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Preneed Cemetery Activities Level 1 (Notes)
 12 Months Ended
Dec. 31, 2016
Cemetery [Member]  
Preneed Cemetery Activities Text Block
Preneed Cemetery Activities
Preneed cemetery receivables, net and trust investments
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 cemetery 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. 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 Amounts are withdrawn from the trusts when the contract obligations are performed.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 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 our preneed cemetery merchandise and service trusts for the years ended December 31:
 
2016
 
2015
 
2014
 
 
 
(In thousands)
 
 
Deposits
$
158,114

 
$
153,252

 
$
129,581

Withdrawals
$
144,308

 
$
163,732

 
$
150,064

Purchases of available-for-sale securities(1)
$
656,452

 
$
625,648

 
$
1,786,800

Sales of available-for-sale securities(1)
$
631,440

 
$
628,484

 
$
1,842,417


(1)
The higher level of activity in 2014 was the result of changing the legal structure of the trust investments.
The components of Preneed cemetery receivables, net and trust investments in the Consolidated Balance Sheet at December 31 were as follows:
 
2016
 
2015
 
(In thousands)
Trust investments, at market
$
1,435,083

 
$
1,343,916

Cash and cash equivalents
123,146

 
118,583

Trust investments
1,558,229

 
1,462,499

Receivables from customers
1,038,592

 
958,503

Unearned finance charges
(33,427
)
 
(31,332
)
 
2,563,394

 
2,389,670

Allowance for cancellation
(75,674
)
 
(71,503
)
Preneed cemetery receivables, net and trust investments
$
2,487,720

 
$
2,318,167


The activity in Preneed cemetery receivables, net and trust investments for the years ended December 31 was as follows:
 
2016
 
2015
 
2014
 
 
 
(In thousands)
 
 
Beginning balance — Preneed cemetery receivables and trust investments
$
2,318,167

 
$
2,306,669

 
$
2,292,348

Net preneed contract sales
862,298

 
799,497

 
688,336

Cash receipts from customers, net of refunds
(784,267
)
 
(716,686
)
 
(615,489
)
Deposits to trust
158,114

 
153,252

 
129,581

(Divestitures) acquisitions of businesses, net
(2,083
)
 
4,404

 
(10,898
)
Net undistributed investment earnings (losses) (1)
79,557

 
(42,189
)
 
(18,038
)
Maturities, deliveries, and associated earnings
(144,308
)
 
(163,732
)
 
(150,064
)
Change in cancellation allowance
(1,966
)
 
(2,046
)
 
843

Effect of foreign currency and other
2,208

 
(21,002
)
 
(9,950
)
Ending balance — Preneed cemetery receivables and trust investments
$
2,487,720

 
$
2,318,167

 
$
2,306,669

(1)
Includes both realized and unrealized investment earnings.
The cost and market values associated with our cemetery merchandise and service trust investments recorded at fair value at December 31, 2016 and 2015 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, 2016
 
Fair Value Hierarchy Level
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
 
 
 
(In thousands)
 
 
Fixed income securities:
 
 

 
 

 
 

 
 

U.S. Treasury
2
$
70,070

 
$
567

 
$
(281
)
 
$
70,356

Canadian government
2
9,109

 
49

 
(66
)
 
9,092

Corporate
2
1,596

 
18

 
(34
)
 
1,580

Asset-backed
2
170

 
13

 
—

 
183

Equity securities:
 
 

 
 

 
 

 
 

Common stock:
 
 

 
 

 
 

 
 

United States
1
539,445

 
72,682

 
(21,680
)
 
590,447

Canada
1
9,027

 
4,807

 
(84
)
 
13,750

Other international
1
42,870

 
3,023

 
(5,229
)
 
40,664

Mutual funds:
 
 

 
 

 
 

 
 

Equity
1
356,079

 
7,812

 
(29,603
)
 
334,288

Fixed income
1
94,383

 
1,535

 
(9,854
)
 
86,064

Trust investments, at fair value
 
1,122,749

 
90,506

 
(66,831
)
 
1,146,424

Fixed income commingled funds

245,813

 
5,347

 
(1,681
)
 
249,479

Private equity

37,881

 
4,616

 
(3,317
)
 
39,180

Trust investments, at net asset value
 
283,694

 
9,963

 
(4,998
)
 
