UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q



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

	For the quarterly period ended ~~September 30, 2011~~March 31, 2012



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

	For the transition period from to

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	Smaller reporting company o
		(Do not check if 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 ~~October 25, 2011~~April 24, 2012 was ~~227,998,397~~217,098,386 (net of treasury shares).

Table of Contents

SERVICE CORPORATION INTERNATIONAL

INDEX




	Page
Glossary	3
Part I. Financial Information	4
Item 1. Financial Statements	4
Unaudited Condensed Consolidated Statement of Operations — Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2012 and 2011 ~~and 2010~~	4
Unaudited Condensed Consolidated ~~Balance Sheet~~Statement of Comprehensive Income — ~~September 30,~~Three Months Ended March 31, 2012 and 2011 ~~and December 31, 2010~~	5
Unaudited Condensed Consolidated ~~Statement of Cash Flows~~Balance Sheet — ~~Nine Months Ended September 30,~~March 31, 2012 and December 31, 2011 ~~and 2010~~	6
Unaudited Condensed Consolidated Statement of ~~Equity~~Cash Flows — ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2012 and 2011 ~~and 2010~~	7
Unaudited Condensed Consolidated Statement of Equity — Three Months Ended March 31, 2012 and 2011	8
Notes to Unaudited Condensed Consolidated Financial Statements	89
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	3632
The Company	3632
Financial Condition, Liquidity, and Capital Resources	3632
Results of Operations — Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2012 and 2011 ~~and 2010~~	4238
Critical Accounting Policies	5041
Cautionary Statement on Forward-Looking Statements	5041
Item 3. Quantitative and Qualitative Disclosures About Market Risk	5142
Item 4. Controls and Procedures	5142
Part II. Other Information	5242
Item 1. Legal Proceedings	5242
Item 1A. Risk Factors	5243
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	5243
Item 6. Exhibits	5343
Signature	5444
��

Table of Contents

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~~inhibit the subsidence of the earth and ~~protect~~house the casket ~~before~~after 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.

Table of Contents

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
	Three Months Ended						Nine Months Ended						March 31,
	September 30,						September 30,						2012			2011
	2011			2010			2011			2010			(In thousands, except per share amounts)
Revenues	$	572,999		$	533,165		$	1,729,472		$	1,619,301		$	602,506		$	579,699
Costs and expenses	(465,949		)	(430,518		)	(1,380,953		)	(1,294,998		)	(474,939		)	(453,253		)
Gross profits	107,050			102,647			348,519			324,303			127,567			126,446
General and administrative expenses	(23,863		)	(26,860		)	(77,381		)	(80,086		)	(25,959		)	(28,833		)
(Losses) gains on divestitures and impairment charges, net	(5,001		)	(7,291		)	(15,264		)	5,831
Losses on divestitures and impairment charges, net													(490		)	(420		)
Operating income	78,186			68,496			255,874			250,048			101,118			97,193
Interest expense	(33,038		)	(31,497		)	(100,476		)	(96,281		)	(33,588		)	(33,559		)
Losses on early extinguishment of debt, net	(1,355		)	(9,066		)	(3,504		)	(9,357		)	—			(314		)
Other income, net	249			688			969			3,077			3,905			674
Income before income taxes	44,042			28,621			152,863			147,487			71,435			63,994
Provision for income taxes	(9,027		)	(9,941		)	(51,181		)	(57,255		)	(23,120		)	(24,065		)
Net income	35,015			18,680			101,682			90,232			48,315			39,929
Net loss (income) attributable to noncontrolling interests	481			85			(1,329		)	(270		)
Net income attributable to noncontrolling interests													(290		)	(1,165		)
Net income attributable to common stockholders	$	35,496		$	18,765		$	100,353		$	89,962		$	48,025		$	38,764
Basic earnings per share:
Net income attributable to common stockholders	$	0.15		$	0.08		$	0.42		$	0.36		$	0.22		$	0.16
Basic weighted average number of shares	232,917			246,214			237,037			250,762			220,132			239,772
Diluted earnings per share:
Net income attributable to common stockholders	$	0.15		$	0.08		$	0.42		$	0.36		$	0.22		$	0.16
Diluted weighted average number of shares	235,513			247,523			239,528			252,486			223,212			242,052
Dividends declared per share	$	0.05		$	0.04		$	0.15		$	0.12		$	0.05		$	0.05

(See notes to unaudited condensed consolidated financial statements)

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SERVICE CORPORATION INTERNATIONAL

CONDENSED CONSOLIDATED ~~BALANCE SHEET~~STATEMENT OF COMPREHENSIVE INCOME

(UNAUDITED)

~~(In thousands, except share amounts)~~

September 30, 2011 December 31, 2010
ASSETS
Current assets:
Cash and cash equivalents $ 127,037
$ 170,846
Receivables, net 89,899
107,185
Deferred tax assets 43,542
41,371
Inventories 26,494
34,770
Other 21,458
27,746
Total current assets 308,430
381,918
Preneed funeral receivables, net and trust investments 1,456,130
1,424,557
Preneed cemetery receivables, net and trust investments 1,513,723
1,563,893
Cemetery property, at cost 1,499,203
1,508,787
Property and equipment, net 1,627,799
1,627,698
Goodwill 1,337,587
1,307,484
Deferred charges and other assets 454,168
389,184
Cemetery perpetual care trust investments 974,266
987,019
Total assets $ 9,171,306
$ 9,190,540

LIABILITIES & EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 351,235
$ 342,651
Current maturities of long-term debt 23,685
22,502
Income taxes 2,957
1,474
Total current liabilities 377,877
366,627
Long-term debt 1,863,899
1,832,380
Deferred preneed funeral revenues 575,207
580,223
Deferred preneed cemetery revenues 835,121
813,493
Deferred tax liability 379,930
323,304
Other liabilities 410,937
399,619
Deferred preneed funeral and cemetery receipts held in trust 2,336,160
2,408,074
Care trusts’ corpus 971,926
986,872
Commitments and contingencies (Note 15)

Stockholders’ equity:
Common stock, $1 per share par value, 500,000,000 shares authorized, 243,767,641 and 242,019,650 shares issued, respectively, and 227,998,397 and 241,035,250 shares outstanding, respectively 227,998
241,035
Capital in excess of par value 1,471,599
1,603,112
Accumulated deficit (398,997 ) (477,459 )
Accumulated other comprehensive income 99,552
112,768
Total common stockholders’ equity 1,400,152
1,479,456
Noncontrolling interests 20,097
492
Total equity 1,420,249
1,479,948
Total liabilities and equity $ 9,171,306
$ 9,190,540



	Three Months Ended
	March 31,
	2012			2011
	(In thousands)
Net income	$	48,315		$	39,929
Other comprehensive income:
Foreign currency translation adjustments	5,745			11,508
Total comprehensive income	54,060			51,437
Total comprehensive income (loss) attributable to noncontrolling interests	(275		)	(1,171		)
Total comprehensive income attributable to common stockholders	$	53,785		$	50,266

(See notes to unaudited condensed consolidated financial statements)

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SERVICE CORPORATION INTERNATIONAL

CONDENSED CONSOLIDATED ~~STATEMENT OF CASH FLOWS~~BALANCE SHEET

(UNAUDITED)

~~(In thousands)~~

Nine Months Ended
September 30,
2011 2010
Cash flows from operating activities:
Net income $ 101,682
$ 90,232
Adjustments to reconcile net income to net cash provided by operating activities:
Losses on early extinguishment of debt, net 3,504
9,357
Depreciation and amortization 88,363
87,676
Amortization of intangible assets 19,497
18,816
Amortization of cemetery property 27,889
23,438
Amortization of loan costs 3,259
3,223
Provision for doubtful accounts 6,431
4,137
Provision for deferred income taxes 40,038
39,273
Losses (gains) on divestitures and impairment charges, net 15,264
(5,831 )
Share-based compensation 6,843
6,714
Excess tax benefit from share-based awards —
(831 )
Change in assets and liabilities, net of effects from acquisitions and divestitures:
Decrease in receivables 13,583
6,793
Decrease (increase) in other assets 2,560
(1,094 )
Increase in payables and other liabilities 7,808
7,687
Effect of preneed funeral production and maturities:
Decrease in preneed funeral receivables, net and trust investments 47,263
30,434
Decrease in deferred preneed funeral revenue (30,724 ) (4,218 )
Decrease in deferred preneed funeral receipts held in trust (33,203 ) (27,240 )
Effect of cemetery production and deliveries:
Increase in preneed cemetery receivables, net and trust investments (47,977 ) (29,849 )
Increase in deferred preneed cemetery revenue 26,502
7,369
(Decrease) increase in deferred preneed cemetery receipts held in trust (6,280 ) 1,496
Other (989 ) (1,471 )
Net cash provided by operating activities 291,313
266,111
Cash flows from investing activities:
Capital expenditures (85,936 ) (67,443 )
Acquisitions (97,473 ) (281,800 )
Proceeds from divestitures and sales of property and equipment, net 15,233
82,866
Net withdrawals of restricted funds and other 956
26,440
Net cash used in investing activities (167,220 ) (239,937 )
Cash flows from financing activities:
Proceeds from issuance of long-term debt 65,000
245,000
Debt issuance costs —
(6,203 )
Payments of debt (2,169 ) (32,398 )
Early extinguishment of debt (43,089 ) (118,562 )
Principal payments on capital leases (17,186 ) (40,716 )
Proceeds from exercise of stock options 7,694
1,469
Excess tax benefit from share-based awards —
831
Purchase of Company common stock (146,590 ) (86,871 )
Payments of dividends (33,395 ) (30,224 )
Bank overdrafts and other 3,573
(5,655 )
Net cash used in by financing activities (166,162 ) (73,329 )
Effect of foreign currency on cash and cash equivalents (1,740 ) 3,223
Net decrease in cash and cash equivalents (43,809 ) (43,932 )
Cash and cash equivalents at beginning of period 170,846
179,745
Cash and cash equivalents at end of period $ 127,037
$ 135,813



	March 31, 2012			December 31, 2011
	(In thousands, except share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	113,831		$	128,569
Receivables, net	96,376			103,892
Deferred tax assets	38,073			44,316
Inventories, net	25,438			25,513
Other	24,400			25,803
Total current assets	298,118			328,093
Preneed funeral receivables, net and trust investments	1,516,968			1,478,865
Preneed cemetery receivables, net and trust investments	1,712,976			1,595,940
Cemetery property, at cost	1,496,439			1,497,703
Property and equipment, net	1,619,157			1,618,361
Goodwill	1,358,182			1,361,493
Deferred charges and other assets	423,504			430,851
Cemetery perpetual care trust investments	1,050,081			1,016,506
Total assets	$	9,475,425		$	9,327,812

LIABILITIES & EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	347,823		$	358,904
Current maturities of long-term debt	28,415			23,554
Income taxes	13,544			3,150
Total current liabilities	389,782			385,608
Long-term debt	1,858,984			1,861,116
Deferred preneed funeral revenues	566,449			575,546
Deferred preneed cemetery revenues	857,064			833,303
Deferred tax liability	414,810			405,615
Other liabilities	396,739			414,773
Deferred preneed funeral and cemetery receipts held in trust	2,558,446			2,424,356
Care trusts’ corpus	1,048,056			1,015,300
Commitments and contingencies (Note 15)
Equity:
Common stock, $1 per share par value, 500,000,000 shares authorized, 225,571,921 and 224,665,395 shares issued, respectively, and 217,097,274 and 222,955,853 shares outstanding, respectively	217,097			222,956
Capital in excess of par value	1,378,589			1,430,330
Accumulated deficit	(342,579		)	(367,044		)
Accumulated other comprehensive income	111,612			105,852
Total common stockholders’ equity	1,364,719			1,392,094
Noncontrolling interests	20,376			20,101
Total equity	1,385,095			1,412,195
Total liabilities and equity	$	9,475,425		$	9,327,812

(See notes to unaudited condensed consolidated financial statements)

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SERVICE CORPORATION INTERNATIONAL

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)



	Three Months Ended
	March 31,
	2012			2011
	(In thousands)
Cash flows from operating activities:
Net income	$	48,315		$	39,929
Adjustments to reconcile net income to net cash provided by operating activities:
Losses on early extinguishment of debt, net	—			314
Depreciation and amortization	29,541			29,331
Amortization of intangible assets	6,149			6,354
Amortization of cemetery property	9,569			9,500
Amortization of loan costs	1,194			1,184
Provision for doubtful accounts	2,842			1,933
Provision for deferred income taxes	18,479			19,379
Losses on divestitures and impairment charges, net	490			420
Share-based compensation	2,574			2,253
Change in assets and liabilities, net of effects from acquisitions and divestitures:
Decrease in receivables	4,771			13,494
(Increase) decrease in other assets	(5,352		)	1,386
Decrease in payables and other liabilities	(7,888		)	(1,454		)
Effect of preneed funeral production and maturities:
Decrease in preneed funeral receivables, net and trust investments	15,766			15,761
Decrease in deferred preneed funeral revenue	(7,735		)	(19,398		)
Decrease in deferred preneed funeral receipts held in trust	(10,069		)	(8,942		)
Effect of cemetery production and deliveries:
Increase in preneed cemetery receivables, net and trust investments	(26,238		)	(9,456		)
Increase in deferred preneed cemetery revenue	15,948			11,750
Increase (decrease) in deferred preneed cemetery receipts held in trust	642			(5,643		)
Other	(3,214		)	(109		)
Net cash provided by operating activities	95,784			107,986
Cash flows from investing activities:
Capital expenditures	(23,378		)	(25,138		)
Acquisitions	(804		)	(10,513		)
Proceeds from divestitures and sales of property and equipment, net	264			4,697
Other	1,176			3,567
Net cash used in investing activities	(22,742		)	(27,387		)
Cash flows from financing activities:
Proceeds from issuance of long-term debt	907			—
Payments of debt	(497		)	(710		)
Early extinguishment of debt	—			(5,155		)
Principal payments on capital leases	(6,084		)	(5,639		)
Proceeds from exercise of stock options	2,323			3,182
Purchase of Company common stock	(75,106		)	(30,245		)
Payments of dividends	(11,104		)	(9,605		)
Bank overdrafts and other	433			4,794
Net cash used in financing activities	(89,128		)	(43,378		)
Effect of foreign currency on cash and cash equivalents	1,348			2,240
Net (decrease) increase in cash and cash equivalents	(14,738		)	39,461
Cash and cash equivalents at beginning of period	128,569			170,846
Cash and cash equivalents at end of period	$	113,831		$	210,307

