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Cemetery Perpetual Care Trusts (Notes)
 9 Months Ended
Sep. 30, 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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
 
(In thousands)
Deposits
$
10,264

 
$
9,202

 
$
29,717

 
$
29,439

Withdrawals
$
8,073

 
$
8,680

 
$
32,749

 
$
23,879

Purchases of available-for-sale securities
$
29,129

 
$
169,973

 
$
174,243

 
$
233,795

Sales of available-for-sale securities
$
14,466

 
$
172,646

 
$
120,602

 
$
251,719

Realized gains from sales of available-for-sale securities
$
524

 
$
7,034

 
$
2,675

 
$
21,903

Realized losses from sales of available-for-sale securities
$
(156
)
 
$
(935
)
 
$
(4,478
)
 
$
(1,599
)

The components of Cemetery perpetual care trust investments in our unaudited condensed consolidated balance sheet at September 30, 2015 and December 31, 2014 are as follows:
 
September 30, 2015
 
December 31, 2014
 
(In thousands)
Trust investments, at fair value
$
1,209,834

 
$
1,192,966

Cash and cash equivalents
94,385

 
148,410

Cemetery perpetual care trust investments
$
1,304,219

 
$
1,341,376


The cost and fair values associated with trust investments, at fair value at September 30, 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 or cash held by the trusts.
 
September 30, 2015
 
Fair Value Hierarchy Level
 
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
 
 
 
 
(In thousands)
 
 
Fixed income securities:
 
 
 
 
 
 
 
 
 
U.S. Treasury
2
 
$
3,697

 
$
26

 
$
(95
)
 
$
3,628

Canadian government
2
 
33,094

 
507

 
(154
)
 
33,447

Corporate
2
 
13,178

 
168

 
(279
)
 
13,067

Residential mortgage-backed
2
 
968

 
18

 
(7
)
 
979

Asset-backed
2
 
662

 
6

 
(26
)
 
642

Equity securities:
 
 
 
 
 
 
 
 
 
Preferred stock
2
 
6,264

 
33

 
(626
)
 
5,671

Common stock:
 
 
 
 
 
 
 
 
 
United States
1
 
237,356

 
7,740

 
(21,941
)
 
223,155

Canada
1
 
5,381

 
2,049

 
(837
)
 
6,593

Other international
1
 
12,825

 
40

 
(2,523
)
 
10,342

Mutual funds:
 
 
 
 
 
 
 
 
 
Equity
1
 
21,602

 
3,116

 
(1,468
)
 
23,250

Fixed income
1
 
881,664

 
563

 
(41,924
)
 
840,303

Private equity
3
 
38,631

 
1,988

 
(6,773
)
 
33,846

Other
3
 
13,235

 
2,038

 
(362
)
 
14,911

Cemetery perpetual care trust investments
 
 
$
1,268,557

 
$
18,292

 
$
(77,015
)
 
$
1,209,834


 
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 held by the trusts 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, ratings, 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 recently available appraisals. Private equity investments are valued based on reported net asset values. 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 September 30, 2015, our unfunded commitment for our private equity and other investments was $21.4 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, 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 trust investments measured at fair value with significant unobservable inputs (Level 3) is as follows:
 
Three Months Ended
 
September 30, 2015
 
September 30, 2014
 
Private Equity
 
Other
 
Private Equity
 
Other
 
(In thousands)
Fair value, beginning balance
$
34,137

 
$
14,089

 
$
21,274

 
$
11,983

Net unrealized gains (losses) included in Accumulated other comprehensive income(1)
87


1,310


(206
)

23

Net realized losses included in Other income (expense), net(2)
(10
)

(13
)

(13
)

(17
)
Contributions
—

 
—

 
9,058

 
—

Distributions and other
(368
)
 
(475
)
 
(3,331
)
 
