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Preneed Funeral Activities (Notes) (Funeral) | 3 Months Ended
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Mar. 31, 2015
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 funeral 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 5 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 funeral revenues into Deferred preneed funeral and cemetery 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 Amounts are withdrawn from the trusts after the contract obligations are performed.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 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 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:
| Three Months Ended
| March 31,
| 2015 |  | 2014
| (In thousands)
Deposits | $ | 29,995 |  |  | $ | 27,923 |
Withdrawals | $ | 45,444 |  |  | $ | 43,737 |
Purchases of available-for-sale securities | $ | 104,231 |  |  | $ | 61,485 |
Sales of available-for-sale securities | $ | 82,320 |  |  | $ | 64,051 |
Realized gains from sales of available-for-sale securities | $ | 4,349 |  |  | $ | 16,101 |
Realized losses from sales of available-for-sale securities | $ | (4,735 | ) |  | $ | (1,474 | )
The components of Preneed funeral receivables, net and trust investments in our unaudited condensed consolidated balance sheet at March 31, 2015 and December 31, 2014 are as follows:
| March 31, 2015 |  | December 31, 2014
| (In thousands)
Trust investments, at fair value | $ | 1,218,591 |  |  | $ | 1,205,747 |
Cash and cash equivalents | 126,391 |  |  | 162,229 |
Insurance-backed fixed income securities | 265,059 |  |  | 260,899 |
Trust investments | 1,610,041 |  |  | 1,628,875 |
Receivables from customers | 270,933 |  |  | 262,700 |
Unearned finance charge | (11,992 | ) |  | (11,054 | )
| 1,868,982 |  |  | 1,880,521 |
Allowance for cancellation | (37,617 | ) |  | (37,498 | )
Preneed funeral receivables, net and trust investments | $ | 1,831,365 |  |  | $ | 1,843,023 |
The cost and market values associated with our funeral merchandise and service trust investments recorded at fair value at March 31, 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 value of the underlying securities held by the trusts.
| March 31, 2015
| Fair Value Hierarchy Level |  | Cost |  | Unrealized Gains |  | Unrealized Losses |  | Fair Value
|  |  |  |  | (In thousands) |  |
Fixed income securities: |  |  |  |  |  |  |  |  |
U.S. Treasury | 2 |  | $ | 82,111 |  |  | $ | 1,132 |  |  | $ | (99 | ) |  | $ | 83,144 |
Canadian government | 2 |  | 77,971 |  |  | 856 |  |  | (356 | ) |  | 78,471 |
Corporate | 2 |  | 24,044 |  |  | 673 |  |  | (121 | ) |  | 24,596 |
Residential mortgage-backed | 2 |  | 1,476 |  |  | 32 |  |  | (15 | ) |  | 1,493 |
Asset-backed | 2 |  | 5 |  |  | — |  |  | — |  |  | 5 |
Equity securities: |  |  |  |  |  |  |  |  |
Preferred stock | 2 |  | 2,205 |  |  | 131 |  |  | (62 | ) |  | 2,274 |
Common stock: |  |  |  |  |  |  |  |  |
United States | 1 |  | 369,115 |  |  | 31,162 |  |  | (10,822 | ) |  | 389,455 |
Canada | 1 |  | 13,832 |  |  | 3,960 |  |  | (738 | ) |  | 17,054 |
Other international | 1 |  | 35,885 |  |  | 2,637 |  |  | (2,436 | ) |  | 36,086 |
Mutual funds: |  |  |  |  |  |  |  |  |
Equity | 1 |  | 318,059 |  |  | 5,747 |  |  | (7,309 | ) |  | 316,497 |
Fixed income | 1 |  | 233,082 |  |  | 2,726 |  |  | (4,659 | ) |  | 231,149 |
Private equity | 3 |  | 33,031 |  |  | 4,180 |  |  | (6,168 | ) |  | 31,043 |
Other | 3 |  | 6,305 |  |  | 1,341 |  |  | (322 | ) |  | 7,324 |
Trust investments |  |  | $ | 1,197,121 |  |  | $ | 54,577 |  |  | $ | (33,107 | ) |  | $ | 1,218,591 |
| 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. 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 instruments are valued based on reported net asset values. A significant increase (decrease) in the discount rates results in a directionally opposite change in the fair value of the instruments. 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 March 31, 2015, the funeral merchandise and service trusts' unfunded commitment for private equity and other investments was $40.3 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 market-based funeral merchandise and service trust investments with significant unobservable inputs (Level 3) is as follows:
| Three Months Ended
| March 31, 2015 |  | March 31, 2014
| Private Equity |  | Other |  | Private Equity |  | Other
| (In thousands)
Fair value, beginning balance | $ | 28,325 |  |  | $ | 5,706 |  |  | $ | 26,885 |  |  | $ | 1,803 |
Net unrealized gains (losses) included in Accumulated other comprehensive income(1) | 3,476 |  |  | 1,952 |  |  | (470 | ) |  | 2,036 |
Net realized losses included in Other (expense) income, net(2) | (17 | ) |  | (8 | ) |  | (8 | ) |  | — |
Purchases | — |  |  | — |  |  | 1,887 |  |  | — |
Contributions | 540 |  |  | 251 |  |  | 467 |  |  | — |
Distributions | (1,281 | ) |  | (577 | ) |  | (1,247 | ) |  | — |
Fair value, ending balance | $ | 31,043 |  |  | $ | 7,324 |  |  | $ | 27,514 |  |  | $ | 3,839 |
__________________________________________
(1) | All unrealized gains (losses) 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 funeral and cemetery receipts held in trust. See Note 7 for further information related to our Deferred preneed funeral and cemetery receipts held in trust.