(See notes to unaudited condensed consolidated financial statements)

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SERVICE CORPORATION INTERNATIONAL

CONDENSED CONSOLIDATED STATEMENT OF EQUITY

(UNAUDITED)

(In thousands)

Common
Stock
Treasury Stock
Capital in
Excess of
Par Value

Accumulated
Deficit

Accumulated
Other
Comprehensive
Income

Noncontrolling
Interests
Total
Balance at December 31, 2009 $ 254,027
$ (10 ) $ 1,735,493
$ (603,876 ) $ 97,142
$ 12
$ 1,482,788
Net income —
—
—
89,962
—
270
90,232
Dividends declared on common stock ($.12 per share) —
—
(29,830 ) —
—
—
(29,830 )
Foreign currency translation —
—
—
—
4,761
2
4,763
Employee share-based compensation earned —
—
6,714
—
—
—
6,714
Stock option exercises 389
—
1,080
—
—
—
1,469
Tax benefits related to share based awards —
—
868
—
—
—
868
Restricted stock awards, net of forfeitures 532
—
(532 ) —
—
—
—
Purchase of Company common stock —
(10,358 ) (76,513 ) —
—
—
(86,871 )
Other 3
60
548
—
—
—
611
Balance at September 30, 2010 $ 254,951
$ (10,308 ) $ 1,637,828
$ (513,914 ) $ 101,903
$ 284
$ 1,470,744

Balance at December 31, 2010 242,020
(985 ) 1,603,112
(477,459 ) 112,768
492
1,479,948
Net income

100,353

1,329
101,682
Dividends declared on common stock ($.15 per share)

(35,140 )

(35,140 )
Foreign currency translation

(13,216 ) (13 ) (13,229 )
Employee share-based compensation earned

6,843

6,843
Stock option exercises 1,137

6,557

7,694
Restricted stock awards, net of forfeitures 539

(539 )

—
Purchase of Company common stock
(14,785 ) (109,914 ) (21,891 )

(146,590 )
Acquisition

18,857
18,857
Noncontrolling interest payment

(568 ) (568 )
Other 72

680

752
Balance at September 30, 2011 $ 243,768
$ (15,770 ) $ 1,471,599
$ (398,997 ) $ 99,552
$ 20,097
$ 1,420,249



	Common Stock		Treasury Stock			Capital in Excess of Par Value			Accumulated Deficit			Accumulated Other Comprehensive Income		Noncontrolling Interests		Total
Balance at December 31, 2010	$	242,020	$	(985	)	$	1,603,112		$	(477,459	)	$	112,768	$	492	$	1,479,948
Comprehensive income	—		—			—			38,764			11,502		1,171		51,437
Dividends declared on common stock ($.05 per share)	—		—			(11,930		)	—			—		—		(11,930		)
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

Balance at December 31, 2011	224,666		(1,710		)	1,430,330			(367,044		)	105,852		20,101		1,412,195
Comprehensive income	—		—			—			48,025			5,760		275		54,060
Dividends declared on common stock ($.05 per share)	—		—			(10,960		)	—			—		—		(10,960		)
Employee share-based compensation earned	—		—			2,574			—			—		—		2,574
Stock option exercises	422		—			1,901			—			—		—		2,323
Restricted stock awards, net of forfeitures	483		—			(483		)	—			—		—		—
Purchase of Company common stock	—		(6,765		)	(44,780		)	(23,560		)	—		—		(75,105		)
Other	1		—			7			—			—		—		8
Balance at March 31, 2012	$	225,572	$	(8,475	)	$	1,378,589		$	(342,579	)	$	111,612	$	20,376	$	1,385,095

(See notes to unaudited condensed consolidated financial statements)

Table of Contents

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 statement 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~~2011, 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 Annual Report on Form 10-K for the year ended December 31, ~~2010~~2011. 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 periods. 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,~~amounts, 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

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deposited to the trust and previously undistributed net investment earnings and, where required, issue a refund to the customer.

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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 customers 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 in receivables with a corresponding offset to deferred revenue.

Fair Value Measurements

In ~~January 2010,~~May 2011, the Financial Accounting Standards Board (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 became 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 that 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 became 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~~

~~Fair Value Measurements~~

~~In May 2011, the FASB amended the FVM&D Topic of the ASC that expands~~expand disclosures about items marked to fair value that are categorized within Level 3 of the fair value hierarchy to include qualitative explanations of the valuation methodology used and sensitivity analysis of the inputs into the valuation. The amendment also requires that items that are not measured at fair value but for which the fair value is disclosed also disclose the level in the fair value hierarchy in which those items were categorized. ~~The~~We adopted the amended guidance ~~is effective for us~~ in the first quarter of 2012 and ~~we do not believe that this guidance will have any impact on our consolidated financial condition or results of operations.~~the appropriate disclosures are contained in Notes 4, 5, and 6.

Comprehensive Income

In June 2011, the FASB amended the Comprehensive Income Topic of the ASC to require the disclosure of the components of other comprehensive income, which we ~~currently disclose~~previously disclosed elsewhere in our filings, be shown as either part of one statement of comprehensive income or as a separate statement of ~~other~~ comprehensive income immediately following the income statement. ~~The~~We adopted the amended guidance ~~is effective for us~~ in the first quarter of 2012 and ~~will not have any impact on our consolidated financial condition or results~~a separate Statement of ~~operations.~~Comprehensive Income is included herein.

3. Recently Issued Accounting Standards

Goodwill Testing

In September 2011, the FASB amended the Intangibles - Goodwill and Other Topic of the ASC that allows us to make a qualitative assessment of whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. If, after assessing the relevant information, we determine it is more likely than not that the fair value is more than the carrying amount, no additional ~~work~~analysis is necessary. If we determine it is more likely than not that the fair value is less than the carrying amount, then we are required to proceed to the quantitative approach. The amended guidance is effective for us in our annual test in the fourth quarter of 2012, and adoption will have no 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

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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:

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	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30,						September 30,						March 31,
	2011			2010			2011			2010			2012			2011
	(In thousands)												(In thousands)
Deposits	$	18,960		$	18,771		$	55,189		$	61,294		$	22,178		$	17,316
Withdrawals	26,789			25,546			79,734			85,284			30,912			23,758
Purchases of available-for-sale securities	140,554			77,042			387,545			390,345			188,059			83,757
Sales of available-for-sale securities	114,476			86,754			448,988			401,253			184,902			109,707
Realized gains from sales of available-for-sale securities	11,353			5,963			49,618			26,461			26,011			12,877
Realized losses from sales of available-for-sale securities	(6,586		)	(8,360		)	(18,215		)	(42,017		)	(9,748		)	(4,034		)

The components of Preneed funeral receivables, net and trust investments in our unaudited condensed consolidated balance sheet at ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010~~2011 are as follows:


	September 30, 2011			December 31, 2010			March 31, 2012			December 31, 2011
	(In thousands)						(In thousands)
Trust investments, at market	$	875,770		$	875,043		$	954,986		$	892,685
Cash and cash equivalents	100,911			121,212			92,970			101,111
Insurance-backed fixed income securities	267,603			220,287			269,149			277,650
Trust investments	1,244,284			1,216,542			1,317,105			1,271,446
Receivables from customers	251,788			247,434			241,685			246,601
Unearned finance charge	(5,461		)	(5,620		)	(5,428		)	(5,425		)
	1,490,611			1,458,356			1,553,362			1,512,622
Allowance for cancellation	(34,481		)	(33,799		)	(36,394		)	(33,757		)
Preneed funeral receivables and trust investments	$	1,456,130		$	1,424,557		$	1,516,968		$	1,478,865

The cost and market values associated with our funeral merchandise and service trust investments recorded at fair market value at ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010~~2011 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).

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	September 30, 2011									March 31, 2012
	Cost		Unrealized Gains		Unrealized Losses			Fair Market Value		Cost		Unrealized Gains		Unrealized Losses			Fair Market Value
			(In thousands)									(In thousands)
Fixed income securities:
U.S. Treasury	$	76,987	$	4,032	$	(336	)	$	80,683	$	106,997	$	4,731	$	(2,130	)	$	109,598
Canadian government	113,763		628		(50		)	114,341		113,298		367		(73		)	113,592
Corporate	51,128		1,353		(1,207		)	51,274		51,266		2,453		(577		)	53,142
Residential mortgage-backed	3,388		77		(32		)	3,433		3,294		65		(4		)	3,355
Asset-backed	127		6		—			133		127		5		—			132
Equity securities:
Preferred stock	2,344		19		(292		)	2,071		1,885		81		(111		)	1,855
Common stock:
United States	267,707		28,059		(36,268		)	259,498		219,926		50,121		(8,221		)	261,826
Canada	23,638		2,824		(1,354		)	25,108		23,261		2,851		(1,352		)	24,760
Other international	19,481		460		(3,219		)	16,722		17,232		1,695		(538		)	18,389
Mutual funds:
Equity	132,562		1,685		(23,543		)	110,704		146,494		7,339		(8,898		)	144,935
Fixed income	195,093		6,298		(9,995		)	191,396		215,124		4,849		(13,174		)	206,799
Private equity	36,800		1,408		(18,713		)	19,495		36,605		214		(21,135		)	15,684
Other	518		394		—			912		507		412		—			919
Trust investments	$	923,536	$	47,243	$	(95,009	)	$	875,770	$	936,016	$	75,183	$	(56,213	)	$	954,986


	December 31, 2010									December 31, 2011
	Cost		Unrealized Gains		Unrealized Losses			Fair Market Value		Cost		Unrealized Gains		Unrealized Losses			Fair Market Value
			(In thousands)									(In thousands)
Fixed income securities:
U.S. Treasury	$	71,948	$	2,061	$	(334	)	$	73,675	$	77,299	$	4,565	$	(373	)	$	81,491
Canadian government	121,137		1,004		(20		)	122,121		114,586		838		(109		)	115,315
Corporate	33,627		2,751		(285		)	36,093		49,210		1,849		(770		)	50,289
Residential mortgage-backed	5,310		135		(22		)	5,423		3,292		71		(34		)	3,329
Asset-backed	2,984		97		(2		)	3,079		126		6		—			132
Equity securities:
Preferred stock	2,835		296		(78		)	3,053		2,041		50		(153		)	1,938
Common stock:
United States	268,650		63,301		(8,391		)	323,560		258,738		40,992		(22,715		)	277,015
Canada	22,452		4,542		(798		)	26,196		23,986		2,511		(1,771		)	24,726
Other international	21,611		2,240		(2,330		)	21,521		18,954		1,045		(1,296		)	18,703
Mutual funds:
Equity	116,260		6,123		(18,289		)	104,094		134,383		2,384		(18,982		)	117,785
Fixed income	134,181		6,316		(5,628		)	134,869		193,134		5,044		(13,114		)	185,064
Private equity	27,864		1,395		(16,890		)	12,369		35,017		218		(19,249		)	15,986
Other	8,833		615		(458		)	8,990		484		428		—			912
Trust investments	$	837,692	$	90,876	$	(53,525	)	$	875,043	$	911,250	$	60,001	$	(78,566	)	$	892,685

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.

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Where quoted market prices are not available for the specific security, fair values are estimated by using either quoted prices

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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~~As of March 31, 2012, private equity ~~investments~~instruments are valued ~~using market appraisals or~~based on reported net asset values discounted by 0% to 60% for risk and 0% to 25% for liquidity. A significant increase (decrease) in the discounts results in a ~~discounted cash flow methodology, which is an income approach for~~directionally opposite change in the 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,~~instruments. Valuation policies and ~~discounted cash flow analysis.~~procedures are determined by our Treasury department, which reports to our Chief Financial Officer. Additionally, valuations are reviewed by our audit committee quarterly. 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 ~~September 30, 2011~~March 31, 2012, our unfunded commitment for our private equity and other investments was $~~12.7~~14.5 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
Prices in Active
Markets
(Level 1)

Significant
Other
Observable
Inputs (Level 2)

Significant
Unobservable
Inputs (Level 3)

Fair Market
Value
(In thousands)
Trust investments at September 30, 2011 $ 603,428
$ 251,935
$ 20,407
$ 875,770
Trust investments at December 31, 2010 $ 610,240
$ 243,444
$ 21,359
$ 875,043



	Quoted Market Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Market Value
			(In thousands)
Trust investments at March 31, 2012	$	656,709	$	281,674	$	16,603	$	954,986
Trust investments at December 31, 2011	$	623,293	$	252,494	$	16,898	$	892,685

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						Nine Months Ended						Three Months Ended
	September 30,						September 30,						March 31,
	2011			2010			2011			2010			2012			2011
Fair market value, beginning balance	$	29,031		$	19,707		$	21,359		$	12,052		$	16,898		$	21,359
Net unrealized (losses) gains included in Accumulated other comprehensive income(1)	(7,757		)	501			(1,001		)	(569		)	(1,300		)	3,870
Net realized losses included in Other income, net(2)	(8		)	(43		)	(67		)	(66		)	(10		)	(7		)
Purchases	18			—			18			7,343			—			—
Sales	(7,970		)	(10		)	(8,156		)	(10		)	(9		)	(194		)
Contributions	7,615			255			9,397			1,691			1,278			486
Distributions and other	(522		)	(364		)	(1,143		)	(395		)	(254		)	(144		)
Fair market value, ending balance	$	20,407		$	20,046		$	20,407		$	20,046		$	16,603		$	25,370

(1)

All unrealized (losses) gains recognized in Accumulated other comprehensive income for our funeral merchandise and service trust investments are attributable to our preneed customers and are offset by a corresponding reclassification in Accumulated other comprehensive income to Deferred preneed funeral and cemetery receipts held in trust. See Note 7 for further information related to our Deferred preneed funeral and cemetery receipts held in trust.


(2)	All losses recognized in Other income, net for our funeral merchandise and service trust investments are attributable to our preneed customers and are offset by a corresponding reclassification in Other income, net to Deferred preneed funeral and cemetery receipts held in trust. See Note 7 for further information related to our Deferred preneed funeral and cemetery receipts held in trust.

