UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-6402-1

SERVICE CORPORATION INTERNATIONAL

(Exact name of registrant as specified in its charter)

Texas (State or other jurisdiction of incorporation or organization)		74-1488375 (I. R. S. employer identification number)

1929 Allen Parkway, Houston, Texas (Address of principal executive offices)		77019 (Zip code)

713-522-5141
(Registrant’s telephone number, including area code)

None
(Former name, former address, or former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES þ NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). YES o NO þ

The number of shares outstanding of the registrant’s common stock as of July 26, 2010 was 246,810,831 (net of treasury shares).

 

 

SERVICE CORPORATION INTERNATIONAL

INDEX

		Page
Glossary			3
Part I. Financial Information
Item 1. Financial Statements			4
Unaudited Condensed Consolidated Statement of Operations — Three and Six Months Ended June 30, 2010 and 2009			4
Unaudited Condensed Consolidated Balance Sheet — June 30, 2010 and December 31, 2009			5
Unaudited Condensed Consolidated Statement of Cash Flows — Six Months Ended June 30, 2010 and 2009			6
Unaudited Condensed Consolidated Statement of Equity — Six Months Ended June 30, 2010 and 2009			7
Notes to Unaudited Condensed Consolidated Financial Statements			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			34
The Company			34
Financial Condition, Liquidity, and Capital Resources			35
Results of Operations — Three and Six Months Ended June 30, 2010 and 2009			40
Critical Accounting Policies			47
Cautionary Statement on Forward-Looking Statements			47
Item 3. Quantitative and Qualitative Disclosures About Market Risk			49
Item 4. Controls and Procedures			49
Part II. Other Information
Item 1. Legal Proceedings			49
Item 1A. Risk Factors			49
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			50
Item 6. Exhibits			50
Signature			51
EX-12.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

GLOSSARY

     The following terms are common to the deathcare industry, are used throughout this report, and have the following meanings:

Atneed — Funeral and cemetery arrangements after a death has occurred.

Burial Vaults — A reinforced container intended to house and protect the casket before it is placed in the ground.

Cemetery Perpetual Care or Endowment Care Fund — A trust fund established for the purpose of maintaining cemetery grounds and property into perpetuity.

Cremation — The reduction of human remains to bone fragments by intense heat.

General Agency (GA) Revenues — Commissions we receive from third-party life insurance companies for life insurance policies or annuities sold to preneed customers for the purpose of funding preneed funeral arrangements. The commission rate paid is determined based on the product type sold, the length of payment terms, and the age of the insured/annuitant.

Interment — The burial or final placement of human remains in the ground.

Lawn Crypt — An underground outer burial receptacle constructed of concrete and reinforced steel, which is usually pre-installed in predetermined designated areas.

Marker — A method of identifying a deceased person in a particular burial space, crypt, or niche. Permanent burial markers are usually made of bronze, granite, or stone.

Maturity — When the underlying contracted service is performed or merchandise is delivered, typically at death. This is the point at which preneed contracts are converted to atneed contracts (note — delivery of certain merchandise and services can occur prior to death).

Mausoleum — An above ground structure that is designed to house caskets and cremation urns.

Preneed — Purchase of products and services prior to a death occurring.

Preneed Backlog — Future revenues from unfulfilled preneed funeral and cemetery contractual arrangements.

Production — Sales of preneed funeral and preneed or atneed cemetery contracts.

     As used herein, “SCI”, “Company”, “we”, “our”, and “us” refer to Service Corporation International and companies owned directly or indirectly by Service Corporation International, unless the context requires otherwise.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SERVICE CORPORATION INTERNATIONAL

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2010				2009				2010				2009
Revenues		$	555,273			$	513,949			$	1,086,136			$	1,024,544
Costs and expenses			(445,975	)			(412,124	)			(864,531	)			(822,599	)
Gross profit			109,298				101,825				221,605				201,945
General and administrative expenses			(26,974	)			(26,466	)			(53,175	)			(48,252	)
Gains (losses) on divestitures and impairment charges, net			13,602				(6,289	)			13,122				941
Operating income			95,926				69,070				181,552				154,634
Interest expense			(32,483	)			(32,386	)			(64,784	)			(64,056	)
(Loss) gain on early extinguishment of debt			(291	)			1,830				(291	)			3,440
Other income, net			4,273				1,388				2,389				545
Income before income taxes			67,425				39,902				118,866				94,563
Provision for income taxes			(27,198	)			(16,322	)			(47,314	)			(36,603	)
Net income			40,227				23,580				71,552				57,960
Net loss (income) attributable to noncontrolling interests			58				(476	)			(355	)			(326	)
Net income attributable to common stockholders			40,285				23,104				71,197				57,634
Basic earnings per share		$	.16			$	.09			$	.28			$	.23
Diluted earnings per share		$	.16			$	.09			$	.28			$	.23
Basic weighted average number of shares			251,763				250,977				253,074				250,461
Diluted weighted average number of shares			253,583				251,130				254,862				250,672
Dividends declared per share		$	.04			$	.04			$	.08			$	.08

