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Preneed Funeral Activities Level 1 (Notes) | 12 Months Ended
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Dec. 31, 2016
Funeral [Member] |
Preneed Funeral Activities Text Block | Preneed Funeral Activities Preneed funeral receivables, net and trust investments 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. 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 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 Amounts are withdrawn from the trusts after the contract obligations are performed.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 funeral contracts are presented as operating cash flows in our 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 our preneed funeral merchandise and service trusts for the years ended December 31:
| 2016 |  | 2015 |  | 2014
|  |  | (In thousands) |  |
Deposits | $ | 121,668 |  |  | $ | 121,109 |  |  | $ | 102,553 |
Withdrawals | $ | 157,549 |  |  | $ | 160,135 |  |  | $ | 131,352 |
Purchases of available-for-sale securities(1) | $ | 377,813 |  |  | $ | 453,092 |  |  | $ | 1,238,257 |
Sales of available-for-sale securities(1) | $ | 387,959 |  |  | $ | 458,236 |  |  | $ | 1,318,512 |
(1) | The higher level of activity in 2014 was the result of changing the legal structure of the trust investments.
The components of Preneed funeral receivables, net and trust investments in our Consolidated Balance Sheet at December 31 were as follows:
| 2016 |  | 2015
| (In thousands)
Trust investments, at market | $ | 1,152,752 |  |  | $ | 1,109,394 |
Cash and cash equivalents | 122,517 |  |  | 134,642 |
Assets associated with businesses held for sale | — |  |  | (39 | )
Insurance-backed fixed income securities | 271,248 |  |  | 271,116 |
Trust investments | 1,546,517 |  |  | 1,515,113 |
Receivables from customers | 312,556 |  |  | 290,689 |
Unearned finance charge | (12,562 | ) |  | (11,235 | )
| 1,846,511 |  |  | 1,794,567 |
Allowance for cancellation | (29,066 | ) |  | (34,270 | )
Preneed funeral receivables, net and trust investments | $ | 1,817,445 |  |  | $ | 1,760,297 |
The activity in Preneed funeral receivables, net and trust investments for the years ended December 31 was as follows:
| 2016 |  | 2015 |  | 2014
|  |  | (In thousands) |  |
Beginning balance — Preneed funeral receivables and trust investments | $ | 1,760,297 |  |  | $ | 1,843,023 |  |  | $ | 1,870,243 |
Net preneed contract sales | 296,896 |  |  | 283,927 |  |  | 247,994 |
Cash receipts from customers, net of refunds | (246,436 | ) |  | (234,413 | ) |  | (211,830 | )
Deposits to trust | 121,668 |  |  | 121,109 |  |  | 102,553 |
Acquisitions (divestitures) of businesses, net | 3,560 |  |  | 1,400 |  |  | (19,203 | )
Net undistributed investment earnings (losses) (1) | 65,954 |  |  | (38,510 | ) |  | 22,480 |
Maturities and distributed earnings | (193,604 | ) |  | (200,635 | ) |  | (162,059 | )
Change in cancellation allowance | 5,295 |  |  | 2,787 |  |  | 7,644 |
Effect of foreign currency and other | 3,815 |  |  | (18,391 | ) |  | (14,799 | )
Ending balance — Preneed funeral receivables and trust investments | $ | 1,817,445 |  |  | $ | 1,760,297 |  |  | $ | 1,843,023 |
(1) | Includes both realized and unrealized investment earnings.