288,659

Trust investments, at market
 
$
1,406,443

 
$
100,469

 
$
(71,829
)
 
$
1,435,083

 
 
December 31, 2015
 
Fair Value Hierarchy Level
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
 
 
 
(In thousands)
 
 
Fixed income securities:
 
 

 
 

 
 

 
 

U.S. Treasury
2
$
69,727

 
$
25

 
$
(1,437
)
 
$
68,315

Canadian government
2
9,725

 
183

 
(99
)
 
9,809

Corporate
2
5,115


26


(118
)

5,023

Residential mortgage-backed
2
129

 
3

 
(3
)
 
129

Asset-backed
2
170

 
15

 
—

 
185

Equity securities:
 
 

 
 

 
 

 
 

Common stock:
 
 

 
 

 
 

 
 

United States
1
531,885

 
44,181

 
(32,037
)
 
544,029

Canada
1
8,992

 
3,858

 
(891
)
 
11,959

Other international
1
50,041

 
4,207

 
(5,799
)
 
48,449

Mutual funds:
 
 

 
 

 
 

 
 

Equity
1
356,712

 
1,620

 
(49,642
)
 
308,690

Fixed income
1
203,932

 
92

 
(18,527
)
 
185,497

Other
3
1,382

 
122

 
—

 
1,504

Trust investments, at fair value
 
1,237,810

 
54,332

 
(108,553
)
 
1,183,589

Fixed income commingled funds
 
124,103

 
—

 
(639
)
 
123,464

Private equity

35,411

 
5,954

 
(4,502
)
 
36,863

Trust investments, at net asset value
 
159,514

 
5,954

 
(5,141
)
 
160,327

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 quarterly by the Investment Committee of the Board of Directors.
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 securities 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 securities 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 December 31, 2016, our unfunded commitment for our private equity and other investments was $32.7 million which, if called, would be funded by the assets of the trusts.
The change in our market-based cemetery merchandise and service trust investments with significant unobservable inputs (Level 3) is as follows for the years ended December 31:
 
 
2016
 
2015
 
2014
 
 
(In thousands)
Fair value, beginning balance at January 1
 
$
1,504

 
$
203

 
$
—

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

 
(27
)
 
7

Net realized losses included in Other (expense) income, net(2)
 
(212
)
 
—

 
—

Purchases
 
—

 
1,328

 
196

Sales
 
(1,292
)
 
—

 
—

Fair value, ending balance at December 31
 
$
—

 
$
1,504

 
$
203

(1)
All unrealized gains recognized in Accumulated other comprehensive income for our cemetery 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 (expense) income, net for our cemetery 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 6 for further information related to our Deferred preneed receipts held in trust.
Maturity dates of our fixed income securities range from 2017 to 2041. Maturities of fixed income securities (excluding mutual funds) at December 31, 2016 are estimated as follows:
 
Fair Value
 
(In thousands)
Due in one year or less
$
7,154

Due in one to five years
26,237

Due in five to ten years
34,244

Thereafter
13,576

 
$
81,211


Earnings from all our cemetery merchandise and service trust investments are recognized in cemetery 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 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 revenue. Recognized earnings (realized and unrealized) related to our cemetery merchandise and service trust investments were $44.5 million, $45.5 million, and $48.2 million for the years ended December 31, 2016, 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 cemetery 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.
We have determined that the remaining unrealized losses in our cemetery 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 cemetery merchandise and service trust investment unrealized losses, their associated fair values, and the duration of unrealized losses for the years ended December 31, 2016 and 2015, are shown in the following tables:
 
December 31, 2016
 
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
$
15,413

 
$
(281
)
 
$
—

 
$
—

 
$
15,413

 
$
(281
)
Canadian government
—

 
—

 
1,192

 
(66
)
 
1,192

 
(66
)
Corporate
—

 
—

 
736

 
(34
)
 
736

 
(34
)
Equity securities:
 

 
 

 
 

 
 

 
 

 
 

Common stock:
 

 
 

 
 

 
 

 
 

 
 

United States
149,530

 
(13,680
)
 
23,010

 
(8,000
)
 
172,540

 
(21,680
)
Canada
408

 
(82
)
 
38

 
(2
)
 
446

 
(84
)
Other international
9,707

 
(2,330
)
 
11,442

 
(2,899
)
 
21,149

 
(5,229
)
Mutual funds:
 

