10-Q 1 sci-2011930x10q.htm FORM 10-Q SCI-2011.9.30-10Q
 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM 10-Q
R
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
For the quarterly period ended September 30, 2011
or
o     
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
For the transition period from                      to                       
Commission file number 1-6402-1
SERVICE CORPORATION INTERNATIONAL
(Exact name of registrant as specified in its charter)
Texas
 
74-1488375
(State or other jurisdiction of incorporation or organization)
 
(I. R. S. employer identification number)
 
 
 
1929 Allen Parkway, Houston, Texas
 
77019
(Address of principal executive offices)
 
(Zip code)
 
 
 
 
713-522-5141
 
(Registrant’s telephone number, including area code)
 
 
 
 
None
 
(Former name, former address, or former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES þ NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
 
 
(Do not check if smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). YES o NO þ
The number of shares outstanding of the registrant’s common stock as of October 25, 2011 was 227,998,397 (net of treasury shares).

 


SERVICE CORPORATION INTERNATIONAL
INDEX
 
 
 
Page
 
 
 
 
 

2


GLOSSARY
The following terms are common to the deathcare industry, are used throughout this report, and have the following meanings:
Atneed — Funeral and cemetery arrangements after a death has occurred.
Burial Vaults — A reinforced container intended to house and protect the casket before it is placed in the ground.
Cemetery Perpetual Care or Endowment Care Fund — A trust fund established for the purpose of maintaining cemetery grounds and property into perpetuity.
Cremation — The reduction of human remains to bone fragments by intense heat.
General Agency (GA) Revenues — Commissions we receive from third-party life insurance companies for life insurance policies or annuities sold to preneed customers for the purpose of funding preneed funeral arrangements. The commission rate paid is determined based on the product type sold, the length of payment terms, and the age of the insured/annuitant.
Interment — The burial or final placement of human remains in the ground.
Lawn Crypt — An underground outer burial receptacle constructed of concrete and reinforced steel, which is usually pre-installed in predetermined designated areas.
Marker — A method of identifying a deceased person in a particular burial space, crypt, or niche. Permanent burial markers are usually made of bronze, granite, or stone.
Maturity — When the underlying contracted service is performed or merchandise is delivered, typically at death. This is the point at which preneed contracts are converted to atneed contracts (note — delivery of certain merchandise and services can occur prior to death).
Mausoleum — An above ground structure that is designed to house caskets and cremation urns.
Preneed — Purchase of products and services prior to a death occurring.
Preneed Backlog — Future revenues from unfulfilled preneed funeral and cemetery contractual arrangements.
Production — Sales of preneed funeral and preneed or atneed cemetery contracts.
As used herein, “SCI”, “Company”, “we”, “our”, and “us” refer to Service Corporation International and companies owned directly or indirectly by Service Corporation International, unless the context requires otherwise.

3


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SERVICE CORPORATION INTERNATIONAL
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(In thousands, except per share amounts)
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2011
 
2010
 
2011
 
2010
Revenues
$
572,999

 
$
533,165

 
$
1,729,472

 
$
1,619,301

Costs and expenses
(465,949
)
 
(430,518
)
 
(1,380,953
)
 
(1,294,998
)
Gross profits
107,050

 
102,647

 
348,519

 
324,303

General and administrative expenses
(23,863
)
 
(26,860
)
 
(77,381
)
 
(80,086
)
(Losses) gains on divestitures and impairment charges, net
(5,001
)
 
(7,291
)
 
(15,264
)
 
5,831

Operating income
78,186

 
68,496

 
255,874

 
250,048

Interest expense
(33,038
)
 
(31,497
)
 
(100,476
)
 
(96,281
)
Losses on early extinguishment of debt, net
(1,355
)
 
(9,066
)
 
(3,504
)
 
(9,357
)
Other income, net
249

 
688

 
969

 
3,077

Income before income taxes
44,042

 
28,621

 
152,863

 
147,487

Provision for income taxes
(9,027
)
 
(9,941
)
 
(51,181
)
 
(57,255
)
Net income
35,015

 
18,680

 
101,682

 
90,232

Net loss (income) attributable to noncontrolling interests
481

 
85

 
(1,329
)
 
(270
)
Net income attributable to common stockholders
$
35,496

 
$
18,765

 
$
100,353

 
$
89,962

Basic earnings per share:
 
 
 
 
 
 
 
Net income attributable to common stockholders
$
0.15

 
$
0.08

 
$
0.42

 
$
0.36

Basic weighted average number of shares
232,917

 
246,214

 
237,037

 
250,762

Diluted earnings per share:

 
 
 

 
 
Net income attributable to common stockholders
$
0.15

 
$
0.08

 
$
0.42

 
$
0.36

Diluted weighted average number of shares
235,513

 
247,523

 
239,528

 
252,486

Dividends declared per share
$
0.05

 
$
0.04

 
$
0.15

 
$
0.12


(See notes to unaudited condensed consolidated financial statements)

4


SERVICE CORPORATION INTERNATIONAL
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(In thousands, except share amounts)
 
