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

1929 Allen Parkway, Houston, Texas		77019
(Address of principal executive offices)		(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 (Do not check if a smaller reporting company)

Smaller reporting company o

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 April 26, 2011 was 238,806,670 (net of treasury shares).

 

 

SERVICE CORPORATION INTERNATIONAL

INDEX

		Page
Glossary			3
Part I. Financial Information			4
Item 1. Financial Statements			4
Unaudited Condensed Consolidated Statement of Operations — Three Months Ended March 31, 2011 and 2010			4
Unaudited Condensed Consolidated Balance Sheet — March 31, 2011 and December 31, 2010			5
Unaudited Condensed Consolidated Statement of Cash Flows — Three Months Ended March 31, 2011 and 2010			6
Unaudited Condensed Consolidated Statement of Equity — Three Months Ended March 31, 2011 and 2010			7
Notes to Unaudited Condensed Consolidated Financial Statements			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			30
The Company			30
Financial Condition, Liquidity, and Capital Resources			30
Results of Operations — Three Months Ended March 31, 2011 and 2010			36
Critical Accounting Policies			39
Cautionary Statement on Forward-Looking Statements			40
Item 3. Quantitative and Qualitative Disclosures About Market Risk			41
Item 4. Controls and Procedures			41
Part II. Other Information			42
Item 1. Legal Proceedings			42
Item 1A. Risk Factors			42
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			42
Item 6. Exhibits			42
Signature			44
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
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(In thousands, except per share amounts)

		Three Months Ended
		March 31,
		2011				2010
Revenues		$	579,699			$	530,863
Costs and expenses			(453,253	)			(418,505	)
Gross profits			126,446				112,358
General and administrative expenses			(28,833	)			(26,252	)
Losses on divestitures and impairment charges, net			(420	)			(480	)
Operating income			97,193				85,626
Interest expense			(33,559	)			(32,301	)
Loss on early extinguishment of debt, net			(314	)			—
Other income (expense), net			674				(1,884	)
Income before income taxes			63,994				51,441
Provision for income taxes			(24,065	)			(20,116	)
Net income			39,929				31,325
Net income attributable to noncontrolling interests			(1,165	)			(413	)
Net income attributable to common stockholders		$	38,764			$	30,912
Basic earnings per share:
Net income attributable to common stockholders		$	.16			$	.12
Basic weighted average number of shares			239,772				254,400
Diluted earnings per share:
Net income attributable to common stockholders		$	.16			$	.12
Diluted weighted average number of shares			242,052				256,154
Dividends declared per share		$	.05			$	.04

(See notes to unaudited condensed consolidated financial statements)

SERVICE CORPORATION INTERNATIONAL
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(In thousands, except share amounts)

		March 31, 2011				December 31, 2010
ASSETS
Current assets:
Cash and cash equivalents		$	210,307			$	170,846
Receivables, net			93,209				107,185
Deferred tax assets			44,308				41,371
Inventories			34,245				34,770
Other			17,966				27,746
Total current assets			400,035				381,918
Preneed funeral receivables, net and trust investments			1,436,201				1,424,557
Preneed cemetery receivables, net and trust investments			1,615,743				1,563,893
Cemetery property, at cost			1,509,367				1,508,787
Property and equipment, net			1,633,168				1,627,698
Goodwill			1,313,671				1,307,484
Deferred charges and other assets			389,641				389,184
Cemetery perpetual care trust investments			1,022,420				987,019
Total assets		$	9,320,246			$	9,190,540
LIABILITIES & EQUITY
Current liabilities:
Accounts payable and accrued liabilities		$	338,540			$	342,651
Current maturities of long-term debt			22,693				22,502
Income taxes			4,186				1,474
Total current liabilities			365,419				366,627
Long-term debt			1,830,090				1,832,380
Deferred preneed funeral revenues			567,669				580,223
Deferred preneed cemetery revenues			832,235				813,493
Deferred tax liability			344,885				323,304
Other liabilities			405,344				399,619
Deferred preneed funeral and cemetery receipts held in trust			2,459,109				2,408,074
Care trusts’ corpus			1,020,786				986,872
Commitments and contingencies (Note 15)
Stockholders’ Equity:
Common stock, $1 per share par value, 500,000,000 shares authorized, 243,053,957 and 242,019,650 shares issued, respectively, and 238,865,095 and 241,035,250 shares outstanding, respectively			238,865				241,035
Capital in excess of par value			1,568,606				1,603,112
Accumulated deficit			(438,695	)			(477,459	)
Accumulated other comprehensive income			124,270				112,768
Total common stockholders’ equity			1,493,046				1,479,456
Noncontrolling interests			1,663				492
Total equity			1,494,709				1,479,948
Total liabilities and equity		$	9,320,246			$	9,190,540