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Maturity dates of our fixed income securities range from ~~2011~~2012 to ~~2041.~~2042. Maturities of fixed income securities, excluding mutual

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funds, at ~~September 30, 2011~~March 31, 2012 are estimated as follows:


	Fair Market Value		Fair Market Value
	(In thousands)		(In thousands)
Due in one year or less	$	136,116	$	134,939
Due in one to five years	51,838		60,065
Due in five to ten years	38,398		50,180
Thereafter	23,512		34,635
	$	249,864	$	279,819

Earnings from all our funeral merchandise and service trust investments are recognized in funeral revenues when a service is performed or merchandise is delivered. Fees charged by our wholly-owned registered investment advisor are also included in current revenues in the period in which they are earned. 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 $~~10.2~~9.9 million and $~~6.7~~9.6 million for the three months ended ~~September 30, 2011~~March 31, 2012 and ~~2010, respectively. Recognized earnings (realized and unrealized) related to these trust investments were~~ ~~$28.9 million~~ ~~and~~ ~~$22.5 million~~ ~~for the~~ ~~nine~~ ~~months ended~~ ~~September 30,~~ 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, 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. For the three months ended ~~September 30, 2011~~March 31, 2012 and ~~2010~~2011, we recorded a $~~17.5~~0.3 million and a $~~1.1 million~~ ~~impairment charge for other-than-temporary declines in fair value related to unrealized losses on certain investments, respectively. For the~~ ~~nine~~ ~~months ended~~ ~~September 30, 2011~~ ~~and~~ ~~2010, we recorded a~~ ~~$20.8 million~~ ~~and a~~ ~~$7.3~~3.1 million impairment charge for other-than-temporary declines in fair value related to unrealized losses on certain investments, 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 ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010~~2011, respectively, are shown in the following tables:


	September 30, 2011															March 31, 2012
	In Loss Position Less Than 12 Months					In Loss Position Greater Than 12 Months					Total					In Loss Position Less Than 12 Months					In Loss Position Greater Than 12 Months					Total
	Fair Market Value		Unrealized Losses			Fair Market Value		Unrealized Losses			Fair Market Value		Unrealized Losses			Fair Market Value		Unrealized Losses			Fair Market Value		Unrealized Losses			Fair Market Value		Unrealized Losses
						(In thousands)															(In thousands)
Fixed income securities:
U.S. Treasury	$	8,064	$	(80	)	$	9,021	$	(256	)	$	17,085	$	(336	)	$	36,336	$	(1,930	)	$	7,853	$	(200	)	$	44,189	$	(2,130	)
Canadian government	9,536		(48		)	105		(2		)	9,641		(50		)	7,069		(73		)	—		—			7,069		(73		)
Corporate	20,897		(1,171		)	979		(36		)	21,876		(1,207		)	13,340		(465		)	609		(112		)	13,949		(577		)
Residential mortgage-backed	369		(2		)	391		(30		)	760		(32		)	945		(4		)	—		—			945		(4		)
Equity securities:
Preferred stock	1,645		(292		)	—		—			1,645		(292		)	778		(102		)	90		(9		)	868		(111		)
Common stock:
United States	122,765		(31,623		)	17,031		(4,645		)	139,796		(36,268		)	42,370		(4,865		)	10,229		(3,356		)	52,599		(8,221		)
Canada	8,374		(1,005		)	620		(349		)	8,994		(1,354		)	4,039		(1,024		)	973		(328		)	5,012		(1,352		)
Other international	9,966		(1,867		)	2,897		(1,352		)	12,863		(3,219		)	4,702		(177		)	1,837		(361		)	6,539		(538		)
Mutual funds:
Equity	53,310		(10,834		)	45,439		(12,709		)	98,749		(23,543		)	33,514		(1,774		)	22,122		(7,124		)	55,636		(8,898		)
Fixed income	26,896		(3,029		)	8,746		(6,966		)	35,642		(9,995		)	108,720		(5,684		)	6,836		(7,490		)	115,556		(13,174		)
Private equity	1,360		(1,502		)	12,640		(17,211		)	14,000		(18,713		)	2,078		(3,705		)	13,244		(17,430		)	15,322		(21,135		)
Total temporarily impaired securities	$	263,182	$	(51,453	)	$	97,869	$	(43,556	)	$	361,051	$	(95,009	)	$	253,891	$	(19,803	)	$	63,793	$	(36,410	)	$	317,684	$	(56,213	)

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	December 31, 2010															December 31, 2011
	In Loss Position Less Than 12 Months					In Loss Position Greater Than 12 Months					Total					In Loss Position Less Than 12 Months					In Loss Position Greater Than 12 Months					Total
	Fair Market Value		Unrealized Losses			Fair Market Value		Unrealized Losses			Fair Market Value		Unrealized Losses			Fair Market Value		Unrealized Losses			Fair Market Value		Unrealized Losses			Fair Market Value		Unrealized Losses
						(In thousands)															(In thousands)
Fixed income securities:
U.S. Treasury	$	10,433	$	(316	)	$	393	$	(18	)	$	10,826	$	(334	)	$	6,977	$	(90	)	$	8,709	$	(283	)	$	15,686	$	(373	)
Canadian government	1,632		(2		)	668		(18		)	2,300		(20		)	9,597		(109		)	—		—			9,597		(109		)
Corporate	5,619		(285		)	—		—			5,619		(285		)	17,328		(692		)	662		(78		)	17,990		(770		)
Residential mortgage-backed	836		(9		)	263		(13		)	1,099		(22		)	600		(4		)	295		(30		)	895		(34		)
Asset-backed	225		(1		)	53		(1		)	278		(2		)	—		—			—		—			—		—
Equity securities:
Preferred stock	1,045		(78		)	—		—			1,045		(78		)	1,244		(153		)	—		—			1,244		(153		)
Common stock:
United States	41,491		(3,019		)	24,919		(5,372		)	66,410		(8,391		)	84,450		(18,120		)	14,924		(4,595		)	99,374		(22,715		)
Canada	4,493		(324		)	1,361		(474		)	5,854		(798		)	8,448		(1,491		)	513		(280		)	8,961		(1,771		)
Other international	5,251		(862		)	3,446		(1,468		)	8,697		(2,330		)	7,263		(615		)	2,403		(681		)	9,666		(1,296		)
Mutual funds:
Equity	3,778		(110		)	61,844		(18,179		)	65,622		(18,289		)	76,559		(9,173		)	26,053		(9,809		)	102,612		(18,982		)
Fixed income	9,630		(156		)	8,818		(5,472		)	18,448		(5,628		)	68,378		(5,500		)	9,314		(7,614		)	77,692		(13,114		)
Private equity	214		(71		)	6,715		(16,819		)	6,929		(16,890		)	1,977		(3,499		)	13,502		(15,750		)	15,479		(19,249		)
Other	8		(2		)	309		(456		)	317		(458		)	—		—			—		—			—		—
Total temporarily impaired securities	$	84,655	$	(5,235	)	$	108,789	$	(48,290	)	$	193,444	$	(53,525	)	$	282,821	$	(39,446	)	$	76,375	$	(39,120	)	$	359,196	$	(78,566	)

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						Nine Months Ended						Three Months Ended
	September 30,						September 30,						March 31,
	2011			2010			2011			2010			2012			2011
	(In thousands)												(In thousands)
Deposits	$	25,946		$	30,565		$	76,442		$	79,984		$	25,195		$	24,092
Withdrawals	25,917			26,303			84,444			79,080			24,733			29,944
Purchases of available-for-sale securities	88,518			77,625			411,195			542,829			270,083			133,565
Sales of available-for-sale securities	78,721			90,148			407,272			502,508			255,417			133,555
Realized gains from sales of available-for-sale securities	10,134			6,838			51,225			31,899			39,272			16,847
Realized losses from sales of available-for-sale securities	(8,758		)	(9,828		)	(19,994		)	(47,093		)	(13,770		)	(5,621		)

The components of Preneed cemetery receivables, net and trust investments in our unaudited condensed consolidated balance sheet at ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010~~2011 are as follows:

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	September 30, 2011			December 31, 2010			March 31, 2012			December 31, 2011
	(In thousands)						(In thousands)
Trust investments, at market	$	967,503		$	1,062,771		$	1,153,699		$	1,051,464
Cash and cash equivalents	127,137			122,866			92,072			104,554
Insurance backed fixed income securities	12			9,158
Insurance-backed fixed income securities							10			5
Trust investments	1,094,652			1,194,795			1,245,781			1,156,023
Receivables from customers	498,445			452,296			543,488			517,917
Unearned finance charges	(35,525		)	(39,205		)	(31,935		)	(33,766		)
	1,557,572			1,607,886			1,757,334			1,640,174
Allowance for cancellation	(43,849		)	(43,993		)	(44,358		)	(44,234		)
Preneed cemetery receivables and trust investments	$	1,513,723		$	1,563,893		$	1,712,976		$	1,595,940

The cost and market values associated with our cemetery merchandise and service trust investments recorded at fair market value at ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010~~2011 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.


	September 30, 2011									March 31, 2012
	Cost		Unrealized Gains		Unrealized Losses			Fair Market Value		Cost		Unrealized Gains		Unrealized Losses			Fair Market Value
			(In thousands)									(In thousands)
Fixed income securities:
U.S. Treasury	$	51,242	$	5,524	$	(305	)	$	56,461	$	95,800	$	6,829	$	(2,130	)	$	100,499
Canadian government	17,067		492		(10		)	17,549		17,029		351		(8		)	17,372
Corporate	41,828		1,441		(1,628		)	41,641		44,452		2,785		(572		)	46,665
Residential mortgage-backed	168		5		(1		)	172		163		4		—			167
Equity securities:
Preferred stock	3,729		24		(462		)	3,291		3,059		130		(204		)	2,985
Common stock:
United States	389,521		47,683		(48,239		)	388,965		347,048		88,890		(10,942		)	424,996
Canada	17,177		2,857		(1,527		)	18,507		17,819		3,451		(1,576		)	19,694
Other international	28,103		744		(4,028		)	24,819		28,236		3,165		(669		)	30,732
Mutual funds:
Equity	181,246		1,883		(24,032		)	159,097		236,441		10,592		(11,010		)	236,023
Fixed income	246,647		12,081		(15,832		)	242,896		268,654		10,588		(20,054		)	259,188
Private equity	29,892		44		(16,258		)	13,678		32,483		51		(17,599		)	14,935
Other	335		92		—			427		331		112		—			443
Trust investments	$	1,006,955	$	72,870	$	(112,322	)	$	967,503	$	1,091,515	$	126,948	$	(64,764	)	$	1,153,699

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	December 31, 2010									December 31, 2011
	Cost		Unrealized Gains		Unrealized Losses			Fair Market Value		Cost		Unrealized Gains		Unrealized Losses			Fair Market Value
			(In thousands)									(In thousands)
Fixed income securities:
U.S. Treasury	$	50,884	$	2,493	$	(307	)	$	53,070	$	51,022	$	6,438	$	(313	)	$	57,147
Canadian government	15,669		362		(4		)	16,027		16,566		381		(24		)	16,923
Corporate	39,265		3,387		(402		)	42,250		42,803		2,033		(961		)	43,875
Residential mortgage-backed	863		31		(1		)	893		167		5		(2		)	170
Asset-backed	6,336		261		(5		)	6,592		—		—		—			—
Equity securities:
Preferred stock	4,577		453		(124		)	4,906		3,365		86		(270		)	3,181
Common stock:
United States	386,537		82,385		(10,821		)	458,101		408,075		71,138		(30,454		)	448,759
Canada	17,279		3,869		(850		)	20,298		18,289		2,547		(1,780		)	19,056
Other international	31,466		2,485		(3,645		)	30,306		30,501		1,843		(1,536		)	30,808
Mutual funds:
Equity	202,328		15,173		(18,569		)	198,932		197,523		3,317		(24,911		)	175,929
Fixed income	226,567		8,537		(9,959		)	225,145		248,529		11,670		(20,238		)	239,961
Private equity	19,596		13		(13,890		)	5,719		30,783		53		(15,617		)	15,219
Other	874		43		(385		)	532		306		130		—			436
Trust investments	$	1,002,241	$	119,492	$	(58,962	)	$	1,062,771	$	1,047,929	$	99,641	$	(96,106	)	$	1,051,464

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~~As of March 31, 2012, private equity ~~investments~~instruments are valued ~~using market appraisals or~~based on reported net asset values discounted by 0% to 60% for risk and 0% to 25% for liquidity. A significant increase (decrease) in the discounts results in a ~~discounted cash flow methodology, which is an income approach~~directionally opposite change in the 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,~~instruments. Valuation policies and ~~discounted cash flow analysis.~~procedures are determined by our Treasury department, which reports to our Chief Financial Officer. Additionally, valuations are reviewed by our audit committee quarterly. 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 ~~September 30, 2011~~March 31, 2012, our unfunded commitment for our private equity and other investments was $~~13.2~~15.2 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, 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:

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Quoted Market
Prices in Active
Markets
(Level 1)

Significant Other
Observable Inputs
(Level 2)

Significant
Unobservable Inputs
(Level 3)
Fair Market Value
(In thousands)
Trust investments at September 30, 2011 $ 834,284
$ 119,114
$ 14,105
$ 967,503
Trust investments at December 31, 2010 $ 932,782
$ 123,738
$ 6,251
$ 1,062,771



	Quoted Market Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Market Value
	(In thousands)
Trust investments at March 31, 2012	$	970,633	$	167,688	$	15,378	$	1,153,699
Trust investments at December 31, 2011	$	914,513	$	121,296	$	15,655	$	1,051,464

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						Nine Months Ended						Three Months Ended
	September 30,						September 30,						March 31,
	2011			2010			2011			2010			2012			2011
Fair market value, beginning balance	$	14,674		$	4,930		$	6,251		$	4,341		$	15,655		$	6,251
Net unrealized losses included in Accumulated other comprehensive income(1)	(8,530		)	(81		)	(1,545		)	(446		)
Net unrealized (losses) gains included in Accumulated other comprehensive income(1)													(1,345		)	6,311
Net realized losses included in Other income, net(2)	(8		)	(18		)	(73		)	(41		)	(12		)	(8		)
Sales	—			(25		)	—			(48		)	—			—
Contributions	7,910			263			9,762			1,601			1,356			503
Distributions and other	59			(92		)	(290		)	(430		)	(276		)	(2,393		)
Fair market value, ending balance	$	14,105		$	4,977		$	14,105		$	4,977		$	15,378		$	10,664

(1)

All unrealized ~~losses~~(losses) gains recognized in Accumulated other comprehensive income for our cemetery merchandise and service trust investments are attributable to our preneed customers and are offset by a corresponding reclassification in Accumulated other comprehensive income to Deferred preneed funeral and cemetery receipts held in trust. See Note 7 for further information related to our Deferred preneed funeral and cemetery receipts held in trust.