The cost and market values associated with our funeral 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 | $ | 75,245 |  |  | $ | 317 |  |  | $ | (557 | ) |  | $ | 75,005 |
Canadian government | 2 | 55,752 |  |  | 272 |  |  | (42 | ) |  | 55,982 |
Corporate | 2 | 12,702 |  |  | 177 |  |  | (92 | ) |  | 12,787 |
Residential mortgage-backed | 2 | 29 |  |  | 1 |  |  | — |  |  | 30 |
Asset-backed | 2 | 58 |  |  | — |  |  | (3 | ) |  | 55 |
Equity securities: |  |  |  |  |  |  |  |  |  |  |  |
Preferred stock | 2 | 1,428 |  |  | 81 |  |  | (39 | ) |  | 1,470 |
Common stock: |  |  |  |  |  |  |  |  |  |  |  |
United States | 1 | 334,854 |  |  | 49,785 |  |  | (11,525 | ) |  | 373,114 |
Canada | 1 | 11,853 |  |  | 2,592 |  |  | (263 | ) |  | 14,182 |
Other international | 1 | 25,761 |  |  | 1,824 |  |  | (3,167 | ) |  | 24,418 |
Mutual funds: |  |  |  |  |  |  |  |  |  |  |  |
Equity | 1 | 313,132 |  |  | 7,780 |  |  | (26,842 | ) |  | 294,070 |
Fixed income | 1 | 92,760 |  |  | 1,344 |  |  | (7,368 | ) |  | 86,736 |
Other | 3 | 4,079 |  |  | 1,214 |  |  | (17 | ) |  | 5,276 |
Trust investments, at fair value |  | 927,653 |  |  | 65,387 |  |  | (49,915 | ) |  | 943,125 |
Fixed income commingled funds |  | 168,959 |  |  | 3,177 |  |  | (1,167 | ) |  | 170,969 |
Private equity |  | 40,892 |  |  | 2,956 |  |  | (5,190 | ) |  | 38,658 |
Trust investments, at net asset value |  | 209,851 |  |  | 6,133 |  |  | (6,357 | ) |  | 209,627 |
Trust investments, at market |  | $ | 1,137,504 |  |  | $ | 71,520 |  |  | $ | (56,272 | ) |  | $ | 1,152,752 |
|  | December 31, 2015
| Fair Value Hierarchy Level | Cost |  | Unrealized Gains |  | Unrealized Losses |  | Fair Value
|  |  |  | (In thousands) |  |
Fixed income securities: |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury | 2 | $ | 64,140 |  |  | $ | 89 |  |  | $ | (1,270 | ) |  | $ | 62,959 |
Canadian government | 2 | 56,975 |  |  | 323 |  |  | (55 | ) |  | 57,243 |
Corporate | 2 | 18,983 |  |  | 235 |  |  | (284 | ) |  | 18,934 |
Residential mortgage-backed | 2 | 1,299 |  |  | 29 |  |  | (22 | ) |  | 1,306 |
Asset-backed | 2 | 5 |  |  | — |  |  | — |  |  | 5 |
Equity securities: |  |  |  |  |  |  |  |  |  |  |  |
Preferred stock | 2 | 1,951 |  |  | 41 |  |  | (158 | ) |  | 1,834 |
Common stock: |  |  |  |  |  |  |  |  |  |  |  |
United States | 1 | 344,544 |  |  | 30,885 |  |  | (19,149 | ) |  | 356,280 |
Canada | 1 | 11,882 |  |  | 2,651 |  |  | (1,077 | ) |  | 13,456 |
Other international | 1 | 32,193 |  |  | 2,636 |  |  | (3,907 | ) |  | 30,922 |
Mutual funds: |  |  |  |  |  |  |  |  |  |  |  |
Equity | 1 | 324,231 |  |  | 1,263 |  |  | (43,975 | ) |  | 281,519 |
Fixed income | 1 | 155,893 |  |  | 154 |  |  | (13,092 | ) |  | 142,955 |
Other | 3 | 3,687 |  |  | 1,069 |  |  | — |  |  | 4,756 |
Trust investments, at fair value |  | 1,015,783 |  |  | 39,375 |  |  | (82,989 | ) |  | 972,169 |
Fixed income commingled funds |  | 102,063 |  |  | 228 |  |  | (1,103 | ) |  | 101,188 |
Private equity |  | 38,724 |  |  | 3,780 |  |  | (6,467 | ) |  | 36,037 |
Trust investments, at net asset value |  | 140,787 |  |  | 4,008 |  |  | (7,570 | ) |  | 137,225 |
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 quarterly by the Investment Committee of the Board of Directors. 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 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 $31.8 million which, if called, would be funded by the assets of the trusts. The change in our market-based funeral 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 |  | $ | 4,756 |  |  | $ | 4,891 |  |  | $ | 801 |
Net unrealized gains (losses) included in Accumulated other comprehensive income(1) |  | 478 |  |  | (167 | ) |  | 876 |
Purchases |  | 89 |  |  | 32 |  |  | 3,214 |
Sales |  | (47 | ) |  | — |  |  | — |
Fair value, ending balance at December 31 |  | $ | 5,276 |  |  | $ | 4,756 |  |  | $ | 4,891 |
(1) | All unrealized gains 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 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 at December 31, 2016 are estimated as follows:
| Fair Value
| (In thousands)
Due in one year or less | $ | 76,744 |
Due in one to five years | 27,298 |
Due in five to ten years | 31,374 |
Thereafter | 8,443 |
| $ | 143,859 |
Earnings from all our funeral merchandise and service trust investments are recognized in funeral 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 funeral merchandise and service trust investments were $49.9 million, $52.9 million, and $62.8 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 income (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) 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 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 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 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 Market Value |  | Unrealized Losses |  | Fair Market Value |  | Unrealized Losses |  | Fair Market Value |  | Unrealized Losses
|  |  |  |  | (In thousands) |  |  |  |
Fixed income securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury | $ | 25,996 |  |  | $ | (557 | ) |  | $ | — |  |  | $ | — |  |  | $ | 25,996 |  |  | $ | (557 | )
Canadian government | 2,847 |  |  | (30 | ) |  | 191 |  |  | (12 | ) |  | 3,038 |  |  | (42 | )
Corporate | 1,710 |  |  | (15 | ) |  | 3,560 |  |  | (77 | ) |  | 5,270 |  |  | (92 | )
Asset-backed | — |  |  | — |  |  | 55 |  |  | (3 | ) |  | 55 |  |  | (3 | )
Equity securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Preferred stock | 125 |  |  | (17 | ) |  | 98 |  |  | (22 | ) |  | 223 |  |  | (39 | )
Common stock: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
United States | 87,059 |  |  | (8,149 | ) |  | 14,939 |  |  | (3,376 | ) |  | 101,998 |  |  | (11,525 | )
Canada | 2,832 |  |  | (254 | ) |  | 482 |  |  | (9 | ) |  | 3,314 |  |  | (263 | )
Other international | 5,390 |  |  | (1,301 | ) |  | 7,368 |  |  | (1,866 | ) |  | 12,758 |  |  | (3,167 | )
Mutual funds: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Equity | 108,109 |  |  | (5,080 | ) |  | 127,273 |  |  | (21,762 | ) |  | 235,382 |  |  | (26,842 | )
Fixed income | 34,120 |  |  | (817 | ) |  | 31,654 |  |  | (6,551 | ) |  | 65,774 |  |  | (7,368 | )
Other | 26 |  |  | (2 | ) |  | 1,160 |  |  | (15 | ) |  | 1,186 |  |  | (17 | )
Trust investments, at fair value | 268,214 |  |  | (16,222 | ) |  | 186,780 |  |  | (33,693 | ) |  | 454,994 |  |  | (49,915 | )
Fixed income commingled funds | 75,041 |  |  | (687 | ) |  | 17,656 |  |  | (480 | ) |  | 92,697 |  |  | (1,167 | )
Private equity | 693 |  |  | (481 | ) |  | 22,812 |  |  | (4,709 | ) |  | 23,505 |  |  | (5,190 | )
Trust investments, at net asset value | 75,734 |  |  | (1,168 | ) |  | 40,468 |  |  | (5,189 | ) |  | 116,202 |  |  | (6,357 | )
Total temporarily impaired securities | $ | 343,948 |  |  | $ | (17,390 | ) |  | $ | 227,248 |  |  | $ | (38,882 | ) |  | $ | 571,196 |  |  | $ | (56,272 | )
| December 31, 2015
| In Loss Position Less Than 12 Months |  | In Loss Position Greater Than 12 Months |  | Total
| Fair Market Value |  | Unrealized Losses |  | Fair Market Value |  | Unrealized Losses |  | Fair Market Value |  | Unrealized Losses
|  |  |  |  | (In thousands) |  |  |  |
Fixed income securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. Treasury | $ | 36,113 |  |  | $ | (1,268 | ) |  | $ | 141 |  |  | $ | (2 | ) |  | $ | 36,254 |  |  | $ | (1,270 | )
Canadian government | 209 |  |  | (7 | ) |  | 971 |  |  | (48 | ) |  | 1,180 |  |  | (55 | )
Corporate | 4,618 |  |  | (156 | ) |  | 3,880 |  |  | (128 | ) |  | 8,498 |  |  | (284 | )
Residential mortgage-backed | 378 |  |  | (6 | ) |  | 132 |  |  | (16 | ) |  | 510 |  |  | (22 | )
Equity securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Preferred stock | 449 |  |  | (60 | ) |  | 42 |  |  | (98 | ) |  | 491 |  |  | (158 | )
Common stock: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
United States | 128,925 |  |  | (16,448 | ) |  | 14,537 |  |  | (2,701 | ) |  | 143,462 |  |  | (19,149 | )