—

Fair value, ending balance
$
33,846

 
$
14,911

 
$
26,782

 
$
11,989



 
Nine Months Ended
 
September 30, 2015
 
September 30, 2014
 
Private Equity
 
Other
 
Private Equity
 
Other
 
(In thousands)
Fair market value, beginning balance
$
23,908

 
$
12,088

 
$
19,779

 
$
11,587

Net unrealized gains included in Accumulated other comprehensive income(1)
6,380


1,344


1,091


704

Net realized losses included in Other income (expense), net(2)
(40
)
 
(36
)
 
(37
)
 
(29
)
Sales
—

 
—

 
(17
)
 
—

Contributions
5,165

 
2,553

 
10,461

 
—

Distributions and other
(1,567
)
 
(1,038
)
 
(4,495
)
 
(273
)
Fair market value, ending balance
$
33,846

 
$
14,911

 
$
26,782

 
$
11,989

_________________________________________
(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 net 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 2045. Maturities of fixed income securities at September 30, 2015 are estimated as follows:
 
Fair Value
 
(In thousands)
Due in one year or less
$
26,894

Due in one to five years
16,644

Due in five to ten years
7,174

Thereafter
1,051

 
$
51,763


Distributable earnings from these cemetery perpetual care trust investments are recognized in current cemetery revenue to the extent we incur qualifying cemetery maintenance costs. Fees charged by our wholly-owned registered investment advisor are also included in current revenue. Recognized trust fund income related to these trust investments was $10.5 million and $10.9 million for the three months ended September 30, 2015 and 2014, respectively. Recognized trust fund income related to these trust investments was $43.5 million and $39.9 million for the nine months ended September 30, 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 income (expense), net and a decrease to Cemetery perpetual care trust investments. These investment losses, if any, are offset by the corresponding reclassification in Other income (expense), net, which reduces Care trusts’ corpus. See Note 7 for further information related to our Care trusts’ corpus. For the three months ended September 30, 2015 and 2014, we recorded a $0.1 million and an $8.0 million impairment charge, respectively, for other-than-temporary declines in fair value related to unrealized losses on certain investments. For the nine months ended September 30, 2015 and 2014, we recorded a $1.6 million and an $8.1 million impairment charge, respectively, for other-than-temporary declines in fair value related to unrealized losses on certain investments. The third quarter 2014 impairment charges were recorded in anticipation of a strategic change in the management of our trust assets requiring the liquidation of a majority of our US trust assets during the fourth quarter of 2014. This change did not impact our asset allocation, but did change the underlying legal structure housing the assets. These impairment charges reflect the unrealized loss positions on these liquidated assets as of September 30, 2014.

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.
 
September 30, 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
$
3,262

 
$
(95
)
 
$
—

 
$
—

 
$
3,262

 
$
(95
)
Canadian government
15,585

 
(40
)
 
1,412

 
(114
)
 
16,997

 
(154
)
Corporate
2,112

 
(70
)
 
4,474

 
(209
)
 
6,586

 
(279
)
Residential mortgage-backed
200

 
(1
)
 
89

 
(6
)
 
289

 
(7
)
Asset-backed
131

 
(10
)
 
372

 
(16
)
 
503

 
(26
)
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
4,911

 
(626
)
 
—

 
—

 
4,911

 
(626
)
Common stock:
 
 
 
 
 
 
 
 
 
 
 
United States
158,685

 
(21,941
)
 
—

 
—

 
158,685

 
(21,941
)
Canada
692

 
(303
)
 
923

 
(534
)
 
1,615

 
(837
)
Other international
10,060

 
(2,494
)
 
84

 
(29
)
 
10,144

 
(2,523
)
Mutual funds:
 
 
 
 
 
 
 
 
 
 
 
Equity
5,107

 
(1,432
)
 
255

 
(36
)
 
5,362

 
(1,468
)
Fixed income
822,656


(41,471
)

4,384


(453
)

827,040


(41,924
)
Private equity
—

 
—

 
14,564

 
(6,773
)
 
14,564

 
(6,773
)
Other
14

 
(11
)
 
5,587

 
(351
)
 
5,601

 
(362
)
Total temporarily impaired securities
$
1,023,415

 
$
(68,494
)
 
$
32,144

 
$
(8,521
)
 
$
1,055,559

 
$
(77,015
)

 
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
)