(2)	All losses recognized in Other income, net for our cemetery merchandise and service trust investments are attributable to our preneed customers and are offset by a corresponding reclassification in Other income, net to Deferred preneed funeral and cemetery receipts held in trust. See Note 7 for further information related to our Deferred preneed funeral and cemetery receipts held in trust.

Maturity dates of our fixed income securities range from ~~2011~~2012 to ~~2041.~~2042. Maturities of fixed income securities, excluding mutual funds, at ~~September 30, 2011~~March 31, 2012 are estimated as follows:


	Fair Market Value		Fair Market Value
	(In thousands)		(In thousands)
Due in one year or less	$	9,761	$	4,793
Due in one to five years	43,714		61,108
Due in five to ten years	31,960		49,640
Thereafter	30,388		49,162
	$	115,823	$	164,703

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. Fees charged by our wholly-owned registered investment advisor are also included in current revenues in the period in which they are earned. 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 $~~4.6~~7.5 million and $~~2.8~~6.0 million for the three months ended ~~September 30, 2011~~March 31, 2012 and ~~2010, respectively. Recognized earnings (realized and unrealized) related to these trust investments were~~ ~~$15.7 million~~ ~~and~~ ~~$9.4 million~~ ~~for the~~ ~~nine~~ ~~months ended~~ ~~September 30,~~ 2011 ~~and~~ ~~2010~~, respectively.

~~Table of Contents~~

0.3 million and a $~~1.5 million~~ ~~impairment charge for other-than-temporary declines in fair value related to unrealized losses on certain investments, respectively. For the~~ ~~nine~~ ~~months ended~~ ~~September 30, 2011~~ ~~and~~ ~~2010, we recorded a~~ ~~$26.1 million~~ ~~and a~~ ~~$4.9~~1.0 million impairment charge for other-than-temporary declines in fair value related to unrealized losses on certain investments, respectively.

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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 ~~September 30, 2011~~March 31, 2012 are shown in the following tables:


	September 30, 2011															March 31, 2012
	In Loss Position Less Than 12 Months					In Loss Position Greater Than 12 Months					Total					In Loss Position Less Than 12 Months					In Loss Position Greater Than 12 Months					Total
	Fair Market Value		Unrealized Losses			Fair Market Value		Unrealized Losses			Fair Market Value		Unrealized Losses			Fair Market Value		Unrealized Losses			Fair Market Value		Unrealized Losses			Fair Market Value		Unrealized Losses
						(In thousands)															(In thousands)
Fixed income securities:
U.S. Treasury	$	1,817	$	(41	)	$	3,042	$	(264	)	$	4,859	$	(305	)	$	43,178	$	(1,932	)	$	2,287	$	(198	)	$	45,465	$	(2,130	)
Canadian government	3,307		(10		)	—		—			3,307		(10		)	2,489		(8		)	—		—			2,489		(8		)
Corporate	18,660		(1,628		)	—		—			18,660		(1,628		)	13,559		(483		)	538		(89		)	14,097		(572		)
Residential mortgage-backed	—		—			15		(1		)	15		(1		)	29		—			—		—			29		—
Equity securities:
Preferred stock	2,428		(462		)	—		—			2,428		(462		)	1,382		(198		)	66		(6		)	1,448		(204		)
Common stock:
United States	172,584		(43,555		)	19,470		(4,684		)	192,054		(48,239		)	59,820		(7,023		)	11,828		(3,919		)	71,648		(10,942		)
Canada	5,448		(966		)	457		(561		)	5,905		(1,527		)	4,255		(987		)	420		(589		)	4,675		(1,576		)
Other international	14,670		(2,454		)	3,426		(1,574		)	18,096		(4,028		)	5,230		(223		)	2,620		(446		)	7,850		(669		)
Mutual funds:
Equity	83,652		(13,461		)	58,659		(10,571		)	142,311		(24,032		)	25,667		(1,593		)	35,401		(9,417		)	61,068		(11,010		)
Fixed income	49,081		(4,293		)	10,872		(11,539		)	59,953		(15,832		)	83,092		(7,603		)	9,567		(12,451		)	92,659		(20,054		)
Private equity	426		(275		)	12,776		(15,983		)	13,202		(16,258		)	474		(308		)	13,946		(17,291		)	14,420		(17,599		)
Total temporarily impaired securities	$	352,073	$	(67,145	)	$	108,717	$	(45,177	)	$	460,790	$	(112,322	)	$	239,175	$	(20,358	)	$	76,673	$	(44,406	)	$	315,848	$	(64,764	)

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	December 31, 2010															December 31, 2011
	In Loss Position Less Than 12 Months					In Loss Position Greater Than 12 Months					Total					In Loss Position Less Than 12 Months					In Loss Position Greater Than 12 Months					Total
	Fair Market Value		Unrealized Losses			Fair Market Value		Unrealized Losses			Fair Market Value		Unrealized Losses			Fair Market Value		Unrealized Losses			Fair Market Value		Unrealized Losses			Fair Market Value		Unrealized Losses
						(In thousands)															(In thousands)
Fixed income securities:
U.S. Treasury	$	6,057	$	(295	)	$	315	$	(12	)	$	6,372	$	(307	)	$	1,736	$	(51	)	$	3,038	$	(262	)	$	4,774	$	(313	)
Canadian government	2,908		(4		)	—		—			2,908		(4		)	4,024		(24		)	—		—			4,024		(24		)
Corporate	8,577		(402		)	—		—			8,577		(402		)	15,044		(850		)	1,747		(111		)	16,791		(961		)
Residential mortgage-backed	—		—			20		(1		)	20		(1		)	2		(1		)	15		(1		)	17		(2		)
Asset-backed	766		(4		)	56		(1		)	822		(5		)
Equity securities:
Preferred stock	1,749		(124		)	—		—			1,749		(124		)	1,583		(270		)	—		—			1,583		(270		)
Common stock:
United States	63,027		(4,450		)	31,108		(6,371		)	94,135		(10,821		)	123,849		(26,401		)	17,085		(4,053		)	140,934		(30,454		)
Canada	3,131		(181		)	1,475		(669		)	4,606		(850		)	7,694		(1,260		)	366		(520		)	8,060		(1,780		)
Other international	8,542		(1,403		)	5,259		(2,242		)	13,801		(3,645		)	8,654		(629		)	3,772		(907		)	12,426		(1,536		)
Mutual funds:
Equity	5,107		(112		)	92,630		(18,457		)	97,737		(18,569		)	115,725		(11,222		)	36,398		(13,689		)	152,123		(24,911		)
Fixed income	25,887		(354		)	14,600		(9,605		)	40,487		(9,959		)	48,950		(7,686		)	9,367		(12,552		)	58,317		(20,238		)
Private equity	—		—			5,557		(13,890		)	5,557		(13,890		)	466		(254		)	14,213		(15,363		)	14,679		(15,617		)
Other	7		(1		)	303		(384		)	310		(385		)
Total temporarily impaired securities	$	125,758	$	(7,330	)	$	151,323	$	(51,632	)	$	277,081	$	(58,962	)	$	327,727	$	(48,648	)	$	86,001	$	(47,458	)	$	413,728	$	(96,106	)

6. Cemetery Perpetual Care Trusts

We are required by state and provincial law to pay into cemetery perpetual care trusts a portion of the proceeds from the sale of cemetery property interment rights. Our cemetery perpetual care trusts are variable interest entities 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 merchandise and service trust investments detailed in Notes 4 and 5 are also accounted for as variable interest entities. We consolidate our cemetery perpetual care trust investments with a corresponding amount recorded as Care trusts’ corpus. Cash flows from cemetery perpetual care trusts are presented as operating cash flows in our unaudited condensed consolidated statement of cash flows.

The table below sets forth certain investment-related activities associated with our cemetery perpetual care trusts:


	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30,						September 30,						March 31,
	2011			2010			2011			2010			2012			2011
	(In thousands)												(In thousands)
Deposits	$	5,503		$	5,381		$	17,806		$	17,282		$	6,544		$	5,789
Withdrawals	10,269			7,581			28,098			26,858			8,252			8,387
Purchases of available-for-sale securities	87,135			135,544			413,176			315,986			70,127			203,086
Sales of available-for-sale securities	49,705			137,354			387,715			247,125			52,886			267,666
Realized gains from sales of available-for-sale securities	4,101			4,244			31,221			8,937			2,162			21,241
Realized losses from sales of available-for-sale securities	(1,764		)	(2,068		)	(14,506		)	(7,524		)	(2,215		)	(10,661		)

The components of Cemetery perpetual care trust investments in our unaudited condensed consolidated balance sheet at ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010~~2011 are as follows:

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	September 30, 2011		December 31, 2010		March 31, 2012		December 31, 2011
	(In thousands)				(In thousands)
Trust investments, at market	$	913,014	$	922,228	$	999,259	$	952,573
Cash and cash equivalents	61,252		64,791		50,822		63,933
Cemetery perpetual care trust investments	$	974,266	$	987,019	$	1,050,081	$	1,016,506

The cost and market values associated with our cemetery perpetual care trust investments recorded at fair market value at

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~~September 30, 2011~~March 31, 2012 and December 31, ~~2010~~2011 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 or cash held by the common trust funds, mutual funds at published values, and the estimated market value of private equity investments.



	March 31, 2012
	Cost		Unrealized Gains		Unrealized Losses			Fair Market Value
			(In thousands)
Fixed income securities:
U.S. Treasury	$	927	$	31	$	(1	)	$	957
Canadian government	29,612		634		(15		)	30,231
Corporate	21,406		544		(68		)	21,882
Residential mortgage-backed	1,654		49		(1		)	1,702
Asset-backed	98		6		—			104
Equity securities:
Preferred stock	5,440		65		(404		)	5,101
Common stock:
United States	151,786		21,538		(4,024		)	169,300
Canada	13,853		1,666		(1,595		)	13,924
Other international	18,489		1,099		(699		)	18,889
Mutual funds:
Equity	17,795		2,534		(141		)	20,188
Fixed income	664,339		37,041		(3,650		)	697,730
Private equity	25,340		371		(13,734		)	11,977
Other	8,133		1,083		(1,942		)	7,274
Cemetery perpetual care trust investments	$	958,872	$	66,661	$	(26,274	)	$	999,259


	September 30, 2011									December 31, 2011
	Cost		Unrealized Gains		Unrealized Losses			Fair Market Value		Cost		Unrealized Gains		Unrealized Losses			Fair Market Value
			(In thousands)									(In thousands)
Fixed income securities:
U.S. Treasury	$	1,637	$	815	$	(2	)	$	2,450	$	981	$	39	$	—		$	1,020
Canadian government	28,751		862		(18		)	29,595		29,015		686		(43		)	29,658
Corporate	20,677		609		(92		)	21,194		21,197		528		(134		)	21,591
Residential mortgage-backed	1,702		59		(11		)	1,750		1,662		53		(13		)	1,702
Asset-backed	52		—		—			52		83		2		(1		)	84
Equity securities:
Preferred stock	5,961		—		(1,216		)	4,745		6,475		18		(1,146		)	5,347
Common stock:
United States	138,464		6,903		(16,980		)	128,387		141,880		14,443		(9,113		)	147,210
Canada	12,581		1,457		(1,237		)	12,801		13,374		1,483		(1,423		)	13,434
Other international	18,788		843		(2,259		)	17,372		16,836		1,314		(1,421		)	16,729
Mutual funds:
Equity	21,474		736		(2,336		)	19,874		21,801		1,598		(579		)	22,820
Fixed income	648,407		25,030		(16,199		)	657,238		654,883		29,758		(9,402		)	675,239
Private equity	24,835		358		(14,231		)	10,962		23,212		374		(12,737		)	10,849
Other	8,089		829		(2,324		)	6,594		8,018		850		(1,978		)	6,890
Cemetery perpetual care trust investments	$	931,418	$	38,501	$	(56,905	)	$	913,014	$	939,417	$	51,146	$	(37,990	)	$	952,573

2021

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December 31, 2010
Cost
Unrealized
Gains

Unrealized
Losses

Fair Market
Value
(In thousands)
Fixed income securities:
U.S. Treasury $ 5,651
$ 863
$ (31 ) $ 6,483
Canadian government 26,702
642
(7 ) 27,337
Corporate 48,278
5,219
(249 ) 53,248
Residential mortgage-backed 1,764
55
(6 ) 1,813
Asset-backed 363
5
—
368
Equity securities:
Preferred stock 7,789
1,385
(112 ) 9,062
Common stock:
United States 116,799
16,916
(6,640 ) 127,075
Canada 11,510
2,510
(758 ) 13,262
Other international 16,004
2,175
(1,845 ) 16,334
Mutual funds:
Equity 65,114
6,964
(7,239 ) 64,839
Fixed income 562,879
24,773
(2,334 ) 585,318
Private equity 23,428
351
(13,344 ) 10,435
Other 8,475
836
(2,657 ) 6,654
Cemetery perpetual care trust investments $ 894,756
$ 62,694
$ (35,222 ) $ 922,228

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~~As of March 31, 2012, private equity ~~investments~~instruments are valued ~~using market appraisals or~~based on reported net asset values discounted by 0% to 60% for risk and 0% to 25% for liquidity. A significant increase (decrease) in the discounts results in a ~~discounted cash flow methodology, which is an income approach~~directionally opposite change in the 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,~~instruments.Valuation policies and ~~discounted cash flow analysis.~~procedures are determined by our Treasury department, which reports to our Chief Financial Officer. Additionally, valuations are reviewed by our audit committee quarterly. 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, 2012, our unfunded commitment for our private equity and other investments was $7.0 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 perpetual care trust investments are categorized as follows:

~~Table of Contents~~

Quoted Market
Prices in Active
Markets
(Level 1)

Significant Other
Observable Inputs
(Level 2)

Significant
Unobservable Inputs
(Level 3)
Fair Market Value
(In thousands)
Trust investments at September 30, 2011 $ 835,672
$ 59,786
$ 17,556
$ 913,014
Trust investments at December 31, 2010 $ 806,828
$ 98,311
$ 17,089
$ 922,228



	Quoted Market Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Market Value
			(In thousands)
Trust investments at March 31, 2012	$	920,031	$	59,977	$	19,251	$	999,259
Trust investments at December 31, 2011	$	875,432	$	59,402	$	17,739	$	952,573

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


	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30,						September 30,						March 31,
	2011			2010			2011			2010			2012			2011
Fair market value, beginning balance	$	19,055		$	14,209		$	17,089		$	14,943		$	17,739		$	17,089
Net unrealized (losses) gains included in Accumulated other comprehensive income(1)	(2,377		)	1,225			5,525			5,350			839			6,111
Net realized gains (losses) included in Other income, net(2)	4			1,313			(187		)	1,236			(57		)	(27		)
Sales	—			(155		)	(44		)	(155		)	(26		)	(44		)
Contributions	18			1			115			1,881			1,390			1
Distributions and other	856			(2,590		)	(4,942		)	(9,252		)	(634		)	(2,871		)
Fair market value, ending balance	$	17,556		$	14,003		$	17,556		$	14,003		$	19,251		$	20,259


(1)	All unrealized (losses) gains recognized in Accumulated other comprehensive income for our cemetery perpetual care trust investments are offset by a corresponding reclassification in Accumulated other comprehensive income to Care trusts’ corpus. See Note 7 for further information related to our Care trusts’ corpus.


