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Cemetery Perpetual Care Trusts Level 1 (Notes) (Cemetery Perpetual Care [Member])
 9 Months Ended
Sep. 30, 2012
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,
 
2012
 
2011
 
2012
 
2011
 
(In thousands)
 
(In thousands)
Deposits
$
6,501

 
$
5,503

 
$
18,866

 
$
17,806

Withdrawals
9,239

 
10,269

 
23,422

 
28,098

Purchases of available-for-sale securities
24,467

 
87,135

 
126,478

 
413,176

Sales of available-for-sale securities
27,733

 
49,705

 
101,110

 
387,715

Realized gains from sales of available-for-sale securities
3,328

 
4,101

 
7,522

 
31,221

Realized losses from sales of available-for-sale securities
(1,518
)
 
(1,764
)
 
(5,435
)
 
(14,506
)

The components of Cemetery perpetual care trust investments in our unaudited condensed consolidated balance sheet at September 30, 2012 and December 31, 2011 are as follows:
 
September 30, 2012
 
December 31, 2011
 
(In thousands)
Trust investments, at fair value
$
1,033,292

 
$
952,573

Cash and cash equivalents
57,791

 
63,933

Cemetery perpetual care trust investments
$
1,091,083

 
$
1,016,506


The cost and fair values associated with our cemetery perpetual care trust investments recorded at fair value at September 30, 2012 and December 31, 2011 are detailed below. Cost reflects the investment (net of redemptions) of control holders in common trust funds, mutual funds, and private equity investments. Fair value represents the value of the underlying securities or cash held by the common trust funds, mutual funds at published values, and the estimated fair value of private equity investments.
 
September 30, 2012
 
Fair Value Hierarchy Level
 
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
 
 
 
 
(In thousands)
 
 
Fixed income securities:
 
 
 
 
 
 
 
 
 
U.S. Treasury
2
 
$
808

 
$
49

 
$
(1
)
 
$
856

Canadian government
2
 
29,977

 
734

 
(102
)
 
30,609

Corporate
2
 
19,597

 
548

 
(118
)
 
20,027

Residential mortgage-backed
2
 
1,562

 
51

 
(1
)
 
1,612

Asset-backed
2
 
161

 
9

 
—

 
170

Equity securities:
 
 
 
 
 
 
 
 
 
Preferred stock
2
 
5,641

 
1

 
(828
)
 
4,814

Common stock:
 
 
 
 
 
 
 
 
 
United States
1
 
158,941

 
23,050

 
(3,633
)
 
178,358

Canada
1
 
9,150

 
1,341

 
(860
)
 
9,631

Other international
1
 
16,256

 
1,340

 
(263
)
 
17,333

Mutual funds:
 
 
 
 
 
 
 
 
 
Equity
1
 
18,036

 
2,600

 
(132
)
 
20,504

Fixed income
1
 
674,118

 
57,906

 
(984
)
 
731,040

Private equity
3
 
24,600

 
337

 
(14,052
)
 
10,885

Other
3
 
9,464

 
1,088

 
(3,099
)
 
7,453

Cemetery perpetual care trust investments
 
 
$
968,311

 
$
89,054

 
$
(24,073
)
 
$
1,033,292


 
December 31, 2011
 
Fair Value Hierarchy Level
 
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
 
 
 
 
(In thousands)
 
 
Fixed income securities:
 
 
 
 
 
 
 
 
 
U.S. Treasury
2
 
$
981

 
$
39

 
$
—

 
$
1,020

Canadian government
2
 
29,015

 
686

 
(43
)
 
29,658

Corporate
2
 
21,197

 
528

 
(134
)
 
21,591

Residential mortgage-backed
2
 
1,662

 
53

 
(13
)
 
1,702

Asset-backed
2
 
83

 
2

 
(1
)
 
84

Equity securities:
 
 
 
 
 
 
 
 
 
Preferred stock
2
 
6,475

 
18

 
(1,146
)
 
5,347

Common stock:
 
 
 
 
 
 
 
 


United States
1
 
141,880

 
14,443

 
(9,113
)
 
147,210

Canada
1
 
13,374

 
1,483

 
(1,423
)
 
13,434

Other international
1
 
16,836

 
1,314

 
(1,421
)
 
16,729

Mutual funds:
 
 
 
 
 
 
 
 
 
Equity
1
 
21,801

 
1,598

 
(579
)
 
22,820

Fixed income
1
 
654,883

 
29,758

 
(9,402
)
 
675,239

Private equity
3
 
23,212

 
374

 
(12,737
)
 
10,849

Other
3
 
8,018

 
850

 
(1,978
)
 
6,890

Cemetery perpetual care trust investments
 
 
$
939,417

 
$
51,146

 
$
(37,990
)
 
$
952,573


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 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. As of September 30, 2012, private equity instruments are valued based on reported net asset values discounted by 0% to 60% for risk and 0% to 25% for liquidity. A significant increase (decrease) in the discounts results in a directionally opposite change in the fair value of the instruments.Valuation policies and procedures are determined by our Treasury department, which reports to our Chief Financial Officer.  Additionally, valuations are reviewed by our investment committee quarterly. 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, 2012, our unfunded commitment for our private equity and other investments was $6.0 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.
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,
 
2012
 
2011
 
2012
 
2011
Fair value, beginning balance
$
18,923

 
$
19,055

 
$
17,739

 
$
17,089

Net unrealized gains (losses) included in Accumulated other comprehensive income(1)
828

