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Cemetery Perpetual Care Trusts (Notes) (Cemetery Perpetual Care)
 3 Months Ended
Mar. 31, 2015
Cemetery Perpetual Care
  
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" accounting standard. In accordance with this standard, 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 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,
 
2015
2014
 
(In thousands)
Deposits
$
9,253

$
11,837

Withdrawals
$
13,158

$
5,885

Purchases of available-for-sale securities
$
101,660

$
38,895

Sales of available-for-sale securities
$
53,765

$
30,072

Realized gains from sales of available-for-sale securities
$
398

$
5,045

Realized losses from sales of available-for-sale securities
$
(129
)
$
(337
)

The components of Cemetery perpetual care trust investments in our unaudited condensed consolidated balance sheet at March 31, 2015 and December 31, 2014 are as follows:
 
March 31, 2015
 
December 31, 2014
 
(In thousands)
Trust investments, at fair value
$
1,253,601

 
$
1,192,966

Cash and cash equivalents
103,800

 
148,410

Cemetery perpetual care trust investments
$
1,357,401

 
$
1,341,376


The cost and market values associated with our cemetery perpetual care trust investments recorded at fair value at March 31, 2015 and December 31, 2014 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 held by the trusts.
 
March 31, 2015
 
Fair Value Hierarchy Level
 
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
 
 
 
 
(In thousands)
 
 
Fixed income securities:
 
 
 
 
 
 
 
 
 
U.S. Treasury
2
 
$
788

 
$
38

 
$
(4
)
 
$
822

Canadian government
2
 
28,631

 
965

 
(199
)
 
29,397

Corporate
2
 
14,003

 
372

 
(139
)
 
14,236

Residential mortgage-backed
2
 
970

 
18

 
(6
)
 
982

Asset-backed
2
 
666

 
10

 
(8
)
 
668

Equity securities:
 
 
 
 
 
 
 
 
 
Preferred stock
2
 
5,329

 
65

 
(164
)
 
5,230

Common stock:
 
 
 
 
 
 
 
 
 
United States
1
 
233,757

 
12,144

 
(8,864
)
 
237,037

Canada
1
 
7,148

 
2,773

 
(457
)
 
9,464

Other international
1
 
12,581

 
219

 
(1,063
)
 
11,737

Mutual funds:
 
 
 
 
 
 
 
 
 
Equity
1
 
17,658

 
3,211

 
(267
)
 
20,602

Fixed income
1
 
884,376

 
7,121

 
(10,102
)
 
881,395

Private equity
3
 
34,024

 
1,439

 
(7,240
)
 
28,223

Other
3
 
13,188

 
1,539

 
(919
)
 
13,808

Cemetery perpetual care trust investments
 
 
$
1,253,119

 
$
29,914

 
$
(29,432
)
 
$
1,253,601


 
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


Where quoted prices are available in an active market, securities are classified as Level 1 investments pursuant to the fair value measurements 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 fair value measurements 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 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 instruments are valued based on reported net asset values. 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 fair value measurements hierarchy.

As of March 31, 2015, the cemetery perpetual care trusts' unfunded commitment for 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, due to the nature of the investments in this category, 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:
 
Three Months Ended
 
March 31, 2015
 
March 31, 2014
 
Private Equity
 
Other
 
Private Equity
 
Other
 
(In thousands)
Fair value, beginning balance
$
23,908

 
$
12,088

 
$
19,779

 
$
11,590

Net unrealized gains included in Accumulated other comprehensive income(1)
3,917


1,195


727


128

Net realized losses included in Other (expense) income, net(2)
(12
)

(15
)

(12
)

(6
)
Sales
—

 
—

 
(17
)
 
—

Contributions
495

 
648

 
694

 
—

Distributions
(85
)
 
(108
)
 
(365
)
 
—

Fair value, ending balance
$
28,223

 
$
13,808

 
$
20,806

 
$
11,712


__________________________________________
(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 (expense) income, net for our cemetery perpetual care trust investments are offset by a corresponding reclassification in Other (expense) 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 2015 to 2045. Maturities of fixed income securities, excluding mutual funds, at March 31, 2015 are estimated as follows:
 
Fair Value
 
(In thousands)
Due in one year or less
$
18,620

Due in one to five years
19,101

Due in five to ten years
7,488

Thereafter
896

 
$
46,105


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. Recognized trust fund income related to these trust investments was $13.4 million and $13.3 million for the three months ended March 31, 2015 and 2014, 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 three months ended March 31, 2015, we recorded a $0.5 million impairment charge for other-than-temporary declines in fair value related to unrealized losses on certain investments. For the three months ended March 31, 2014 was no 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 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, 2015
 
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
$
436

 
$
(3
)
 
$
68

 
$
(1
)
 
$
504

 
$
(4
)
Canadian government
2,103

 
(6
)
 
4,952

 
(193
)
 
7,055

 
(199
)
Corporate
1,013

 
(22
)
 
5,360

 
(117
)
 
6,373

 
(139
)
Residential mortgage-backed
160

 
(1
)
 
213

 
(5
)
 
373

 
(6
)
Asset-backed
371

 
(8
)
 
—

 
—

 
371

 
(8
)
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
3,234

 
(164
)
 
54

 
—

 
3,288

 
(164
)
Common stock:
 
 
 
 
 
 
 
 
 
 
 
United States
134,139

 
(8,864
)
 
152

 
—

 
134,291

 
(8,864
)
Canada
1,175

 
(160
)
 
701

 
(297
)
 
1,876

 
(457
)
Other international
8,550

 
(1,063
)
 
—

 
—

 
8,550

 
(1,063
)
Mutual funds:
 
 
 
 
 
 
 
 
 
 
 
Equity
2,649

 
(253
)
 
185

 
(14
)
 
2,834

 
(267
)
Fixed income
345,809


(10,054
)

2,045


(48
)

347,854


(10,102
)
Private equity
—

 
—

 
10,092

 
(7,240
)
 
10,092

 
(7,240
)
Other
—

 
—

 
4,380

 
(919
)
 
4,380

 
(919
)
Total temporarily impaired securities
$
499,639

 
$
(20,598
)
 
$
28,202

 
$
(8,834
)
 
$
527,841

 
$
(29,432
)

 
December 31, 2014
 
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
$
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
)