(See notes to unaudited condensed consolidated financial statements)

SERVICE CORPORATION INTERNATIONAL

		June 30, 2010				December 31, 2009
Current assets:
Cash and cash equivalents		$	152,242			$	179,745
Receivables, net			83,646				92,189
Deferred tax assets			52,270				51,534
Inventories			33,155				31,117
Current assets held for sale			515				1,197
Other			23,909				21,640
Total current assets			345,737				377,422
Preneed funeral receivables, net and trust investments			1,335,778				1,356,353
Preneed cemetery receivables, net and trust investments			1,362,650				1,382,717
Cemetery property, at cost			1,500,550				1,489,065
Property and equipment, net			1,657,873				1,591,074
Non-current assets held for sale			234				80,901
Goodwill			1,284,114				1,201,332
Deferred charges and other assets			404,427				522,389
Cemetery perpetual care trust investments			914,664				889,689
Total Assets		$	8,806,027			$	8,890,942
Current liabilities:
Accounts payable and accrued liabilities		$	303,156			$	314,277
Current maturities of long-term debt			26,838				49,957
Current liabilities held for sale			—				501
Income taxes			4,018				2,236
Total current liabilities			334,012				366,971
Long-term debt			1,835,661				1,840,532
Deferred preneed funeral revenues			588,037				596,966
Deferred preneed cemetery revenues			826,757				817,543
Deferred tax liability			293,969				246,730
Non-current liabilities held for sale			649				68,332
Other liabilities			380,693				378,768
Deferred preneed funeral and cemetery receipts held in trust			2,147,443				2,201,403
Care trusts’ corpus			914,832				890,909
Commitments and contingencies (Note 16)
Equity:
Common stock, $1 per share par value, 500,000,000 shares authorized, 254,947,906 and 254,027,384 shares issued, respectively, and 248,707,810 and 254,017,384 shares outstanding, respectively			248,708				254,017
Capital in excess of par value			1,672,942				1,735,493
Accumulated deficit			(532,679	)			(603,876	)
Accumulated other comprehensive income			94,637				97,142
Total common stockholders’ equity			1,483,608				1,482,776
Noncontrolling interests			366				12
Total equity			1,483,974				1,482,788
Total liabilities and equity		$	8,806,027			$	8,890,942

(See notes to unaudited condensed consolidated financial statements)

SERVICE CORPORATION INTERNATIONAL

		Six Months Ended
		June 30,
		2010				2009
Cash flows from operating activities:
Net income		$	71,552			$	57,960
Adjustments to reconcile net income to net cash provided by operating activities:
Loss (gain) on early extinguishment of debt			291				(3,440	)
Depreciation and amortization			58,343				55,438
Amortization of intangible assets			12,136				10,855
Amortization of cemetery property			14,366				13,940
Amortization of loan costs			2,286				1,694
Provision for doubtful accounts			1,640				5,905
Provision for deferred income taxes			32,420				32,924
Gains on divestitures and impairment charges, net			(13,122	)			(941	)
Share-based compensation			4,545				5,168
Excess tax benefits from share-based awards			(695	)			—
Change in assets and liabilities, net of effects from acquisitions and divestitures:
Decrease in receivables			11,034				12,642
Decrease in other assets			5,255				9,183
(Decrease) increase in payables and other liabilities			(7,925	)			4,105
Effect of preneed funeral production and maturities:
Decrease in preneed funeral receivables, net and trust investments			32,095				11,019
(Decrease) increase in deferred preneed funeral revenue			(5,805	)			4,752
Decrease in deferred preneed funeral receipts held in trust			(26,897	)			(15,838	)
Effect of cemetery production and deliveries:
Increase in preneed cemetery receivables, net and trust investments			(20,321	)			(5,369	)
Increase in deferred preneed cemetery revenue			17,536				20,794
Decrease in deferred preneed cemetery receipts held in trust			(2,227	)			(9,673	)
Other			(477	)			—
Net cash provided by operating activities			186,030				211,118
Cash flows from investing activities:
Capital expenditures			(41,614	)			(42,470	)
Proceeds from divestitures and sales of property and equipment, net			59,878				14,788
Acquisitions			(281,792	)			(219	)
Net withdrawals of restricted funds and other			26,441				129
Net cash used in investing activities			(237,087	)			(27,772	)
Cash flows from financing activities:
Proceeds from issuance of long-term debt			175,000				—
Debt issuance costs			(6,203	)			—
Payments of debt			(31,807	)			(31,689	)
Early extinguishment of debt			(23,091	)			(69,540	)
Principal payments on capital leases			(11,867	)			(13,045	)
Proceeds from exercise of stock options			1,456				2,363
Excess tax benefits from share-based awards			695				—
Purchase of Company common stock			(55,225	)			—
Payments of dividends			(20,352	)			(20,020	)
Bank overdrafts and other			(7,336	)			(13,394	)
Net cash provided by (used in) financing activities			21,270				(145,325	)
Effect of foreign currency on cash and cash equivalents			2,284				3,971
Net (decrease) increase in cash and cash equivalents			(27,503	)			41,992
Cash and cash equivalents at beginning of period			179,745				128,397
Cash and cash equivalents at end of period		$	152,242			$	170,389