(2)	All gains (losses) recognized in Other income, net for our cemetery perpetual care trust investments are offset by a corresponding reclassification in Other income, net to Care trusts’ corpus. See Note 7 for further information related to our Care trusts’ corpus.

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Maturity dates of our fixed income securities range from ~~2011~~2012 to ~~2041.~~2042. Maturities of fixed income securities at ~~September 30, 2011~~March 31, 2012 are estimated as follows:


	Fair Market Value		Fair Market Value
	(In thousands)		(In thousands)
Due in one year or less	$	9,028	$	5,684
Due in one to five years	23,395		23,190
Due in five to ten years	19,220		24,729
Thereafter	3,398		1,273
	$	55,041	$	54,876

Distributable earnings from these cemetery perpetual care trust investments are recognized in current cemetery revenues to the extent we incur qualifying cemetery maintenance costs. Fees charged by our wholly-owned registered investment advisor are also included in current revenues in the period in which they are earned. Recognized earnings related to these trust investments were $~~7.3~~9.0 million and $~~10.4~~9.2 million for the three months ended ~~September 30, 2011~~March 31, 2012 and ~~2010, respectively. Recognized earnings related to these trust investments were~~ ~~$29.3 million~~ ~~and~~ ~~$29.2 million~~ ~~for the~~ ~~nine~~ ~~months ended~~ ~~September 30,~~ 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, net and a decrease to Cemetery perpetual care trust investments. These investment losses, if any, are offset by the corresponding reclassification in Other income, net, which reduces Care trusts’ corpus. See Note 7 for further information related to our Care trusts’ corpus. For the three months ended ~~September 30, 2011~~March 31, 2012 and ~~2010~~2011, we recorded a $0.0 million and a $~~0.2 million~~ ~~impairment charge for other-than-temporary declines in fair value related to unrealized losses on certain investments, respectively. For the~~ ~~nine~~ ~~months ended~~ ~~September 30, 2011~~ ~~and~~ ~~2010, we recorded a~~ $0.3 ~~million~~ ~~and a~~ ~~$1.8~~ million impairment charge for other-than-temporary declines in fair value related to unrealized losses on certain investments, respectively.

We have determined that the remaining unrealized losses in our cemetery perpetual care trust investments are considered

~~Table of Contents~~

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 perpetual care trust investment unrealized losses, their associated fair market values and the duration of unrealized losses, are shown in the following tables.



	March 31, 2012
	In Loss Position Less Than 12 Months					In Loss Position Greater Than 12 Months					Total
	Fair Market Value		Unrealized Losses			Fair Market Value		Unrealized Losses			Fair Market Value		Unrealized Losses
						(In thousands)
Fixed income securities:
U.S. Treasury	$	342	$	(1	)	$	—	$	—		$	342	$	(1	)
Canadian government	4,758		(15		)	—		—			4,758		(15		)
Corporate	5,960		(57		)	68		(11		)	6,028		(68		)
Residential mortgage-backed	222		(1		)	—		—			222		(1		)
Equity securities:
Preferred stock	2,937		(260		)	434		(144		)	3,371		(404		)
Common stock:
United States	22,965		(1,768		)	8,142		(2,256		)	31,107		(4,024		)
Canada	4,568		(1,001		)	643		(594		)	5,211		(1,595		)
Other international	9,843		(682		)	262		(17		)	10,105		(699		)
Mutual funds:
Equity	827		(28		)	2,267		(113		)	3,094		(141		)
Fixed income	84,277		(1,628		)	45,962		(2,022		)	130,239		(3,650		)
Private equity	281		(349		)	11,293		(13,385		)	11,574		(13,734		)
Other	144		(179		)	5,807		(1,763		)	5,951		(1,942		)
Total temporarily impaired securities	$	137,124	$	(5,969	)	$	74,878	$	(20,305	)	$	212,002	$	(26,274	)

September 30, 2011

In Loss Position
Less Than 12 Months

In Loss Position
Greater Than 12 Months
Total

Fair
Market
Value

Unrealized
Losses

Fair
Market
Value

Unrealized
Losses

Fair
Market
Value

Unrealized
Losses
(In thousands)
Fixed income securities:
U.S. Treasury $ 564
$ (2 ) $ —
$ —
$ 564
$ (2 )
Canadian government 5,590
(18 ) —
—
5,590
(18 )
Corporate 2,876
(79 ) 231
(13 ) 3,107
(92 )
Residential mortgage-backed 27
(1 ) 110
(10 ) 137
(11 )
Equity securities:
Preferred stock 4,720
(1,188 ) 22
(28 ) 4,742
(1,216 )
Common stock:
United States 64,616
(11,145 ) 9,435
(5,835 ) 74,051
(16,980 )
Canada 3,300
(663 ) 618
(574 ) 3,918
(1,237 )
Other international 10,925
(1,852 ) 347
(407 ) 11,272
(2,259 )
Mutual funds:
Equity 11,439
(1,573 ) 2,814
(763 ) 14,253
(2,336 )
Fixed income 180,580
(11,196 ) 39,050
(5,003 ) 219,630
(16,199 )
Private equity 258
(362 ) 10,315
(13,869 ) 10,573
(14,231 )
Other 134
(190 ) 5,390
(2,134 ) 5,524
(2,324 )
Total temporarily impaired securities $ 285,029
$ (28,269 ) $ 68,332
$ (28,636 ) $ 353,361
$ (56,905 )

~~Table of Contents~~


	December 31, 2010															December 31, 2011
	In Loss Position Less Than 12 Months					In Loss Position Greater Than 12 Months					Total					In Loss Position Less Than 12 Months					In Loss Position Greater Than 12 Months					Total
	Fair Market Value		Unrealized Losses			Fair Market Value		Unrealized Losses			Fair Market Value		Unrealized Losses			Fair Market Value		Unrealized Losses			Fair Market Value		Unrealized Losses			Fair Market Value		Unrealized Losses
						(In thousands)															(In thousands)
Fixed income securities:
U.S. Treasury	$	1,669	$	(31	)	$	—	$	—		$	1,669	$	(31	)	$	—	$	—		$	—	$	—		$	—	$	—
Canadian government	4,966		(7		)	—		—			4,966		(7		)	7,057		(43		)	—		—			7,057		(43		)
Corporate	9,181		(221		)	675		(28		)	9,856		(249		)	3,854		(73		)	1,456		(61		)	5,310		(134		)
Residential mortgage-backed	137		(2		)	92		(4		)	229		(6		)	58		(1		)	127		(12		)	185		(13		)
Asset-backed																51		(1		)	—		—			51		(1		)
Equity securities:
Preferred stock	1,561		(90		)	29		(22		)	1,590		(112		)	4,393		(1,116		)	21		(30		)	4,414		(1,146		)
Common stock:
United States	15,419		(1,464		)	16,419		(5,176		)	31,838		(6,640		)	39,716		(5,459		)	9,055		(3,654		)	48,771		(9,113		)
Canada	1,545		(82		)	1,454		(676		)	2,999		(758		)	4,402		(772		)	565		(651		)	4,967		(1,423		)
Other international	3,175		(242		)	2,383		(1,603		)	5,558		(1,845		)	5,738		(1,226		)	104		(195		)	5,842		(1,421		)
Mutual funds:
Equity	866		(10		)	29,974		(7,229		)	30,840		(7,239		)	9,852		(564		)	2,717		(15		)	12,569		(579		)
Fixed income	18,166		(134		)	53,553		(2,200		)	71,719		(2,334		)	144,350		(5,498		)	51,301		(3,904		)	195,651		(9,402		)
Private equity	1		(1		)	10,060		(13,343		)	10,061		(13,344		)	254		(324		)	10,189		(12,413		)	10,443		(12,737		)
Other	1		(2		)	5,568		(2,655		)	5,569		(2,657		)	140		(181		)	5,660		(1,797		)	5,800		(1,978		)
Total temporarily impaired securities	$	56,687	$	(2,286	)	$	120,207	$	(32,936	)	$	176,894	$	(35,222	)	$	219,865	$	(15,258	)	$	81,195	$	(22,732	)	$	301,060	$	(37,990	)

7. Deferred Preneed Funeral and Cemetery Receipts Held in Trust and Care Trusts’ Corpus

Deferred Preneed Funeral and Cemetery Receipts Held in Trust

We consolidate the merchandise and service trusts associated with our preneed funeral and cemetery activities in accordance with the Consolidation Topic of the ASC. Although the guidance requires the consolidation of the merchandise and service trusts, it does not change the legal relationships among the trusts, us, or our customers. The customers are the legal beneficiaries of these merchandise and service trusts, and therefore their interests in these trusts represent a liability to us.

The components of Deferred preneed funeral and cemetery receipts held in trust in our unaudited condensed consolidated balance sheet at ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010~~2011 are detailed below.


	September 30, 2011									December 31, 2010									March 31, 2012									December 31, 2011
	Preneed Funeral			Preneed Cemetery			Total			Preneed Funeral			Preneed Cemetery			Total			Preneed Funeral			Preneed Cemetery			Total			Preneed Funeral			Preneed Cemetery			Total
	(In thousands)									(In thousands)									(In thousands)									(In thousands)
Trust investments	$	1,244,284		$	1,094,652		$	2,338,936		$	1,216,542		$	1,194,795		$	2,411,337		$	1,317,105		$	1,245,781		$	2,562,886		$	1,271,446		$	1,156,023		$	2,427,469
Accrued trust operating payables and other	(1,146		)	(1,630		)	(2,776		)	(975		)	(2,288		)	(3,263		)	(1,936		)	(2,504		)	(4,440		)	(1,261		)	(1,852		)	(3,113		)
Deferred preneed funeral and cemetery receipts held in trust	$	1,243,138		$	1,093,022		$	2,336,160		$	1,215,567		$	1,192,507		$	2,408,074		$	1,315,169		$	1,243,277		$	2,558,446		$	1,270,185		$	1,154,171		$	2,424,356

Care Trusts’ Corpus

The Care trusts’ corpus reflected in our unaudited condensed consolidated balance sheet represents the cemetery perpetual care trusts, including the related accrued expenses.

The components of Care trusts’ corpus in our unaudited condensed consolidated balance sheet at ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010~~2011 are detailed below.

2423

Table of Contents


	September 30, 2011			December 31, 2010			March 31, 2012			December 31, 2011
	(In thousands)						(In thousands)
Cemetery perpetual care trust investments	$	974,266		$	987,019		$	1,050,081		$	1,016,506
Accrued trust operating payables and other	(2,340		)	(147		)	(2,025		)	(1,206		)
Care trusts’ corpus	$	971,926		$	986,872		$	1,048,056		$	1,015,300

Other Income, Net

The components of Other income, net in our unaudited condensed consolidated statement of operations for the three ~~and nine~~ months ended ~~September 30, 2011~~March 31, 2012 and ~~2010~~2011 are detailed below. See Notes 4, 5, and 6 for further discussion of the amounts related to the funeral, cemetery, and cemetery perpetual care trusts.