September 30, 2011
 
December 31, 2010
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
127,037

 
$
170,846

Receivables, net
89,899

 
107,185

Deferred tax assets
43,542

 
41,371

Inventories
26,494

 
34,770

Other
21,458

 
27,746

Total current assets
308,430

 
381,918

Preneed funeral receivables, net and trust investments
1,456,130

 
1,424,557

Preneed cemetery receivables, net and trust investments
1,513,723

 
1,563,893

Cemetery property, at cost
1,499,203

 
1,508,787

Property and equipment, net
1,627,799

 
1,627,698

Goodwill
1,337,587

 
1,307,484

Deferred charges and other assets
454,168

 
389,184

Cemetery perpetual care trust investments
974,266

 
987,019

Total assets
$
9,171,306

 
$
9,190,540

 
 
 
 
LIABILITIES & EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable and accrued liabilities
$
351,235

 
$
342,651

Current maturities of long-term debt
23,685

 
22,502

Income taxes
2,957

 
1,474

Total current liabilities
377,877

 
366,627

Long-term debt
1,863,899

 
1,832,380

Deferred preneed funeral revenues
575,207

 
580,223

Deferred preneed cemetery revenues
835,121

 
813,493

Deferred tax liability
379,930

 
323,304

Other liabilities
410,937

 
399,619

Deferred preneed funeral and cemetery receipts held in trust
2,336,160

 
2,408,074

Care trusts’ corpus
971,926

 
986,872

Commitments and contingencies (Note 15)

 

Stockholders’ equity:
 
 
 
Common stock, $1 per share par value, 500,000,000 shares authorized, 243,767,641 and 242,019,650 shares issued, respectively, and 227,998,397 and 241,035,250 shares outstanding, respectively
227,998

 
241,035

Capital in excess of par value
1,471,599

 
1,603,112

Accumulated deficit
(398,997
)
 
(477,459
)
Accumulated other comprehensive income
99,552

 
112,768

Total common stockholders’ equity
1,400,152

 
1,479,456

Noncontrolling interests
20,097

 
492

Total equity
1,420,249

 
1,479,948

Total liabilities and equity
$
9,171,306

 
$
9,190,540

(See notes to unaudited condensed consolidated financial statements)

5


SERVICE CORPORATION INTERNATIONAL
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(In thousands)
 
Nine Months Ended
 
September 30,
 
2011
 
2010
Cash flows from operating activities:
 
 
 
Net income
$
101,682

 
$
90,232

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Losses on early extinguishment of debt, net
3,504

 
9,357

Depreciation and amortization
88,363

 
87,676

Amortization of intangible assets
19,497

 
18,816

Amortization of cemetery property
27,889

 
23,438

Amortization of loan costs
3,259

 
3,223

Provision for doubtful accounts
6,431

 
4,137

Provision for deferred income taxes
40,038

 
39,273

Losses (gains) on divestitures and impairment charges, net
15,264

 
(5,831
)
Share-based compensation
6,843

 
6,714

Excess tax benefit from share-based awards

 
(831
)
Change in assets and liabilities, net of effects from acquisitions and divestitures:
 
 
 
Decrease in receivables
13,583

 
6,793

Decrease (increase) in other assets
2,560

 
(1,094
)
Increase in payables and other liabilities
7,808

 
7,687

Effect of preneed funeral production and maturities:
 
 
 
Decrease in preneed funeral receivables, net and trust investments
47,263

 
30,434

Decrease in deferred preneed funeral revenue
(30,724
)
 
(4,218
)
Decrease in deferred preneed funeral receipts held in trust
(33,203
)
 
(27,240
)
Effect of cemetery production and deliveries:
 
 
 
Increase in preneed cemetery receivables, net and trust investments
(47,977
)
 
(29,849
)
Increase in deferred preneed cemetery revenue
26,502

 
7,369

(Decrease) increase in deferred preneed cemetery receipts held in trust
(6,280
)
 
1,496

Other
(989
)
 
(1,471
)
Net cash provided by operating activities
291,313

 
266,111

Cash flows from investing activities:
 
 
 
Capital expenditures
(85,936
)
 
(67,443
)
Acquisitions
(97,473
)
 
(281,800
)
Proceeds from divestitures and sales of property and equipment, net
15,233

 
82,866

Net withdrawals of restricted funds and other
956

 
26,440

Net cash used in investing activities
(167,220
)
 
(239,937
)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of long-term debt
65,000

 
245,000

Debt issuance costs

 
(6,203
)
Payments of debt
(2,169
)
 
(32,398
)
Early extinguishment of debt
(43,089
)
 
(118,562
)
Principal payments on capital leases
(17,186
)
 
(40,716
)
Proceeds from exercise of stock options
7,694

 
1,469

Excess tax benefit from share-based awards

 
831

Purchase of Company common stock
(146,590
)
 
(86,871
)
Payments of dividends
(33,395
)
 
(30,224
)
Bank overdrafts and other
3,573

 
(5,655
)
Net cash used in by financing activities
(166,162
)
 
(73,329
)
Effect of foreign currency on cash and cash equivalents
(1,740
)
 
3,223

Net decrease in cash and cash equivalents
(43,809
)
 
(43,932
)
Cash and cash equivalents at beginning of period
170,846

 
179,745

Cash and cash equivalents at end of period
$
127,037

 
$
135,813

(See notes to unaudited condensed consolidated financial statements)

6


SERVICE CORPORATION INTERNATIONAL
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
(UNAUDITED)
(In thousands)
 
