Unrealized
Losses
 
Fair
Market
Value
 
Unrealized
Losses
 
Fair
Market
Value
 
Unrealized
Losses
 
 
 
 
 
(In thousands)
 
 
 
 
Fixed income securities:
 

 
 

 
 

 
 

 
 

 
 

U.S. Treasury
$
37,008

 
$
(1,273
)
 
$
4,687

 
$
(58
)
 
$
41,695

 
$
(1,331
)
Canadian government
2,336

 
(17
)
 
11,535

 
(638
)
 
13,871

 
(655
)
Corporate
4,644

 
(156
)
 
4,025

 
(128
)
 
8,669

 
(284
)
Residential mortgage-backed
377

 
(6
)
 
133

 
(16
)
 
510

 
(22
)
Equity securities:
 

 
 

 
 

 
 

 


 


Preferred stock
448

 
(60
)
 
42

 
(98
)
 
490

 
(158
)
Common stock:
 

 
 

 
 

 
 

 


 


United States
128,725

 
(16,448
)
 
14,531

 
(2,701
)
 
143,256

 
(19,149
)
Canada
1,956

 
(355
)
 
1,097

 
(722
)
 
3,053

 
(1,077
)
Other international
9,458

 
(1,638
)
 
6,151

 
(2,269
)
 
15,609

 
(3,907
)
Mutual funds:
 

 
 

 
 

 
 

 


 


Equity
185,726

 
(23,385
)
 
79,855

 
(20,590
)
 
265,581

 
(43,975
)
Fixed income
108,984

 
(5,052
)
 
27,048

 
(8,040
)
 
136,032

 
(13,092
)
Commingled funds:
 
 
 
 
 
 
 
 
 
 
 
Fixed income
68,578

 
(442
)
 
—

 
—

 
68,578

 
(442
)
Private equity
—

 
—

 
18,713

 
(6,467
)
 
18,713

 
(6,467
)
Total temporarily impaired securities
$
548,240

 
$
(48,832
)
 
$
167,817

 
$
(41,727
)
 
$
716,057

 
$
(90,559
)
 
December 31, 2014
 
In Loss Position
Less Than 12 Months
 
In Loss Position
Greater Than 12 Months
 
Total
 
Fair
Market
Value
 
Unrealized
Losses
 
Fair
Market
Value
 
Unrealized
Losses
 
Fair
Market
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
)

Deferred Preneed Funeral Revenues
At December 31, 2015 and 2014, Deferred preneed funeral revenues, net of allowance for cancellation, represent future funeral revenues, including distributed trust investment earnings associated with unperformed trust-funded preneed funeral contracts that are not held in trust accounts. Deferred preneed funeral revenues are recognized in current funeral revenues when merchandise is delivered or the service is performed. Future funeral revenues and net trust investment earnings that are held in trust accounts are included in Deferred preneed receipts held in trust.
The following table summarizes the activity in Deferred preneed funeral revenues for the years ended December 31 were as follows:
 
2015
 
2014
 
2013
 
(In thousands)
Beginning balance — Deferred preneed funeral revenue, net
$
540,164

 
$
551,948

 
$
535,136

Net preneed contract sales
232,628

 
198,195

 
144,202

(Divestitures) acquisitions of businesses, net
(2,895
)
 
(21,639
)
 
298,047

Net investment (losses) earnings(1)
(37,208
)
 
24,256

 
126,428

Recognized deferred preneed revenue
(276,359
)
 
(258,534
)
 
(200,680
)
Change in cancellation allowance
11,675

 
21,272

 
(5,670
)
Change in deferred preneed receipts held in trust
90,351

 
26,131

 
(343,878
)
Effect of foreign currency and other
(459
)
 
(1,465
)
 
(1,637
)
Ending balance — Deferred preneed funeral revenue, net
$
557,897

 
$
540,164

 
$
551,948

(1)
Includes both realized and unrealized investment earnings.
Insurance-Funded Preneed Contracts
Not included in our Consolidated Balance Sheet are insurance-funded preneed contracts that will be funded by life insurance or annuity contracts issued by third party insurers. Where permitted by state or provincial law, customers may arrange their preneed contract by purchasing a life insurance or annuity policy from third-party insurance companies, for which we earn a commission as general sales agent for the insurance company. These general agency commissions (GA revenues) are based on a percentage per contract sold and are recognized as funeral revenues when the insurance purchase transaction between the customer and third-party insurance provider is completed. GA revenues recognized in 2015, 2014, and 2013 were $137.0 million, $123.0 million, and $106.5 million, respectively. Direct selling costs incurred pursuant to the sale of insurance-funded preneed contracts are expensed as incurred. The policy amount of the insurance contract between the customer and the third-party insurance company generally equals the amount of the preneed contract. We do not reflect the unfulfilled insurance-funded preneed contract amounts in our Consolidated Balance Sheet. The proceeds of the life insurance policies or annuity contracts will be reflected in funeral revenues as we perform these funerals.