Canada | 1,941 |  |  | (355 | ) |  | 1,051 |  |  | (722 | ) |  | 2,992 |  |  | (1,077 | )
Other international | 9,473 |  |  | (1,638 | ) |  | 6,154 |  |  | (2,269 | ) |  | 15,627 |  |  | (3,907 | )
Mutual funds: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Equity | 186,016 |  |  | (23,385 | ) |  | 79,892 |  |  | (20,590 | ) |  | 265,908 |  |  | (43,975 | )
Fixed income | 109,154 |  |  | (5,052 | ) |  | 27,061 |  |  | (8,040 | ) |  | 136,215 |  |  | (13,092 | )
Trust investments, at fair value | 477,276 |  |  | (48,375 | ) |  | 133,861 |  |  | (34,614 | ) |  | 611,137 |  |  | (82,989 | )
Fixed income commingled funds | 70,964 |  |  | (457 | ) |  | 15,243 |  |  | (646 | ) |  | 86,207 |  |  | (1,103 | )
Private equity | — |  |  | — |  |  | 18,714 |  |  | (6,467 | ) |  | 18,714 |  |  | (6,467 | )
Trust investments, at net asset value | 70,964 |  |  | (457 | ) |  | 33,957 |  |  | (7,113 | ) |  | 104,921 |  |  | (7,570 | )
Total temporarily impaired securities | $ | 548,240 |  |  | $ | (48,832 | ) |  | $ | 167,818 |  |  | $ | (41,727 | ) |  | $ | 716,058 |  |  | $ | (90,559 | )
Deferred preneed funeral revenue At December 31, 2016 and 2015, Deferred preneed funeral revenue, net of allowance for cancellation, represents future funeral revenue, including distributed trust investment earnings associated with unperformed trust-funded preneed funeral contracts that are not held in trust accounts. Deferred preneed funeral revenue is recognized in current funeral revenue when merchandise is delivered or the service is performed. Future funeral 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 funeral revenue for the years ended December 31:
| 2016 |  | 2015 |  | 2014
| (In thousands)
Beginning balance — Deferred preneed funeral revenue | $ | 557,897 |  |  | $ | 540,164 |  |  | $ | 551,948 |
Net preneed contract sales | 251,134 |  |  | 232,628 |  |  | 198,195 |
Acquisitions (divestitures) of businesses, net | 2,170 |  |  | (2,895 | ) |  | (21,639 | )
Net investment earnings (losses) (1) | 66,656 |  |  | (37,208 | ) |  | 24,256 |
Recognized deferred preneed revenue | (277,248 | ) |  | (276,359 | ) |  | (258,534 | )
Change in cancellation allowance | 8,411 |  |  | 11,675 |  |  | 21,272 |
Change in deferred preneed receipts held in trust | (28,506 | ) |  | 90,351 |  |  | 26,131 |
Effect of foreign currency and other | 766 |  |  | (459 | ) |  | (1,465 | )
Ending balance — Deferred preneed funeral revenue | $ | 581,280 |  |  | $ | 557,897 |  |  | $ | 540,164 |
(1) | Includes both realized and unrealized investment earnings.
Insurance-funded preneed contracts Not included in our Consolidated Balance Sheet are insurance-funded preneed contracts that will be funded by life insurance or annuity contracts issued by third party insurers. Where permitted by state or provincial law, customers may arrange their preneed contract by purchasing a life insurance or annuity policy from third-party insurance companies, for which we earn a commission as general sales agent for the insurance company. These general agency commissions (GA revenue) are based on a percentage per contract sold and are recognized as funeral revenue when the insurance purchase transaction between the customer and third-party insurance provider is completed. GA revenue recognized in 2016, 2015, and 2014 was $135.8 million, $137.0 million, and $123.0 million, respectively. Direct selling costs incurred pursuant to the sale of insurance-funded preneed contracts are expensed as incurred. The policy amount of the insurance contract between the customer and the third-party insurance company generally equals the amount of the preneed contract. We do not reflect the unfulfilled insurance-funded preneed contract amounts in our Consolidated Balance Sheet. The proceeds of the life insurance policies or annuity contracts will be reflected in funeral revenue as we perform these funerals.

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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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