(See notes to unaudited condensed consolidated financial statements)

SERVICE CORPORATION INTERNATIONAL
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(In thousands)

		Three Months Ended
		March 31,
		2011				2010
Cash flows from operating activities:
Net income		$	39,929			$	31,325
Adjustments to reconcile net income to net cash provided by operating activities:
Loss on early extinguishment of debt, net			314				—
Depreciation and amortization			29,331				28,679
Amortization of intangible assets			6,354				5,636
Amortization of cemetery property			9,500				6,434
Amortization of loan costs			1,184				1,261
Provision for doubtful accounts			1,933				31
Provision for deferred income taxes			19,379				14,425
Losses on divestitures and impairment charges, net			420				480
Share-based compensation			2,253				2,324
Change in assets and liabilities, net of effects from acquisitions and divestitures:
Decrease in receivables			13,494				2,658
Decrease in other assets			1,386				493
(Decrease) increase in payables and other liabilities			(1,454	)			9,070
Effect of preneed funeral production and maturities:
Decrease in preneed funeral receivables, net and trust investments			15,761				25,844
Decrease in deferred preneed funeral revenue			(19,398	)			(3,668	)
Decrease in deferred preneed funeral receipts held in trust			(8,942	)			(18,655	)
Effect of cemetery production and deliveries:
Increase in preneed cemetery receivables, net and trust investments			(9,456	)			(7,892	)
Increase in deferred preneed cemetery revenue			11,750				8,814
Decrease in deferred preneed cemetery receipts held in trust			(5,643	)			(360	)
Other			(109	)			2,037
Net cash provided by operating activities			107,986				108,936
Cash flows from investing activities:
Capital expenditures			(25,138	)			(18,336	)
Acquisitions			(10,513	)			(259,393	)
Proceeds from divestitures and sales of property and equipment, net			4,697				24,268
Net withdrawals of restricted funds and other			3,567				26,445
Net cash used in investing activities			(27,387	)			(227,016	)
Cash flows from financing activities:
Proceeds from issuance of long-term debt			—				175,000
Debt issuance costs			—				(6,203	)
Payments of debt			(710	)			(30,810	)
Early extinguishment of debt			(5,155	)			—
Principal payments on capital leases			(5,639	)			(5,889	)
Proceeds from exercise of stock options			3,182				1,024
Purchase of Company common stock			(30,245	)			(689	)
Payments of dividends			(9,605	)			(10,161	)
Bank overdrafts and other			4,794				(7,773	)
Net cash (used in) provided by financing activities			(43,378	)			114,499
Effect of foreign currency on cash and cash equivalents			2,240				4,310
Net increase in cash and cash equivalents			39,461				729
Cash and cash equivalents at beginning of period			170,846				179,745
Cash and cash equivalents at end of period		$	210,307			$	180,474

(See notes to unaudited condensed consolidated financial statements)

SERVICE CORPORATION INTERNATIONAL
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
(UNAUDITED)
(In thousands)

																		Accumulated
										Capital in								Other
		Common								Excess of				Accumulated				Comprehensive				Noncontrolling
		Stock				Treasury Stock				Par Value				Deficit				Income				Interests				Total
Balance at December 31, 2009		$	254,027			$	(10	)		$	1,735,493			$	(603,876	)		$	97,142				12			$	1,482,788
Net income															30,912								413				31,325
Dividends declared on common stock ($.04 per share)											(10,190	)															(10,190	)
Other comprehensive income																			13,827				5				13,832
Employee share-based compensation earned											2,324																2,324
Stock option exercises			294								730																1,024
Restricted stock awards, net of forfeitures			529								(529	)															—
Purchase of Company common stock							(80	)			(609	)															(689	)
Other			1								7																8
Balance at March 31, 2010		$	254,851			$	(90	)		$	1,727,226			$	(572,964	)		$	110,969			$	430			$	1,520,422
Balance at December 31, 2010			242,020				(985	)			1,603,112				(477,459	)			112,768				492				1,479,948
Net income															38,764								1,165				39,929
Dividends declared on common stock ($.05 per share)											(11,930	)															(11,930	)
Other comprehensive income																			11,502				6				11,508
Employee share-based compensation earned											2,253																2,253
Stock option exercises			484								2,698																3,182
Restricted stock awards, net of forfeitures			539								(539	)															—
Purchase of Company common stock							(3,204	)			(27,041	)															(30,245	)
Other			11								53																64
Balance at March 31, 2011		$	243,054			$	(4,189	)		$	1,568,606			$	(438,695	)		$	124,270			$	1,663			$	1,494,709

(See notes to unaudited condensed consolidated financial statements)

SERVICE CORPORATION INTERNATIONAL
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)

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 (SCI) 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 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, 2010, 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.