	Three Months Ended September 30, 2011														Three Months Ended March 31, 2012
	Funeral Trusts			Cemetery Trusts			Cemetery Perpetual Care Trusts			Other, Net		Total			Funeral Trusts			Cemetery Trusts			Cemetery Perpetual Care Trusts			Other, Net		Total
				(In thousands)														(In thousands)
Realized gains	$	11,353		$	10,134		$	4,101		$	—	$	25,588		$	26,011		$	39,272		$	2,162		$	—	$	67,445
Realized losses	(6,586		)	(8,758		)	(1,764		)	—		(17,108		)	(9,748		)	(13,770		)	(2,215		)	—		(25,733		)
Impairment charges	(17,533		)	(24,885		)	(5		)	—		(42,423		)	(344		)	(305		)	(1		)	—		(650		)
Interest, dividend, and other ordinary income	3,911			4,217			6,185			—		14,313			2,200			2,276			5,723			—		10,199
Trust expenses and income taxes	(2,116		)	(3,119		)	(647		)	—		(5,882		)	(2,569		)	(3,185		)	(385		)	—		(6,139		)
Net trust investment (loss) income	(10,971		)	(22,411		)	7,870			—		(25,512		)
Net trust investment income															15,550			24,288			5,284			—		45,122
Reclassification to deferred preneed funeral and cemetery receipts held in trust and care trusts’ corpus	10,971			22,411			(7,870		)	—		25,512			(15,550		)	(24,288		)	(5,284		)	—		(45,122		)
Other income, net	—			—			—			249		249			—						—			3,905		3,905
Total other income, net	$	—		$	—		$	—		$	249	$	249		$	—		$	—		$	—		$	3,905	$	3,905

Nine Months Ended September 30, 2011

Funeral
Trusts

Cemetery
Trusts

Cemetery Perpetual
Care Trusts
Other, Net Total
(In thousands)
Realized gains $ 49,618
$ 51,225
$ 31,221
$ —
$ 132,064
Realized losses (18,215 ) (19,994 ) (14,506 ) —
(52,715 )
Impairment charges (20,821 ) (26,081 ) (316 ) —
(47,218 )
Interest, dividend, and other ordinary income 15,085
16,545
25,775
—
57,405
Trust expenses and income taxes (4,982 ) (7,385 ) (2,753 ) —
(15,120 )
Net trust investment income 20,685
14,310
39,421
—
74,416
Reclassification to deferred preneed funeral and cemetery receipts held in trust and care trusts’ corpus (20,685 ) (14,310 ) (39,421 ) —
(74,416 )
Other income, net —
—
—
969
969
Total other income, net $ —
$ —
$ —
$ 969
$ 969

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Three Months Ended September 30, 2010

Funeral
Trusts

Cemetery
Trusts

Cemetery Perpetual
Care Trusts
Other, Net Total
(In thousands)
Realized gains $ 5,963
$ 6,838
$ 4,244
$ —
$ 17,045
Realized losses (8,360 ) (9,828 ) (2,068 ) —
(20,256 )
Impairment charges (1,129 ) (1,536 ) (251 ) —
(2,916 )
Interest, dividend, and other ordinary income 3,291
5,491
9,174
—
17,956
Trust expenses and income taxes (1,324 ) (2,555 ) (114 ) —
(3,993 )
Net trust investment (loss) income (1,559 ) (1,590 ) 10,985
—
7,836
Reclassification to deferred preneed funeral and cemetery receipts held in trust and care trusts’ corpus 1,559
1,590
(10,985 ) —
(7,836 )
Other income, net —
—
—
688
688
Total other income, net $ —
$ —
$ —
$ 688
$ 688


	Nine Months Ended September 30, 2010														Three Months Ended March 31, 2011
	Funeral Trusts			Cemetery Trusts			Cemetery Perpetual Care Trusts			Other, Net		Total			Funeral Trusts			Cemetery Trusts			Cemetery Perpetual Care Trusts			Other, Net		Total
				(In thousands)														(In thousands)
Realized gains	$	26,461		$	31,899		$	8,937		$	—	$	67,297		$	12,877		$	16,847		$	21,241		$	—	$	50,965
Realized losses	(42,017		)	(47,093		)	(7,524		)	—		(96,634		)	(4,034		)	(5,621		)	(10,661		)	—		(20,316		)
Impairment charges	(7,298		)	(4,919		)	(1,824		)	—		(14,041		)	(3,146		)	(978		)	(297		)	—		(4,421		)
Interest, dividend, and other ordinary income	13,223			14,914			25,249			—		53,386			3,422			4,909			8,180			—		16,511
Trust expenses and income taxes	(3,150		)	(7,024		)	(1,661		)	—		(11,835		)	(1,383		)	(1,755		)	(1,596		)	—		(4,734		)
Net trust investment (loss) income	(12,781		)	(12,223		)	23,177			—		(1,827		)
Net trust investment income															7,736			13,402			16,867			—		38,005
Reclassification to deferred preneed funeral and cemetery receipts held in trust and care trusts’ corpus	12,781			12,223			(23,177		)	—		1,827			(7,736		)	(13,402		)	(16,867		)	—		(38,005		)
Other income, net	—			—			—			3,077		3,077			—			—			—			674		674
Total other income, net	$	—		$	—		$	—		$	3,077	$	3,077		$	—		$	—		$	—		$	674	$	674

8. Income Taxes

Income tax expense during interim periods is based on our estimated annual effective income tax rate plus any discrete items which are recorded in the period in which they occur. Discrete items include, among others, such events as changes in estimates due to the finalization of tax returns, tax audit settlements, expiration of statute of limitations, and increases or decreases in valuation allowances on deferred tax assets. Our effective tax rate was ~~20.5%~~32.4% and ~~34.7%~~37.6% for the three months ended ~~September 30, 2011~~March 31, 2012 and ~~2010~~2011, respectively. ~~Our~~The effective tax rate of 32.4% for the first quarter of 2012 was below the 35% federal statutory tax rate due to the benefits associated with the settlement of a tax audit discussed below and foreign jurisdictions taxed at different rates, which is partially offset by state tax expense.

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Internal Revenue Service Settlement

Our affiliate SCI Funeral and Cemetery Purchasing Cooperative ("COOP"), is a corporation taxed under subchapter T of the United States Internal Revenue code, the operation of which has resulted in the deferral of tax payments. The Internal Revenue Service (IRS), in connection with its audits of the COOP's 2003 - 2005 federal income tax returns, proposed adjustments that would accelerate amounts that the Company had previously deferred and would result in the payment of interest on those deferred amounts. We reached a settlement with the IRS on March 28, 2012 and as a result the Company will make a one-time payment of approximately $6.3 million in the second quarter of 2012. Our tax expense for the first quarter was reduced by approximately $3.3 million for adjustments to our "unrecognized tax benefits" – that is, the aggregate tax effect of differences between tax return positions and the benefits recognized in our financial statements, and other tax matters.

Unrecognized Tax Benefits

We had previously recorded an unrecognized tax benefit and accrued interest for the exposure pertaining to the IRS audit settlement described above. As of March 31, 2012, the gross amount of our unrecognized tax benefits was ~~33.5%~~$146.7 million and the gross amount of our accrued interest was $39.2 million. During the first quarter, our unrecognized tax benefit and gross accrued interest decreased by $9.6 million and ~~38.8%~~$2.6 million ~~for~~respectively, due primarily to the ~~nine~~ ~~months ended~~ ~~September 30, 2011~~ ~~and~~ ~~2010, respectively.~~IRS audit settlement.

~~We sold our Puerto Rican subsidiary in the~~ ~~third quarter of 2011~~. Our outside tax basis in the business was higher than our book basis. Consequently, we recognized a tax loss that was higher than the book loss on the sale which is permanent in nature. The decrease in the effective tax rate for the ~~three and nine~~ ~~months ended~~ ~~September 30, 2011~~ ~~is primarily due to that sale. Additionally, our effective tax rate for the~~ ~~three months endedSeptember 30, 2010~~ ~~was reduced by the release of state valuation allowances due to the legal restructuring of our entities in certain states.~~

~~We file numerous federal, state and foreign income tax returns.~~ A number of years may elapse before particular tax matters, for which we have unrecognized tax benefits, are audited and finally settled. ~~In the United States, the~~While we have effectively settled our 2003 - 2005 tax years ~~1999 through 2002~~with respect to our affiliate the COOP, SCI and Subsidiaries' tax years 2003 - 2005 remain under ~~examination by the Internal Revenue Service and we are~~review at the IRS Appeals ~~administrative~~ level ~~on certain disputed issues that came out of its examination of~~and SCI and Subsidiaries' tax years ~~2003 through 2005.~~1999 - 2002 remain under review at the IRS Examination level. Various state and foreign jurisdictions are auditing years through ~~2009.~~2009. The outcome of each of these audits cannot be predicted at this time. It is reasonably possible that ~~changes to~~the amount of our ~~global~~ unrecognized tax benefits could ~~be significant; however, due~~significantly increase or decrease over the next twelve months either because we prevail on positions or because the tax authorities prevail. Due to the uncertainty regarding the timing of completion of audits and possible outcomes, a current estimate of the range of increases or decreases that may occur within the next twelve months cannot be made.

9. Debt

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Debt as of ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010~~2011 was as follows:


	September 30, 2011			December 31, 2010			March 31, 2012			December 31, 2011
	(In thousands)						(In thousands)
7.875% Debentures due February 2013	4,857			8,557			$	4,757		$	4,757
7.375% Senior Notes due October 2014	180,692			180,692			180,692			180,692
6.75% Senior Notes due April 2015	136,465			157,250			136,465			136,465
6.75% Senior Notes due April 2016	197,377			212,927			197,377			197,377
7.0% Senior Notes due June 2017	295,000			295,000			295,000			295,000
7.625% Senior Notes due October 2018	250,000			250,000			250,000			250,000
7.0% Senior Notes due May 2019	250,000			250,000			250,000			250,000
8.0% Senior Notes due November 2021	150,000			150,000			150,000			150,000
7.5% Senior Notes due April 2027	200,000			200,000			200,000			200,000
Bank credit facility due March 2016	65,000			—			65,000			65,000
Obligations under capital leases	126,658			118,339			156,517			124,330
Mortgage notes and other debt, maturities through 2047	36,565			38,223			6,334			35,937
Unamortized pricing discounts and other	(5,030		)	(6,106		)	(4,743		)	(4,888		)
Total debt	1,887,584			1,854,882			1,887,399			1,884,670
Less current maturities	(23,685		)	(22,502		)	(28,415		)	(23,554		)
Total long-term debt	$	1,863,899		$	1,832,380		$	1,858,984		$	1,861,116

Current maturities of debt at ~~September 30, 2011~~March 31, 2012 were primarily comprised of our capital leases. Our consolidated debt had a weighted average interest rate of ~~6.67%~~6.61% at ~~September 30, 2011~~March 31, 2012 and ~~6.80%~~6.69% at December 31, ~~2010~~2011. Approximately ~~90%~~ ~~and~~ ~~93%~~89% of our total debt had a fixed interest rate at both ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010~~2011~~, respectively.~~.

Bank Credit Facility

As of December 31, 2010,, we had a $400 million bank credit facility due ~~November 2013~~March 2016 with a syndicate of financial institutions, including a sublimit of $175 million for letters of credit. In the first quarter of 2011, we amended our bank credit facility to increase

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the availability thereunder from $400 million to $500 million and extended the maturity to March 2016.

As of ~~September 30, 2011~~March 31, 2012, we have $65.0 million outstanding cash advances under our bank credit facility and have used it to support $~~33.3~~32.7 million of letters of credit. The bank credit facility provides us with flexibility for working capital, if needed, and is guaranteed by a majority of our domestic subsidiaries. The subsidiary guaranty is a guaranty of payment of the outstanding amount of the total lending commitment, including letters of credit. The bank credit facility contains certain financial covenants, including a minimum interest coverage ratio, a maximum leverage ratio, and certain dividend and share repurchase restrictions. We pay a quarterly fee on the unused commitment, which was 0.35%. As of ~~September 30, 2011~~March 31, 2012, we have $~~401.7~~402.3 million in borrowing capacity under the bank credit facility.

Debt Extinguishments and Reductions

During the ~~nine~~three months ended ~~September 30, 2011~~March 31, 2012, we paid an aggregate of $~~43.1~~6.1 million to retire capital lease obligations with no associated gain or loss recognized on early extinguishment of this debt.

During the three months ended March 31, 2011, we paid $~~22.3~~5.2 million, to retire $0.2 million aggregate principal amount of our 7.875% Senior Notes due February 2013, and $4.7 million aggregate principal amount of our 6.75% Senior Notes due April ~~2015,~~ ~~$16.9 million~~ ~~aggregate principal amount~~2015. Certain of ~~our~~ ~~6.75%~~ ~~Senior Notes due April 2016, and~~ ~~$3.9 million~~ ~~aggregate principal amount of our~~ ~~7.875%~~ ~~Senior Notes due February 2013,resulting~~the above transactions resulted in the recognition of a loss of $~~3.5~~0.3 million ~~loss recorded in~~ ~~Losses on early extinguishment of debt, net~~ ~~in our unaudited condensed consolidated statement of operations.~~

~~During the~~ ~~nine months ended~~ ~~September 30, 2010, we repaid~~ ~~$30.0 million~~ ~~of amounts drawn on our bank credit facility,~~ ~~$20.2 million~~ ~~aggregate principal amount of our~~ ~~6.75%~~ ~~Senior Notes due April 2016,~~ ~~$3.0 million~~ ~~aggregate principal amount of our~~ ~~6.75%~~ ~~Senior Notes due April 2015,~~ ~~$64.3 million~~ ~~aggregate principal amount of our~~ ~~7.375%~~ ~~Senior Notes due October 2014, and~~ ~~$23.1 million~~ ~~aggregate principal amount of our~~ ~~7.875%~~ ~~Senior Notes due February 2013. As a result of these transactions, we recognized a~~ ~~$9.4 million~~ ~~loss~~ recorded in Losses on early extinguishment of debt, net in our unaudited condensed consolidated statement of operations.

Capital Leases

During the ~~nine~~three months ended ~~September 30, 2011~~March 31, 2012 and ~~2010~~2011, we acquired $~~27.1~~38.3 million and $~~17.3~~8.8 million, respectively, of primarily transportation equipment ~~using~~ capital leases.

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10. Credit Risk and Fair Value of Financial Instruments

Fair Value Estimates

The fair value estimates of the following financial instruments have been determined using available market information and appropriate valuation methodologies. The carrying values of cash and cash equivalents, trade receivables, and trade payables approximate the fair values of those instruments due to the short-term nature of the instruments. The fair values of receivables on preneed funeral and cemetery contracts are impracticable to estimate because of the lack of a trading market and the diverse number of individual contracts with varying terms.

The fair value of our debt instruments at ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010~~2011 was as follows:


	September 30, 2011		December 31, 2010		March 31, 2012		December 31, 2011
	(In thousands)				(In thousands)
7.875% Debentures due February 2013	$	5,159	$	9,092	$	4,757	$	4,971
7.375% Senior Notes due October 2014	193,901		194,244		197,948		196,954
6.75% Senior Notes due April 2015	143,629		161,968		149,429		150,083
6.75% Senior Notes due April 2016	202,311		216,653		214,647		216,375
7.0% Senior Notes due June 2017	306,063		302,375		331,138		323,025
7.625% Senior Notes due October 2018	266,095		262,500		288,750		276,875
7.0% Senior Notes due May 2019	254,375		251,250		271,250		262,500
8.0% Senior Notes due November 2021	159,375		158,063		173,532		167,550
7.5% Senior Notes due April 2027	189,000		194,920		203,250		195,750
Bank credit facility due March 2016	65,000		—		65,000		65,000
Mortgage notes and other debt, maturities through 2047	37,100		37,991		6,334		36,340
Total fair value of debt instruments	$	1,822,008	$	1,789,056	$	1,906,035	$	1,895,423

The fair values of our long-term, fixed rate loans were estimated using market prices for those loans, and therefore they are classified within Level 1 of the Fair Value Measurements hierarchy as required by the FVM&D Topic of the ASC. The bank credit agreement and the mortgage and other debt are classified within Level 3 of the Fair Value Measurements hierarchy. The fair values of these instruments have been estimated using discounted cash flow analysis based on our incremental borrowing rate for similar borrowing arrangements. A significant increase (decrease) in the inputs results in a directionally opposite change in the fair value of the instruments.