(See notes to unaudited condensed consolidated financial statements)

SERVICE CORPORATION INTERNATIONAL

																		Accumulated
										Capital in								Other
		Common								Excess of				Accumulated				Comprehensive				Noncontrolling
		Stock				Treasury Stock				Par Value				Deficit				Income				Interests				Total
Balance at December 31, 2008		$	249,953			$	(481	)		$	1,733,814			$	(726,756	)		$	36,649			$	—			$	1,293,179
Net income															57,634								326				57,960
Dividends declared on common stock ($.08 per share)											(20,085	)															(20,085	)
Foreign currency translation																			21,258								21,258
Employee share-based compensation earned											5,168																5,168
Stock option exercises			631								1,732																2,363
Restricted stock awards, net of forfeitures			830								(830	)															—
Noncontrolling interest payments																							(105	)			(105	)
Other			1				71				383																455
Balance at June 30, 2009		$	251,415			$	(410	)		$	1,720,182			$	(669,122	)		$	57,907			$	221			$	1,360,193
Balance at December 31, 2009		$	254,027			$	(10	)		$	1,735,493			$	(603,876	)		$	97,142				12			$	1,482,788
Net income															71,197								355				71,552
Dividends declared on common stock ($.08 per share)											(20,063	)															(20,063	)
Foreign currency translation																			(2,505	)			(1	)			(2,506	)
Employee share-based compensation earned											4,545																4,545
Stock option exercises			386								1,070																1,456
Tax benefits related to share based awards											875																875
Restricted stock awards, net of forfeitures			532								(532	)															—
Purchase of Company common stock							(6,290	)			(48,935	)															(55,225	)
Other			3				60				489																552
Balance at June 30, 2010		$	254,948			$	(6,240	)		$	1,672,942			$	(532,679	)		$	94,637			$	366			$	1,483,974

(See notes to unaudited condensed consolidated financial statements)

SERVICE CORPORATION INTERNATIONAL

1. Nature of Operations

     We are North America’s largest provider of deathcare products and services, with a network of funeral service locations and cemeteries primarily operating in the United States and Canada. Our operations consist of funeral service locations, cemeteries, funeral service/cemetery combination locations, crematoria, and related businesses.

     Funeral service locations provide all professional services relating to funerals and cremations, including the use of funeral facilities and motor vehicles and preparation and embalming services. Funeral-related merchandise, including caskets, casket memorialization products, burial vaults, cremation receptacles, cremation memorial products, flowers, and other ancillary products and services, is sold at funeral service locations. Cemeteries provide cemetery property interment rights, including mausoleum spaces, lots, and lawn crypts, and sell cemetery-related merchandise and services, including stone and bronze memorials, markers, merchandise installations, and burial openings and closings. We also sell preneed funeral and cemetery products and services whereby a customer contractually agrees to the terms of certain products and services to be provided in the future.

2. Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

     Our unaudited condensed consolidated financial statements include the accounts of Service Corporation International and all subsidiaries in which we hold a controlling financial interest. Our financial statements also include the accounts of the funeral merchandise and service trusts, cemetery merchandise and service trusts, and cemetery perpetual care trusts in which we have a variable interest and are the primary beneficiary. Our interim unaudited condensed consolidated financial statements are unaudited but include all adjustments, consisting of normal recurring accruals and any other adjustments, which management considers necessary for a fair presentation of our results for these periods. Our unaudited condensed consolidated financial statements have been prepared in a manner consistent with the accounting policies described in our annual report on Form 10-K for the year ended December 31, 2009, unless otherwise disclosed herein, and should be read in conjunction therewith. The accompanying year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year period. We have evaluated subsequent events for the six months ended June 30, 2010.

Reclassifications

     Certain reclassifications have been made to prior period amounts to conform to the current period financial statement presentation with no effect on our previously reported results of operations, consolidated financial position, or cash flows.