Common
Stock
 
Treasury Stock
 
Capital in
Excess of
Par Value
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Income
 
Noncontrolling
Interests
 
Total
Balance at December 31, 2009
$
254,027

 
$
(10
)
 
$
1,735,493

 
$
(603,876
)
 
$
97,142

 
$
12

 
$
1,482,788

Net income

 

 

 
89,962

 

 
270

 
90,232

Dividends declared on common stock ($.12 per share)

 

 
(29,830
)
 

 

 

 
(29,830
)
Foreign currency translation

 

 

 

 
4,761

 
2

 
4,763

Employee share-based compensation earned

 

 
6,714

 

 

 

 
6,714

Stock option exercises
389

 

 
1,080

 

 

 

 
1,469

Tax benefits related to share based awards

 

 
868

 

 

 

 
868

Restricted stock awards, net of forfeitures
532

 

 
(532
)
 

 

 

 

Purchase of Company common stock

 
(10,358
)
 
(76,513
)
 

 

 

 
(86,871
)
Other
3

 
60

 
548

 

 

 

 
611

Balance at September 30, 2010
$
254,951

 
$
(10,308
)
 
$
1,637,828

 
$
(513,914
)
 
$
101,903

 
$
284

 
$
1,470,744

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2010
242,020

 
(985
)
 
1,603,112

 
(477,459
)
 
112,768

 
492

 
1,479,948

Net income

 

 

 
100,353

 

 
1,329

 
101,682

Dividends declared on common stock ($.15 per share)

 

 
(35,140
)
 

 

 

 
(35,140
)
Foreign currency translation

 

 


 

 
(13,216
)
 
(13
)
 
(13,229
)
Employee share-based compensation earned

 

 
6,843

 

 

 

 
6,843

Stock option exercises
1,137

 

 
6,557

 

 

 

 
7,694

Restricted stock awards, net of forfeitures
539

 

 
(539
)
 

 

 

 

Purchase of Company common stock

 
(14,785
)
 
(109,914
)
 
(21,891
)
 

 

 
(146,590
)
Acquisition


 

 


 

 

 
18,857

 
18,857

Noncontrolling interest payment


 

 


 

 

 
(568
)
 
(568
)
Other
72

 

 
680

 

 

 

 
752

Balance at September 30, 2011
$
243,768

 
$
(15,770
)
 
$
1,471,599

 
$
(398,997
)
 
$
99,552

 
$
20,097

 
$
1,420,249


(See notes to unaudited condensed consolidated financial statements)


7


SERVICE CORPORATION INTERNATIONAL
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
1. Nature of Operations
We are North America’s largest provider of deathcare products and services, with a network of funeral service locations and cemeteries primarily operating in the United States and Canada. Our operations consist of funeral service locations, cemeteries, funeral service/cemetery combination locations, crematoria, and related businesses.
Funeral service locations provide all professional services relating to funerals and cremations, including the use of funeral facilities and motor vehicles and preparation and embalming services. Funeral-related merchandise, including caskets, casket memorialization products, burial vaults, cremation receptacles, cremation memorial products, flowers, and other ancillary products and services, is sold at funeral service locations. Cemeteries provide cemetery property interment rights, including mausoleum spaces, lots, and lawn crypts, and sell cemetery-related merchandise and services, including stone and bronze memorials, markers, merchandise installations, and burial openings and closings. We also sell preneed funeral and cemetery products and services whereby a customer contractually agrees to the terms of certain products and services to be provided in the future.

2. Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
Our unaudited condensed consolidated financial statements include the accounts of Service Corporation International (SCI) and all subsidiaries in which we hold a controlling financial interest. Our financial statements also include the accounts of the funeral merchandise and service trusts, cemetery merchandise and service trusts, and cemetery perpetual care trusts in which we have a variable interest and are the primary beneficiary. Our interim condensed consolidated financial statements are unaudited but include all adjustments, consisting of normal recurring accruals and any other adjustments, which management considers necessary for a fair statement of our results for these periods. Our unaudited condensed consolidated financial statements have been prepared in a manner consistent with the accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2010, unless otherwise disclosed herein, and should be read in conjunction therewith. The accompanying year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year period.
Reclassifications
Certain reclassifications have been made to prior period amounts to conform to the current period financial statement presentation with no effect on our previously reported results of operations, consolidated financial position, or cash flows.
Use of Estimates in the Preparation of Financial Statements
The preparation of the unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions as described in our Annual Report on Form 10-K for the year ended December 31, 2010. These estimates and assumptions may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. As a result, actual results could differ from these estimates.
Preneed Funeral and Cemetery Receivables
We sell preneed funeral and cemetery contracts whereby the customer enters into arrangements for future merchandise and services prior to the time of need. As these contracts are prior to the delivery of the related goods and services, the preneed funeral and cemetery receivables are offset by a comparable deferred revenue amount. These receivables have an interest component for which interest income is recorded when the interest amount is considered collectible and realizable, which typically coincides with cash payment. We do not accrue interest on financing receivables that are not paid in accordance with the contractual payment date given the nature of our goods and services, the nature of our contracts with customers, and the timing of the delivery of our services. We do not consider receivables to be past due until the service or goods are required to be delivered at which time the preneed receivable is paid or reclassified as a trade receivable with payment terms of less than 30 days. As the preneed funeral and cemetery receivables are offset by comparable deferred revenue amount, we have no risk of loss related to these receivables.
If a preneed contract is cancelled prior to delivery, state or provincial law determines the amount of the refund owed to the customer, if any, including the amount of the attributed investment earnings. Upon cancellation, we receive the amount of principal deposited to the trust and previously undistributed net investment earnings and, where required, issue a refund to the customer.

