Cemetery Interment Rights and Perpetual Care Trusts

9 Months Ended

Jul. 31, 2011

Cemetery Interment Rights and Perpetual Care Trusts [Abstract]

Cemetery Interment Rights and Perpetual Care Trusts

(5) Cemetery Interment Rights and Perpetual Care Trusts

Earnings from cemetery perpetual care trust investments that the Company is legally permitted to withdraw are recognized in current cemetery revenues and are used to defray cemetery maintenance costs which are expensed as incurred. Recognized earnings related to these cemetery perpetual care trust investments were $1,988 and $2,186 for the three months ended July 31, 2011 and 2010, respectively, and $5,981 and $6,005 for the nine months ended July 31, 2011 and 2010, respectively.

The cost basis and market values of the trust investments held by the cemetery perpetual care trusts as of July 31, 2011 are detailed below.


	July 31, 2011
			Unrealized		Unrealized
	Cost Basis		Gains		Losses			Market
Cash, money market and other short- term investments	$	7,167	$	—	$	—		$	7,167
U.S. Government, agencies and municipalities		7,602		285		(62	)		7,825
Corporate bonds		31,117		1,265		(798	)		31,584
Preferred stocks		35,959		75		(5,612	)		30,422
Common stocks		89,025		1,464		(34,910	)		55,579
Mutual funds:
Equity		6,153		57		(583	)		5,627
Fixed income		84,419		1,162		(1,362	)		84,219
Commodity		7		4		—			11
Real estate investment trusts		7,834		186		(14	)		8,006
Master limited partnerships		9,244		—		(265	)		8,979
Other long-term investments		240		—		(103	)		137

Trust investments	$	278,767	$	4,498	$	(43,709	)	$	239,556

Market value as a percentage of cost										85.9	%

Accrued investment income									775

Trust assets								$	240,331

The cost basis and market values of the trust investments held by the cemetery perpetual care trusts as of October 31, 2010 are detailed below.


	October 31, 2010
			Unrealized		Unrealized
	Cost Basis		Gains		Losses			Market
Cash, money market and other short- term investments	$	32,403	$	—	$	—		$	32,403
U.S. Government, agencies and municipalities		8,006		196		(54	)		8,148
Corporate bonds		31,086		1,334		(825	)		31,595
Preferred stocks		56,807		257		(6,376	)		50,688
Common stocks		90,284		1,042		(36,496	)		54,830
Mutual funds:
Equity		5,783		49		(662	)		5,170
Fixed income		46,646		878		(304	)		47,220
Other long-term investments		401		2		(79	)		324

Trust investments	$	271,416	$	3,758	$	(44,796	)	$	230,378

Market value as a percentage of cost											84.9	%

Accrued investment income									630
Less trust investments of assets held for sale									(278	)

Trust assets								$	230,730

The estimated maturities and market values of debt securities included above are as follows:


	July 31, 2011
Due in one year or less	$	5,411
Due in one to five years		18,124
Due in five to ten years		10,634
Thereafter		5,240

	$	39,409

The Company is actively managing a covered call program on its equity securities within the cemetery perpetual care trusts in order to provide an opportunity for additional income. As of July 31, 2011 and October 31, 2010, the Company had outstanding covered calls with a market value of $31 and $111, respectively. These covered calls are included at market value in the balance sheet line “cemetery perpetual care trust investments.” For the three months ended July 31, 2011 and 2010, the Company realized trust earnings of approximately $37 and $5, respectively, related to the covered call program. For the nine months ended July 31, 2011 and 2010, the Company realized trust losses of approximately $81 and $178, respectively, related to the covered call program. These trust earnings and losses are accounted for in the same manner as other cemetery perpetual care trust earnings and losses and flow through cemetery revenue in the condensed consolidated statements of earnings. Although the Company realized losses associated with the covered call program for the nine months ended July 31, 2011 and 2010, it continues to hold the underlying securities against which these covered calls were issued. These underlying securities appreciated in value by $700 and $1,905 for the nine months ended July 31, 2011 and 2010, respectively.