      We recorded several immaterial adjustments to correct errors related to prior accounting periods during the three and six months ended June 30, 2010. We do not believe these adjustments are quantitatively or qualitatively material to our unaudited condensed consolidated financial statements for the three and six months ended June 30, 2010, after considering our expected 2010 annual financial results nor were such items quantitatively or qualitatively material to any of our prior annual or quarterly financial statements. The net impact of these adjustments was a decrease to our pre-tax income and net income in the amount of $2.6 million and $1.6 million, respectively, for the three months ended June 30, 2010. The net impact of these adjustments was a decrease to our pre-tax income and net income in the amount of $1.3 million and $1.0 million, respectively, for the six months ended June 30, 2010.

Use of Estimates in the Preparation of Financial Statements

     The preparation of the unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions as described in our Form 10-K for the year ended December 31, 2009. These estimates and assumptions may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. As a result, actual results could differ from these estimates.

Variable Interest Entities

     In June 2009, the Financial Accounting Standards Board (FASB) amended its authoritative guidance to improve financial reporting by enterprises involved with variable interest entities (VIE). Specifically, the amended guidance addresses: (1) the impact resulting from the elimination of the qualifying special-purpose entity concept in previously issued guidance, and (2) constituent concerns about the application of certain key provisions of the existing guidance on the consolidation of variable interest entities, including those in which the accounting and disclosures under the existing guidance do not always provide timely and useful information about an enterprise’s

involvement in a VIE. The amended guidance was effective for us on January 1, 2010, and its adoption did not significantly impact our unaudited condensed consolidated financial statements.

     In December 2009, the FASB issued additional guidance on improving financial reporting by enterprises involved with variable interest entities by clarifying the principal objectives of required disclosures, which include: (1) the significant judgments and assumptions made by a reporting unit, (2) the nature of restrictions on a consolidated VIE’s assets reported by a reporting entity in its statement of financial position, including the carrying amounts of such assets and liabilities, (3) the nature of, and changes in, the risks associated with a reporting entity’s involvement with the VIE, and (4) how a reporting entity’s involvement with the VIE affects the reporting entity’s financial position, financial performance, and cash flows. The amended guidance was effective for us on January 1, 2010, and its adoption did not significantly impact our unaudited condensed consolidated financial statements.

Fair Value Measurements

     In January 2010, the FASB amended the Fair Value Measurements Topic of the Accounting Standards Codification (ASC) to require additional disclosures on (1) transfers between levels, (2) Level 3 activity presented on a gross basis, (3) valuation technique, and (4) inputs into the valuation. We adopted Items 1, 3, and 4 during the three months ended March 31, 2010, and the adoption did not impact our unaudited condensed unaudited condensed consolidated financial statements. Item 2 will be effective for us in the first quarter of 2011, and we do not believe this guidance will have a significant impact on our unaudited condensed consolidated financial statements.

Equity

     In January 2010, the FASB provided additional guidance under the Equity Topic of the ASC to eliminate multiple approaches to accounting for elective distributions to shareholders. The additional guidance clarifies that the stock performance of a distribution to shareholders that allows them to elect to receive cash or shares with a potential limitation on the total amount of cash that all shareholders can elect to receive in aggregate is considered a share in issuance. This guidance was effective for us on January 1, 2010, and retroactive application is required. The adoption did not significantly impact our unaudited condensed consolidated financial statements.

Consolidation

     In January 2010, the FASB amended the guidance under the Consolidation Topic of the ASC to clarify the scope of a decrease in ownership of a subsidiary. The amended guidance was effective for us on January 1, 2010, and its adoption did not significantly impact our unaudited condensed consolidated financial statements.

3. Recently Issued Accounting Standards

Stock-Based Compensation

          In April 2010, the FASB issued additional guidance for the Compensation – Stock Compensation Topic of the ASC to clarify classification of an employee stock-based payment award when the exercise price is denominated in the currency of a market in which the underlying equity security trades. This guidance becomes effective for us on January 1, 2011. We do not believe this guidance will have any impact on our unaudited condensed consolidated financial condition or results of operations.

4. Preneed Funeral Activities

     Preneed funeral receivables, net and trust investments represent trust investments, including investment earnings, and customer receivables, net of unearned finance charges, related to unperformed, price-guaranteed preneed funeral contracts. Our funeral merchandise and service trusts are variable interest entities as defined in the Consolidation Topic of the ASC. In accordance with this guidance, 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. Our cemetery trust investments detailed in Notes 5 and 6 are also accounted for as variable interest entities. When we receive payments from the customer, we deposit the amount required by law into the trust and reclassify the corresponding amount from Deferred preneed funeral revenues into Deferred preneed funeral and cemetery receipts held in trust. Amounts are withdrawn from the trusts after the contract obligations are performed. Cash flows from preneed funeral contracts are presented as operating cash flows in our unaudited condensed consolidated statement of cash flows.

     Preneed funeral receivables, net and trust investments are reduced by the trust investment earnings (realized and unrealized) that we have been allowed to withdraw in certain states prior to maturity. These earnings are recorded in Deferred preneed funeral revenues until the service is performed or the merchandise is delivered.