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.

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, 2010. 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.

Preneed Funeral and Cemetery Receivables

     We sell preneed funeral and cemetery contracts whereby the customer enters into arrangements for future merchandise and services prior to the time of need. As these contracts are prior to the delivery of the related goods and services, the preneed funeral and cemetery receivables are offset by a comparable deferred revenue amount. These receivables have an interest component for which interest income is recorded when the interest amount is considered collectible and realizable which typically coincides with cash payment. We do not accrue interest on financing receivables that are not paid in accordance with the contractual payment date given the nature of our goods and services, the nature of our contracts with customers, and the timing of the delivery of our services, we do not consider receivables to be past due until the service or goods are required to be delivered at which time the preneed receivable is paid or reclassified as a trade receivable with payment terms of less than 30 days. As the preneed funeral and cemetery receivables are offset by comparable deferred revenue amount we have no risk of loss related to these receivables.

     If a preneed contract is cancelled prior to delivery, state or provincial law determines the amount of the refund owed to the customer, if any, including the amount of the attributed investment earnings. Upon cancellation, we receive the amount of principal deposited to the trust and previously undistributed net investment earnings and, where required, issue a refund to the customer. We retain excess funds, if any, and recognize the attributed investment earnings (net of any investment earnings payable to the customer) as revenue in the consolidated statement of operations. In certain jurisdictions, we may be obligated to fund any shortfall if the amount deposited by the customer exceed the funds in trust. Based on our historical experience, we have provided an allowance for cancellation of these receivables which is recorded as a reduction to deferred revenue.

Fair Value Measurements

     In January 2010, the FASB amended the Fair Value Measurements and Disclosure (FVM&D) 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 consolidated financial statements. We adopted Item 2 during the three months ended March 31, 2011, and the appropriate disclosures are contained in Notes 4, 5, and 6.

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. The adoption did not impact our unaudited condensed consolidated financial statements.

Multi-Deliverable Arrangements

     In October 2009, the FASB issued authoritative guidance which impacts the recognition of revenue in multi-deliverable arrangements. The guidance establishes a selling-price hierarchy for determining the selling price of a deliverable. The goal of this guidance is to clarify disclosures related to multi-deliverable arrangements and to align the accounting with the underlying economics of the multi-deliverable transaction. This guidance is effective for us in the first quarter of 2011, and its adoption did not impact our unaudited condensed consolidated financial statements.

3. Recently Issued Accounting Standards

Receivables

     In January 2011, the FASB amended the Receivables Topic of the ASC to defer the effective date of disclosures about troubled debt restructuring. The update proposed guidance to assist creditors in determining whether a modification of the terms of a receivable meets the criteria to be considered a troubled debt restructuring, both for purposes of recording an impairment and for disclosure of troubled debt restructurings. The amended guidance is effective for us in the second quarter of 2011. We do not believe this guidance will have any impact on our 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
		March 31,
		2011				2010
		(In thousands)
Deposits		$	17,316			$	21,173
Withdrawals			23,758				32,010
Purchases of available-for-sale securities			83,757				151,100
Sales of available-for-sale securities			109,707				177,786
Realized gains from sales of available-for-sale securities			12,877				11,493
Realized losses from sales of available-for-sale securities			(4,034	)			(18,445	)

     The components of Preneed funeral receivables, net and trust investments in our unaudited condensed consolidated balance sheet at March 31, 2011 and December 31, 2010 are as follows:

		March 31, 2011				December 31, 2010
		(In thousands)
Trust investments, at market		$	889,554			$	875,043
Cash and cash equivalents			122,638				121,212
Insurance-backed fixed income securities			221,316				220,287
Trust investments			1,233,508				1,216,542
Receivables from customers			241,166				247,434
Unearned finance charge			(5,510	)			(5,620	)
			1,469,164				1,458,356
Allowance for cancellation			(32,963	)			(33,799	)
Preneed funeral receivables and trust investments		$	1,436,201			$	1,424,557

     The cost and market values associated with our funeral merchandise and service trust investments recorded at fair market value at March 31, 2011 and December 31, 2010 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 107% and 104% of the related cost basis of such investments as of March 31, 2011 and December 31, 2010, respectively.

