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
	March 31,
	2013			2012
	(In thousands)
Deposits	$	8,228		$	6,544
Withdrawals	9,569			8,252
Purchases of available-for-sale securities	35,052			70,127
Sales of available-for-sale securities	27,490			52,886
Realized gains from sales of available-for-sale securities	3,782			2,162
Realized losses from sales of available-for-sale securities	(322		)	(2,215		)

The components of Cemetery perpetual care trust investments in our unaudited condensed consolidated balance sheet at March 31, 2013 and December 31, 2012 are as follows:



	March 31, 2013		December 31, 2012
	(In thousands)
Trust investments, at fair value	$	1,074,974	$	1,045,568
Cash and cash equivalents	53,310		54,012
Cemetery perpetual care trust investments	$	1,128,284	$	1,099,580

The cost and fair values associated with our cemetery perpetual care trust investments recorded at fair value at March 31, 2013 and December 31, 2012 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.



	March 31, 2013
	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Fair Value
				(In thousands)
Fixed income securities:
U.S. Treasury	2	$	820	$	42	$	(1	)	$	861
Canadian government	2	29,194		638		(198		)	29,634
Corporate	2	22,203		517		(78		)	22,642
Residential mortgage-backed	2	1,466		33		(3		)	1,496
Asset-backed	2	161		9		—			170
Equity securities:
Preferred stock	2	5,563		42		(1,033		)	4,572
Common stock:
United States	1	166,134		34,797		(1,547		)	199,384
Canada	1	8,745		2,032		(757		)	10,020
Other international	1	11,696		606		(457		)	11,845
Mutual funds:
Equity	1	15,674		3,891		(70		)	19,495
Fixed income	1	689,835		58,531		(307		)	748,059
Private equity	3	24,689		455		(8,690		)	16,454
Other	3	9,173		1,169		—			10,342
Cemetery perpetual care trust investments		$	985,353	$	102,762	$	(13,141	)	$	1,074,974



	December 31, 2012
	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Fair Value
				(In thousands)
Fixed income securities:
U.S. Treasury	2	$	820	$	45	$	(1	)	$	864
Canadian government	2	30,159		709		(140		)	30,728
Corporate	2	22,877		537		(51		)	23,363
Residential mortgage-backed	2	1,498		41		(2		)	1,537
Asset-backed	2	161		10		—			171
Equity securities:
Preferred stock	2	5,637		61		(938		)	4,760
Common stock:
United States	1	163,173		19,609		(3,389		)	179,393
Canada	1	8,954		1,568		(731		)	9,791
Other international	1	14,693		1,392		(447		)	15,638
Mutual funds:
Equity	1	16,999		2,102		(211		)	18,890
Fixed income	1	680,921		61,172		(441		)	741,652
Private equity	3	24,727		338		(13,943		)	11,122
Other	3	9,653		1,110		(3,104		)	7,659
Cemetery perpetual care trust investments		$	980,272	$	88,694	$	(23,398	)	$	1,045,568

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 March 31, 2013, private equity instruments are valued based on reported net asset values discounted by 0% to 20% for risk and 0% to 10% for liquidity. As of December 31, 2012, private equity instruments were 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 Trust Services 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 March 31, 2013, our unfunded commitment for our private equity and other investments was $5.1 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
	March 31, 2013						March 31, 2012
	Private Equity			Other			Private Equity			Other
Fair value, beginning balance	$	11,122		$	7,659		$	10,849		$	6,890
Net unrealized gains included in Accumulated other comprehensive income(1)	6,069			2,729			444			395
Net realized losses included in Other income, net(2)	(82		)	(46		)	(46		)	(11		)
Sales	—			—			(26		)	—
Contributions	1			—			1,390			—
Distributions and other	(656		)	—			(634		)	—
Fair value, ending balance	$	16,454		$	10,342		$	11,977		$	7,274


(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 2013 to 2041. Maturities of fixed income securities at March 31, 2013 are estimated as follows:



	Fair Value
	(In thousands)
Due in one year or less	$	9,355
Due in one to five years	23,976
Due in five to ten years	20,297
Thereafter	1,175
	$	54,803

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 trust fund income related to these trust investments were $10.0 million and $9.0 million for the three months ended March 31, 2013 and 2012, 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 March 31, 2013 and 2012, we recorded a $0.1 million and a $0.0 million impairment charge, respectively, 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 remaining 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.



	March 31, 2013
	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	$	414	$	(1	)	$	—	$	—		$	414	$	(1	)
Canadian government	9,077		(151		)	1,986		(47		)	11,063		(198		)
Corporate	5,335		(56		)	1,858		(22		)	7,193		(78		)
Residential mortgage-backed	244		(3		)	—		—			244		(3		)
Equity securities:
Preferred stock	1,429		(244		)	2,502		(789		)	3,931		(1,033		)
Common stock:
United States	14,161		(1,004		)	4,238		(543		)	18,399		(1,547		)
Canada	1,415		(304		)	1,010		(453		)	2,425		(757		)
Other international	5,150		(344		)	570		(113		)	5,720		(457		)
Mutual funds:
Equity	47		(1		)	269		(69		)	316		(70		)
Fixed income	17,645		(93		)	30,701		(214		)	48,346		(307		)
Private equity	—		—			15,969		(8,690		)	15,969		(8,690		)
Total temporarily impaired securities	$	54,917	$	(2,201	)	$	59,103	$	(10,940	)	$	114,020	$	(13,141	)



	December 31, 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	$	373	$	(1	)	$	—	$	—		$	373	$	(1	)
Canadian government	9,145		(140		)	—		—			9,145		(140		)
Corporate	5,439		(33		)	1,886		(18		)	7,325		(51		)
Residential mortgage-backed	183		(2		)	—		—			183		(2		)
Equity securities:
Preferred stock	3,115		(639		)	973		(299		)	4,088		(938		)
Common stock:
United States	38,323		(2,403		)	7,495		(986		)	45,818		(3,389		)
Canada	1,246		(281		)	1,055		(450		)	2,301		(731		)
Other international	4,712		(389		)	696		(58		)	5,408		(447		)
Mutual funds:
Equity	2,654		(127		)	404		(84		)	3,058		(211		)
Fixed income	10,552		(37		)	31,837		(404		)	42,389		(441		)
Private equity	—		—			10,752		(13,943		)	10,752		(13,943		)
Other	—		—			6,308		(3,104		)	6,308		(3,104		)
Total temporarily impaired securities	$	75,742	$	(4,052	)	$	61,406	$	(19,346	)	$	137,148	$	(23,398	)