Where quoted prices are available in an active market, investments held by the trusts are classified as Level 1 investments pursuant to the three-level valuation hierarchy. The Company’s Level 1 investments include cash, money market and other short-term investments, common stocks and mutual funds.

Where quoted market prices are not available for the specific security, then fair values are estimated by using quoted prices of securities with similar characteristics. These investments are primarily U. S. Government, agencies and municipalities, corporate bonds, convertible bonds and preferred stocks, all of which are classified within Level 2 of the valuation hierarchy.

The Company’s Level 3 investments include an investment in a partnership. The valuation of partnership investments requires significant management judgment due to the absence of quoted prices, inherent lack of liquidity and the long-term nature of such assets. The fair market value of the partnership investment was determined by using its most recent audited financial statements and assessing the market value of the underlying securities within the partnership.

The inputs into the fair value of the Company’s cemetery perpetual care trust investments are categorized as follows:


			Significant
	Quoted Market		Other		Significant
	Prices in Active		Observable		Unobservable
	Markets		Inputs		Inputs		Fair Market
	(Level 1)		(Level 2)		(Level 3)		Value
Trust investments—July 31, 2011	$	169,588	$	69,831	$	137	$	239,556
Trust investments—October 31, 2010	$	139,774	$	90,431	$	173	$	230,378

In connection with its revised investment policy, during the nine months ended July 31, 2011, the Company sold several Level 2 investments including corporate bonds and preferred stocks and increased its holdings in several Level 1 investments such as highly diversified mutual funds invested in fixed income securities, master limited partnerships and real estate investment trusts.

The change in the Company’s cemetery perpetual care trust investments with significant unobservable inputs (Level 3) is as follows:


	Three Months Ended July 31,						Nine Months Ended July 31,
	2011			2010			2011			2010
Fair market value, beginning balance	$	140		$	250		$	173		$	226
Total unrealized losses included in other comprehensive income⁽¹⁾		(24	)		(3	)		(24	)		(3	)
Transfers out of Level 3 category and other		21			69			(12	)		93

Fair market value, ending balance	$	137		$	316		$	137		$	316


⁽¹⁾		All gains (losses) recognized in other comprehensive income for perpetual care trust investments are attributable to the Company’s customers and are offset by a corresponding increase (decrease) in perpetual care trusts’ corpus.

In states where the Company withdraws and recognizes capital gains in its cemetery perpetual care trusts, if it realizes net capital losses (i.e., losses in excess of capital gains) and the fair market value of the trust assets is less than the aggregate amounts required to be contributed to the trust, some states may require the Company to make cash deposits to the trusts or may require the Company to stop withdrawing earnings until future earnings restore the initial corpus. As of July 31, 2011 and October 31, 2010, the Company had a liability recorded for the estimated probable funding obligation to restore the net realized losses of $12,407 and $13,253, respectively. The Company recorded an additional $72 for the estimated probable funding obligation for the nine months ended July 31, 2011. The Company had earnings of $225 and $918 for the three and nine months ended July 31, 2011, respectively, within the trusts that it did not withdraw in order to satisfy a portion of its estimated probable funding obligation. In those states where realized net capital gains have not been withdrawn, the Company believes it is reasonably possible but not probable that additional funding obligations may exist with an estimated amount of $2,002; no charge has been recorded for these amounts as of July 31, 2011.