		March 31, 2011
						Unrealized				Unrealized				Fair Market
		Cost				Gains				Losses				Value
						(In thousands)
Fixed income securities:
U.S. Treasury		$	70,155			$	2,531			$	(289	)		$	72,397
Canadian government			122,265				705				(47	)			122,923
Corporate			32,082				3,383				(239	)			35,226
Residential mortgage-backed			5,204				113				(33	)			5,284
Asset-backed			2,942				80				(4	)			3,018
Equity securities:
Preferred stock			3,098				409				(14	)			3,493
Common stock:
United States			274,011				70,964				(6,983	)			337,992
Canada			21,408				6,153				(479	)			27,082
Other international			19,261				2,006				(1,710	)			19,557
Mutual funds:
Equity			112,676				7,008				(15,941	)			103,743
Fixed income			131,026				7,530				(5,087	)			133,469
Private equity			31,288				1,423				(16,084	)			16,627
Other			7,980				763				—				8,743
Trust investments		$	833,396			$	103,068			$	(46,910	)		$	889,554

		December 31, 2010
						Unrealized				Unrealized				Fair Market
		Cost				Gains				Losses				Value
						(In thousands)
Fixed income securities:
U.S. Treasury		$	71,948			$	2,061			$	(334	)		$	73,675
Canadian government			121,137				1,004				(20	)			122,121
Corporate			33,627				2,751				(285	)			36,093
Residential mortgage-backed			5,310				135				(22	)			5,423
Asset-backed			2,984				97				(2	)			3,079
Equity securities:
Preferred stock			2,835				296				(78	)			3,053
Common stock:
United States			268,650				63,301				(8,391	)			323,560
Canada			22,452				4,542				(798	)			26,196
Other international			21,611				2,240				(2,330	)			21,521
Mutual funds:
Equity			116,260				6,123				(18,289	)			104,094
Fixed income			134,181				6,316				(5,628	)			134,869
Private equity			27,864				1,395				(16,890	)			12,369
Other			8,833				615				(458	)			8,990
Trust investments		$	837,692			$	90,876			$	(53,525	)		$	875,043

     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 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 March 31, 2011, our unfunded commitment for our private equity and other investments was $5.1 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, mortgage-backed fixed income securities, 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 March 31, 2011		$	621,843			$	242,341			$	25,370			$	889,554
Trust investments at December 31, 2010		$	610,240			$	243,444			$	21,359			$	875,043

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

		Three Months Ended March 31,
		2011				2010
Fair market value, beginning balance at January 1		$	21,359			$	12,052
Net unrealized gains (losses) included in Accumulated other comprehensive income(1)			3,870				(516	)
Net realized losses included in Other income (expense), net(2)			(7	)			(12	)
Sales			(194	)			—
Contributions			486				613
Distributions			(144	)			(20	)
Fair market value, ending balance		$	25,370			$	12,117

     Maturity dates of our fixed income securities range from 2011 to 2041. Maturities of fixed income securities at March 31, 2011 are estimated as follows:

		Fair Market
		Value
		(In thousands)
Due in one year or less		$	137,478
Due in one to five years			50,823
Due in five to ten years			31,615
Thereafter			18,932
		$	238,848

     Earnings from all our funeral merchandise and service trust investments are recognized in 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 $9.6 million and $8.1 million for the three months ended March 31, 2011 and 2010, 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 Preneed funeral receivables, net and trust investments. These investment losses, if any, are offset by the corresponding reclassification in Other income (expense), 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. For the three months ended March 31, 2011 and 2010, we recorded a $3.1 million and a $5.1 million impairment charge for other-than-temporary declines in fair value related to unrealized losses on certain investments.

     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 March 31, 2011 and December 31, 2010, respectively, are shown in the following tables.