 
(2,377
)
 
1,483

 
5,525

Net realized (losses) gains included in Other income, net(2)
(41
)
 
4

 
(129
)
 
(187
)
Sales
—

 
—

 
(26
)
 
(44
)
Contributions
465

 
18

 
3,244

 
115

Distributions and other
(1,837
)
 
856

 
(3,973
)
 
(4,942
)
Fair value, ending balance
$
18,338

 
$
17,556

 
$
18,338

 
$
17,556


                                                                               
(1)
All unrealized gains (losses) 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) gains 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 2012 to 2041. Maturities of fixed income securities at September 30, 2012 are estimated as follows:
 
Fair Value
 
(In thousands)
Due in one year or less
$
8,353

Due in one to five years
18,449

Due in five to ten years
25,112

Thereafter
1,360

 
$
53,274


Distributable earnings from these cemetery perpetual care trust investments are recognized in current cemetery revenues to the extent we incur qualifying cemetery maintenance costs. Fees charged by our wholly-owned registered investment advisor are also included in current revenues in the period in which they are earned. Recognized earnings related to these trust investments were $10.5 million and $9.0 million for the three months ended September 30, 2012 and 2011, respectively. Recognized earnings related to these trust investments were $29.6 million and $31.0 million for the nine months ended September 30, 2012 and 2011, 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 both the three months ended September 30, 2012 and 2011, we recorded a $0.0 million impairment charge for other-than-temporary declines in fair value related to unrealized losses on certain investments. For both the nine months ended September 30, 2012 and 2011, we recorded a $0.3 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 values and the duration of unrealized losses, are shown in the following tables.
 
September 30, 2012
 
In Loss Position
Less Than 12 Months
 
In Loss Position
Greater Than 12 Months
 
Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
 
 
 
 
(In thousands)
 
 
 
 
Fixed income securities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury
$
272

 
$
(1
)
 
$
—

 
$
—

 
$
272

 
$
(1
)
Canadian government
9,986

 
(102
)
 
—

 
—

 
9,986

 
(102
)
Corporate
8,237

 
(93
)
 
579

 
(25
)
 
8,816

 
(118
)
Residential mortgage-backed
136

 
(1
)
 
—

 
—

 
136

 
(1
)
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
3,744

 
(482
)
 
924

 
(346
)
 
4,668

 
(828
)
Common stock:
 
 
 
 
 
 
 
 
 
 
 
United States
30,487

 
(1,610
)
 
10,089

 
(2,023
)
 
40,576

 
(3,633
)
Canada
1,532

 
(359
)
 
1,027

 
(501
)
 
2,559

 
(860
)
Other international
3,445

 
(124
)
 
1,058

 
(139
)
 
4,503

 
(263
)
Mutual funds:
 
 
 
 
 
 
 
 
 
 
 
Equity
1,014

 
(28
)
 
508

 
(104
)
 
1,522

 
(132
)
Fixed income
34,621

 
(85
)
 
36,496

 
(899
)
 
71,117

 
(984
)
Private equity
—

 
—

 
10,516

 
(14,052
)
 
10,516

 
(14,052
)
Other
—

 
—

 
6,125

 
(3,099
)
 
6,125

 
(3,099
)
Total temporarily impaired securities
$
93,474

 
$
(2,885
)
 
$
67,322

 
$
(21,188
)
 
$
160,796

 
$
(24,073
)

 
December 31, 2011
 
In Loss Position
Less Than 12 Months
 
In Loss Position
Greater Than 12 Months
 
Total
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
 
 
 
 
(In thousands)
 
 
 
 
Fixed income securities:
 
 
 
 
 
 
 
 
 
 
 
Canadian government
$
7,057

 
$
(43
)
 
$
—

 
$
—

 
$
7,057

 
$
(43
)
Corporate
3,854

 
(73
)
 
1,456

 
(61
)
 
5,310

 
(134
)
Residential mortgage-backed
58

 
(1
)
 
127

 
(12
)
 
185

 
(13
)
Asset-backed
51

 
(1
)
 
—

 
—

 
51

 
(1
)
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
4,393

 
(1,116
)
 
21

 
(30
)
 
4,414

 
(1,146
)
Common stock:
 
 
 
 
 
 
 
 
 
 
 
United States
39,716

 
(5,459
)
 
9,055

 
(3,654
)
 
48,771

 
(9,113
)
Canada
4,402

 
(772
)
 
565

 
(651
)
 
4,967

 
(1,423
)
Other international
5,738

 
(1,226
)
 
104

 
(195
)
 
5,842

 
(1,421
)
Mutual funds:
 
 
 
 
 
 
 
 
 
 
 
Equity
9,852

 
(564
)
 
2,717

 
(15
)
 
12,569

 
(579
)
Fixed income
144,350

 
(5,498
)
 
51,301

 
(3,904
)
 
195,651

 
(9,402
)
Private equity
254

 
(324
)
 
10,189

 
(12,413
)
 
10,443

 
(12,737
)
Other
140

 
(181
)
 
5,660

 
(1,797
)
 
5,800

 
(1,978
)
Total temporarily impaired securities
$
219,865

 
$
(15,258
)
 
$
81,195

 
$
(22,732
)
 
$
301,060

 
$
(37,990
)