     The table below sets forth certain investment-related activities associated with our preneed funeral merchandise and service trusts:

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2010				2009				2010				2009
		(In thousands)
Deposits		$	21,350			$	23,271			$	42,523			$	40,387
Withdrawals			27,728				30,766				59,738				53,941
Purchases of available-for-sale securities			162,203				63,574				313,303				130,484
Sales of available-for-sale securities			136,713				110,484				314,499				175,545
Realized gains from sales of available-for-sale securities			9,005				5,056				20,498				7,358
Realized losses from sales of available-for-sale securities			(15,212	)			(15,455	)			(33,657	)			(41,193	)

     The components of Preneed funeral receivables, net and trust investments in our unaudited condensed consolidated balance sheet at June 30, 2010 and December 31, 2009 are as follows:

		June 30, 2010				December 31, 2009
		(In thousands)
Trust investments, at market		$	775,782			$	771,945
Cash and cash equivalents			129,869				153,126
Insurance-backed fixed income securities			217,949				214,255
Assets associated with businesses held for sale			—				(377	)
Trust investments			1,123,600				1,138,949
Receivables from customers			252,323				256,009
Unearned finance charge			(5,788	)			(6,129	)
			1,370,135				1,388,829
Allowance for cancellation			(34,357	)			(32,476	)
Preneed funeral receivables and trust investments		$	1,335,778			$	1,356,353

     The cost and market values associated with our funeral merchandise and service trust investments recorded at fair market value at June 30, 2010 and December 31, 2009 are detailed below. Cost reflects the investment (net of redemptions) of control holders in common trust funds, mutual funds, and private equity investments. Fair market value represents the value of the underlying securities held by the common trust funds, mutual funds at published values, and the estimated market value of private equity investments (including debt as well as the estimated fair value related to the contract holder’s equity in majority-owned real estate investments). The fair market value of our funeral merchandise and service trust investments, in the aggregate, was 92% and 96% of the related cost basis of such investments as of June 30, 2010 and December 31, 2009, respectively.

		June 30, 2010
						Unrealized				Unrealized				Fair Market
		Cost				Gains				Losses				Value
		(In thousands)
Fixed income securities:
U.S. Treasury		$	69,772			$	1,958			$	(261	)		$	71,469
Canadian government			118,594				975				(57	)			119,512
Corporate			33,429				967				(1,050	)			33,346
Residential mortgage-backed			6,923				188				(9	)			7,102
Asset-backed			3,071				106				(1	)			3,176
Equity securities:
Preferred stock			2,022				6				(169	)			1,859
Common stock:
United States			267,877				24,241				(32,562	)			259,556

		June 30, 2010
						Unrealized				Unrealized				Fair Market
		Cost				Gains				Losses				Value
		(In thousands)
Canada			22,795				2,663				(1,597	)			23,861
Other International			17,997				351				(5,204	)			13,144
Mutual funds:
Equity			122,338				422				(35,927	)			86,833
Fixed income			141,919				4,399				(10,101	)			136,217
Private equity			24,833				1,518				(15,095	)			11,256
Other			8,950				376				(875	)			8,451
Trust investments		$	840,520			$	38,170			$	(102,908	)		$	775,782

		December 31, 2009
						Unrealized				Unrealized				Fair Market
		Cost				Gains				Losses				Value
		(In thousands)
Fixed income securities:
U.S. Treasury		$	40,065			$	1,258			$	(65	)		$	41,258
Canadian government			104,713				1,430				(47	)			106,096
Corporate			29,778				2,091				(21	)			31,848
Residential mortgage-backed			6,573				119				(10	)			6,682
Asset-backed			3,188				76				—				3,264
Equity securities:
Common stock:
United States			284,392				37,212				(22,811	)			298,793
Canada			25,535				2,707				(873	)			27,369
Other International			17,336				1,324				(2,686	)			15,974
Mutual funds:
Equity			118,018				2,277				(27,153	)			93,142
Fixed income			151,918				2,135				(18,586	)			135,467
Private equity			24,445				1,529				(14,808	)			11,166
Other			1,503				359				(976	)			886
Trust investments		$	807,464			$	52,517			$	(88,036	)		$	771,945

     Where quoted prices are available in an active market, securities held by the common trust funds and mutual funds are classified as Level 1 investments pursuant to the three-level valuation hierarchy as required by the Fair Value Measurements and Disclosures (FVM&D) Topic of the ASC.

     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, rating, and tax-exempt status. These funds are classified as Level 2 investments pursuant to the three-level valuation hierarchy as required by the FVM&D Topic of the ASC.