		March 31, 2011
		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		$	1,564			$	(23	)		$	9,116			$	(266	)		$	10,680			$	(289	)
Canadian government			5,517				(22	)			637				(25	)			6,154				(47	)
Corporate			4,734				(194	)			568				(45	)			5,302				(239	)
Residential mortgage-backed			1,435				(12	)			467				(21	)			1,902				(33	)
Asset-backed			149				(2	)			129				(2	)			278				(4	)
Equity securities:
Preferred stock			511				(14	)			—				—				511				(14	)
Common stock:
United States			52,514				(4,638	)			22,755				(2,345	)			75,269				(6,983	)
Canada			1,743				(152	)			1,046				(327	)			2,789				(479	)
Other international			4,908				(884	)			2,910				(826	)			7,818				(1,710	)
Mutual funds:
Equity			1,618				(8	)			62,865				(15,933	)			64,483				(15,941	)
Fixed income			9,726				(145	)			9,297				(4,942	)			19,023				(5,087	)
Private equity			60				(2	)			11,017				(16,082	)			11,077				(16,084	)
Total temporarily impaired securities		$	84,479			$	(6,096	)		$	120,807			$	(40,814	)		$	205,286			$	(46,910	)

		December 31, 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		$	10,433			$	(316	)		$	393			$	(18	)		$	10,826			$	(334	)
Canadian government			1,632				(2	)			668				(18	)			2,300				(20	)
Corporate			5,619				(285	)			—				—				5,619				(285	)
Residential mortgage-backed			836				(9	)			263				(13	)			1,099				(22	)
Asset-backed			225				(1	)			53				(1	)			278				(2	)
Equity securities:
Preferred stock			1,045				(78	)			—				—				1,045				(78	)
Common stock:
United States			41,491				(3,019	)			24,919				(5,372	)			66,410				(8,391	)
Canada			4,493				(324	)			1,361				(474	)			5,854				(798	)
Other international			5,251				(862	)			3,446				(1,468	)			8,697				(2,330	)
Mutual funds:
Equity			3,778				(110	)			61,844				(18,179	)			65,622				(18,289	)
Fixed income			9,630				(156	)			8,818				(5,472	)			18,448				(5,628	)
Private equity			214				(71	)			6,715				(16,819	)			6,929				(16,890	)
Other			8				(2	)			309				(456	)			317				(458	)
Total temporarily impaired securities		$	84,655			$	(5,235	)		$	108,789			$	(48,290	)		$	193,444			$	(53,525	)

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
		March 31,
		2011				2010
		(In thousands)
Deposits		$	24,092			$	22,231
Withdrawals			29,944				23,898
Purchases of available-for-sale securities			133,565				254,318
Sales of available-for-sale securities			133,555				220,449
Realized gains from sales of available-for-sale securities			16,847				11,253
Realized losses from sales of available-for-sale securities			(5,621	)			(17,521	)

     The components of Preneed cemetery receivables, net and trust investments in our unaudited condensed consolidated balance sheet at March 31, 2011 and December 31, 2010 are as follows:

		March 31,				December 31,
		2011				2010
		(In thousands)
Trust investments, at market		$	1,101,641			$	1,062,771
Cash and cash equivalents			120,626				122,866
Insurance backed fixed income securities			6,940				9,158
Trust investments			1,229,207				1,194,795
Receivables from customers			465,246				452,296
Unearned finance charges			(36,499	)			(39,205	)
			1,657,954				1,607,886
Allowance for cancellation			(42,211	)			(43,993	)
Preneed cemetery receivables and trust investments		$	1,615,743			$	1,563,893

     The cost and market values associated with our cemetery merchandise and service trust investments recorded at fair market value at March 31, 2011 and December 31, 2010 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. The fair market value of our cemetery merchandise and service trust investments was 108% and 106% of the related cost basis of such investments as of March 31, 2011 and December 31, 2010, respectively.

		March 31, 2011
						Unrealized				Unrealized				Fair Market
		Cost				Gains				Losses				Value
						(In thousands)
Fixed income securities:
U.S. Treasury		$	52,572			$	2,968			$	(245	)		$	55,295
Canadian government			18,902				102				(18	)			18,986
Corporate			37,536				4,272				(379	)			41,429
Residential mortgage-backed			634				17				(2	)			649
Asset-backed			6,615				218				(12	)			6,821
Equity securities:
Preferred stock			5,056				590				(19	)			5,627
Common stock:
United States			396,356				93,984				(9,115	)			481,225
Canada			18,957				4,570				(553	)			22,974
Other international			28,839				2,473				(2,610	)			28,702
Mutual funds:
Equity			193,456				17,655				(16,219	)			194,892
Fixed income			233,354				9,812				(8,789	)			234,377
Private equity			23,286				46				(13,093	)			10,239
Other			411				16				(2	)			425
Trust investments		$	1,015,974			$	136,723			$	(51,056	)		$	1,101,641

