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Cemetery Perpetual Care Trusts Level 1 (Notes)
 12 Months Ended
Dec. 31, 2016
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. 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:
 
2016
 
2015
 
2014
 
(In thousands)
Deposits
$
41,450

 
$
38,883

 
$
42,220

Withdrawals
$
48,522

 
$
40,447

 
$
46,981

Purchases of available-for-sale securities(1)
$
428,635

 
$
247,658

 
$
1,306,314

Sales of available-for-sale securities(1)
$
374,329

 
$
175,057

 
$
1,396,669


(1)
The higher level of activity in 2014 was 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:
 
2016
 
2015
 
(In thousands)
Trust investments, at market
$
1,349,073

 
$
1,232,592

Cash and cash equivalents
58,392

 
86,835

Cemetery perpetual care trust investments
$
1,407,465

 
$
1,319,427


The cost and market values associated with our cemetery perpetual care trust investments recorded at fair value at December 31, 2016 and 2015 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, 2016
 
Fair Value Hierarchy Level
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
 
 
 
(In thousands)
 
 
Fixed income securities:
 
 

 
 

 
 

 
 

Canadian government
2
$
14,280

 
$
88

 
$
(114
)
 
$
14,254

Corporate
2
4,636

 
100

 
(101
)
 
4,635

Residential mortgage-backed
2
304

 
—

 
(1
)
 
303

Asset-backed
2
220

 
3

 
(28
)
 
195

Equity securities:
 
 

 
 

 
 

 
 

Preferred stock
2
1,479

 
2

 
(117
)
 
1,364

Common stock:
 
 

 
 

 
 

 
 

United States
1
233,643

 
28,679

 
(2,337
)
 
259,985

Canada
1
4,828

 
2,631

 
(108
)
 
7,351

Other international
1
14,607

 
148

 
(2,236
)
 
12,519

Mutual funds:
 
 

 
 

 
 

 
 

Equity
1
18,909

 
4,370

 
(412
)
 
22,867

Fixed income
1
688,472

 
3,324

 
(28,997
)
 
662,799

Other
3
633

 
1,254

 
—

 
1,887

Trust investments, at fair value
 
982,011

 
40,599

 
(34,451
)
 
988,159

Fixed income commingled funds
 
277,662

 
—

 
(9,386
)
 
268,276

Private equity

97,108

 
2,240

 
(6,710
)
 
92,638

Trust investments, at net asset value
 
374,770

 
2,240

 
(16,096
)
 
360,914

Trust investments, at market
 
$
1,356,781

 
$
42,839

 
$
(50,547
)
 
$
1,349,073

 
 
December 31, 2015
 
Fair Value Hierarchy Level
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Fair
Value
 
 
 
 
(In thousands)
 
 
Fixed income securities:
 
 

 
 

 
 

 
 

U.S. Treasury
2
$
650

 
$
20

 
$
(7
)
 
$
663

Canadian government
2
15,412

 
321

 
(162
)
 
15,571

Corporate
2
12,490

 
149

 
(284
)
 
12,355

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
230,854

 
15,224

 
(10,898
)
 
235,180

Canada
1
5,460

 
2,112

 
(606
)
 
6,966

Other international
1
14,793

 
160

 
(2,390
)
 
12,563

Mutual funds:
 
 

 
 

 
 

 
 

Equity
1
21,783

 
3,138

 
(1,850
)
 
23,071

Fixed income
1
890,025

 
530

 
(63,913
)
 
826,642

Other
3
645

 
1,257

 
—

 
1,902

Trust investments, at fair value
 
1,199,556

 
22,984

 
(80,309
)
 
1,142,231

Fixed income commingled funds
 
20,616

 
—

 
(178
)
 
20,438

Private equity

75,613

 
2,406

 
(8,096
)
 
69,923

Trust investments, at net asset value
 
96,229

 
2,406

 
(8,274
)
 
90,361

Trust investments, at market
 
$
1,295,785

 
$
25,390

 
$
(88,583
)
 
$
1,232,592


Valuation policies and procedures are determined by our Trust Services department, which reports to our Chief Financial Officer. Additionally, valuations are reviewed quarterly by the Investment Committee of the Board of Directors.
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 other investments requires management judgment due to the absence of quoted market prices, inherent lack of liquidity, and the long-term nature of such assets. These securities are classified as Level 3 investments pursuant to the fair value measurements hierarchy.
Fixed income commingled funds and private equity investments are measured at net asset value. Fixed income commingled funds are redeemable for net asset value with two weeks' notice. Our private equity 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. As of December 31, 2016, our unfunded commitment for our private equity and other investments was $31.0 million which, if called, would be funded by the assets of the trusts.
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 :
 
 
2016
 
2015
 
2014
 
 
(In thousands)
Fair value, beginning balance at January 1
 
$
1,902

 
$
1,556

 
$
1,599

Net unrealized (losses) gains included in Accumulated other comprehensive income(1)
 
(15
)
 