 
 

 
 

 
 

 
 

 
 

Equity
125,728

 
(4,728
)
 
146,332

 
(24,875
)
 
272,060

 
(29,603
)
Fixed income
26,566

 
(446
)
 
45,337

 
(9,408
)
 
71,903

 
(9,854
)
Trust investments, at fair value
327,352

 
(21,547
)
 
228,087

 
(45,284
)
 
555,439

 
(66,831
)
Fixed income commingled funds
133,164

 
(1,681
)
 
—

 
—

 
133,164

 
(1,681
)
Private equity
558

 
(1
)
 
16,769

 
(3,316
)
 
17,327

 
(3,317
)
Trust investments, at net asset value
133,722

 
(1,682
)
 
16,769

 
(3,316
)
 
150,491

 
(4,998
)
Total temporarily impaired securities
$
461,074

 
$
(23,229
)
 
$
244,856

 
$
(48,600
)
 
$
705,930

 
$
(71,829
)
 
December 31, 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
$
52,509

 
$
(1,435
)
 
$
21

 
$
(2
)
 
$
52,530

 
$
(1,437
)
Canadian government
1,190


(34
)

841


(65
)

2,031


(99
)
Corporate
1,764


(22
)

2,347


(96
)

4,111


(118
)
 Residential mortgage-backed
42

 
(1
)
 
18

 
(2
)
 
60

 
(3
)
Equity securities:
 

 
 

 
 

 
 

 
 

 
 

Common stock:
 

 
 

 
 

 
 

 
 

 
 

United States
198,755

 
(26,038
)
 
21,355

 
(5,999
)
 
220,110

 
(32,037
)
Canada
473

 
(6
)
 
1,430

 
(885
)
 
1,903

 
(891
)
Other international
15,560

 
(2,507
)
 
9,412

 
(3,292
)
 
24,972

 
(5,799
)
Mutual funds:
 

 
 

 
 

 
 

 
 

 
 

Equity
207,253

 
(25,991
)
 
86,720

 
(23,651
)
 
293,973

 
(49,642
)
Fixed income
139,684

 
(6,323
)
 
44,550

 
(12,204
)
 
184,234

 
(18,527
)
Trust investments, at fair value
617,230

 
(62,357
)
 
166,694

 
(46,196
)
 
783,924

 
(108,553
)
Fixed income commingled funds
123,464

 
(639
)
 
—

 
—

 
123,464

 
(639
)
Private equity
—

 
—

 
9,526

 
(4,502
)
 
9,526

 
(4,502
)
Trust investments, at net asset value
123,464

 
(639
)
 
9,526

 
(4,502
)
 
132,990

 
(5,141
)
Total temporarily impaired securities
$
740,694

 
$
(62,996
)
 
$
176,220

 
$
(50,698
)
 
$
916,914

 
$
(113,694
)



Deferred preneed cemetery revenue
At December 31, 2016 and 2015, Deferred preneed cemetery revenue, net of allowance for cancellation, represents future cemetery revenue, including distributed trust investment earnings associated with unperformed trust-funded preneed cemetery contracts that are not held in trust accounts. Deferred preneed cemetery revenue is recognized in current cemetery revenue when merchandise is delivered or the service is performed. Future cemetery revenue 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 cemetery revenue for the years ended December 31:
 
2016
 
2015
 
2014
 
(In thousands)
Beginning balance — Deferred preneed cemetery revenue
$
1,120,001

 
$
1,062,381

 
$
1,016,275

Net preneed and atneed deferred sales
596,714

 
561,899

 
531,768

(Divestitures) acquisitions of businesses, net
(1,977
)
 
2,357

 
(25,071
)
Net investment earnings (losses) (1)
79,447

 
(42,806
)
 
(22,378
)
Recognized deferred preneed and atneed revenue
(546,071
)
 
(504,064
)
 
(493,739
)
Change in cancellation allowance
(3,015
)
 
(8,048
)
 
3,833

Change in deferred preneed receipts held in trust
(96,417
)
 
52,050

 
55,636

Effect of foreign currency and other
1,455

 
(3,768
)
 
(3,943
)
Ending balance — Deferred preneed cemetery revenue
$
1,150,137

 
$
1,120,001

 
$
1,062,381

(1)
Includes both realized and unrealized investment earnings (losses).