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Cemetery Perpetual Care Trusts Level 1 (Notes) (Cemetery Perpetual Care [Member])
 6 Months Ended
Jun. 30, 2011
Cemetery Perpetual Care [Member]
  
Cemetery Perpetual Care Trusts Text Block
Cemetery Perpetual Care Trusts
We are required by state and provincial law to pay into cemetery perpetual care trusts a portion of the proceeds from the sale of cemetery property interment rights. Our cemetery perpetual care 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 merchandise and service trust investments detailed in Notes 4 and 5 are also accounted for as variable interest entities. We consolidate our cemetery perpetual care trust investments with a corresponding amount recorded as Care trusts’ corpus. Cash flows from cemetery perpetual care trusts are presented as operating cash flows in our unaudited condensed consolidated statement of cash flows.
The table below sets forth certain investment-related activities associated with our cemetery perpetual care trusts:
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2011
 
2010
 
2011
 
2010
 
(In thousands)
Deposits
$
6,514


 
$
6,528


 
$
12,303


 
$
11,901


Withdrawals
9,442


 
7,723


 
17,829


 
19,277


Purchases of available-for-sale securities
122,955


 
116,245


 
326,041


 
180,442


Sales of available-for-sale securities
70,344


 
83,221


 
338,010


 
109,771


Realized gains from sales of available-for-sale securities
5,879


 
2,634


 
27,120


 
4,693


Realized losses from sales of available-for-sale securities
(2,081
)
 
(3,783
)
 
(12,742
)
 
(5,456
)




The components of Cemetery perpetual care 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
$
956,254


 
$
922,228


Cash and cash equivalents
61,934


 
64,791


Cemetery perpetual care trust investments
$
1,018,188


 
$
987,019






The cost and market values associated with our cemetery perpetual care 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 or cash 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
$
2,034


 
$
800


 
$
(2
)
 
$
2,832


Canadian government
29,858


 
453


 
(5
)
 
30,306


Corporate
21,362


 
538


 
(42
)
 
21,858


Residential mortgage-backed
1,633


 
57


 
(9
)
 
1,681


Equity securities:
 
 
 
 
 
 
 
Preferred stock
5,801


 
475


 
(230
)
 
6,046


Common stock:
 
 
 
 
 
 
 
United States
132,085


 
16,215


 
(5,997
)
 
142,303


Canada
11,508


 
2,607


 
(678
)
 
13,437


Other international
20,379


 
2,310


 
(1,367
)
 
21,322


Mutual funds:
 
 
 
 
 
 
 
Equity
20,903


 
1,866


 
(449
)
 
22,320


Fixed income
651,130


 
27,007


 
(3,043
)
 
675,094


Private equity
27,709


 
383


 
(15,310
)
 
12,782


Other
6,782


 
804


 
(1,313
)
 
6,273


Cemetery perpetual care trust investments
$
931,184


 
$
53,515


 
$
(28,445
)
 
$
956,254


 
December 31, 2010
 
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Market
Value
 
 
 
(In thousands)
 
 
Fixed income securities:
 
 
 
 
 
 
 
U.S. Treasury
$
5,651


 
$
863


 
$
(31
)
 
$
6,483


Canadian government
26,702


 
642


 
(7
)
 
27,337


Corporate
48,278


 
5,219


 
(249
)
 
53,248


Residential mortgage-backed
1,764


 
55


 
(6
)
 
1,813


Asset-backed
363


 
5


 
—


 
368


Equity securities:
 
 
 
 
 
 
 
Preferred stock
7,789


 
1,385


 
(112
)
 
9,062


Common stock:
 
 
 
 
 
 
 
United States
116,799


 
16,916


 
(6,640
)
 
127,075


Canada
11,510


 
2,510


 
(758
)
 
13,262


Other international
16,004


 
2,175


 
(1,845
)
 
16,334


Mutual funds:
 
 
 
 
 
 
 
Equity
65,114


 
6,964


 
(7,239
)
 
64,839


Fixed income
562,879


 
24,773


 
(2,334
)
 
585,318


Private equity
23,428


 
351


 
(13,344
)
 
10,435


Other
8,475


 
836


 
(2,657
)
 
6,654


Cemetery perpetual care trust investments
$
894,756


 
$
62,694


 
$
(35,222
)
 
$
922,228






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.
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 perpetual care 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
$
874,476


 
$
62,723


 
$
19,055


 
$
956,254


Trust investments at December 31, 2010
$
806,828


 
$
98,311


 
$
17,089


 
$
922,228




The change in our market-based cemetery perpetual care 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
$
20,259


 
$
15,211


 
$
17,089


 
$
14,943


Net unrealized gains included in Accumulated other comprehensive income(1)
1,791


 
3,539


 
7,902


 
4,125


Net realized losses included in Other income, net(2)
(164
)
 
(52
)
 
(191
)
 
(77
)
Sales
—


 
—


 
(44
)
 
—


Contributions
96


 
1,510


 
97


 
1,881


Distributions and other
(2,927
)
 
