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Cemetery Perpetual Care Trusts Level 1 (Notes) (Cemetery Perpetual Care [Member])
 12 Months Ended
Dec. 31, 2014
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. 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:
 
2014
 
2013
 
2012
 
(In thousands)
Deposits
$
42,220

 
$
26,501

 
$
24,869

Withdrawals
$
46,981

 
$
33,557

 
$
33,177

Purchases of available-for-sale securities(1)
$
1,306,314

 
$
139,439

 
$
252,021

Sales of available-for-sale securities(1)
$
1,396,669

 
$
99,701

 
$
136,391

Realized gains from sales of available-for-sale securities(1)
$
134,259

 
$
17,916

 
$
11,463

Realized losses from sales of available-for-sale securities(1)
$
(51,093
)
 
$
(2,738
)
 
$
(6,595
)

(1) The increase in activity in 2014 is the result of changing the legal structure of the trust investments.
The components of Cemetery perpetual care trust investments in our consolidated balance sheet at December 31 were as follows:
 
2014
 
2013
 
(In thousands)
Trust investments, at market
$
1,192,966

 
$
1,352,251

Cash and cash equivalents
149,694

 
78,509

Assets associated with businesses held for sale
(1,284
)
 
(88,169
)
Cemetery perpetual care trust investments
$
1,341,376

 
$
1,342,591


The cost and market values associated with our cemetery perpetual care trust investments recorded at fair value at December 31, 2014 and 2013 are detailed below. Cost reflects the investment (net of redemptions) of control holders in the trusts. Fair value represents the value of the underlying securities or cash held by the trusts.
 
 
December 31, 2014
 
Fair Value Hierarchy Level
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
 
 
 
(In thousands)
 
 
Fixed income securities:
 
 

 
 

 
 

 
 

U.S. Treasury
2
$
794

 
$
40

 
$
(4
)
 
$
830

Canadian government
2
31,993

 
442

 
(233
)
 
32,202

Corporate
2
16,762

 
344

 
(210
)
 
16,896

Residential mortgage-backed
2
910

 
15

 
(6
)
 
919

Asset-backed
2
661

 
10

 
(4
)
 
667

Equity securities:
 
 

 
 

 
 

 
 

Preferred stock
2
4,439

 
60

 
(12
)
 
4,487

Common stock:
 
 

 
 

 
 

 
 

United States
1
225,129

 
9,340

 
(4,881
)
 
229,588

Canada
1
7,419

 
2,737

 
(596
)
 
9,560

Other international
1
8,102

 
90

 
(399
)
 
7,793

Mutual funds:
 
 

 
 

 
 

 
 

Equity
1
17,310

 
3,264

 
(93
)
 
20,481

Fixed income
1
846,230

 
1,580

 
(14,263
)
 
833,547

Private equity
3
34,288

 
408

 
(10,788
)
 
23,908

Other
3
13,526

 
1,094

 
(2,532
)
 
12,088

Cemetery perpetual care trust investments
 
$
1,207,563

 
$
19,424

 
$
(34,021
)
 
$
1,192,966


 
 
December 31, 2013
 
Fair Value Hierarchy Level
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
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
43,191

 
312

 
(263
)
 
43,240

Residential mortgage-backed
2
4,256

 
14

 
(19
)
 
4,251

Asset-backed
2
3,006

 
5

 
(11
)
 
3,000

Equity securities:
 
 

 
 

 
 

 
 

Preferred stock
2
25,946

 
192

 
(252
)
 
25,886

Common stock:
 
 

 
 

 
 

 
 

United States
1
231,093

 
53,782

 
(2,087
)
 
282,788

Canada
1
8,846

 
2,222

 
(623
)
 
10,445

Other international
1
20,671

 
1,319

 
(167
)
 
21,823

Mutual funds:
 
 

 
 

 
 

 
 

Equity
1
41,270

 
5,693

 
(35
)
 
46,928

Fixed income
1
819,244

 
35,963

 
(2,598
)
 
852,609

Private equity
3
28,309

 
472

 
(9,002
)
 
19,779

Other
3
10,521

 
1,153

 
(84
)
 
11,590

Cemetery perpetual care trust investments
 
$
1,266,428

 
$
101,437

 
$
(15,614
)
 
$
1,352,251


Where quoted prices are available in an active market, securities are classified as Level 1 investments pursuant to the three-level valuation hierarchy.
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.
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 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 instruments are valued based on reported net asset values discounted by 0% to 20% for risk and 0% to 10% 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 the Investment Committee of the Board of Directors quarterly. These funds are classified as Level 3 investments pursuant to the three-level valuation hierarchy.
As of December 31, 2014, our unfunded commitment for our private equity and other investments was $8.9 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 :
 
2014
 
2013
 
2012
 
Private Equity
 
Other
 
Private Equity
 
Other
 
Private Equity
 
Other
 
 
 