     The valuation of private equity and other alternative investments requires significant 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 market 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 investments are valued using market appraisals or a discounted cash flow methodology, which is an income approach for fair value model, depending on the nature of the underlying assets. The appraisals assess value based on a combination of replacement cost, comparative sales analysis, and discounted cash flow analysis. These funds are classified as Level 3 investments pursuant to the three-level valuation hierarchy as required by the FVM&D Topic of the ASC.

     As of June 30, 2010, our unfunded commitment for our private equity and other investments was $12.2 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.

     Our investments classified as Level 1 securities include common stock and mutual funds. Level 2 securities include U.S. Treasury, Canadian government, corporate, residential mortgage-backed fixed income securities, asset-backed, and preferred stock equity securities. Our private equity and other alternative investments are classified as Level 3 securities.

     The inputs into the fair value of our market-based funeral merchandise and service trust investments are categorized as follows:

		Quoted Market				Significant
		Prices in Active				Other				Significant
		Markets				Observable				Unobservable				Fair Market
		(Level 1)				Inputs (Level 2)				Inputs (Level 3)				Value
		(In thousands)
Trust investments at June 30, 2010		$	519,611			$	236,464			$	19,707			$	775,782
Trust investments at December 31, 2009		$	570,745			$	189,148			$	12,052			$	771,945

The change in our market-based funeral merchandise and service trust investments with significant unobservable inputs (Level 3) is as follows:

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2010				2009				2010				2009
		(in thousands)
Fair market value, beginning balance		$	12,117			$	12,988			$	12,052			$	40,880
Net unrealized losses included in Accumulated other comprehensive income(1)			(724	)			(1,594	)			(1,070	)			(7,210	)
Net realized (losses) gains included in Other income, net(2)			(11	)			—				(23	)			19
Purchases, sales, contributions, and distributions, net			8,325				952				8,748				548
Transfers out of Level 3			—				—				—				(21,891	)
Fair market value, ending balance		$	19,707			$	12,346			$	19,707			$	12,346

     Maturity dates of our fixed income securities range from 2010 to 2040. Maturities of fixed income securities at June 30, 2010 are estimated as follows:

		Fair Market
		Value
		(In thousands)
Due in one year or less		$	134,679
Due in one to five years			44,336
Due in five to ten years			38,267
Thereafter			17,323
		$	234,605

     Earnings from all trust investments are recognized in current funeral revenues when a service is performed or merchandise is delivered. In addition, we are entitled to retain, in certain jurisdictions, a portion of collected customer payments when a customer cancels a preneed contract; these amounts are also recognized in current revenues. Recognized earnings (realized and unrealized) related to these trust investments were $7.7 million and $5.0 million for the three months ended June 30, 2010 and 2009, respectively. Recognized earnings (realized and unrealized) related to these trust investments were $15.8 million and $10.9 million for the six months ended June 30, 2010 and 2009, 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, net and a decrease to Preneed funeral receivables, net and trust investments. These investment losses, if any, are offset by the corresponding reclassification in Other income, net, which reduces Deferred preneed funeral receipts held in trust. See Note 7 for further information related to our Deferred preneed funeral receipts held in trust. We recorded a $1.1 million and $6.2 million impairment charge for other-than-temporary declines in fair value related to unrealized losses on certain equity securities for the three and six months ended June 30, 2010, respectively. We recorded a $3.7 million and $10.4 million impairment charge for other-than-temporary declines in fair value related to unrealized losses on certain equity securities for the three and six months ended June 30, 2009, respectively.

     We have determined that the remaining unrealized losses in our funeral merchandise and service 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 funeral merchandise and service trust investment unrealized losses, their associated fair market values, and the duration of unrealized losses as of June 30, 2010 and December 31, 2009, respectively, are shown in the following tables.

		June 30, 2010
		In Loss Position								In Loss Position
		Less Than 12 Months								Greater Than 12 Months								Total
		Fair								Fair								Fair
		Market				Unrealized				Market				Unrealized				Market				Unrealized
		Value				Losses				Value				Losses				Value				Losses
		(In thousands)
Fixed income securities:
U.S. Treasury		$	2,934			$	(236	)		$	661			$	(25	)		$	3,595			$	(261	)
Canadian government			15,510				(57	)			—				—				15,510				(57	)
Corporate			13,534				(1,050	)			—				—				13,534				(1,050	)
Residential mortgage-backed			388				(5	)			154				(4	)			542				(9	)
Asset-backed			205				(1	)			—				—				205				(1	)
Equity securities:
Preferred Stock			1,522				(169	)			—				—				1,522				(169	)
Common stock:
United States			120,576				(19,057	)			31,538				(13,505	)			152,114				(32,562	)
Canada			5,639				(1,156	)			1,821				(441	)			7,460				(1,597	)
Other International			8,153				(2,758	)			3,301				(2,446	)			11,454				(5,204	)
Mutual funds:
Equity			24,427				(3,863	)			52,485				(32,064	)			76,912				(35,927	)
Fixed income			33,656				(1,713	)			10,284				(8,388	)			43,940				(10,101	)
Private equity			5,655				(959	)			19,144				(14,136	)			24,799				(15,095	)
Other			7,964				(234	)			696				(641	)			8,660				(875	)
Total temporarily impaired securities		$	240,163			$	(31,258	)		$	120,084			$	(71,650	)		$	360,247			$	(102,908	)