8


We retain excess funds, if any, and recognize the attributed investment earnings (net of any investment earnings payable to the customer) as revenue in the consolidated statement of operations. In certain jurisdictions, we may be obligated to fund any shortfall if the amount deposited by the customers exceed the funds in trust. Based on our historical experience, we have provided an allowance for cancellation of these receivables, which is recorded as a reduction in receivables with a corresponding offset to deferred revenue.
Fair Value Measurements
In January 2010, the Financial Accounting Standards Board (FASB) amended the Fair Value Measurements and Disclosure (FVM&D) Topic of the Accounting Standards Codification (ASC) to require additional disclosures on (1) transfers between levels, (2) Level 3 activity presented on a gross basis, (3) valuation technique, and (4) inputs into the valuation. We adopted Items 1, 3, and 4 during the three months ended March 31, 2010, and the adoption did not impact our unaudited condensed consolidated financial statements. We adopted Item 2 during the three months ended March 31, 2011, and the appropriate disclosures are contained in Notes 4, 5, and 6.
Stock-Based Compensation
In April 2010, the FASB issued additional guidance for the Compensation — Stock Compensation Topic of the ASC to clarify classification of an employee stock-based payment award when the exercise price is denominated in the currency of a market in which the underlying equity security trades. This guidance became effective for us on January 1, 2011. The adoption did not impact our unaudited condensed consolidated financial statements.
Multi-Deliverable Arrangements
In October 2009, the FASB issued authoritative guidance that impacts the recognition of revenue in multi-deliverable arrangements. The guidance establishes a selling-price hierarchy for determining the selling price of a deliverable. The goal of this guidance is to clarify disclosures related to multi-deliverable arrangements and to align the accounting with the underlying economics of the multi-deliverable transaction. This guidance became effective for us in the first quarter of 2011, and its adoption did not impact our unaudited condensed consolidated financial statements.

3. Recently Issued Accounting Standards
Fair Value Measurements
In May 2011, the FASB amended the FVM&D Topic of the ASC that expands disclosures about items marked to fair value that are categorized within Level 3 of the fair value hierarchy to include qualitative explanations of the valuation methodology used and sensitivity analysis of the inputs into the valuation. The amendment also requires that items that are not measured at fair value but for which the fair value is disclosed also disclose the level in the fair value hierarchy in which those items were categorized. The amended guidance is effective for us in the first quarter of 2012 and we do not believe that this guidance will have any impact on our consolidated financial condition or results of operations.
Comprehensive Income
In June 2011, the FASB amended the Comprehensive Income Topic of the ASC to require the disclosure of the components of other comprehensive income, which we currently disclose elsewhere in our filings, be shown as either part of one statement of comprehensive income or as a separate statement of other comprehensive income immediately following the income statement. The amended guidance is effective for us in the first quarter of 2012 and will not have any impact on our consolidated financial condition or results of operations.
Goodwill Testing
In September 2011, the FASB amended the Intangibles - Goodwill and Other Topic of the ASC that allows us to make a qualitative assessment of whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. If, after assessing the relevant information, we determine it is more likely than not that the fair value is more than the carrying amount, no additional work is necessary. If we determine it is more likely than not that the fair value is less than the carrying amount, then we are required to proceed to the quantitative approach. The amended guidance is effective for us in our annual test in the fourth quarter of 2012, adoption will have no impact on our consolidated financial condition or results of operations.

4. 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

9


merchandise and service trusts are variable interest entities as defined in the Consolidation Topic of the ASC. In accordance with this guidance, 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 cemetery 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 service is performed or the merchandise is delivered.
The table below sets forth certain investment-related activities associated with our preneed funeral merchandise and service trusts:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2011
 
2010
 
2011
 
2010
 
(In thousands)
Deposits
$
18,960

 
$
18,771

 
$
55,189

 
$
61,294

Withdrawals
26,789

 
25,546

 
79,734

 
85,284

Purchases of available-for-sale securities
140,554

 
77,042

 
387,545

 
390,345

Sales of available-for-sale securities
114,476

 
86,754

 
448,988

 
401,253

Realized gains from sales of available-for-sale securities
11,353

 
5,963

 
49,618

 
26,461

Realized losses from sales of available-for-sale securities
(6,586
)
 
(8,360
)
 
(18,215
)
 
(42,017
)
The components of Preneed funeral receivables, net and trust investments in our unaudited condensed consolidated balance sheet at September 30, 2011 and December 31, 2010 are as follows:
 
September 30, 2011
 
December 31, 2010
 
(In thousands)
Trust investments, at market
$
875,770

 
$
875,043

Cash and cash equivalents
100,911

 
121,212

Insurance-backed fixed income securities
267,603

 
220,287

Trust investments
1,244,284

 
1,216,542

Receivables from customers
251,788

 
247,434

Unearned finance charge
(5,461
)
 
(5,620
)
 
1,490,611

 
1,458,356

Allowance for cancellation
(34,481
)
 
(33,799
)
Preneed funeral receivables and trust investments
$
1,456,130

 
$
1,424,557


The cost and market values associated with our funeral merchandise and service trust investments recorded at fair market value at September 30, 2011 and December 31, 2010 are detailed below. Cost reflects the investment (net of redemptions) of control holders in common trust funds, mutual funds, and private equity investments. Fair market value represents the value of the underlying securities held by the common trust funds, mutual funds at published values, and the estimated market value of private equity investments (including debt as well as the estimated fair value related to the contract holder’s equity in majority-owned real estate investments).