11. Share-Based Compensation

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Stock Benefit Plans

We utilize the Black-Scholes option valuation model for estimating the fair value of our stock options. This model ~~allows the use of~~uses a range of assumptions related to volatility, the risk-free interest rate, the expected life, and the dividend yield. The fair values of our stock options are calculated using the following weighted average assumptions for the ~~nine~~three months ended ~~September 30, 2011~~March 31, 2012:



	~~Nine~~Three Months Ended
Assumptions	~~September 30, 2011~~March 31, 2012
Dividend yield	~~2.4~~1.8	%
Expected volatility	~~38.4~~40.8	%
Risk-free interest rate	~~2.4~~0.8	%
Expected holding period (in years)	5.0

Stock Options

The following table sets forth stock option activity for the ~~nine~~three months ended ~~September 30, 2011~~March 31, 2012:

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Options
Weighted-Average
Exercise Price
Outstanding at December 31, 2010 12,312,783
$ 7.53
Granted 2,394,430
9.09
Exercised (1,136,808 ) 6.77
Canceled (94,857 ) 5.32
Outstanding at September 30, 2011 13,475,548
$ 7.88
Exercisable at September 30, 2011 8,288,301
$ 8.16



	Options		Weighted-Average Exercise Price
Outstanding at December 31, 2011	13,404,216		$	7.88
Granted	2,023,500		11.18
Exercised	(422,234	)	5.50
Outstanding at March 31, 2012	15,005,482		$	8.40
Exercisable at March 31, 2012	10,642,843		$	7.82

As of ~~September 30, 2011~~March 31, 2012, the unrecognized compensation expense related to stock options of $~~7.9~~12.1 million is expected to be recognized over a weighted average period of ~~1.4~~1.6 years.

Restricted Shares

Restricted share activity for the ~~nine~~three months ended ~~September 30, 2011~~March 31, 2012 was as follows:


	Restricted shares		Weighted-Average Grant-Date Fair Value		Restricted shares		Weighted-Average Grant-Date Fair Value
Nonvested restricted shares at December 31, 2010	1,167,273		$	6.35
Nonvested restricted shares at December 31, 2011					1,165,170		$	7.53
Granted	538,620		9.13		483,170		11.18
Vested	(540,723	)	6.58		(520,161	)	6.05
Nonvested restricted shares at September 30, 2011	1,165,170		$	7.53
Nonvested restricted shares at March 31, 2012					1,128,179		$	9.78

As of ~~September 30, 2011~~March 31, 2012, the unrecognized compensation expense related to restricted shares of $~~6.1~~9.4 million is expected to be recognized over a weighted average period of ~~1.4~~1.6 years.

12. Equity

(All shares reported in whole numbers)

Our components of Accumulated other comprehensive income are as follows:

Foreign
Currency
Translation
Adjustment

Unrealized
Gains and
Losses

Accumulated
Other
Comprehensive
Income
(In thousands)
Balance at December 31, 2010 $ 112,768
$ —
$ 112,768
Activity in 2011 (13,216 ) —
(13,216 )
Decrease in net unrealized gains associated with available-for-sale securities of the trusts, net of taxes —
(146,669 ) (146,669 )
Reclassification of net unrealized loss activity attributable to the Deferred preneed funeral and cemetery receipts held in trust and Care trusts’ corpus’, net of taxes
—
146,669
146,669
Balance at September 30, 2011 $ 99,552
$ —
$ 99,552



	Foreign Currency Translation Adjustment		Unrealized Gains and Losses			Accumulated Other Comprehensive Income
			(In thousands)
Balance at December 31, 2011	$	105,852	$	—		$	105,852
Activity in 2012	5,760		—			5,760
Increase in net unrealized gains associated with available-for-sale securities of the trusts, net of taxes	—		78,178			78,178
Reclassification of net unrealized gain activity attributable to the Deferred preneed funeral and cemetery receipts held in trust and Care trusts’ corpus’, net of taxes	—		(78,178		)	(78,178		)
Balance at March 31, 2012	$	111,612	$	—		$	111,612

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The assets and liabilities of foreign operations are translated into U.S. dollars using the current exchange rate. The U.S. dollar amount that arises from such translation, as well as exchange gains and losses on intercompany balances of a long-term investment nature, are included in the foreign currency translation adjustment in Accumulated other comprehensive income. ~~Income taxes are generally not provided on foreign currency translation adjustments.~~

~~The components of comprehensive income are as follows for the~~ ~~three and nine~~ ~~months ended~~ ~~September 30, 2011~~ ~~and~~ ~~2010~~:

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Three Months Ended Nine Months Ended
September 30, September 30,
2011 2010 2011 2010
(In thousands) (In thousands)
Comprehensive income:
Amounts attributable to common stockholders:
Net income $ 35,496
$ 18,765
$ 100,353
$ 89,962
Other comprehensive (loss) income (23,132 ) 7,266
(13,216 ) 4,761
Amounts attributable to noncontrolling interests:
Net (loss) income (481 ) (85 ) 1,329
270
Other comprehensive (loss) income (17 ) 3
(13 ) 2
Comprehensive income $ 11,866
$ 25,949
$ 88,453
$ 94,995

Cash Dividends

On ~~August 10, 2011,~~February 8, 2012, our Board of Directors approved a cash dividend of $.05 per common share. At ~~September 30, 2011~~March 31, 2012, this dividend totaling $~~11.4~~10.9 million was recorded in Accounts payable and accrued liabilities and Capital in excess of par value in our unaudited condensed consolidated balance sheet. This dividend will be paid on ~~October 31, 2011.~~April 30, 2012.

Share Repurchase Program

Subject to market conditions, normal trading restrictions, and limitations in our debt covenants, we may make purchases in the open market or through privately negotiated transactions under our stock repurchase program. In ~~August 2011,~~February 2012, our Board of Directors approved an increase in our share repurchase program authorizing the investment of up to an additional $~~116.6~~120 million to repurchase our common stock, bringing total authorization up to $~~200.0~~200 million. During the ~~nine~~three months ended ~~September 30, 2011~~March 31, 2012, we repurchased ~~14,641,168~~6,591,870 shares of common stock at an aggregate cost of $~~145.0~~73.2 million, which is an average cost per share of $~~9.90~~11.10. After these repurchases, the remaining dollar value of shares authorized to be purchased under our share repurchase program was approximately $~~150.3~~146.8 million at ~~September 30, 2011~~March 31, 2012.

Subsequent to ~~September 30, 2011~~March 31, 2012, we repurchased an additional ~~1,233,800~~759,276 shares of common stock at an aggregate cost of $~~11.7~~8.3 million, which is an average cost per share of $~~9.48~~10.93. After these ~~fourth~~second quarter repurchases, the remaining dollar value of shares authorized to be purchased under our share repurchase program is approximately $~~138.6~~138.5 million.

13. Segment Reporting

Our operations are both product based and geographically based, and the reportable operating segments presented below include our funeral and cemetery operations. Our geographic areas include United States, Canada, and Germany. We conduct both funeral and cemetery operations in the United States and Canada and funeral operations in Germany.

Our reportable segment information is as follows:

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	Funeral		Cemetery		Reportable Segments		Funeral		Cemetery		Reportable Segments
	(In thousands)						(In thousands)
Three Months ended September 30,
Three Months ended March 31,
Revenues from external customers:
2012							$	424,281	$	178,225	$	602,506
2011	$	384,003	$	188,996	$	572,999	$	408,435	$	171,264	$	579,699
2010	$	358,931	$	174,234	$	533,165
Gross profits:
2012							$	100,024	$	27,543	$	127,567
2011	$	69,022	$	38,028	$	107,050	$	99,355	$	27,091	$	126,446
2010	$	69,058	$	33,589	$	102,647
Nine Months ended September 30,
Revenues from external customers:
2011	$	1,178,362	$	551,110	$	1,729,472
2010	$	1,105,687	$	513,614	$	1,619,301
Gross profits:
2011	$	243,827	$	104,692	$	348,519
2010	$	231,167	$	93,136	$	324,303

The following table reconciles gross profits from reportable segments to our consolidated income before income taxes:


	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30,						September 30,						March 31,
	2011			2010			2011			2010			2012			2011
	(In thousands)						(In thousands)						(In thousands)
Gross profits from reportable segments	$	107,050		$	102,647		$	348,519		$	324,303		$	127,567		$	126,446
General and administrative expenses	(23,863		)	(26,860		)	(77,381		)	(80,086		)	(25,959		)	(28,833		)
(Losses) gains on divestitures and impairment charges, net	(5,001		)	(7,291		)	(15,264		)	5,831
Losses on divestitures and impairment charges, net													(490		)	(420		)
Operating income	78,186			68,496			255,874			250,048			101,118			97,193
Interest expense	(33,038		)	(31,497		)	(100,476		)	(96,281		)	(33,588		)	(33,559		)
Losses on early extinguishment of debt, net	(1,355		)	(9,066		)	(3,504		)	(9,357		)	—			(314		)
Other income, net	249			688			969			3,077			3,905			674
Income before income taxes	$	44,042		$	28,621		$	152,863		$	147,487		$	71,435		$	63,994

Our geographic area information is as follows:

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	United States		Canada		Germany		Total		United States		Canada		Germany		Total
			(In thousands)								(In thousands)
Three Months ended September 30,
Three Months ended March 31,
Revenues from external customers:
2012									$	547,176	$	53,541	$	1,789	$	602,506
2011	$	518,754	$	52,824	$	1,421	$	572,999	$	524,896	$	52,919	$	1,884	$	579,699
2010	$	479,120	$	52,399	$	1,646	$	533,165
Nine Months ended September 30,
Revenues from external customers:
2011	$	1,569,748	$	154,706	$	5,018	$	1,729,472
2010	$	1,458,883	$	155,497	$	4,921	$	1,619,301

14. Supplementary Information

The detail of certain income statement accounts as presented in the unaudited condensed consolidated statement of operations is as follows:

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	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
	2011		2010		2011		2010		2012		2011
	(In thousands)				(In thousands)				(In thousands)
Merchandise revenues:
Funeral	$	126,168	$	117,674	$	383,308	$	362,145	$	140,233	$	132,263
Cemetery	132,904		121,131		381,898		352,009		121,834		114,921
Total merchandise revenues	259,072		238,805		765,206		714,154		262,067		247,184
Services revenues:
Funeral	234,367		220,913		726,259		688,866		259,698		256,285
Cemetery	45,571		45,617		145,247		138,669		49,671		49,222
Total services revenues	279,938		266,530		871,506		827,535		309,369		305,507
Other revenues	33,989		27,830		92,760		77,612		31,070		27,008
Total revenues	$	572,999	$	533,165	$	1,729,472	$	1,619,301	$	602,506	$	579,699
Merchandise costs and expenses:
Funeral	$	64,156	$	58,520	$	197,539	$	185,994	$	72,227	$	70,015
Cemetery	56,703		51,551		166,936		151,358		55,686		53,565
Total cost of merchandise	120,859		110,071		364,475		337,352		127,913		123,580
Services costs and expenses:
Funeral	127,102		114,662		370,942		335,425		127,158		117,940
Cemetery	23,853		22,882		73,793		70,990		25,821		24,499
Total cost of services	150,955		137,544		444,735		406,415		152,979		142,439
Overhead and other expenses	194,135		182,903		571,743		551,231		194,047		187,234
Total costs and expenses	$	465,949	$	430,518	$	1,380,953	$	1,294,998	$	474,939	$	453,253

15. Commitments and Contingencies

Insurance Loss Reserves

We purchase comprehensive general liability, morticians’ and cemetery professional liability, automobile liability, and workers’ compensation insurance coverage structured with high deductibles. The high-deductible insurance program means we are primarily self-insured for claims and associated costs and losses covered by these policies. As of ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010~~2011, we have self-insurance reserves of $~~51.9~~53.1 million and $~~53.9~~52.7 million, respectively.

Litigation

We are a party to various litigation matters, investigations, and proceedings. For each of our outstanding legal matters, we evaluate the merits of the case, our exposure to the matter, possible legal or settlement strategies, and the likelihood of an unfavorable outcome. We intend to vigorously defend ourselves in the lawsuits described herein; however, if we determine that an unfavorable outcome is probable and can be reasonably estimated, we establish the necessary accruals. We hold certain insurance policies that may reduce cash outflows with respect to an adverse outcome of certain of these litigation matters. We accrue such insurance

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recoveries when they become probable of being paid and can be reasonably estimated.

Burial Practices Claims. We are named as a defendant in various lawsuits alleging improper burial practices at certain of our cemetery locations. These lawsuits include but are not limited to the Garcia,Sands, Zinn and ~~Sands~~Baio lawsuits described in the following paragraphs.

Reyvis Garcia and Alicia Garcia v. Alderwoods Group, Inc., Osiris Holding of Florida, Inc., a Florida corporation, d/b/a Graceland Memorial Park South, f/k/a Paradise Memorial Gardens, Inc., was filed in December 2004, in the Circuit Court of the Eleventh Judicial Circuit in and for Miami-Dade County, Florida, Case No. 04-25646 CA 32. Plaintiffs are the son and sister of the decedent, Eloisa Garcia, who was buried at Graceland Memorial Park South in March 1986, when the cemetery was owned by Paradise Memorial Gardens, Inc. Initially, the suit sought damages on the individual claims of the plaintiffs relating to the burial of Eloisa Garcia. Plaintiffs claimed that due to poor recordkeeping, spacing issues and maps, and the fact that the family could not afford to purchase a marker for the grave, the burial location of the decedent could not be readily located. Subsequently, the decedent’s grave was located and verified. In July 2006, plaintiffs amended their complaint, seeking to certify a class of all

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persons buried at this cemetery whose burial sites cannot be located, claiming that this was due to poor recordkeeping, maps, and surveys at the cemetery. Plaintiffs subsequently filed a third amended class action complaint and added two additional named plaintiffs. The plaintiffs are seeking unspecified monetary damages, as well as equitable and injunctive relief. On May 4, 2011, the trial court certified a class and we are appealing that ruling. We cannot quantify our ultimate liability, if any, for the payment of any damages.