(2) | All losses recognized in Other (expense) income, net for our funeral 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 funeral and cemetery receipts held in trust. See Note 7 for further information related to our Deferred preneed funeral and cemetery 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 March 31, 2015 are estimated as follows:
| Fair Value
| (In thousands)
Due in one year or less | $ | 112,864 |
Due in one to five years | 32,324 |
Due in five to ten years | 30,115 |
Thereafter | 12,406 |
| $ | 187,709 |
Earnings from all our funeral merchandise and service trust investments are recognized in funeral revenues when the merchandise is delivered or the service is performed. Fees charged by our wholly-owned registered investment advisor are also included in current revenues. 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 in the period in which they are earned. Recognized trust fund income (realized and unrealized) related to these trust investments was $14.4 million and $16.1 million for the three months ended March 31, 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 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 funeral receipts held in trust. See Note 7 for further information related to our Deferred preneed funeral receipts held in trust. For the three months ended March 31, 2015 and 2014, we recorded a $0.5 million and a $0.3 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 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 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 funeral merchandise and service trust investment unrealized losses, their associated fair values, and the duration of unrealized losses as of March 31, 2015 and December 31, 2014, respectively, are shown in the following tables:
| March 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 | $ | 10,060 |  |  | $ | (57 | ) |  | $ | 4,790 |  |  | $ | (42 | ) |  | $ | 14,850 |  |  | $ | (99 | )
Canadian government | 229 |  |  | (1 | ) |  | 12,890 |  |  | (355 | ) |  | 13,119 |  |  | (356 | )
Corporate | 4,491 |  |  | (37 | ) |  | 2,629 |  |  | (84 | ) |  | 7,120 |  |  | (121 | )
Residential mortgage-backed | 267 |  |  | (2 | ) |  | 241 |  |  | (13 | ) |  | 508 |  |  | (15 | )
Equity securities: |  |  |  |  |  |  |  |  |  |  |
Preferred stock | 78 |  |  | (62 | ) |  | — |  |  | — |  |  | 78 |  |  | (62 | )
Common stock: |  |  |  |  |  |  |  |  |  |  |
United States | 137,804 |  |  | (10,822 | ) |  | 367 |  |  | — |  |  | 138,171 |  |  | (10,822 | )
Canada | 2,558 |  |  | (501 | ) |  | 860 |  |  | (237 | ) |  | 3,418 |  |  | (738 | )
Other international | 14,324 |  |  | (2,436 | ) |  | 2 |  |  | — |  |  | 14,326 |  |  | (2,436 | )
Mutual funds: |  |  |  |  |  |  |  |  |  |  |
Equity | 104,675 |  |  | (6,175 | ) |  | 11,172 |  |  | (1,134 | ) |  | 115,847 |  |  | (7,309 | )
Fixed income | 36,130 |  |  | (4,334 | ) |  | 10,995 |  |  | (325 | ) |  | 47,125 |  |  | (4,659 | )
Private equity | — |  |  | — |  |  | 15,380 |  |  | (6,168 | ) |  | 15,380 |  |  | (6,168 | )
Other | — |  |  | — |  |  | 1,303 |  |  | (322 | ) |  | 1,303 |  |  | (322 | )
Total temporarily impaired securities | $ | 310,616 |  |  | $ | (24,427 | ) |  | $ | 60,629 |  |  | $ | (8,680 | ) |  | $ | 371,245 |  |  | $ | (33,107 | )
| 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 | $ | 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 | )

X
- Definition This note represents disclosures relating to preneed funeral activity and major accounts which also include: (1) fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments; (2) variable interest entities; and (3)all other required (as defined) and desired information. + References No definition available. + Details
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Period Type: | duration