10


 
September 30, 2011
 
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Market
Value
 
 
 
(In thousands)
 
 
Fixed income securities:
 
 
 
 
 
 
 
U.S. Treasury
$
76,987

 
$
4,032

 
$
(336
)
 
$
80,683

Canadian government
113,763

 
628

 
(50
)
 
114,341

Corporate
51,128

 
1,353

 
(1,207
)
 
51,274

Residential mortgage-backed
3,388

 
77

 
(32
)
 
3,433

Asset-backed
127

 
6

 

 
133

Equity securities:
 
 
 
 
 
 
 
Preferred stock
2,344

 
19

 
(292
)
 
2,071

Common stock:
 
 
 
 
 
 
 
United States
267,707

 
28,059

 
(36,268
)
 
259,498

Canada
23,638

 
2,824

 
(1,354
)
 
25,108

Other international
19,481

 
460

 
(3,219
)
 
16,722

Mutual funds:
 
 
 
 
 
 
 
Equity
132,562

 
1,685

 
(23,543
)
 
110,704

Fixed income
195,093

 
6,298

 
(9,995
)
 
191,396

Private equity
36,800

 
1,408

 
(18,713
)
 
19,495

Other
518

 
394

 

 
912

Trust investments
$
923,536

 
$
47,243

 
$
(95,009
)
 
$
875,770


 
December 31, 2010
 
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Market
Value
 
 
 
(In thousands)
 
 
Fixed income securities:
 
 
 
 
 
 
 
U.S. Treasury
$
71,948

 
$
2,061

 
$
(334
)
 
$
73,675

Canadian government
121,137

 
1,004

 
(20
)
 
122,121

Corporate
33,627

 
2,751

 
(285
)
 
36,093

Residential mortgage-backed
5,310

 
135

 
(22
)
 
5,423

Asset-backed
2,984

 
97

 
(2
)
 
3,079

Equity securities:
 
 
 
 
 
 
 
Preferred stock
2,835

 
296

 
(78
)
 
3,053

Common stock:
 
 
 
 
 
 
 
United States
268,650

 
63,301

 
(8,391
)
 
323,560

Canada
22,452

 
4,542

 
(798
)
 
26,196

Other international
21,611

 
2,240

 
(2,330
)
 
21,521

Mutual funds:
 
 
 
 
 
 
 
Equity
116,260

 
6,123

 
(18,289
)
 
104,094

Fixed income
134,181

 
6,316

 
(5,628
)
 
134,869

Private equity
27,864

 
1,395

 
(16,890
)
 
12,369

Other
8,833

 
615

 
(458
)
 
8,990

Trust investments
$
837,692

 
$
90,876

 
$
(53,525
)
 
$
875,043


Where quoted prices are available in an active market, securities held by the common trust funds and mutual funds are classified as Level 1 investments pursuant to the three-level valuation hierarchy as required by the FVM&D Topic of the ASC.

11


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 three-level valuation hierarchy as required by the FVM&D Topic of the ASC.
The valuation of private equity and other alternative investments requires significant 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 investments are valued using market appraisals or a discounted cash flow methodology, which is an income approach for fair value model, depending on the nature of the underlying assets. The appraisals assess value based on a combination of replacement cost, comparative sales analysis, and discounted cash flow analysis. These funds are classified as Level 3 investments pursuant to the three-level valuation hierarchy as required by the FVM&D Topic of the ASC.
As of September 30, 2011, our unfunded commitment for our private equity and other investments was $12.7 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, the nature of the investments in this category is that the 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.
Our investments classified as Level 1 securities include common stock and mutual funds. Level 2 securities include U.S. Treasury, Canadian government, corporate, mortgage-backed fixed income securities, and preferred stock equity securities. Our private equity and other alternative investments are classified as Level 3 securities.
The inputs into the fair value of our market-based funeral merchandise and service trust investments are categorized as follows:
 
Quoted Market
Prices in Active
Markets
(Level 1)
 
Significant
Other
Observable
Inputs (Level 2)
 
Significant
Unobservable
Inputs (Level 3)
 
Fair Market
Value
 
 
 
(In thousands)
 
 
Trust investments at September 30, 2011
$
603,428

 
$
251,935

 
$
20,407

 
$
875,770

Trust investments at December 31, 2010
$
610,240

 
$
243,444

 
$
21,359

 
$
875,043

The change in our market-based funeral merchandise and service trust investments with significant unobservable inputs (Level 3) is as follows (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2011
 
2010
 
2011
 
2010
Fair market value, beginning balance
$
29,031

 
$
19,707

 
$
21,359

 
$
12,052

Net unrealized (losses) gains included in Accumulated other comprehensive income(1)
(7,757
)
 
501

 
(1,001
)
 
(569
)
Net realized losses included in Other income, net(2)
(8
)
 
(43
)
 
(67
)
 
(66
)
Purchases
18

 

 
18

 
7,343

Sales
(7,970
)
 
(10
)
 
(8,156
)
 
(10
)
Contributions
7,615

 
255

 
9,397

 
1,691

Distributions and other
(522
)
 
(364
)
 
(1,143
)
 
(395
)
Fair market value, ending balance
$
20,407

 
$
20,046

 
$
20,407

 
$
20,046

                                                                               
(1)
All unrealized (losses) 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 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 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 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.

