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Cemetery Perpetual Care Trusts (Notes)
 3 Months Ended
Mar. 31, 2017
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. 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 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 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,
 
2017
 
2016
 
(In thousands)
Deposits
$
9,989

 
$
9,813

Withdrawals
$
12,425

 
$
16,294

Purchases of available-for-sale securities
$
27,266

 
$
48,476

Sales of available-for-sale securities
$
13,975

 
$
33,522


The components of Cemetery perpetual care trust investments in our unaudited condensed Consolidated Balance Sheet at March 31, 2017 and December 31, 2016 are as follows:
 
March 31, 2017
 
December 31, 2016
 
(In thousands)
Trust investments, at market
$
1,378,853

 
$
1,349,073

Cash and cash equivalents
62,082

 
58,392

Cemetery perpetual care trust investments
$
1,440,935

 
$
1,407,465


The costs and values associated with trust investments, at market at March 31, 2017 and December 31, 2016 are detailed below. Cost reflects the investment (net of redemptions) of control holders in the trusts. Value represents the value of the underlying securities or cash held by the trusts.

 
March 31, 2017
 
Value Hierarchy Level
 
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Value
 
 
 
 
 
(In thousands)
 
 
Fixed income securities:
 
 
 
 
 
 
 
 
 
U.S. Treasury
2
 
$
10

 
$
—

 
$
—

 
$
10

Canadian government
2
 
14,085

 
16

 
(142
)
 
13,959

Corporate
2
 
4,503

 
98

 
(107
)
 
4,494

Residential mortgage-backed
2
 
251

 
1

 
(1
)
 
251

Asset-backed
2
 
112

 
3

 
(15
)
 
100

Equity securities:
 
 
 
 
 
 
 
 
 
Preferred stock
2
 
1,469

 
18

 
(89
)
 
1,398

Common stock:
 
 
 
 
 
 
 
 
 
United States
1
 
243,197

 
39,567

 
(4,899
)
 
277,865

Canada
1
 
4,863

 
2,875

 
(90
)
 
7,648

Other international
1
 
10,655

 
275

 
(936
)
 
9,994

Mutual funds:
 
 
 
 
 
 
 
 
 
Equity
1
 
15,484

 
3,808

 
(258
)
 
19,034

Fixed income
1
 
692,627

 
3,948

 
(20,870
)
 
675,705

Other
3
 
622

 
1,256

 
—

 
1,878

Trust investments, at fair value
 
 
987,878

 
51,865

 
(27,407
)
 
1,012,336

Fixed income commingled funds
 
 
278,935

 
—

 
(8,967
)
 
269,968

Private equity
 
 
100,496

 
2,938

 
(6,885
)
 
96,549

Trust investments, at net asset value
 
 
379,431

 
2,938

 
(15,852
)
 
366,517

Trust investments, at market
 
 
$
1,367,309

 
$
54,803

 
$
(43,259
)
 
$
1,378,853

 
December 31, 2016
 
Value Hierarchy Level
 
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
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


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.
Private equity investments are measured at net asset value. 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 March 31, 2017, our unfunded commitment for our private equity investments was $27.2 million which, if called, would be funded by the assets of the trusts.
The change in our trust investments measured at fair value with significant unobservable inputs (Level 3) is as follows:
 
Three Months Ended
 
March 31,
 
2017
 
2016
 
(In thousands)
Fair market value, beginning balance
$
1,887

 
$
1,902

Net unrealized losses included in Accumulated other comprehensive income(1)
2

 
(19
)
Distributions and other
(11
)
 
—

Fair market value, ending balance
$
1,878

 
$
1,883


(1)
All net unrealized 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.
Maturity dates of our fixed income securities range from 2017 to 2040. Maturities of fixed income securities at March 31, 2017 are estimated as follows:
 
Fair Value
 
(In thousands)
Due in one year or less
$
1,795

Due in one to five years
16,719

Due in five to ten years
105

Thereafter
195

 
$
18,814


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 $11.3 million and $18.5 million for the three months ended March 31, 2017 and 2016, 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, net and a decrease to Cemetery perpetual care trust investments. These investment losses, if any, are offset by the corresponding reclassification in Other expense, 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 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 values and the duration of unrealized losses as of March 31, 2017 and December 31, 2016, respectively, are shown in the following tables:

 
March 31, 2017
 
In Loss Position
Less Than 12 Months
 
In Loss Position
Greater Than 12 Months
 
Total
 
Value
 
Unrealized
Losses
 
Value
 
Unrealized
Losses
 
Value
 
Unrealized
Losses
 
 
 
 
 
(In thousands)
 
 
 
 
Fixed income securities:
 
 
 
 
 
 
 
 
 
 
 
Canadian government
$
1,501

 
$
(14
)
 
$
1,943

 
$
(128
)
 
$
3,444

 
$
(142
)
Corporate
628

 
(13
)
 
1,453

 
(94
)
 
2,081

 
(107
)
Residential mortgage-backed
203

 
(1
)
 
—

 
—

 
203

 
(1
)
Asset-backed
41

 
(10
)
 
10

 
(5
)
 
51

 
(15
)
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
367

 
(6
)
 
416

 
(83
)
 
783

 
(89
)
Common stock:
 
 
 
 
 
 
 
 
 
 
 
United States
28,989

 
(2,332
)
 
10,246

 
(2,567
)
 
39,235

 
(4,899
)
Canada
129

 
(24
)
 
757

 
(66
)
 
886

 
(90
)
Other international
4,547

 
(66
)
 
2,663

 
(870
)
 
7,210

 
(936
)
Mutual funds:
 
 
 
 
 
 
 
 
 
 
 
Equity
399

 
(27
)
 
1,941

 
(231
)
 
2,340

 
(258
)
Fixed income
266,649


(1,819
)

342,090


(19,051
)

608,739


(20,870
)
Trust investments, at fair value
303,453

 
(4,312
)
 
361,519

 
(23,095
)
 
664,972

 
(27,407
)
Fixed income commingled funds
269,968

 
(8,967
)
 
—

 
—

 
269,968

 
(8,967
)
Private equity
924

 
(31
)
 
34,880

 
(6,854
)
 
35,804

 
(6,885
)
Trust investments, at net asset value
270,892

 
(8,998
)
 
34,880

 
(6,854
)
 
305,772

 
(15,852
)
Total temporarily impaired securities
$
574,345

 
$
(13,310
)
 
$
396,399

 
$
(29,949
)
 
$
970,744

 
$
(43,259
)
 
December 31, 2016
 
In Loss Position
Less Than 12 Months
 
In Loss Position
Greater Than 12 Months
 
Total
 
Value
 
Unrealized
Losses
 
Value
 
Unrealized
Losses
 
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
)