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Preneed Cemetery Activities (Notes)
 3 Months Ended
Mar. 31, 2016
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. 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 3 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 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 Amounts are withdrawn from the trusts when the contract obligations are performed.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
 
 
March 31,
 
 
2016
 
2015
 
 
(In thousands)
Deposits
 
$
36,998

 
$
35,161

Withdrawals
 
$
32,411

 
$
31,226

Purchases of available-for-sale securities
 
$
131,851

 
$
106,937

Sales of available-for-sale securities
 
$
118,581

 
$
99,262

Realized gains from sales of available-for-sale securities
 
$
6,246

 
$
7,135

Realized losses from sales of available-for-sale securities
 
$
(22,853
)
 
$
(7,028
)

The components of Preneed cemetery receivables, net and trust investments in our unaudited condensed Consolidated Balance Sheet at March 31, 2016 and December 31, 2015 are as follows:
 
March 31, 2016
 
December 31, 2015
 
(In thousands)
Trust investments, at market
$
1,333,276

 
$
1,343,916

Cash and cash equivalents
128,497

 
118,583

Trust investments
1,461,773

 
1,462,499

Receivables from customers
965,495

 
958,503

Unearned finance charges
(32,144
)
 
(31,332
)
 
2,395,124

 
2,389,670

Allowance for cancellation
(71,445
)
 
(71,503
)
Preneed cemetery receivables, net and trust investments
$
2,323,679

 
$
2,318,167


The costs and values associated with the trust investments measured at market at March 31, 2016 and December 31, 2015 are detailed below. Cost reflects the investment (net of redemptions) of control holders in the trusts. Value represents the market value of the underlying securities held by the trusts.
 
March 31, 2016
 
Value Hierarchy Level
 
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Value
 
 
 
 
 
(In thousands)
 
 
Fixed income securities:
 
 
 
 
 
 
 
 
 
U.S. Treasury
2
 
$
62,763

 
$
1,584

 
$
—

 
$
64,347

Canadian government
2
 
29,144

 
229

 
(49
)
 
29,324

Corporate
2
 
5,036

 
21

 
(168
)
 
4,889

Asset-backed
2
 
169

 
21

 
—

 
190

Equity securities:
 
 
 
 
 
 
 
 
 
Common stock:
 
 
 
 
 
 
 
 
 
United States
1
 
544,212

 
45,619

 
(37,705
)
 
552,126

Canada
1
 
8,487

 
3,958

 
(295
)
 
12,150

Other international
1
 
45,771

 
3,516

 
(5,834
)
 
43,453

Mutual funds:
 
 
 
 
 
 
 
 
 
Equity
1
 
353,128

 
3,010

 
(44,406
)
 
311,732

Fixed income
1
 
188,990

 
407

 
(14,775
)
 
174,622

Other
3
 
1,476

 
—

 
(179
)
 
1,297

Trust investments, at fair value
 
 
1,239,176

 
58,365

 
(103,411
)
 
1,194,130

Fixed income commingled funds
 
 
101,182

 
2,274

 
—

 
103,456

Private equity
 
 
34,460

 
5,829

 
(4,599
)
 
35,690

Trust investments, at net asset value
 
 
135,642

 
8,103

 
(4,599
)
 
139,146

Trust investments, at market
 
 
$
1,374,818

 
$
66,468

 
$
(108,010
)
 
$
1,333,276


 
December 31, 2015
 
Value Hierarchy Level
 
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Value
 
 
 
 
 
(In thousands)
 
 
Fixed income securities:
 
 
 
 
 
 
 
 
 
U.S. Treasury
2
 
$
69,746

 
$
25

 
$
(1,437
)
 
$
68,334

Canadian government
2
 
24,648

 
183

 
(169
)
 
24,662

Corporate
2
 
5,112

 
26

 
(118
)
 
5,020

Residential mortgage-backed
2
 
129

 
3

 
(3
)
 
129

Asset-backed
2
 
170

 
15

 
—

 
185

Equity securities:
 
 
 
 
 
 
 
 
 
Common stock:
 
 
 
 
 
 
 
 
 
United States
1
 
532,026

 
44,181

 
(32,037
)
 
544,170

Canada
1
 
8,984

 
3,858

 
(891
)
 
11,951

Other international
1
 
50,053

 
4,207

 
(5,799
)
 
48,461

Mutual funds:
 
 
 
 
 
 
 
 
 
Equity
1
 
356,798

 
1,620

 
(49,642
)
 
308,776

Fixed income
1
 
203,983

 
92

 
(18,526
)
 
185,549

Other
3
 
1,381

 
122

 
—

 
1,503

Trust investments, at fair value
 
 
1,253,030

 
54,332

 
(108,622
)
 
1,198,740

Fixed income commingled funds
 
 
108,883

 
—

 
(570
)
 
108,313

Private equity
 
 
35,411

 
5,954

 
(4,502
)
 
36,863

Trust investments, at net asset value
 
 
144,294

 
5,954

 
(5,072
)
 
145,176

Trust investments, at market
 
 
$
1,397,324

 
$
60,286

 
$
(113,694
)
 
$
1,343,916


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.
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 other investments requires management judgment due to the absence of quoted market prices, inherent lack of liquidity, and the long-term nature of such assets. These funds are classified as Level 3 investments pursuant to the fair value measurements hierarchy.
Fixed income commingled funds and private equity investments are measured at net asset value. Fixed income commingled funds are redeemable for net asset value with two weeks notice. Our private equity 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. As of March 31, 2016, our unfunded commitment for our private equity investments was $42.7 million which, if called, would be funded by the assets of the trusts.
The change in our trust investments measured at fair value with significant unobservable inputs (Level 3) is as follows:

 
Three Months Ended
 
March 31,
 
2016
 
2015
 
Other
 
Other
 
(In thousands)
Fair value, beginning balance
$
1,503

 
$
203

Net unrealized losses included in Accumulated other comprehensive income(1)
(206
)
 
(4
)
Fair value, ending balance
$
1,297

 
$
199


________________________________________
(1)
All unrealized 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 6 for further information related to our Deferred preneed receipts held in trust.
Maturity dates of our fixed income securities range from 2016 to 2041. Maturities of fixed income securities, excluding mutual funds, at March 31, 2016 are estimated as follows:
 
Fair Value
 
(In thousands)
Due in one year or less
$
26,335

Due in one to five years
32,443

Due in five to ten years
29,785

Thereafter
10,187

 
$
98,750


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 $9.7 million and $12.1 million for the three months ended March 31, 2016 and 2015, 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, 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 expense, 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 three months ended March 31, 2016 and 2015, we recorded a $2.0 million and a $0.5 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 values and the duration of unrealized losses as of March 31, 2016 and December 31, 2015, respectively, are shown in the following tables:
 
March 31, 2016
 
In Loss Position
Less Than 12 Months
 
In Loss Position
Greater Than 12 Months
 
Total
 
Value
 
Unrealized
Losses
 
Value
 
Unrealized
Losses
 
Value
 
Unrealized
Losses
 
 
 
 
 
(In thousands)
 
 
 
 
Fixed income securities:
 
 
 
 
 
 
 
 
 
 
 
Canadian government
$
19,788

 
$
(12
)
 
$
1,197

 
$
(37
)
 
$
20,985

 
$
(49
)
Corporate
1,632

 
(36
)
 
2,383

 
(132
)
 
4,015

 
(168
)
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
Common stock:
 
 
 
 
 
 
 
 
 
 
 
United States
197,289

 
(31,577
)
 
21,487

 
(6,128
)
 
218,776

 
(37,705
)
Canada
653

 
(199
)
 
692

 
(96
)
 
1,345

 
(295
)
Other international
17,150

 
(3,452
)
 
7,230

 
(2,382
)
 
24,380

 
(5,834
)
Mutual funds:
 
 
 
 
 
 
 
 
 
 
 
Equity
198,230

 
(25,801
)
 
82,557

 
(18,605
)
 
280,787

 
(44,406
)
Fixed income
113,796

 
(3,463
)
 
36,630

 
(11,312
)
 
150,426

 
(14,775
)
Other
1,297

 
(179
)
 
—

 
—

 
1,297

 
(179
)
Trust investments, at fair value
549,835

 
(64,719
)
 
152,176

 
(38,692
)
 
702,011

 
(103,411
)
Private equity
—

 
—

 
8,661

 
(4,599
)
 
8,661

 
(4,599
)
Trust investments, at net asset value
—

 
—

 
8,661

 
(4,599
)
 
8,661

 
(4,599
)
Total temporarily impaired securities
$
549,835

 
$
(64,719
)
 
$
160,837

 
$
(43,291
)
 
$
710,672

 
$
(108,010
)


 
December 31, 2015
 
In Loss Position
Less Than 12 Months
 
In Loss Position
Greater Than 12 Months
 
Total
 
Value
 
Unrealized
Losses
 
Value
 
Unrealized
Losses
 
Value
 
Unrealized
Losses
 
 
 
 
 
(In thousands)
 
 
 
 
Fixed income securities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury
$
52,533

 
$
(1,435
)
 
$
21

 
$
(2
)
 
$
52,554

 
$
(1,437
)
Canadian government
16,039

 
(105
)
 
841

 
(64
)
 
16,880

 
(169
)
Corporate
1,754

 
(22
)
 
2,347

 
(96
)
 
4,101

 
(118
)
Residential mortgage-backed
42

 
(1
)
 
18

 
(2
)
 
60

 
(3
)
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
Common stock:
 
 
 
 
 
 
 
 
 
 
 
United States
198,843

 
(26,038
)
 
21,355

 
(5,999
)
 
220,198

 
(32,037
)
Canada
470

 
(6
)
 
1,430

 
(885
)
 
1,900

 
(891
)
Other international
15,567

 
(2,507
)
 
9,412

 
(3,292
)
 
24,979

 
(5,799
)
Mutual funds:
 
 
 
 
 
 
 
 
 
 
 
Equity
207,349

 
(25,991
)
 
86,720

 
(23,651
)
 
294,069

 
(49,642
)
Fixed income
139,749

 
(6,322
)
 
44,550

 
(12,204
)
 
184,299

 
(18,526
)
Trust investments, at fair value
632,346

 
(62,427
)
 
166,694

 
(46,195
)
 
799,040

 
(108,622
)
Fixed income commingled funds
108,347

 
(570
)
 
—

 
—

 
108,347

 
(570
)
Private equity
—

 
—

 
9,526

 
(4,502
)
 
9,526

 
(4,502
)
Trust investments, at net asset value
108,347

 
(570
)
 
9,526

 
(4,502
)
 
117,873

 
(5,072
)
Total temporarily impaired securities
$
740,693

 
$
(62,997
)
 
$
176,220

 
$
(50,697
)
 
$
916,913

 
$
(113,694
)