12


Maturity dates of our fixed income securities range from 2011 to 2041. Maturities of fixed income securities at September 30, 2011 are estimated as follows:
 
Fair Market Value
 
(In thousands)
Due in one year or less
$
136,116

Due in one to five years
51,838

Due in five to ten years
38,398

Thereafter
23,512

 
$
249,864

Earnings from all our funeral merchandise and service trust investments are recognized in funeral revenues when a service is performed or merchandise is delivered. 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. Recognized earnings (realized and unrealized) related to these trust investments were $10.2 million and $6.7 million for the three months ended September 30, 2011 and 2010, respectively. Recognized earnings (realized and unrealized) related to these trust investments were $28.9 million and $22.5 million for the nine months ended September 30, 2011 and 2010, 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, 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 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 September 30, 2011 and 2010, we recorded a $17.5 million and a $1.1 million impairment charge for other-than-temporary declines in fair value related to unrealized losses on certain investments, respectively. For the nine months ended September 30, 2011 and 2010, we recorded a $20.8 million and a $7.3 million impairment charge for other-than-temporary declines in fair value related to unrealized losses on certain investments, respectively.
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 market values, and the duration of unrealized losses as of September 30, 2011 and December 31, 2010, respectively, are shown in the following tables:
 
September 30, 2011
 
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
$
8,064

 
$
(80
)
 
$
9,021

 
$
(256
)
 
$
17,085

 
$
(336
)
Canadian government
9,536

 
(48
)
 
105

 
(2
)
 
9,641

 
(50
)
Corporate
20,897

 
(1,171
)
 
979

 
(36
)
 
21,876

 
(1,207
)
Residential mortgage-backed
369

 
(2
)
 
391

 
(30
)
 
760

 
(32
)
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
1,645

 
(292
)
 

 

 
1,645

 
(292
)
Common stock:
 
 
 
 
 
 
 
 
 
 
 
United States
122,765

 
(31,623
)
 
17,031

 
(4,645
)
 
139,796

 
(36,268
)
Canada
8,374

 
(1,005
)
 
620

 
(349
)
 
8,994

 
(1,354
)
Other international
9,966

 
(1,867
)
 
2,897

 
(1,352
)
 
12,863

 
(3,219
)
Mutual funds:
 
 
 
 
 
 
 
 
 
 
 
Equity
53,310

 
(10,834
)
 
45,439

 
(12,709
)
 
98,749

 
(23,543
)
Fixed income
26,896

 
(3,029
)
 
8,746

 
(6,966
)
 
35,642

 
(9,995
)
Private equity
1,360

 
(1,502
)
 
12,640

 
(17,211
)
 
14,000

 
(18,713
)
Total temporarily impaired securities
$
263,182

 
$
(51,453
)
 
$
97,869

 
$
(43,556
)
 
$
361,051

 
$
(95,009
)


13


 
December 31, 2010
 
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
$
10,433

 
$
(316
)
 
$
393

 
$
(18
)
 
$
10,826

 
$
(334
)
Canadian government
1,632

 
(2
)
 
668

 
(18
)
 
2,300

 
(20
)
Corporate
5,619

 
(285
)
 

 

 
5,619

 
(285
)
Residential mortgage-backed
836

 
(9
)
 
263

 
(13
)
 
1,099

 
(22
)
Asset-backed
225

 
(1
)
 
53

 
(1
)
 
278

 
(2
)
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
1,045

 
(78
)
 

 

 
1,045

 
(78
)
Common stock:
 
 
 
 
 
 
 
 
 
 
 
United States
41,491

 
(3,019
)
 
24,919

 
(5,372
)
 
66,410

 
(8,391
)
Canada
4,493

 
(324
)
 
1,361

 
(474
)
 
5,854

 
(798
)
Other international
5,251

 
(862
)
 
3,446

 
(1,468
)
 
8,697

 
(2,330
)
Mutual funds:
 
 
 
 
 
 
 
 
 
 
 
Equity
3,778

 
(110
)
 
61,844

 
(18,179
)
 
65,622

 
(18,289
)
Fixed income
9,630

 
(156
)
 
8,818

 
(5,472
)
 
18,448

 
(5,628
)
Private equity
214

 
(71
)
 
6,715

 
(16,819
)
 
6,929

 
(16,890
)
Other
8

 
(2
)
 
309

 
(456
)
 
317

 
(458
)
Total temporarily impaired securities
$
84,655

 
$
(5,235
)
 
$
108,789

 
$
(48,290
)
 
$
193,444

 
$
(53,525
)