Activity related to preneed cemetery perpetual care trust investments is as follows:


	Three Months Ended July 31,						Nine Months Ended July 31,
	2011			2010			2011			2010
Purchases	$	29,705		$	21,806		$	110,949		$	60,908
Sales		27,560			35,931			80,094			78,016
Realized gains from sales of investments		1,112			945			2,044			5,228
Realized losses from sales of investments and other		(72	)		(81	)		(510	)		(899	)
Interest income, dividends and other ordinary income		2,171			2,072			7,495			6,410
Deposits		2,024			1,691			5,424			5,424
Withdrawals		1,374			1,838			5,018			4,847

During the three months ended July 31, 2011 and 2010, cemetery revenues were $55,596 and $55,873, respectively, of which $2,334 and $1,466, respectively, were required to be placed into perpetual care trusts and were recorded as revenues and expenses. During the nine months ended July 31, 2011 and 2010, cemetery revenues were $167,685 and $165,138, respectively, of which $6,640 and $6,110, respectively, were required to be placed into perpetual care trusts and were recorded as revenues and costs.

The following tables show the gross unrealized losses and fair value of the cemetery perpetual care trust investments with unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of July 31, 2011 and October 31, 2010.


	July 31, 2011
	Less than 12 Months					12 Months or Greater					Total
	Market		Unrealized			Market		Unrealized			Market		Unrealized
	Value		Losses			Value		Losses			Value		Losses
U.S. Government, agencies and municipalities	$	1,398	$	(7	)	$	76	$	(55	)	$	1,474	$	(62	)
Corporate bonds		4,316		(93	)		859		(705	)		5,175		(798	)
Preferred stocks		—		—			23,817		(5,612	)		23,817		(5,612	)
Common stocks		663		(68	)		51,533		(34,842	)		52,196		(34,910	)
Mutual funds:
Equity		3,002		(124	)		2,167		(459	)		5,169		(583	)
Fixed income		24,341		(1,086	)		13,189		(276	)		37,530		(1,362	)
Real estate investment trusts		1,476		(14	)		—		—			1,476		(14	)
Master limited partnerships		8,979		(265	)		—		—			8,979		(265	)
Other long-term investments		—		—			64		(103	)		64		(103	)

Total	$	44,175	$	(1,657	)	$	91,705	$	(42,052	)	$	135,880	$	(43,709	)


	October 31, 2010
	Less than 12 Months					12 Months or Greater					Total
	Market		Unrealized			Market		Unrealized			Market		Unrealized
	Value		Losses			Value		Losses			Value		Losses
U.S. Government, agencies and municipalities	$	269	$	(1	)	$	105	$	(53	)	$	374	$	(54	)
Corporate bonds		2,786		(15	)		682		(810	)		3,468		(825	)
Preferred stocks		—		—			32,747		(6,376	)		32,747		(6,376	)
Common stocks		717		(161	)		51,334		(36,335	)		52,051		(36,496	)
Mutual funds:
Equity		—		—			4,674		(662	)		4,674		(662	)
Fixed income		14,850		(15	)		1,076		(289	)		15,926		(304	)
Other long-term investments		—		—			88		(79	)		88		(79	)

Total	$	18,622	$	(192	)	$	90,706	$	(44,604	)	$	109,328	$	(44,796	)

The unrealized losses in the cemetery perpetual care trust portfolio are not considered to be other than temporary. For each of these securities, the Company evaluates consensus analyst recommendations, ratings from established ratings agencies, concerns specific to the issuer of the securities and overall market performance. Of the total unrealized losses at July 31, 2011, 93 percent, or $40,522, were generated by common stock and preferred stock investments. Most of the common stock investments are part of the S&P 500 Index, and all preferred stocks had a rating of investment grade at the time of purchase. The Company generally expects its portfolio performance to improve if the performance of the overall financial market improves, but would also expect its performance to deteriorate if the overall financial market declines. The Company believes these investments will recover in value and that it has sufficient liquidity from cash and cash equivalents within the trusts, cash deposits of future sales of property interment rights and cash received from ordinary income to fund future services and allow the Company to hold these investments until they recover in value.

Cash flows from cemetery perpetual care contracts are presented as operating cash flows in the Company’s condensed consolidated statements of cash flows.