Cemetery Perpetual Care Trusts (Notes)
 9 Months Ended
Sep. 30, 2016
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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands)
Deposits
$
10,542

 
$
10,264

 
$
31,731

 
$
29,717

Withdrawals
$
5,928

 
$
8,073

 
$
36,478

 
$
32,749

Purchases of available-for-sale securities
$
298,509

 
$
29,129

 
$
388,216

 
$
174,243

Sales of available-for-sale securities
$
274,495

 
$
14,466

 
$
352,109

 
$
120,602


The components of Cemetery perpetual care trust investments in our unaudited condensed Consolidated Balance Sheet at September 30, 2016 and December 31, 2015 are as follows:
 
September 30, 2016
 
December 31, 2015
 
(In thousands)
Trust investments, at market
$
1,341,129

 
$
1,232,592

Cash and cash equivalents
54,274

 
86,835

Cemetery perpetual care trust investments
$
1,395,403

 
$
1,319,427


The costs and values associated with trust investments, at market at September 30, 2016 and December 31, 2015 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.

 
September 30, 2016
 
Value Hierarchy Level
 
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
Value
 
 
 
 
 
(In thousands)
 
 
Fixed income securities:
 
 
 
 
 
 
 
 
 
U.S. Treasury
2
 
$
2,983

 
$
—

 
$
(30
)
 
$
2,953

Canadian government
2
 
37,001

 
611

 
(95
)
 
37,517

Corporate
2
 
6,388

 
128

 
(124
)
 
6,392

Residential mortgage-backed
2
 
352

 
1

 
—

 
353

Asset-backed
2
 
255

 
6

 
(18
)
 
243

Equity securities:
 
 
 
 
 
 
 
 
 
Preferred stock
2
 
1,523

 
35

 
(78
)
 
1,480

Common stock:
 
 
 
 
 
 
 
 
 
United States
1
 
233,177

 
20,035

 
(7,311
)
 
245,901

Canada
1
 
4,856

 
2,654

 
(172
)
 
7,338

Other international
1
 
14,733

 
180

 
(1,402
)
 
13,511

Mutual funds:
 
 
 
 
 
 
 
 
 
Equity
1
 
20,125

 
4,244

 
(1,504
)
 
22,865

Fixed income
1
 
683,595

 
10,815

 
(26,624
)
 
667,786

Other
3
 
631

 
1,253

 
(2
)
 
1,882

Trust investments, at fair value
 
 
1,005,619

 
39,962

 
(37,360
)
 
1,008,221

Fixed income commingled funds
 
 
245,295

 
—

 
(1,153
)
 
244,142

Private equity
 
 
92,273

 
2,565

 
(6,072
)
 
88,766

Trust investments, at net asset value
 
 
337,568

 
2,565

 
(7,225
)
 
332,908

Trust investments, at market
 
 
$
1,343,187

 
$
42,527

 
$
(44,585
)
 
$
1,341,129

 
December 31, 2015
 
Value Hierarchy Level
 
Cost
 
Unrealized
Gains
 
Unrealized
Losses
 
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

Other
3
 
645

 
1,257

 
—

 
1,902

Trust investments, at fair value
 
 
1,220,172

 
22,984

 
(80,487
)
 
1,162,669

Private equity
 
 
75,613

 
2,406

 
(8,096
)
 
69,923

Trust investments, at net asset value
 
 
75,613

 
2,406

 
(8,096
)
 
69,923

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 funds 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 funds 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 September 30, 2016, our unfunded commitment for our private equity investments was $34.9 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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
(In thousands)
 
 
Fair market value, beginning balance
$
1,881

 
$
1,561

 
$
1,902

 
$
1,556

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

 
354

 
(20
)
 
359

Fair market value, ending balance
$
1,882

 
$
1,915

 
$
1,882

 
$
1,915


_________________________________________
(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.
Maturity dates of our fixed income securities range from 2016 to 2040. Maturities of fixed income securities at September 30, 2016 are estimated as follows:
 
Fair Value
 
(In thousands)
Due in one year or less
$
28,832

Due in one to five years
18,273

Due in five to ten years
108

Thereafter
245

 
$
47,458


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 $11.5 million and $10.5 million for the three months ended September 30, 2016 and 2015, respectively. Recognized trust fund income related to these trust investments was $47.6 million and $43.5 million for the nine months ended September 30, 2016 and 2015, 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 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 September 30, 2016 and December 31, 2015, respectively, are shown in the following tables:

 
September 30, 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:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury
$
—

 
$
—

 
$
2,953

 
$
(30
)
 
$
2,953

 
$
(30
)
Canadian government
—

 
—

 
1,993

 
(95
)
 
1,993

 
(95
)
Corporate
1,738

 
(26
)
 
1,938

 
(98
)
 
3,676

 
(124
)
Asset-backed
22

 
(14
)
 
101

 
(4
)
 
123

 
(18
)
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
Preferred stock
206

 
(3
)
 
474

 
(75
)
 
680

 
(78
)
Common stock:
 
 
 
 
 
 
 
 
 
 
 
United States
43,842

 
(2,795
)
 
21,929

 
(4,516
)
 
65,771

 
(7,311
)
Canada
—

 
—

 
655

 
(172
)
 
655

 
(172
)
Other international
2,420

 
(85
)
 
6,102

 
(1,317
)
 
8,522

 
(1,402
)
Mutual funds:
 
 
 
 
 
 
 
 
 
 
 
Equity
1,028

 
(42
)
 
3,998

 
(1,462
)
 
5,026

 
(1,504
)
Fixed income
14,945


(142
)

342,796


(26,482
)

357,741


(26,624
)
Other
—

 
—

 
—

 
(2
)
 
—

 
(2
)
Trust investments, at fair value
64,201

 
(3,107
)
 
382,939

 
(34,253
)
 
447,140

 
(37,360
)
Fixed income commingled funds
244,142

 
(1,153
)
 
—

 
—

 
244,142

 
(1,153
)
Private equity
2,207

 
(178
)
 
32,518

 
(5,894
)
 
34,725

 
(6,072
)
Trust investments, at net asset value
246,349

 
(1,331
)
 
32,518

 
(5,894
)
 
278,867

 
(7,225
)
Total temporarily impaired securities
$
310,550

 
$
(4,438
)
 
$
415,457

 
$
(40,147
)
 
$
726,007

 
$
(44,585
)
 
December 31, 2015
 
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:
 
 
 
 
 
 
 
 
 
 
 
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
)
Trust investments, at fair value
647,035

 
(28,127
)
 
319,870

 
(52,360
)
 
966,905

 
(80,487
)
Private equity
10,592

 
(61
)
 
24,556

 
(8,035
)
 
35,148

 
(8,096
)
Trust investments, at net asset value
10,592

 
(61
)
 
24,556

 
(8,035
)
 
35,148

 
(8,096
)
Total temporarily impaired securities
$
657,627

 
$
(28,188
)
 
$
344,426

 
$
(60,395
)
 
$
1,002,053

 
$
(88,583
)