(5,999
)
 
(5,798
)
 
(6,663
)
Fair market value, ending balance
$
19,055


 
$
14,209


 
$
19,055


 
$
14,209




                                                                               
(1)
All unrealized gains recognized in Accumulated other comprehensive income for our cemetery perpetual care trust investments are offset by a corresponding reclassification in Accumulated other comprehensive income to Care trusts’ corpus. See Note 7 for further information related to our Care trusts’ corpus.
(2)
All losses recognized in Other income, net for our cemetery perpetual care trust investments are offset by a corresponding reclassification in Other income, net to Care trusts’ corpus. See Note 7 for further information related to our Care trusts’ corpus.
Maturity dates of our fixed income securities range from 2011 to 2041. Maturities of fixed income securities at June 30, 2011 are estimated as follows:
 
Fair Market Value
 
(In thousands)
Due in one year or less
$
3,989


Due in one to five years
30,368


Due in five to ten years
21,249


Thereafter
1,071


 
$
56,677






Distributable earnings from these cemetery perpetual care trust investments are recognized in current cemetery revenues to the extent we incur qualifying cemetery maintenance costs. Recognized earnings related to these trust investments were $12.8 million and $9.2 million for the three months ended June 30, 2011 and 2010, respectively. Recognized earnings related to these trust investments were $22.0 million and $18.8 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 Cemetery perpetual care trust investments. These investment losses, if any, are offset by the corresponding reclassification in Other income, net, which reduces Care trusts’ corpus. See Note 7 for further information related to our Care trusts’ corpus. For the three months ended June 30, 2011 and 2010, we recorded a $0.0 million and a $0.1 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 $0.3 million and a $1.6 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 perpetual care 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 perpetual care trust investment unrealized losses, their associated fair market values and the duration of unrealized losses, 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
$
687


 
$
(2
)
 
$
—


 
$
—


 
$
687


 
$
(2
)
Canadian government
6,938


 
(5
)
 
—


 
—


 
6,938


 
(5
)
Corporate
2,498


 
(32
)
 
254


 
(10
)
 
2,752


 
(42
)
Residential mortgage-backed
28


 
(1
)
 
114


 
(8
)
 
142


 
(9
)
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
2,618


 
(214
)
 
34


 
(16
)
 
2,652


 
(230
)
Common stock:
 
 
 
 
 
 
 
 
—


 
 
United States
26,854


 
(1,402
)
 
12,344


 
(4,595
)
 
39,198


 
(5,997
)
Canada
1,384


 
(134
)
 
982


 
(544
)
 
2,366


 
(678
)
Other international
7,596


 
(690
)
 
1,388


 
(677
)
 
8,984


 
(1,367
)
Mutual funds:
 
 
 
 
 
 
 
 
 
 
 
Equity
7,913


 
(162
)
 
3,244


 
(287
)
 
11,157


 
(449
)
Fixed income
106,301


 
(1,225
)
 
50,963


 
(1,818
)
 
157,264


 
(3,043
)
Private equity
301


 
(389
)
 
12,067


 
(14,921
)
 
12,368


 
(15,310
)
Other
126


 
(165
)
 
5,101


 
(1,148
)
 
5,227


 
(1,313
)
Total temporarily impaired securities
$
163,244


 
$
(4,421
)
 
$
86,491


 
$
(24,024
)
 
$
249,735


 
$
(28,445
)




 
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
$
1,669


 
$
(31
)
 
$
—


 
$
—


 
$
1,669


 
$
(31
)
Canadian government
4,966


 
(7
)
 
—


 
—


 
4,966


 
(7
)
Corporate
9,181


 
(221
)
 
675


 
(28
)
 
9,856


 
(249
)
Residential mortgage-backed
137


 
(2
)
 
92


 
(4
)
 
229


 
(6
)
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
1,561


 
(90
)
 
29


 
(22
)
 
1,590


 
(112
)
Common stock:
 
 
 
 
 
 
 
 
 
 
 
United States
15,419


 
(1,464
)
 
16,419


 
(5,176
)
 
31,838


 
(6,640
)
Canada
1,545


 
(82
)
 
1,454


 
(676
)
 
2,999


 
(758
)
Other international
3,175


 
(242
)
 
2,383


 
(1,603
)
 
5,558


 
(1,845
)
Mutual funds:
 
 
 
 
 
 
 
 
 
 
 
Equity
866


 
(10
)
 
29,974


 
(7,229
)
 
30,840


 
(7,239
)
Fixed income
18,166


 
(134
)
 
53,553


 
(2,200
)
 
71,719


 
(2,334
)
Private equity
1


 
(1
)
 
10,060


 
(13,343
)
 
10,061


 
(13,344
)
Other
1


 
(2
)
 
5,568


 
(2,655
)
 
5,569


 
(2,657
)
Total temporarily impaired securities
$
56,687


 
$
(2,286
)
 
$
120,207


 
$
(32,936
)
 
$
176,894


 
$
(35,222
)