5. Preneed Cemetery Activities
 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 as defined in the Consolidation Topic of the ASC. In accordance with this guidance, 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 4 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 cemetery revenues into Deferred preneed funeral and cemetery 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 unaudited condensed 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 revenues until the service is performed or the merchandise is delivered.
The table below sets forth certain investment-related activities associated with our preneed cemetery merchandise and service trusts:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2011
 
2010
 
2011
 
2010
 
(In thousands)
Deposits
$
25,946

 
$
30,565

 
$
76,442

 
$
79,984

Withdrawals
25,917

 
26,303

 
84,444

 
79,080

Purchases of available-for-sale securities
88,518

 
77,625

 
411,195

 
542,829

Sales of available-for-sale securities
78,721

 
90,148

 
407,272

 
502,508

Realized gains from sales of available-for-sale securities
10,134

 
6,838

 
51,225

 
31,899

Realized losses from sales of available-for-sale securities
(8,758
)
 
(9,828
)
 
(19,994
)
 
(47,093
)
The components of Preneed cemetery receivables, net and trust investments in our unaudited condensed consolidated balance sheet at September 30, 2011 and December 31, 2010 are as follows:

14


 
September 30, 2011
 
December 31, 2010
 
(In thousands)
Trust investments, at market
$
967,503

 
$
1,062,771

Cash and cash equivalents
127,137

 
122,866

Insurance backed fixed income securities
12

 
9,158

Trust investments
1,094,652

 
1,194,795

Receivables from customers
498,445

 
452,296

Unearned finance charges
(35,525
)
 
(39,205
)
 
1,557,572

 
1,607,886

Allowance for cancellation
(43,849
)
 
(43,993
)
Preneed cemetery receivables and trust investments
$
1,513,723

 
$
1,563,893


The cost and market values associated with our cemetery merchandise and service trust investments recorded at fair market value at September 30, 2011 and December 31, 2010 are detailed below. Cost reflects the investment (net of redemptions) of control holders in common trust funds, mutual funds, and private equity investments. Fair market value represents the value of the underlying securities held by the common trust funds, mutual funds at published values, and the estimated market value of private equity investments.
 
September 30, 2011
 
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Market
Value
 
 
 
(In thousands)
 
 
Fixed income securities:
 
 
 
 
 
 
 
U.S. Treasury
$
51,242

 
$
5,524

 
$
(305
)
 
$
56,461

Canadian government
17,067

 
492

 
(10
)
 
17,549

Corporate
41,828

 
1,441

 
(1,628
)
 
41,641

Residential mortgage-backed
168

 
5

 
(1
)
 
172

Equity securities:
 
 
 
 
 
 
 
Preferred stock
3,729

 
24

 
(462
)
 
3,291

Common stock:
 
 
 
 
 
 
 
United States
389,521

 
47,683

 
(48,239
)
 
388,965

Canada
17,177

 
2,857

 
(1,527
)
 
18,507

Other international
28,103

 
744

 
(4,028
)
 
24,819

Mutual funds:
 
 
 
 
 
 
 
Equity
181,246

 
1,883

 
(24,032
)
 
159,097

Fixed income
246,647

 
12,081

 
(15,832
)
 
242,896

Private equity
29,892

 
44

 
(16,258
)
 
13,678

Other
335

 
92

 

 
427

Trust investments
$
1,006,955

 
$
72,870

 
$
(112,322
)
 
$
967,503



15


 
December 31, 2010
 
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Market
Value
 
 
 
(In thousands)
 
 
Fixed income securities:
 
 
 
 
 
 
 
U.S. Treasury
$
50,884

 
$
2,493

 
$
(307
)
 
$
53,070

Canadian government
15,669

 
362

 
(4
)
 
16,027

Corporate
39,265

 
3,387

 
(402
)
 
42,250

Residential mortgage-backed
863

 
31

 
(1
)
 
893

Asset-backed
6,336

 
261

 
(5
)
 
6,592

Equity securities:
 
 
 
 
 
 
 
Preferred stock
4,577

 
453

 
(124
)
 
4,906

Common stock:
 
 
 
 
 
 
 
United States
386,537

 
82,385

 
(10,821
)
 
458,101

Canada
17,279

 
3,869

 
(850
)
 
20,298

Other international
31,466

 
2,485

 
(3,645
)
 
30,306

Mutual funds:
 
 
 
 
 
 
 
Equity
202,328

 
15,173

 
(18,569
)
 
198,932

Fixed income
226,567

 
8,537

 
(9,959
)
 
225,145

Private equity
19,596

 
13

 
(13,890
)
 
5,719

Other
874

 
43

 
(385
)
 
532

Trust investments
$
1,002,241

 
$
119,492

 
$
(58,962
)
 
$
1,062,771


Where quoted prices are available in an active market, securities held by the common trust funds and mutual funds are classified as Level 1 investments pursuant to the three-level valuation hierarchy as required by the FVM&D Topic of the ASC.
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 three-level valuation hierarchy as required by the FVM&D Topic of the ASC.
The valuation of private equity and other alternative investments requires significant 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 investments are valued using market appraisals or a discounted cash flow methodology, which is an income approach fair value model, depending on the nature of the underlying assets. The appraisals assess value based on a combination of replacement cost, comparative sales analysis, and discounted cash flow analysis. These funds are classified as Level 3 investments pursuant to the three-level valuation hierarchy as required by the FVM&D Topic of the ASC.
As of September 30, 2011, our unfunded commitment for our private equity and other investments was $13.2 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, the nature of the investments in this category is that the 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.
Our investments classified as Level 1 securities include common stock and mutual funds. Level 2 securities include U.S. Treasury, Canadian government, corporate, mortgage-backed and asset-backed fixed income securities, and preferred stock. Our private equity and other alternative investments are classified as Level 3 securities.
The inputs into the fair value of our market-based cemetery merchandise and service trust investments are categorized as follows:

16


 
Quoted Market
Prices in Active
Markets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable Inputs
(Level 3)
 
Fair Market Value
 
(In thousands)
Trust investments at September 30, 2011
$
834,284

 
$
119,114

 
$
14,105

 
$
967,503

Trust investments at December 31, 2010
$
932,782

 
$
123,738

 
$
6,251

 
$
1,062,771

The change in our market-based cemetery merchandise and service trust investments with significant unobservable inputs (Level 3) is as follows (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2011
 
2010
 
2011
 
2010
Fair market value, beginning balance
$
14,674

 
$
4,930

 
$
6,251

 
$
4,341

Net unrealized losses included in Accumulated other comprehensive income(1)
(8,530
)
 
(81
)
 
(1,545
)
 
(446
)
Net realized losses included in Other income, net(2)
(8
)
 
(18
)
 
(73
)
 
(41
)
Sales

 
(25
)
 

 
(48
)
Contributions
7,910

 
263

 
9,762

 
1,601

Distributions and other
59

 
(92
)
 
(290
)
 
(430
)
Fair market value, ending balance
$
14,105

 
$
4,977

 
$
14,105

 
$
4,977

                                                                               
(1)
All unrealized losses 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 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 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 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 2011 to 2041. Maturities of fixed income securities, excluding mutual funds, at September 30, 2011 are estimated as follows:
 
Fair Market Value
 
(In thousands)
Due in one year or less
$
9,761

Due in one to five years
43,714

Due in five to ten years
31,960

Thereafter
30,388

 
$
115,823


Earnings from all our cemetery merchandise and service trust investments are recognized in current cemetery revenues when a service is performed or merchandise is delivered. 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. Recognized earnings (realized and unrealized) related to these trust investments were $4.6 million and $2.8 million for the three months ended September 30, 2011 and 2010, respectively. Recognized earnings (realized and unrealized) related to these trust investments were $15.7 million and $9.4 million for the nine months ended September 30, 2011 and 2010, 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, 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 income, net, which reduces Deferred preneed cemetery receipts held in trust. See Note 7 for further information related to our Deferred preneed cemetery receipts held in trust. For the three months ended September 30, 2011 and 2010, we recorded a $24.9

17


million and a $1.5 million impairment charge for other-than-temporary declines in fair value related to unrealized losses on certain investments, respectively. For the nine months ended September 30, 2011 and 2010, we recorded a $26.1 million and a $4.9 million impairment charge for other-than-temporary declines in fair value related to unrealized losses on certain investments, respectively.
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 market values and the duration of unrealized losses as of September 30, 2011 are shown in the following tables:
 
September 30, 2011
 
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
$
1,817

 
$
(41
)
 
$
3,042

 
$
(264
)
 
$
4,859

 
$
(305
)
Canadian government
3,307

 
(10
)
 

 

 
3,307

 
(10
)
Corporate
18,660

 
(1,628
)
 

 

 
18,660

 
(1,628
)
Residential mortgage-backed

 

 
15

 
(1
)
 
15

 
(1
)
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
2,428

 
(462
)
 

 

 
2,428

 
(462
)
Common stock:
 
 
 
 
 
 
 
 
 
 
 
United States
172,584

 
(43,555
)
 
19,470

 
(4,684
)
 
192,054

 
(48,239
)
Canada
5,448

 
(966
)
 
457

 
(561
)
 
5,905

 
(1,527
)
Other international
14,670

 
(2,454
)
 
3,426

 
(1,574
)
 
18,096

 
(4,028
)
Mutual funds:
 
 
 
 
 
 
 
 
 
 
 
Equity
83,652

 
(13,461
)
 
58,659

 
(10,571
)
 
142,311

 
(24,032
)
Fixed income
49,081

 
(4,293
)
 
10,872

 
(11,539
)
 
59,953

 
(15,832
)
Private equity
426

 
(275
)
 
12,776

 
(15,983
)
 
13,202

 
(16,258
)
Total temporarily impaired securities
$
352,073

 
$
(67,145
)
 
$
108,717

 
$
(45,177
)
 
$
460,790

 
$
(112,322
)



18


 
December 31, 2010
 
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
$
6,057

 
$
(295
)
 
$
315

 
$
(12
)
 
$
6,372

 
$
(307
)
Canadian government
2,908

 
(4
)
 

 

 
2,908

 
(4
)
Corporate
8,577

 
(402
)
 

 

 
8,577

 
(402
)
Residential mortgage-backed

 

 
20

 
(1
)
 
20

 
(1
)
Asset-backed
766

 
(4
)
 
56

 
(1
)
 
822

 
(5
)
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
1,749

 
(124
)
 

 

 
1,749

 
(124
)
Common stock:
 
 
 
 
 
 
 
 
 
 
 
United States
63,027

 
(4,450
)