		December 31, 2010
						Unrealized				Unrealized				Fair Market
		Cost				Gains				Losses				Value
						(In thousands)
Fixed income securities:
U.S. Treasury		$	50,884			$	2,493			$	(307	)		$	53,070
Canadian government			15,669				362				(4	)			16,027
Corporate			39,265				3,387				(402	)			42,250
Residential mortgage-backed			863				31				(1	)			893
Asset-backed			6,336				261				(5	)			6,592
Equity securities:
Preferred stock			4,577				453				(124	)			4,906
Common stock:
United States			386,537				82,385				(10,821	)			458,101
Canada			17,279				3,869				(850	)			20,298
Other international			31,466				2,485				(3,645	)			30,306
Mutual funds:
Equity			202,328				15,173				(18,569	)			198,932
Fixed income			226,567				8,537				(9,959	)			225,145
Private equity			19,596				13				(13,890	)			5,719
Other			874				43				(385	)			532
Trust investments		$	1,002,241			$	119,492			$	(58,962	)		$	1,062,771

     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 March 31, 2011, our unfunded commitment for our private equity and other investments was $5.3 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, mortgage-backed and asset-backed fixed income securities, and preferred stock. 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 March 31, 2011		$	962,170			$	128,807			$	10,664			$	1,101,641
Trust investments at December 31, 2010		$	932,782			$	123,738			$	6,251			$	1,062,771

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

		Three Months Ended
		March 31,
		2011				2010
Fair market value, beginning balance at January 1		$	6,251			$	4,341
Net unrealized gains (losses) included in Accumulated other comprehensive income(1)			6,311				(419	)
Net realized losses included in Other income( expense), net(2)			(8	)			(11	)
Sales			—				(12	)
Contributions			503				560
Distributions and other			(2,393	)			(34	)
Fair market value, ending balance		$	10,664			$	4,425

     Maturity dates of our fixed income securities range from 2011 to 2041. Maturities of fixed income securities, excluding mutual funds, at March 31, 2011 are estimated as follows:

		Fair Market
		Value
		(In thousands)
Due in one year or less		$	4,270
Due in one to five years			60,269
Due in five to ten years			32,860
Thereafter			25,781
		$	123,180

     Earnings from all our cemetery merchandise and service trust investments are recognized in current cemetery 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 our cemetery merchandise and service trust investments were $6.0 million and $3.4 million for the three months ended March 31, 2011 and 2010, 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 Preneed cemetery receivables, net and trust investments. These investment losses, if any, are offset by the corresponding reclassification in Other income (expense), net, which reduces Deferred preneed cemetery receipts held in trust. See Note 7 for further information related to our Deferred preneed cemetery receipts held in trust. For the three months ended March 31, 2011 and 2010, we recorded a $1.0 million and a $2.2 million impairment charge for other-than-temporary declines in fair value related to unrealized losses on certain investments.

     We have determined that the remaining unrealized losses in our cemetery 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 cemetery merchandise and service trust investment unrealized losses, their associated fair market values and the duration of unrealized losses as of March 31, 2011 are shown in the following tables:

		March 31, 2011
		In Loss Position								In Loss Position
		Less Than 12 Months								Greater Than 12 Months								Total
		Fair Market				Unrealized				Fair Market				Unrealized				Fair Market				Unrealized
		Value				Losses				Value				Losses				Value				Losses
										(In thousands)
Fixed income securities:
U.S. Treasury		$	1,908			$	(15	)		$	2,738			$	(230	)		$	4,646			$	(245	)
Canadian government			7,948				(18	)			—				—				7,948				(18	)
Corporate			7,252				(310	)			639				(69	)			7,891				(379	)
Residential mortgage-backed			127				(1	)			20				(1	)			147				(2	)
Asset-backed			950				(11	)			55				(1	)			1,005				(12	)
Equity securities:
Preferred stock			918				(19	)			—				—				918				(19	)
Common stock:
United States			69,832				(5,859	)			29,094				(3,256	)			98,926				(9,115	)
Canada			1,289				(123	)			560				(430	)			1,849				(553	)
Other international			7,293				(1,284	)			4,593				(1,326	)			11,886				(2,610	)
Mutual funds:
Equity			2,062				(20	)			90,867				(16,199	)			92,929				(16,219	)
Fixed income			25,344				(352	)			14,051				(8,437	)			39,395				(8,789	)
Private equity			—				—				9,780				(13,093	)			9,780				(13,093	)
Other			278				(2	)			—				—				278				(2	)
Total temporarily impaired securities		$	125,201			$	(8,014	)		$	152,397			$	(43,042	)		$	277,598			$	(51,056	)