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Cemetery Perpetual Care Trusts (Notes) | 3 Months Ended
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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 | )

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- Definition This note represents disclosures relating to cemetery perpetual care activity and major accounts which also include: (1) fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments; (2) variable interest entities; and (3)all other required (as defined) and desired information. + References No definition available. + Details
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