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Preneed Funeral Activities (Notes)
 6 Months Ended
Jun. 30, 2016
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. 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 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 revenue 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 Amounts are withdrawn from the trusts after the contract obligations are performed.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 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
 
Six Months Ended
 
June 30,
 
June 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands)
Deposits
$
33,509

 
$
32,485

 
$
61,217

 
$
62,480

Withdrawals
$
37,960

 
$
41,745

 
$
73,130

 
$
87,189

Purchases of available-for-sale securities
$
70,430

 
$
76,404

 
$
180,825

 
$
180,635

Sales of available-for-sale securities
$
71,057

 
$
89,998

 
$
175,474

 
$
172,318

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

 
$
9,856

 
$
13,070

 
$
14,205

Realized losses from sales of available-for-sale securities
$
(10,201
)
 
$
(3,838
)
 
$
(29,852
)
 
$
(8,572
)


The components of Preneed funeral receivables, net and trust investments in our unaudited condensed Consolidated Balance Sheet at June 30, 2016 and December 31, 2015 are as follows:
 
June 30, 2016
 
December 31, 2015
 
(In thousands)
Trust investments, at market
$
1,130,955

 
$
1,109,394

Cash and cash equivalents
124,644

 
134,642

Assets associated with business held for sale
(1,014
)
 
(39
)
Insurance-backed fixed income securities
272,686

 
271,116

Trust investments
1,527,271

 
1,515,113

Receivables from customers
308,098

 
290,689

Unearned finance charge
(12,082
)
 
(11,235
)
 
1,823,287

 
1,794,567

Allowance for cancellation
(35,222
)
 
(34,270
)
Preneed funeral receivables, net and trust investments
$
1,788,065

 
$
1,760,297


The costs and values associated with trust investments measured at market at June 30, 2016 and December 31, 2015 are detailed below. Cost reflects the investment (net of redemptions) of control holders in the trusts. Value represents the value of the underlying securities held by the trusts.
 
June 30, 2016
 
Value Hierarchy Level
 
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Value
 
 
 
 
 
(In thousands)
 
 
Fixed income securities:
 
 
 
 
 
 
 
 
 
U.S. Treasury
2
 
$
77,474

 
$
1,056

 
$
(137
)
 
$
78,393

Canadian government
2
 
79,458

 
430

 
(571
)
 
79,317

Corporate
2
 
13,989

 
261

 
(71
)
 
14,179

Residential mortgage-backed
2
 
101

 
1

 
—

 
102

Asset-backed
2
 
58

 
—

 
(1
)
 
57

Equity securities:
 
 
 
 
 
 
 
 
 
Preferred stock
2
 
1,956

 
106

 
(88
)
 
1,974

Common stock:
 
 
 
 
 
 
 
 
 
United States
1
 
340,480

 
35,330

 
(20,429
)
 
355,381

Canada
1
 
12,203

 
3,171

 
(578
)
 
14,796

Other international
1
 
30,750

 
2,188

 
(2,891
)
 
30,047

Mutual funds:
 
 
 
 
 
 
 
 
 
Equity
1
 
327,593

 
4,287

 
(37,934
)
 
293,946

Fixed income
1
 
86,275

 
1,615

 
(5,168
)
 
82,722

Other
3
 
4,319

 
1,092

 
(58
)
 
5,353

Trust investments, at fair value
 
 
974,656

 
49,537

 
(67,926
)
 
956,267

Fixed income commingled funds
 
 
134,048

 
5,345

 
—

 
139,393

Private equity
 
 
37,240

 
3,707

 
(5,652
)
 
35,295

Trust investments, at net asset value
 
 
171,288

 
9,052

 
(5,652
)
 
174,688

Trust investments, at market
 
 
$
1,145,944

 
$
58,589

 
$
(73,578
)
 
$
1,130,955

 
December 31, 2015
 
Value Hierarchy Level
 
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
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

Other
3
 
3,703

 
1,069

 
—

 
4,772

Trust investments, at fair value
 
 
1,048,698

 
39,603

 
(83,650
)
 
1,004,651

Fixed income commingled funds
 
 
69,148

 
—

 
(442
)
 
68,706

Private equity
 
 
38,724

 
3,780

 
(6,467
)
 
