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Cemetery Perpetual Care Trusts Level 1 (Notes) (Cemetery Perpetual Care [Member])
9 Months Ended
Sep. 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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2011
 
2010
 
2011
 
2010
 
(In thousands)
Deposits
$
5,503

 
$
5,381

 
$
17,806

 
$
17,282

Withdrawals
10,269

 
7,581

 
28,098

 
26,858

Purchases of available-for-sale securities
87,135

 
135,544

 
413,176

 
315,986

Sales of available-for-sale securities
49,705

 
137,354

 
387,715

 
247,125

Realized gains from sales of available-for-sale securities
4,101

 
4,244

 
31,221

 
8,937

Realized losses from sales of available-for-sale securities
(1,764
)
 
(2,068
)
 
(14,506
)
 
(7,524
)


The components of Cemetery perpetual care 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
$
913,014

 
$
922,228

Cash and cash equivalents
61,252

 
64,791

Cemetery perpetual care trust investments
$
974,266

 
$
987,019



The cost and market values associated with our cemetery perpetual care 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 or cash 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
$
1,637

 
$
815

 
$
(2
)
 
$
2,450

Canadian government
28,751

 
862

 
(18
)
 
29,595

Corporate
20,677

 
609

 
(92
)
 
21,194

Residential mortgage-backed
1,702

 
59

 
(11
)
 
1,750

Asset-backed
52

 
—

 
—

 
52

Equity securities:
 
 
 
 
 
 
 
Preferred stock
5,961

 
—

 
(1,216
)
 
4,745

Common stock:
 
 
 
 
 
 
 
United States
138,464

 
6,903

 
(16,980
)
 
128,387

Canada
12,581

 
1,457

 
(1,237
)
 
12,801

Other international
18,788

 
843

 
(2,259
)
 
17,372

Mutual funds:
 
 
 
 
 
 
 
Equity
21,474

 
736

 
(2,336
)
 
19,874

Fixed income
648,407

 
25,030

 
(16,199
)
 
657,238

Private equity
24,835

 
358

 
(14,231
)
 
10,962

Other
8,089

 
829

 
(2,324
)
 
6,594

Cemetery perpetual care trust investments
$
931,418

 
$
38,501

 
$
(56,905
)
 
$
913,014

 
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 September 30, 2011
$
835,672

 
$
59,786

 
$
17,556

 
$
913,014

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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2011
 
2010
 
2011
 
2010
Fair market value, beginning balance
$
19,055

 
$
14,209

 
$
17,089

 
$
14,943

Net unrealized (losses) gains included in Accumulated other comprehensive income(1)
(2,377
)
 
1,225

 
5,525

 
5,350

Net realized gains (losses) included in Other income, net(2)
4

 
1,313

 
(187
)
 
1,236

Sales
—

 
(155
)
 
(44
)
 
(155
)
Contributions
18

 
1

 
115

 
1,881

Distributions and other
856

 
(2,590
)
 
(4,942
)
 
(9,252
)
Fair market value, ending balance
$
17,556

 
$
14,003

 
$
17,556

 
$
14,003


                                                                               
(1)
All unrealized (losses) 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 gains (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 September 30, 2011 are estimated as follows:
 
Fair Market Value
 
(In thousands)
Due in one year or less
$
9,028

Due in one to five years
23,395

Due in five to ten years
19,220

Thereafter
3,398

 
$
55,041



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 $7.3 million and $10.4 million for the three months ended September 30, 2011 and 2010, respectively. Recognized earnings related to these trust investments were $29.3 million and $29.2 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 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 September 30, 2011 and 2010, we recorded a $0.0 million and a $0.2 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 $0.3 million and a $1.8 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 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.

 
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
$
564

 
$
(2
)
 
$
—

 
$
—

 
$
564

 
$
(2
)
Canadian government
5,590

 
(18
)
 
—

 
—

 
5,590

 
(18
)
Corporate
2,876

 
(79
)
 
231

 
(13
)
 
3,107

 
(92
)
Residential mortgage-backed
27

 
(1
)
 
110

 
(10
)
 
137

 
(11
)
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
4,720

 
(1,188
)
 
22

 
(28
)
 
4,742

 
(1,216
)
Common stock:
 
 
 
 
 
 
 
 
 
 
 
United States
64,616

 
(11,145
)
 
9,435

 
(5,835
)
 
74,051

 
(16,980
)
Canada
3,300

 
(663
)
 
618

 
(574
)
 
3,918

 
(1,237
)
Other international
10,925

 
(1,852
)
 
347

 
(407
)
 
11,272

 
(2,259
)
Mutual funds:
 
 
 
 
 
 
 
 
 
 
 
Equity
11,439

 
(1,573
)
 
2,814

 
(763
)
 
14,253

 
(2,336
)
Fixed income
180,580

 
(11,196
)
 
39,050

 
(5,003
)
 
219,630

 
(16,199
)
Private equity
258

 
(362
)
 
10,315

 
(13,869
)
 
10,573

 
(14,231
)
Other
134

 
(190
)
 
5,390

 
(2,134
)
 
5,524

 
(2,324
)
Total temporarily impaired securities
$
285,029

 
$
(28,269
)
 
$
68,332

 
$
(28,636
)
 
$
353,361

 
$
(56,905
)


 
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
)