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Cemetery Perpetual Care Trusts Level 1 (Notes)
 12 Months Ended
Dec. 31, 2015
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 3 and 4 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:
 
2015
 
2014
 
2013
 
(In thousands)
Deposits
$
38,883

 
$
42,220

 
$
26,501

Withdrawals
$
40,447

 
$
46,981

 
$
33,557

Purchases of available-for-sale securities(1)
$
247,658

 
$
1,306,314

 
$
139,439

Sales of available-for-sale securities(1)
$
175,057

 
$
1,396,669

 
$
99,701

Realized gains from sales of available-for-sale securities(1)
$
6,933

 
$
134,259

 
$
17,916

Realized losses from sales of available-for-sale securities(1)
$
(7,708
)
 
$
(51,093
)
 
$
(2,738
)

(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:
 
2015
 
2014
 
(In thousands)
Trust investments, at market
$
1,232,592

 
$
1,192,966

Cash and cash equivalents
86,835

 
148,410

Cemetery perpetual care trust investments
$
1,319,427

 
$
1,341,376


The cost and market values associated with our cemetery perpetual care trust investments recorded at fair value at December 31, 2015 and 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.
 
 
December 31, 2015
 
Fair Value Hierarchy Level
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
 
 
 
(In thousands)
 
 
Fixed income securities:
 
 

 
 

 
 

 
 

U.S. Treasury
2
$
3,636

 
$
20

 
$
(81
)
 
$
3,575

Canadian government
2
32,477

 
321

 
(266
)
 
32,532

Corporate
2
12,694

 
149

 
(284
)
 
12,559

Residential mortgage-backed
2
934

 
13

 
(9
)
 
938

Asset-backed
2
660

 
5

 
(31
)
 
634

Equity securities:
 
 

 
 

 
 

 
 

Preferred stock
2
5,850

 
55

 
(159
)
 
5,746

Common stock:
 
 

 
 

 
 

 
 

United States
1
231,012

 
15,224

 
(10,898
)
 
235,338

Canada
1
5,648

 
2,112

 
(606
)
 
7,154

Other international
1
14,820

 
160

 
(2,390
)
 
12,590

Mutual funds:
 
 

 
 

 
 

 
 

Equity
1
21,783

 
3,138

 
(1,850
)
 
23,071

Fixed income
1
890,013

 
530

 
(63,913
)
 
826,630

Private equity
3
62,549

 
1,942

 
(8,096
)
 
56,395

Other
3
13,709

 
1,721

 
—

 
15,430

Cemetery perpetual care trust investments
 
$
1,295,785

 
$
25,390

 
$
(88,583
)
 
$
1,232,592

 
 
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 securities 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 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. 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 securities are classified as Level 3 investments pursuant to the fair value measurements hierarchy.
As of December 31, 2015, our unfunded commitment for our private equity and other investments was $54.2 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 :
 
2015
 
2014
 
2013
 
Private Equity
 
Other
 
Private Equity
 
Other
 
Private Equity
 
Other
 
 
 
 
 
(In thousands)
 
 
 
 
Fair value, beginning balance at January 1,
$
23,908

 
$
12,088

 
$
19,779

 
$
11,590

 
$
11,122

 
$
7,659

Net unrealized gains (losses) included in Accumulated other comprehensive income(1)
10,793

 
(828
)
 
1,216

 
2,145

 
6,897

 
4,081

Net realized losses included in Other income (expense), net(2)
(20
)
 
(24
)
 
(70
)
 
(44
)
 
(142
)
 
(76
)
Sales
—

 
—

 
—

 
(17
)
 
—

 
—

Contributions
25,836

 
5,829

 
10,461

 
—

 
3,706

 
—

Distributions and other
(4,122
)
 
(1,635
)
 
(7,478
)
 
(1,586
)
 
(1,841
)
 
(508
)
Acquisitions
—

 
—

 
—

 
—

 
37

 
434

Fair value, ending balance at December 31,
$
56,395

 
$
15,430

 
$
23,908

 
$
12,088

 
$
19,779

 
$
11,590

(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 6 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 6 for further information related to our Care trusts’ corpus.
Maturity dates of our fixed income securities range from 2016 to 2045. Maturities of fixed income securities at December 31, 2015 are estimated as follows:
 
Fair Value
 
(In thousands)
Due in one year or less
$
27,700

Due in one to five years
21,107

Due in five to ten years
448

Thereafter
983

 
$
50,238


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 $59.6 million, $72.4 million, and $44.1 million for the years ended December 31, 2015, 2014, and 2013, 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 6 for further information related to our Care trusts’ corpus. For the years ended December 31, 2015, 2014, and 2013, we recorded a $1.8 million, a $8.1 million, and a $0.2 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, 2015 and 2014, are shown in the following table:
 
December 31, 2015
 
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
$
3,275

 
$
(80
)
 
$
35

 
$
(1
)
 
$
3,310

 
$
(81
)
Canadian government
18,499

 
(164
)
 
1,371

 
(102
)
 
19,870

 
(266
)
Corporate
5,163

 
(134
)
 
4,147

 
(150
)
 
9,310

 
(284
)
Residential mortgage-backed
303

 
(3
)
 
117

 
(6
)
 
420

 
(9
)
Asset-backed
145

 
(12
)
 
360

 
(19
)
 
505

 
(31
)
Equity securities:
 

 
 

 
 

 
 

 
 

 
 

Preferred stock
4,029

 
(159
)
 
—

 
—

 
4,029

 
(159
)
Common stock:
 

 
 

 
 

 
 

 
 

 
 

United States
81,624

 
(7,793
)
 
14,900

 
(3,105
)
 
96,524

 
(10,898
)
Canada
702

 
(31
)
 
1,026

 
(575
)
 
1,728

 
(606
)
Other international
8,734

 
(940
)
 
2,347

 
(1,450
)
 
11,081

 
(2,390
)
Mutual funds:
 

 
 

 
 

 
 

 
 

 
 

Equity
4,580

 
(606
)
 
1,258

 
(1,244
)
 
5,838

 
(1,850
)
Fixed income
519,981

 
(18,205
)
 
294,309

 
(45,708
)
 
814,290

 
(63,913
)
Private equity
10,594

 
(61
)
 
24,556

 
(8,035
)
 
35,150

 
(8,096
)
Total temporarily impaired securities
$
657,629


$
(28,188
)
 
$
344,426

 
$
(60,395
)
 
$
1,002,055

 
$
(88,583
)
 
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
)