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Cemetery Perpetual Care Trusts Level 1 (Notes) (Cemetery Perpetual Care [Member])
 12 Months Ended
Dec. 31, 2013
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 contracts are presented as operating cash flows in our consolidated statement of cash flows.
The table below sets forth certain investment-related activities associated with our cemetery perpetual care trusts for the years ended December 31:
 
2013
 
2012
 
2011
 
(In thousands)
Deposits
$
26,501

 
$
24,869

 
$
23,785

Withdrawals
33,557

 
33,177

 
34,737

Purchases of available-for-sale securities
139,439

 
252,021

 
444,616

Sales of available-for-sale securities
99,701

 
136,391

 
410,175

Realized gains from sales of available-for-sale securities
17,916

 
11,463

 
34,275

Realized losses from sales of available-for-sale securities
(2,738
)
 
(6,595
)
 
(16,310
)

The components of Cemetery perpetual care trust investments in our consolidated balance sheet at December 31 were as follows:
 
2013
 
2012
 
(In thousands)
Trust investments, at market
$
1,352,539

 
$
1,045,568

Cash and cash equivalents
78,509

 
54,012

Assets associated with businesses held for sale
(83,426
)
 
—

Cemetery perpetual care trust investments
$
1,347,622

 
$
1,099,580


The cost and market values associated with our cemetery perpetual care trust investments recorded at fair market value at December 31, 2013 and 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 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.
 
 
December 31, 2013
 
Fair Value Hierarchy Level
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Market
Value
 
 
 
 
(In thousands)
 
 
Fixed income securities:
 
 

 
 

 
 

 
 

U.S. Treasury
2
$
1,588

 
$
9

 
$
(14
)
 
$
1,583

Canadian government
2
28,487

 
301

 
(459
)
 
28,329

Corporate
2
43,196

 
312

 
(263
)
 
43,245

Residential mortgage-backed
2
4,258

 
14

 
(19
)
 
4,253

Asset-backed
2
3,006

 
5

 
(11
)
 
3,000

Equity securities:
 
 

 
 

 
 

 
 

Preferred stock
2
25,952

 
192

 
(252
)
 
25,892

Common stock:
 
 

 
 

 
 

 
 

United States
1
231,156

 
53,782

 
(2,087
)
 
282,851

Canada
1
8,846

 
2,222

 
(623
)
 
10,445

Other international
1
20,676

 
1,319

 
(167
)
 
21,828

Mutual funds:
 
 

 
 

 
 

 
 

Equity
1
41,282

 
5,693

 
(35
)
 
46,940

Fixed income
1
819,439

 
35,963

 
(2,598
)
 
852,804

Private equity
3
28,309

 
472

 
(9,002
)
 
19,779

Other
3
10,521

 
1,153

 
(84
)
 
11,590

Cemetery perpetual care trust investments
 
$
1,266,716

 
$
101,437

 
$
(15,614
)
 
$
1,352,539


 
 
December 31, 2012
 
Fair Value Hierarchy Level
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair Market
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 December 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 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 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 December 31, 2013, our unfunded commitment for our private equity and other investments was $1.4 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 for the years ended December 31 (in thousands):
 
2013
 
2012
 
2011
 
Private Equity
 
Other
 
Private Equity
 
Other
 
Private Equity
 
Other
Fair market value, beginning balance at January 1,
$
11,122

 
$
7,659

 
$
10,849

 
$
6,890

 
$
10,435

 
$
6,654

Net unrealized gains included in Accumulated other comprehensive income(1)
6,897

 
4,081

 
1,648

 
1,035

 
9,799

 
703

Net realized losses included in Other income (expense), net(2)
(142
)
 
(76
)
 
(162
)
 
(43
)
 
(213
)
 
(97
)
Sales
—

 
—

 
(26
)
 
—

 
(44
)
 
—

Contributions
3,706

 
—

 
4,171

 
—

 
118

 
—

Distributions and other
(1,841
)
 
(508
)
 
(5,358
)
 
(223
)
 
(9,246
)
 
(370
)
Acquisitions
37

 
434

 
—

 
—

 
—

 
—

Fair market value, ending balance at December 31,
$
19,779

 
$
11,590

 
$
11,122

 
$
7,659

 
$
10,849

 
$
6,890


(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 recognized in Other income (expense), net for our cemetery perpetual care trust investments are offset by a corresponding reclassification in Other income (expense), 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 2014 to 2043. Maturities of fixed income securities at December 31, 2013 are estimated as follows:
 
Fair Market Value
 
(In thousands)
Due in one year or less
$
14,364

Due in one to five years
37,656

Due in five to ten years
23,615

Thereafter
4,775

 
$
80,410


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 cemetery perpetual care trust investments were $44.1 million, $44.7 million, and $43.0 million for the years ended December 31, 2013, 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 (expense) income, net and a decrease to Cemetery perpetual care trust investments. These investment losses, if any, are offset by the corresponding reclassification in Other (expense) income, net, which reduces Care trusts’ corpus. See Note 7 for further information related to our Care trusts’ corpus. For the years ended December 31, 2013, 2012, and 2011, we recorded a $0.2 million, a $0.8 million, and a $0.7 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 for the years ended December 31, 2013 and 2012, are shown in the following table:
 
December 31, 2013
 
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
$
1,339

 
$
(14
)
 
$
20

 
$
—

 
$
1,359

 
$
(14
)
Canadian government
15,777

 
(214
)
 
5,131

 
(245
)
 
20,908

 
(459
)
Corporate
22,534

 
(129
)
 
3,299

 
(134
)
 
25,833

 
(263
)
Residential mortgage-backed
2,960

 
(18
)
 
10

 
(1
)
 
2,970

 
(19
)
   Asset-backed
2,835

 
(10
)
 
15

 
(1
)
 
2,850

 
(11
)
Equity securities:
 

 
 

 
 

 
 

 
 

 
 

Preferred stock
14,650

 
(245
)
 
44

 
(7
)
 
14,694

 
(252
)
Common stock:
 

 
 

 
 

 
 

 
 

 
 

United States
23,825

 
(1,561
)
 
3,254

 
(526
)
 
27,079

 
(2,087
)
Canada
667

 
(129
)
 
1,794

 
(494
)
 
2,461

 
(623
)
Other international
1,540

 
(54
)
 
525

 
(113
)
 
2,065

 
(167
)
Mutual funds:
 

 
 

 
 

 
 

 
 

 
 

Equity
391

 
(14
)
 
163

 
(21
)
 
554

 
(35
)
Fixed income
181,701

 
(2,090
)
 
28,507

 
(508
)
 
210,208

 
(2,598
)
Private equity
—

 
—

 
19,242

 
(9,002
)
 
19,242

 
(9,002
)
Other
—

 
—

 
9,738

 
(84
)
 
9,738

 
(84
)
Total temporarily impaired securities
$
268,219

—

$
(4,478
)
 
$
71,742

 
$
(11,136
)
 
$
339,961

 
$
(15,614
)

 
December 31, 2012
 
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
$
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
)