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Preneed Cemetery Activities Level 1 (Notes) (Cemetery [Member])
 6 Months Ended
Jun. 30, 2011
Cemetery [Member]
  
Preneed Cemetery Activities Text Block
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 Amounts are withdrawn from the trusts when the contract obligations are performed.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
 
Six Months Ended
 
June 30,
 
June 30,
 
2011
 
2010
 
2011
 
2010
 
(In thousands)
Deposits
$
26,404


 
$
27,188


 
$
50,496


 
$
49,419


Withdrawals
28,583


 
28,879


 
58,527


 
52,777


Purchases of available-for-sale securities
189,112


 
210,886


 
322,677


 
465,204


Sales of available-for-sale securities
194,996


 
191,911


 
328,551


 
412,360


Realized gains from sales of available-for-sale securities
24,244


 
13,808


 
41,091


 
25,061


Realized losses from sales of available-for-sale securities
(5,615
)
 
(19,744
)
 
(11,236
)
 
(37,265
)


The components of Preneed cemetery receivables, net and trust investments in our unaudited condensed consolidated balance sheet at June 30, 2011 and December 31, 2010 are as follows:
 
June 30, 2011
 
December 31, 2010
 
(In thousands)
Trust investments, at market
$
1,099,940


 
$
1,062,771


Cash and cash equivalents
128,703


 
122,866


Insurance backed fixed income securities
6


 
9,158


Trust investments
1,228,649


 
1,194,795


Receivables from customers
484,094


 
452,296


Unearned finance charges
(36,427
)
 
(39,205
)
 
1,676,316


 
1,607,886


Allowance for cancellation
(43,542
)
 
(43,993
)
Preneed cemetery receivables and trust investments
$
1,632,774


 
$
1,563,893






The cost and market values associated with our cemetery merchandise and service trust investments recorded at fair market value at June 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.
 
June 30, 2011
 
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Market
Value
 
 
 
(In thousands)
 
 
Fixed income securities:
 
 
 
 
 
 
 
U.S. Treasury
$
50,754


 
$
3,594


 
$
(251
)
 
$
54,097


Canadian government
18,000


 
253


 
(3
)
 
18,250


Corporate
42,905


 
3,176


 
(603
)
 
45,478


Residential mortgage-backed
175


 
5


 
(1
)
 
179


Equity securities:
 
 
 
 
 
 
 
Preferred stock
3,394


 
282


 
(69
)
 
3,607


Common stock:
 
 
 
 
 
 
 
United States
394,147


 
88,547


 
(12,788
)
 
469,906


Canada
16,413


 
4,373


 
(837
)
 
19,949


Other international
25,287


 
2,457


 
(1,211
)
 
26,533


Mutual funds:
 
 
 
 
 
 
 
Equity
204,824


 
17,484


 
(16,952
)
 
205,356


Fixed income
243,643


 
9,130


 
(10,862
)
 
241,911


Private equity
29,916


 
14


 
(15,665
)
 
14,265


Other
287


 
122


 
—


 
409


Trust investments
$
1,029,745


 
$
129,437


 
$
(59,242
)
 
$
1,099,940




 
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 June 30, 2011, our unfunded commitment for our private equity and other investments was $13.7 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 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:
 
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 June 30, 2011
$
963,655


 
$
121,611


 
$
14,674


 
$
1,099,940


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
 
Six Months Ended
 
June 30,
 
June 30,
 
2011
 
2010
 
2011
 
2010
Fair market value, beginning balance
$
10,664


 
$
4,425


 
$
6,251


 
$
4,341


Net unrealized gains (losses) included in Accumulated other comprehensive income(1)
2,860


 
(87
)
 
6,985


 
(365
)
Net realized losses included in Other income, net(2)
(57
)
 
(12
)
 
(65
)
 
(23
)
Sales
—


 
(11
)
 
—


 
(23
)
Contributions
1,349


 
919


 
1,852


 
1,338


Distributions and other
(142
)
 
(304
)
 
(349
)
 
(338
)
Fair market value, ending balance
$
14,674


 
$
4,930


 
$
14,674


 
$
4,930




                                                                               
(1)
All unrealized gains (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 June 30, 2011 are estimated as follows:
 
Fair Market Value
 
(In thousands)
Due in one year or less
$
4,177


Due in one to five years
54,055


Due in five to ten years
33,012


Thereafter
26,760


 
$
118,004






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 $5.1 million and $3.2 million for the three months ended June 30, 2011 and 2010, respectively. Recognized earnings (realized and unrealized) related to these trust investments were $11.1 million and $6.6 million for the six months ended June 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 June 30, 2011 and 2010, we recorded a $0.2 million and a $1.2 million impairment charge for other-than-temporary declines in fair value related to unrealized losses on certain investments. For the six months ended June 30, 2011 and 2010, we recorded a $1.2 million and a $3.4 million impairment charge 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 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 June 30, 2011 are shown in the following tables:
 
June 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
$
2,395


 
$
(31
)
 
$
3,061


 
$
(220
)
 
$
5,456


 
$
(251
)
Canadian government
4,172


 
(3
)
 
—


 
—


 
4,172


 
(3
)
Corporate
12,047


 
(523
)
 
587


 
(80
)
 
12,634


 
(603
)
Residential mortgage-backed
—


 
—


 
15


 
(1
)
 
15


 
(1
)
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
1,443


 
(69
)
 
—


 
—


 
1,443


 
(69
)
Common stock:
 
 
 
 
 
 
 
 
 
 
 
United States
90,705


 
(10,301
)
 
21,976


 
(2,487
)
 
112,681


 
(12,788
)
Canada
3,005


 
(376
)
 
526


 
(461
)
 
3,531


 
(837
)
Other international
5,753


 
(284
)
 
4,128


 
(927
)
 
9,881


 
(1,211
)
Mutual funds:
 
 
 
 
 
 
 
 
 
 
 
Equity
28,900


 
(861
)
 
76,063


 
(16,091
)
 
104,963


 
(16,952
)
Fixed income
33,971


 
(1,304
)
 
12,349


 
(9,558
)
 
46,320


 
(10,862
)
Private equity
535


 
(267
)
 
13,432


 
(15,398
)
 
13,967


 
(15,665
)
Total temporarily impaired securities
$
182,926


 
$
(14,019
)
 
$
132,137


 
$
(45,223
)
 
$
315,063


 
$
(59,242
)




 
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
)
 
31,108


 
(6,371
)
 
94,135


 
(10,821
)
Canada
3,131


 
(181
)
 
1,475


 
(669
)
 
4,606


 
(850
)
Other international
8,542


 
(1,403
)
 
5,259


 
(2,242
)
 
13,801


 
(3,645
)
Mutual funds:
 
 
 
 
 
 
 
 
 
 
 
Equity
5,107


 
(112
)
 
92,630


 
(18,457
)
 
97,737


 
(18,569
)
Fixed income
25,887


 
(354
)
 
14,600


 
(9,605
)
 
40,487


 
(9,959
)
Private equity
—


 
—


 
5,557


 
(13,890
)
 
5,557


 
(13,890
)
Other
7


 
(1
)
 
303


 
(384
)
 
310


 
(385
)
Total temporarily impaired securities
$
125,758


 
$
(7,330
)
 
$
151,323


 
$
(51,632
)
 
$
277,081


 
$
(58,962
)