346

 
(26
)
Sales
 
—

 
—

 
(17
)
Fair value, ending balance at December 31
 
$
1,887

 
$
1,902

 
$
1,556

(1)
All unrealized (losses) 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 6 for further information related to our Care trusts’ corpus.
Maturity dates of our fixed income securities range from 2017 to 2040. Maturities of fixed income securities at December 31, 2016 are estimated as follows:
 
Fair Value
 
(In thousands)
Due in one year or less
$
1,834

Due in one to five years
17,283

Due in five to ten years
69

Thereafter
201

 
$
19,387


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 in the period in which they are earned. Recognized earnings related to these cemetery perpetual care trust investments were $67.6 million, $59.6 million, and $72.4 million for the years ended December 31, 2016, 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 6 for further information related to our Care trusts’ corpus.
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, 2016 and 2015, are shown in the following table:
 
December 31, 2016
 
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:
 

 
 

 
 

 
 

 
 

 
 

Canadian government
$
66

 
$
(1
)
 
$
1,961

 
$
(113
)
 
$
2,027

 
$
(114
)
Corporate
397

 
(7
)
 
1,866

 
(94
)
 
2,263

 
(101
)
Residential mortgage-backed
303

 
(1
)
 
—

 
—

 
303

 
(1
)
Asset-backed
28

 
(22
)
 
101

 
(6
)
 
129

 
(28
)
Equity securities:
 

 
 

 
 

 
 

 
 

 
 

Preferred stock
846

 
(36
)
 
417

 
(81
)
 
1,263

 
(117
)
Common stock:
 

 
 

 
 

 
 

 
 

 
 

United States
34,844

 
(1,339
)
 
12,974

 
(998
)
 
47,818

 
(2,337
)
Canada
78

 
(47
)
 
558

 
(61
)
 
636

 
(108
)
Other international
4,177

 
(508
)
 
5,715

 
(1,728
)
 
9,892

 
(2,236
)
Mutual funds:
 

 
 

 
 

 
 

 
 

 
 

Equity
877

 
(17
)
 
2,899

 
(395
)
 
3,776

 
(412
)
Fixed income
263,231

 
(4,678
)
 
348,623

 
(24,319
)
 
611,854

 
(28,997
)
Trust investments, at fair value
304,847

 
(6,656
)
 
375,114

 
(27,795
)
 
679,961

 
(34,451
)
Fixed income commingled funds
265,345

 
(9,346
)
 
2,931

 
(40
)
 
268,276

 
(9,386
)
Private equity
21,426

 
(268
)
 
33,519

 
(6,442
)
 
54,945

 
(6,710
)
Trust investments, at net asset value
286,771

 
(9,614
)
 
36,450

 
(6,482
)
 
323,221

 
(16,096
)
Total temporarily impaired securities
$
591,618


$
(16,270
)
 
$
411,564

 
$
(34,277
)
 
$
1,003,182

 
$
(50,547
)
 
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
$
364

 
$
(6
)
 
$
35

 
$
(1
)
 
$
399

 
$
(7
)
Canadian government
1,569

 
(60
)
 
1,371

 
(102
)
 
2,940

 
(162
)
Corporate
4,693


(134
)

4,147


(150
)

8,840


(284
)
Residential mortgage-backed
303

 
(3
)
 
117

 
(6
)
 
420

 
(9
)
Asset-backed
146

 
(12
)
 
360

 
(19
)
 
506

 
(31
)
Equity securities:
 

 
 

 
 

 
 

 
 
 
 
Preferred stock
4,029

 
(159
)
 
—

 
—

 
4,029

 
(159
)
Common stock:
 

 
 

 
 

 
 

 
 
 
 
United States
81,564

 
(7,793
)
 
14,900

 
(3,105
)
 
96,464

 
(10,898
)
Canada
622

 
(31
)
 
1,026

 
(575
)
 
1,648

 
(606
)
Other international
8,735

 
(941
)
 
2,347

 
(1,449
)
 
11,082

 
(2,390
)
Mutual funds:
 

 
 

 
 

 
 

 
 
 
 
Equity
4,580

 
(606
)
 
1,258

 
(1,244
)
 
5,838

 
(1,850
)
Fixed income
519,993

 
(18,205
)
 
294,309

 
(45,708
)
 
814,302

 
(63,913
)
Trust investments, at fair value
626,598

 
(27,950
)
 
319,870

 
(52,359
)
 
946,468

 
(80,309
)
Fixed income commingled funds
20,438

 
(178
)
 
—

 
—

 
20,438

 
(178
)
Private equity
13,139

 
(75
)
 
30,438

 
(8,021
)
 
43,577

 
(8,096
)
Trust investments, at net asset value
33,577

 
(253
)
 
30,438

 
(8,021
)
 
64,015

 
(8,274
)
Total temporarily impaired securities
$
660,175

 
$
(28,203
)
 
$
350,308

 
$
(60,380
)
 
$
1,010,483

 
$
(88,583
)