		December 31, 2009
		In Loss Position								In Loss Position
		Less Than 12 Months								Greater Than 12 Months								Total
		Fair								Fair								Fair
		Market				Unrealized				Market				Unrealized				Market				Unrealized
		Value				Losses				Value				Losses				Value				Losses
		(In thousands)
Fixed income securities:
U.S. Treasury		$	2,707			$	(40	)		$	2,296			$	(25	)		$	5,003			$	(65	)
Canadian government			5,367				(47	)			—				—				5,367				(47	)
Corporate			1,517				(21	)			—				—				1,517				(21	)
Residential mortgage-backed			1,494				(10	)			—				—				1,494				(10	)
Equity securities:
Common stock:
United States			67,044				(6,031	)			56,926				(16,780	)			123,970				(22,811	)
Canada			4,153				(480	)			2,879				(393	)			7,032				(873	)
Other International			3,491				(362	)			6,115				(2,324	)			9,606				(2,686	)
Mutual funds:
Equity			60,413				(24,928	)			20,945				(2,225	)			81,358				(27,153	)
Fixed income			46,542				(10,471	)			22,684				(8,115	)			69,226				(18,586	)
Private equity			9,657				(1,743	)			16,454				(13,065	)			26,111				(14,808	)
Other			585				(203	)			765				(773	)			1,350				(976	)
Total temporarily impaired securities		$	202,970			$	(44,336	)		$	129,064			$	(43,700	)		$	332,034			$	(88,036	)

5. Preneed Cemetery Activities

     Preneed cemetery receivables, net and trust investments represent trust investments, including investment earnings, and customer receivables, net of unearned finance charges, for contracts sold in advance of when the property interment rights, merchandise, or services are needed. Our cemetery merchandise and service trusts are variable interest entities as defined in the Consolidation Topic of the ASC. In accordance with this guidance, 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 4 and 6 are also accounted for as variable interest entities. When we receive payments from the customer, we deposit the amount required by law into the trust and reclassify the corresponding amount from Deferred preneed cemetery revenues into Deferred preneed funeral and cemetery receipts held in trust. Amounts are withdrawn from the trusts when the contract obligations are performed. Cash flows from preneed cemetery contracts are presented as operating cash flows in our unaudited condensed consolidated statement of cash flows.

     Preneed cemetery receivables, net and trust investments are reduced by the trust investment earnings (realized and unrealized) that we have been allowed to withdraw in certain states prior to maturity. These earnings are recorded in Deferred preneed cemetery revenues until the service is performed or the merchandise is delivered.

     The table below sets forth certain investment-related activities associated with our preneed cemetery merchandise and service trusts:

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2010				2009				2010				2009
		(In thousands)
Deposits		$	27,188			$	24,320			$	49,419			$	43,663
Withdrawals			28,879				24,990				52,777				53,858
Purchases of available-for-sale securities			210,886				127,443				465,204				184,315
Sales of available-for-sale securities			191,911				94,259				412,360				147,921
Realized gains from sales of available-for-sale securities			13,808				4,902				25,061				6,030
Realized losses from sales of available-for-sale securities			(19,744	)			(16,616	)			(37,265	)			(39,330	)

     The components of Preneed cemetery receivables, net and trust investments in our unaudited condensed consolidated balance sheet at June 30, 2010 and December 31, 2009 are as follows:

		June 30,				December 31,
		2010				2009
		(In thousands)
Trust investments, at market		$	900,764			$	957,608
Cash and cash equivalents			116,600				145,668
Insurance backed fixed income securities			9,358				10,492
Assets associated with businesses held for sale			(585	)			(47,726	)
Trust investments			1,026,137				1,066,042
Receivables from customers			420,212				396,918
Unearned finance charges			(42,719	)			(41,517	)
			1,403,630				1,421,443
Allowance for cancellation			(40,980	)			(38,726	)
Preneed cemetery receivables and trust investments		$	1,362,650			$	1,382,717

     The cost and market values associated with our cemetery merchandise and service trust investments recorded at fair market value at June 30, 2010 and December 31, 2009 are detailed below. Cost reflects the investment (net of redemptions) of control holders in common trust funds, mutual funds, and private equity investments. Fair market value represents the value of the underlying securities by the common trust funds, mutual funds at published values, and the estimated market value of private equity investments (including debt as well as the estimated fair value related to the contract holder’s equity in majority-owned real estate investments). The fair market value of our cemetery merchandise and service trust investments, in the aggregate, was 91% and 95% of the related cost basis of such investments as of June 30, 2010 and December 31, 2009, respectively.