 
 
(In thousands)
 
 
 
 
Fair value, beginning balance at January 1,
$
19,779

 
$
11,590

 
$
11,122

 
$
7,659

 
$
10,849

 
$
6,890

Net unrealized gains included in Accumulated other comprehensive income(1)
1,216

 
2,145

 
6,897

 
4,081

 
1,648

 
1,035

Net realized losses included in Other income (expense), net(2)
(70
)
 
(44
)
 
(142
)
 
(76
)
 
(162
)
 
(43
)
Sales
—

 
(17
)
 
—

 
—

 
(26
)
 
—

Contributions
10,461

 
—

 
3,706

 
—

 
4,171

 
—

Distributions and other
(7,478
)
 
(1,586
)
 
(1,841
)
 
(508
)
 
(5,358
)
 
(223
)
Acquisitions
—

 
—

 
37

 
434

 
—

 
—

Fair value, ending balance at December 31,
$
23,908

 
$
12,088

 
$
19,779

 
$
11,590

 
$
11,122

 
$
7,659


(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 (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 2015 to 2044. Maturities of fixed income securities at December 31, 2014 are estimated as follows:
 
Fair Value
 
(In thousands)
Due in one year or less
$
18,602

Due in one to five years
23,463

Due in five to ten years
8,593

Thereafter
856

 
$
51,514


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 $72.4 million, $44.1 million, and $44.7 million for the years ended December 31, 2014, 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 (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, 2014, 2013, and 2012, we recorded a $8.1 million, a $0.2 million, and a $0.8 million, respectively, 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 for the years ended December 31, 2014 and 2013, are shown in the following table:
 
December 31, 2014
 
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
$
497

 
$
(4
)
 
$
—

 
$
—

 
$
497

 
$
(4
)
Canadian government
—

 
—

 
7,825

 
(233
)
 
7,825

 
(233
)
Corporate
4,656

 
(108
)
 
3,198

 
(102
)
 
7,854

 
(210
)
Residential mortgage-backed
256

 
(5
)
 
69

 
(1
)
 
325

 
(6
)
Asset-backed
373

 
(4
)
 
—

 
—

 
373

 
(4
)
Equity securities:
 

 
 

 
 

 
 

 
 

 
 

Preferred stock
2,224

 
(11
)
 
49

 
(1
)
 
2,273

 
(12
)
Common stock:
 

 
 

 
 

 
 

 
 

 
 

United States
100,370

 
(4,803
)
 
419

 
(78
)
 
100,789

 
(4,881
)
Canada
2,418

 
(244
)
 
757

 
(352
)
 
3,175

 
(596
)
Other international
4,444

 
(399
)
 
—

 
—

 
4,444

 
(399
)
Mutual funds:
 

 
 

 
 

 
 

 
 

 
 

Equity
2,601

 
(85
)
 
153

 
(8
)
 
2,754

 
(93
)
Fixed income
576,890

 
(14,177
)
 
2,581

 
(86
)
 
579,471

 
(14,263
)
Private equity
9,213

 
(798
)
 
14,254

 
(9,990
)
 
23,467

 
(10,788
)
Other
4,069

 
(352
)
 
6,276

 
(2,180
)
 
10,345

 
(2,532
)
Total temporarily impaired securities
$
708,011


$
(20,990
)
 
$
35,581

 
$
(13,031
)
 
$
743,592

 
$
(34,021
)

 
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
22,530


(129
)

3,299


(134
)

25,829


(263
)
Residential mortgage-backed
2,959

 
(18
)
 
10

 
(1
)
 
2,969

 
(19
)
Asset-backed
2,835

 
(10
)
 
15

 
(1
)
 
2,850

 
(11
)
Equity securities:
 

 
 

 
 

 
 

 
 
 
 
Preferred stock
14,647

 
(245
)
 
44

 
(7
)
 
14,691

 
(252
)
Common stock:
 

 
 

 
 

 
 

 
 
 
 
United States
23,820

 
(1,561
)
 
3,253

 
(526
)
 
27,073

 
(2,087
)
Canada
667

 
(129
)
 
1,794

 
(494
)
 
2,461

 
(623
)
Other international
1,540

 
(54
)
 
524

 
(113
)
 
2,064

 
(167
)
Mutual funds:
 

 
 

 
 

 
 

 
 
 
 
Equity
390

 
(14
)
 
163

 
(21
)
 
553

 
(35
)
Fixed income
181,662

 
(2,090
)
 
28,494

 
(508
)
 
210,156

 
(2,598
)
Private equity
—

 
—

 
19,242

 
(9,002
)
 
19,242

 
(9,002
)
Other
—

 
—

 
9,739

 
(84
)
 
9,739

 
(84
)
Total temporarily impaired securities
$
268,166

 
$
(4,478
)
 
$
71,728

 
$
(11,136
)
 
$
339,894

 
$
(15,614
)