36,037

Trust investments, at net asset value
 
 
107,872

 
3,780

 
(6,909
)
 
104,743

Trust investments, at market
 
 
$
1,156,570

 
$
43,383

 
$
(90,559
)
 
$
1,109,394


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 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 June 30, 2016, our unfunded commitment for our private equity investments was $38.6 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
 
Six Months Ended
 
June 30,
 
June 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
(In thousands)
 
 
Fair value, beginning balance
$
4,811

 
$
4,817

 
$
4,772

 
$
4,891

Net unrealized gains included in Accumulated other comprehensive income(1)
535

 
241

 
574

 
167

Purchases
25

 
23

 
25

 
23

Sales
(18
)
 
—

 
(18
)
 
—

Fair value, ending balance
$
5,353

 
$
5,081

 
$
5,353

 
$
5,081


______________________________________________
(1) 
All unrealized gains 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 June 30, 2016 are estimated as follows:
 
Fair Value
 
(In thousands)
Due in one year or less
$
108,861

Due in one to five years
23,232

Due in five to ten years
33,082

Thereafter
6,873

 
$
172,048

 
Earnings from all our merchandise and service trust investments are recognized in 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 $12.1 million and $14.0 million for the three months ended June 30, 2016 and 2015, respectively. Recognized trust fund income (realized and unrealized) related to these trust investments was $24.1 million and $28.4 million for the six months ended June 30, 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 funeral 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 June 30, 2016 and 2015, we recorded a $2.1 million and $1.0 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, 2016 and 2015, we recorded a $3.2 million and a $1.5 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 June 30, 2016 and December 31, 2015, respectively, are shown in the following tables:
 
June 30, 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:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury
$
1,879

 
$
(55
)
 
$
7,077

 
$
(82
)
 
$
8,956

 
$
(137
)
Canadian government
3,141

 
(99
)
 
13,203

 
(472
)
 
16,344

 
(571
)
Corporate
2,291

 
(23
)
 
2,412

 
(48
)
 
4,703

 
(71
)
 Asset-backed
52

 
—

 
5

 
(1
)
 
57

 
(1
)
Equity securities:
 
 
 
 
 
 
 
 

 

Preferred stock
—

 
—

 
171

 
(88
)
 
171

 
(88
)
Common stock:
 
 
 
 
 
 
 
 

 

United States
104,059

 
(17,424
)
 
18,077

 
(3,005
)
 
122,136

 
(20,429
)
Canada
1,526

 
(199
)
 
1,419

 
(379
)
 
2,945

 
(578
)
Other international
8,579

 
(1,175
)
 
7,176

 
(1,716
)
 
15,755

 
(2,891
)
Mutual funds:
 
 
 
 
 
 
 
 

 

Equity
162,848

 
(19,583
)
 
81,872

 
(18,351
)
 
244,720

 
(37,934
)
Fixed income
8,714

 
(726
)
 
24,381

 
(4,442
)
 
33,095

 
(5,168
)
Other
1,364

 
(58
)
 
—

 
—

 
1,364

 
(58
)
Trust investments, at fair value
294,453

 
(39,342
)
 
155,793

 
(28,584
)
 
450,246

 
(67,926
)
Private equity
761

 
(598
)
 
17,001

 
(5,054
)
 
17,762

 
(5,652
)
Trust investments, at net asset value
761

 
(598
)
 
17,001

 
(5,054
)
 
17,762

 
(5,652
)
Total temporarily impaired securities
$
295,214

 
$
(39,940
)
 
$
172,794

 
$
(33,638
)
 
$
468,008

 
$
(73,578
)

 
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
$
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
)
Trust investments, at fair value
479,662

 
(48,390
)
 
149,104

 
(35,260
)
 
628,766

 
(83,650
)
Fixed income commingled funds
68,578

 
(442
)
 
—

 
—

 
68,578

 
(442
)
Private equity
—

 
—

 
18,713

 
(6,467
)
 
18,713

 
(6,467
)
Trust investments, at net asset value
68,578

 
(442
)
 
18,713

 
(6,467
)
 
87,291

 
(6,909
)
Total temporarily impaired securities
$
548,240

 
$
(48,832
)
 
$
167,817

 
$
(41,727
)
 
$
716,057

 
$
(90,559
)