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Preneed Funeral Activities (Notes) | 3 Months Ended
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Mar. 31, 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 Amounts are withdrawn from the trusts after the contract obligations are performed.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
|  | March 31,
|  | 2016 |  | 2015
|  | (In thousands)
Deposits |  | $ | 27,708 |  |  | $ | 29,995 |
Withdrawals |  | $ | 35,170 |  |  | $ | 45,444 |
Purchases of available-for-sale securities |  | $ | 109,522 |  |  | $ | 104,231 |
Sales of available-for-sale securities |  | $ | 99,493 |  |  | $ | 82,320 |
Realized gains from sales of available-for-sale securities |  | $ | 6,824 |  |  | $ | 4,349 |
Realized losses from sales of available-for-sale securities |  | $ | (19,651 | ) |  | $ | (4,735 | )
The components of Preneed funeral 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 | $ | 1,112,379 |  |  | $ | 1,109,394 |
Cash and cash equivalents | 128,315 |  |  | 134,603 |
Insurance-backed fixed income securities | 270,473 |  |  | 271,116 |
Trust investments | 1,511,167 |  |  | 1,515,113 |
Receivables from customers | 298,852 |  |  | 290,689 |
Unearned finance charge | (11,906 | ) |  | (11,235 | )
| 1,798,113 |  |  | 1,794,567 |
Allowance for cancellation | (34,839 | ) |  | (34,270 | )
Preneed funeral receivables, net and trust investments | $ | 1,763,274 |  |  | $ | 1,760,297 |
The costs and values associated with 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 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 |  | $ | 78,022 |  |  | $ | 834 |  |  | $ | (254 | ) |  | $ | 78,602 |
Canadian government | 2 |  | 77,781 |  |  | 410 |  |  | (881 | ) |  | 77,310 |
Corporate | 2 |  | 14,974 |  |  | 173 |  |  | (262 | ) |  | 14,885 |
Residential mortgage-backed | 2 |  | 80 |  |  | 2 |  |  | — |  |  | 82 |
Asset-backed | 2 |  | 58 |  |  | — |  |  | (1 | ) |  | 57 |
Equity securities: |  |  |  |  |  |  |  |  |
Preferred stock | 2 |  | 1,950 |  |  | 64 |  |  | (116 | ) |  | 1,898 |
Common stock: |  |  |  |  |  |  |  |  |
United States | 1 |  | 351,310 |  |  | 30,275 |  |  | (23,247 | ) |  | 358,338 |
Canada | 1 |  | 13,014 |  |  | 2,338 |  |  | (1,146 | ) |  | 14,206 |
Other international | 1 |  | 29,746 |  |  | 2,171 |  |  | (3,909 | ) |  | 28,008 |
Mutual funds: |  |  |  |  |  |  |  |  |
Equity | 1 |  | 328,286 |  |  | 2,780 |  |  | (40,449 | ) |  | 290,617 |
Fixed income | 1 |  | 150,974 |  |  | 594 |  |  | (9,179 | ) |  | 142,389 |
Other | 3 |  | 3,997 |  |  | 910 |  |  | (96 | ) |  | 4,811 |
Trust investments, at fair value |  |  | 1,050,192 |  |  | 40,551 |  |  | (79,540 | ) |  | 1,011,203 |
Fixed income commingled funds |  |  | 64,988 |  |  | 1,328 |  |  | — |  |  | 66,316 |
Private equity |  |  | 37,761 |  |  | 3,701 |  |  | (6,602 | ) |  | 34,860 |
Trust investments, at net asset value |  |  | 102,749 |  |  | 5,029 |  |  | (6,602 | ) |  | 101,176 |
Trust investments, at market |  |  | $ | 1,152,941 |  |  | $ | 45,580 |  |  | $ | (86,142 | ) |  | $ | 1,112,379 |
| 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 March 31, 2016, our unfunded commitment for our private equity investments was $41.1 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 | $ | 4,772 |  |  | $ | 4,891 |
Net unrealized gains (losses) included in Accumulated other comprehensive income(1) | 39 |  |  | (74 | )
Fair value, ending balance | $ | 4,811 |  |  | $ | 4,817 |
______________________________________________
(1) | All unrealized gains (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 | $ | 106,941 |
Due in one to five years | 26,528 |
Due in five to ten years | 31,082 |
Thereafter | 6,385 |
| $ | 170,936 |
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 $12.0 million and $14.4 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 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 March 31, 2016 and 2015, we recorded an $1.1 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: |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury | $ | 4,421 |  |  | $ | (169 | ) |  | $ | 4,550 |  |  | $ | (85 | ) |  | $ | 8,971 |  |  | $ | (254 | )
Canadian government | 5,233 |  |  | (77 | ) |  | 12,167 |  |  | (804 | ) |  | 17,400 |  |  | (881 | )
Corporate | 2,714 |  |  | (108 | ) |  | 3,369 |  |  | (154 | ) |  | 6,083 |  |  | (262 | )
Asset-backed | 57 |  |  | (1 | ) |  | — |  |  | — |  |  | 57 |  |  | (1 | )
Equity securities: |  |  |  |  |  |  |  |  |  |  |
Preferred stock | 94 |  |  | (25 | ) |  | 48 |  |  | (91 | ) |  | 142 |  |  | (116 | )
Common stock: |  |  |  |  |  |  |  |  |  |  |
United States | 124,502 |  |  | (19,418 | ) |  | 14,346 |  |  | (3,829 | ) |  | 138,848 |  |  | (23,247 | )
Canada | 4,918 |  |  | (866 | ) |  | 670 |  |  | (280 | ) |  | 5,588 |  |  | (1,146 | )
Other international | 11,101 |  |  | (2,189 | ) |  | 4,841 |  |  | (1,720 | ) |  | 15,942 |  |  | (3,909 | )
Mutual funds: |  |  |  |  |  |  |  |  |  |  |
Equity | 182,603 |  |  | (23,695 | ) |  | 71,967 |  |  | (16,754 | ) |  | 254,570 |  |  | (40,449 | )
Fixed income | 77,990 |  |  | (2,994 | ) |  | 21,240 |  |  | (6,185 | ) |  | 99,230 |  |  | (9,179 | )
Other | 1,084 |  |  | (96 | ) |  | — |  |  | — |  |  | 1,084 |  |  | (96 | )
Trust investments, at fair value | 414,717 |  |  | (49,638 | ) |  | 133,198 |  |  | (29,902 | ) |  | 547,915 |  |  | (79,540 | )
Private equity | 788 |  |  | (612 | ) |  | 17,165 |  |  | (5,990 | ) |  | 17,953 |  |  | (6,602 | )
Trust investments, at net asset value | 788 |  |  | (612 | ) |  | 17,165 |  |  | (5,990 | ) |  | 17,953 |  |  | (6,602 | )
Total temporarily impaired securities | $ | 415,505 |  |  | $ | (50,250 | ) |  | $ | 150,363 |  |  | $ | (35,892 | ) |  | $ | 565,868 |  |  | $ | (86,142 | )
| 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 | )

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- 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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- Details
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