		June 30, 2010
						Unrealized				Unrealized				Fair Market
		Cost				Gains				Losses				Value
		(In thousands)
Fixed income securities:
U.S. Treasury		$	44,805			$	2,101			$	(311	)		$	46,595
Canadian government			15,295				337				(26	)			15,606
Corporate			40,855				838				(1,605	)			40,088
Residential mortgage-backed			4,556				127				—				4,683
Asset-backed			6,323				254				(3	)			6,574
Equity securities:
Preferred Stock			3,185				1				(270	)			2,916
Common stock:
United States			378,324				30,535				(42,356	)			366,503
Canada			19,374				1,626				(2,337	)			18,663
Other International			25,117				234				(7,408	)			17,943
Mutual funds:
Equity			206,457				241				(46,398	)			160,300
Fixed income			227,543				4,496				(16,076	)			215,963
Private equity			16,366				31				(11,886	)			4,511
Other			1,180				55				(816	)			419
Trust investments		$	989,380			$	40,876			$	(129,492	)		$	900,764

		December 31, 2009
						Unrealized				Unrealized				Fair Market
		Cost				Gains				Losses				Value
		(In thousands)
Fixed income securities:
U.S. Treasury		$	32,084			$	1,169			$	(81	)		$	33,172
Canadian government			15,664				224				(53	)			15,835
Corporate			9,065				438				(3	)			9,500
Residential mortgage-backed			1,460				19				(2	)			1,477
Asset-backed			6,476				193				—				6,669
Equity securities:
Common stock:
United States			403,208				47,040				(26,962	)			423,286
Canada			18,653				2,021				(1,183	)			19,491
Other International			26,567				1,433				(3,841	)			24,159
Mutual funds:
Equity			241,763				4,028				(38,093	)			207,698
Fixed income			233,999				2,699				(24,718	)			211,980
Private equity			14,968				8				(11,000	)			3,976
Other			1,230				34				(899	)			365
Trust investments		$	1,005,137			$	59,306			$	(106,835	)		$	957,608

     Where quoted prices are available in an active market, securities held by the common trust funds and mutual funds are classified as Level 1 investments pursuant to the three-level valuation hierarchy as required by the FVM&D Topic of the ASC.

     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, rating, and tax-exempt status. These funds are classified as Level 2 investments pursuant to the three-level valuation hierarchy as required by the FVM&D Topic of the ASC.

     The valuation of private equity and other alternative investments requires significant 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 market 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 investments are valued using market appraisals or a discounted cash flow methodology, which is an income approach fair value model, depending on the nature of the underlying assets. The appraisals assess value based on a combination of replacement cost, comparative sales analysis, and discounted cash flow analysis. These funds are classified as Level 3 investments pursuant to the three-level valuation hierarchy as required by the FVM&D Topic of the ASC.

     As of June 30, 2010, our unfunded commitment for our private equity and other investments was $11.2 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.

     Our investments classified as Level 1 securities include common stock and mutual funds. Level 2 securities include U.S. Treasury, Canadian government, corporate, residential mortgage-backed fixed income securities, asset-backed, and preferred stock equity securities. Our private equity and other alternative investments are classified as Level 3 securities.

     The inputs into the fair value of our market-based cemetery merchandise and service trust investments are categorized as follows:

		Quoted Market
		Prices in Active				Significant Other				Significant
		Markets				Observable Inputs				Unobservable Inputs
		(Level 1)				(Level 2)				(Level 3)				Fair Market Value
		(In thousands)
Trust investments at June 30, 2010		$	779,372			$	116,462			$	4,930			$	900,764
Trust investments at December 31, 2009		$	886,614			$	66,653			$	4,341			$	957,608

     The change in our market-based cemetery merchandise and service trust investments with significant unobservable inputs (Level 3) is as follows:

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2010				2009				2010				2009
		(in thousands)
Fair market value, beginning balance		$	4,425			$	4,978			$	4,341			$	31,837
Net unrealized losses included in Accumulated other comprehensive income(1)			(87	)			(620	)			(365	)			(11,443	)
Net realized (losses) gains included in Other income, net(2)			(12	)			—				(23	)			18
Purchases, sales, contributions, and distributions, net			604				1,030				977				569
Transfers out of Level 3			—				—				—				(15,593	)
Fair market value, ending balance		$	4,930			$	5,388			$	4,930			$	5,388

     Maturity dates of our fixed income securities range from 2010 to 2040. Maturities of fixed income securities at June 30, 2010 are estimated as follows:

		Fair Market
		Value
		(In thousands)
Due in one year or less		$	3,462
Due in one to five years			49,582
Due in five to ten years			35,675
Thereafter			24,827
		$	113,546