F. Charles Sands, individually and on behalf of all others similarly situated, v. Eden Memorial Park, et al.; Case No. BC421528; in the Superior Court of the State of California for the County of Los Angeles — Central District. This case was filed in September 2009 against SCI and certain subsidiaries regarding our Eden Memorial Park cemetery in Mission Hills, California. The plaintiff seeks to certify a class of cemetery plot owners and their families. The plaintiff ~~also~~ seeks compensatory, consequential and punitive damages as well as the appointment of a receiver to oversee cemetery operations. The plaintiff claims the cemetery damaged and desecrated burials in order to prepare adjoining graves for subsequent burials. In February 2012, the court held a hearing on the plaintiff's motion for class certification and, so far, no order has been issued relating to that hearing. We cannot quantify our ultimate liability, if any, for the payment of any damages.

David Zinn and Michael Graff, individually and on behalf of all others similarly situated v. Service Corporation International, et al.; Case No. 502012CA006536MB, in the Circuit Court of the 15th Judicial Circuit in and for Palm Beach County of Florida. This case was filed by counsel for plaintiffs in the preceding Sands case on April 5, 2012 regarding our Star of David Memorial Gardens Cemetery and Funeral Chapel & Bailey Memorial Gardens located in North Lauderdale, Florida. The plaintiffs seek to certify a class of cemetery plot owners and their families. The plaintiffs allege the cemetery engaged in wrongful burial operations and did not disclose them to customers. The plaintiffs seek compensatory, consequential and punitive damages as well as the appointment of a receiver to oversee cemetery operations. We cannot quantify our ultimate liability, if any, for the payment of any damages.

Michele Baio, individually and on behalf of all others similarly situated v. Beth David Memorial Gardens, Inc. et al.; Case No. 502012CA006532MB, in the Circuit Court of the 15^th Judicial Circuit in and for Palm Beach County of Florida. This case was filed by counsel for plaintiffs in the preceding Sands and Zinn cases on April 5, 2012 regarding the Beth David Memorial Gardens and Chapel located in Hollywood, Florida. Although we acquired the cemetery in connection with our 2006 acquisition of Alderwoods Group, Inc., we never managed the cemetery and sold it to a third party shortly after closing on the Alderwoods acquisition. The plaintiff seeks to certify a class of cemetery plot owners and their families. The plaintiff alleges the cemetery engaged in wrongful burial operations and did not disclose them to customers. The plaintiff seeks compensatory, consequential and punitive damages as well as the appointment of a receiver to oversee cemetery operations. We cannot quantify our ultimate liability, if any, for the payment of any damages.

Antitrust Claims. We are named as a defendant in an antitrust case filed in 2005. The case is Cause No 4:05-CV-03394; Funeral Consumers Alliance, Inc. v. Service Corporation International, et al.; in the United States District Court for the Southern District of Texas — Houston (“Funeral Consumers Case”). This was a purported class action on behalf of casket consumers throughout the United States alleging that we and several other companies involved in the funeral industry violated federal antitrust laws and state consumer laws by engaging in various anti-competitive conduct associated with the sale of caskets. Based on the case proceeding as a class action, the plaintiffs filed an expert report indicating that the damages sought from all defendants range from approximately $950 million to $1.5 billion, before trebling. However, the trial court denied the plaintiffs’ motion to certify the case as a class action. We deny that we engaged in anticompetitive practices related to our casket sales, and we have filed reports of our experts, which vigorously dispute the validity of the plaintiffs’ damages theories and calculations. The trial court dismissed plaintiffs’ claims on September 24, 2010, and the plaintiffs filed an appeal on October 19, 2010. We cannot quantify our ultimate liability, if any, in this lawsuit.

Wage and Hour Claims. We are named a defendant in various lawsuits alleging violations of federal and state laws regulating wage and hour overtime pay, including but not limited to the Prise, Bryant, Bryant, Helm, Stickle, and Southern lawsuits described

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in the following paragraphs.

Prise, et al., v. Alderwoods Group, Inc., and Service Corporation International; Cause No. 06-164; in the United States District Court for the Western District of Pennsylvania (the “Wage and Hour Lawsuit”). The Wage and Hour Lawsuit was filed by two former Alderwoods (Pennsylvania), Inc. employees in December 2006 and purports to have been brought under the Fair Labor Standards Act (“FLSA”) on behalf of all Alderwoods and SCI-affiliated employees who performed work for which they were not fully compensated, including work for which overtime pay was owed. Although the court initially conditionally certified a class of claims as to certain job positions for Alderwoods employees, the court granted our motion to decertify the class on September 9, 2011.

Plaintiffs allege causes of action for violations of the FLSA, failure to maintain proper records, breach of contract, violations of state wage and hour laws, unjust enrichment, fraud and deceit, quantum meruit, negligent misrepresentation, and negligence. Plaintiffs seek injunctive relief, unpaid wages, liquidated, compensatory, consequential and punitive damages, attorneys’ fees and costs, and pre- and post-judgment interest. We cannot quantify our ultimate liability, if any, in this lawsuit.

Bryant, et al. v. Alderwoods Group, Inc., Service Corporation International, et al.; Case No. 3:07-CV-5696-SI; in the U.S. District Court for the Northern District of California. This lawsuit was filed on November 8, 2007 against SCI and various subsidiaries and individuals. It is related to the Wage and Hour Lawsuit, raising similar claims and brought by the same attorneys. This lawsuit has been transferred to the U.S. District Court for the Western District of Pennsylvania and is now Case No. 08-CV-00891-JFC. We cannot quantify our ultimate liability, if any, in this lawsuit.

Bryant, et al. v. Service Corporation International, et al.; Case No. RG-07359593; and Helm, et al. v. AWGI & SCI; Case No. RG-07359602; in the Superior Court of the State of California, County of Alameda. These cases were filed on December 5, 2007 by counsel for plaintiffs in the Wage and Hour Lawsuit. These cases assert state law claims similar to the federal claims asserted in the Wage and Hour Lawsuit. These cases were removed to federal court in the U.S. District Court for the Northern District of California, San Francisco/Oakland Division. The Bryant case is now Case No. 3:08-CV-01190-SI and the Helm case is now Case No. C 08-01184-SI. On December 29, 2009, the court in the Helm case denied the plaintiffs’ motion to certify the case as a class action. The plaintiffs modified and refiled their motion for certification. On March 9, 2011, the court denied plaintiffs’ renewed motions to certify a class in both of the Bryant and Helm cases. The plaintiffs have also (i) filed additional lawsuits with similar allegations seeking class certification of state law claims in different states, and (ii) made a large number of demands for arbitration. We cannot quantify our ultimate liability, if any, in these lawsuits.

Stickle, et al. v. Service Corporation International, et al.; Case No. 08-CV-83; in the U.S. District Court for Arizona, Phoenix Division. Counsel for plaintiffs in the Wage and Hour Lawsuit filed this case on January 17, 2008, against SCI and various related entities and individuals asserting FLSA and other ancillary claims based on the alleged failure to pay for overtime. In September 2009, the Court conditionally certified a class of claims as to certain job positions of SCI affiliated employees. On

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April 20, 2011, the court granted our motion to decertify the class. We cannot quantify our ultimate liability, if any, in this lawsuit.

Southern, et al. v. SCI Kentucky Funeral Services, Inc.; Case No. 11CIO6501; in the Jefferson Circuit Court, Division Eight, Kentucky. This lawsuit was filed on October 6, 2011 against an SCI subsidiary and purports to have been brought on behalf of employees who worked in Kentucky as funeral directors. The plaintiffs allege causes of action for various violations of Kentucky wage and hour laws, and breach of contract. Plaintiffs seek unpaid wages, compensatory and exemplary relief, damages, attorneys' fees and costs, and pre- and post judgment interest. We cannot quantify our ultimate liability, if any, in this lawsuit.

The ultimate outcome of the matters described above cannot be determined at this time. We intend to vigorously defend all of the above lawsuits; however, an adverse decision in one or more of such matters could have a material effect on us, our financial condition, results of operations, and cash flows.

16. Earnings Per Share

Basic earnings per common share (EPS) excludes dilution and is computed by dividing Net income attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other obligations to issue common stock were exercised or converted into common stock or resulted in the issuance of common shares that then shared in our earnings.

A reconciliation of the numerators and denominators of the basic and diluted EPS computations is presented below:

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	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
	2011		2010		2011		2010		2012		2011
	(In thousands, except per share amounts)				(In thousands, except per share amounts)				(In thousands, except per share amounts)
Amounts attributable to common stockholders:
Net income:
Net income — basic	$	35,496	$	18,765	$	100,353	$	89,962	$	48,025	$	38,764
After tax interest on convertible debt	13		—		38		38		13		13
Net income — diluted	$	35,509	$	18,765	$	100,391	$	90,000	$	48,038	$	38,777
Weighted average shares (denominator):
Weighted average shares — basic	232,917		246,214		237,037		250,762		220,132		239,772
Stock options	2,475		1,309		2,370		1,603		2,959		2,159
Convertible debt	121		—		121		121		121		121
Weighted average shares — diluted	235,513		247,523		239,528		252,486		223,212		242,052
Net income per share:
Basic	$	0.15	$	0.08	$	0.42	$	0.36	$	0.22	$	0.16
Diluted	$	0.15	$	0.08	$	0.42	$	0.36	$	0.22	$	0.16

The computation of diluted EPS excludes outstanding stock options and convertible debt in certain periods in which the inclusion of such options and debt would be anti-dilutive in the periods presented. For the three months ended ~~September 30, 2011~~March 31, 2012 and ~~September 30, 2010~~March 31, 2011, total options and convertible debentures not currently included in the computation of dilutive EPS were ~~5.1~~4.3 million and ~~6.6 million, respectively. For the~~ ~~nine~~ ~~months ended~~ ~~September 30, 2011~~ ~~and~~ ~~September 30, 2010, total options and convertible debentures not currently included in the computation of dilutive EPS were~~ ~~5.5 million~~ ~~and~~ ~~5.4~~5.6 million, respectively.

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17. Acquisitions

~~Keystone~~

~~In March 2010, pursuant to a tender offer, we acquired Keystone North America, Inc. (Keystone) for~~ ~~C$8.07~~ ~~per share in cash, resulting in a purchase price of~~ ~~$288.9 million, which included the refinancing of~~ ~~$80.7 million~~ ~~of Keystone’s debt.~~

~~The primary reasons for the merger and the principal factors that contributed to the recognition of goodwill in this acquisition were:~~

~~the acquisition of Keystone enhances our network footprint, enabling us to serve a number of new, complementary areas;~~

~~combining the two companies’ operations provides synergies and related cost savings through the elimination of duplicate home office functions and economies of scale; and~~

~~the acquisition of Keystone’s preneed backlog of deferred revenues enhances our long-term stability.~~

The following table summarizes the adjusted fair values of the assets acquired and liabilities assumed as of March 26, 2010, for various purchase price allocation adjustments made subsequent to our first quarter results:

(In thousands)
Accounts receivable $ 6,131
Other current assets 20,200
Cemetery property 19,949
Property and equipment, net 105,888
Preneed funeral and cemetery receivables and trust investments 66,395
Finite-lived intangible assets 34,312
Indefinite-lived intangible assets 33,700
Deferred charges and other assets 6,533
Goodwill 108,643
Total assets acquired 401,751
Current liabilities 11,719
Long-term debt 2,548
Deferred preneed funeral and cemetery revenues and deferred receipts held in trusts 69,336
Deferred tax liability 20,939
Other liabilities 8,347
Total liabilities assumed 112,889
Net assets acquired $ 288,862

~~The gross amount of accounts receivable is~~ ~~$8.2 million, of which~~ ~~$2.1 million~~ ~~is not expected to be collected. Included in preneed funeral and cemetery receivables and trust investments are receivables under preneed contracts with a fair value of~~ ~~$5.2 million. The gross amount due under the contracts is~~ ~~$5.5 million, of which~~ ~~$0.3 million~~ ~~is not expected to be collected.~~

We have finalized our assessment of the fair values. Goodwill, land, and certain identifiable intangible assets recorded in the acquisition are not subject to amortization; however, the goodwill and intangible assets will be tested periodically for impairment as required by the Intangible Assets Topic of the ASC. Of the ~~$108.6 million~~ ~~in goodwill recognized,~~ ~~$4.3 million~~ ~~was allocated to our cemetery segment and~~ ~~$104.3 million~~ ~~was allocated to our funeral segment. As a result of the carryover of Keystone’s tax basis,~~ ~~$26.0 million~~ ~~of this goodwill is deductible for tax purposes. The identified intangible assets are comprised of the following:~~

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Useful life
Minimum Maximum Fair Value
(Years) (In thousands)
Preneed customer relationships related to insurance claims 10 $ 15,200
Preneed deferred revenue 10 - 14 1,740
Covenants-not-to-compete 5 - 15 13,332
Operating leases 5 - 15 440
Tradenames 5 3,600
Tradenames Indefinite 33,200
Licenses and permits Indefinite 500
Total intangible assets $ 68,012

~~The unaudited condensed consolidated statement of operations for the~~ ~~three and nine~~ ~~months ended~~ ~~September 30, 2011~~ ~~includes the results of operations of Keystone. The following unaudited pro forma information presents information as if the merger occurred on January 1, 2010:~~

Nine Months Ended
2010
(In thousands)
Revenue $ 1,648,953
Net income $ 93,201

Neptune

The Company acquired 70% of the outstanding shares of The Neptune Society, Inc. (Neptune) on June 3, 2011 for $44 million. Neptune is the nation's largest direct cremation organization ~~with~~which had a network of 30 locations in nine ~~states.~~states at acquisition. Neptune operates under the brand names Neptune Society, Neptune Cremation Service, and Trident Society. With this acquisition we will be expanding the footprint into a sector of the market that will continue to grow and that we do not currently target through our traditional funeral service and cemetery network. We have not completed our purchase price allocation as we are still reviewing the underlying accounting records.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The Company

We are North America’s largest provider of deathcare products and services, with a network of funeral homes and cemeteries unequalled in geographic scale and reach. At ~~September 30, 2011~~March 31, 2012, we operated ~~1,427~~1,419 funeral service locations and ~~374~~373 cemeteries (including 214 combination locations) in North America, which are geographically diversified across 43 states, ~~eight~~8 Canadian provinces, and the District of Columbia. Our funeral segment also includes the operations of 12 funeral homes in Germany that we intend to exit when economic values and conditions are conducive to a sale. Our funeral service and cemetery operations consist of funeral service locations, cemeteries, funeral service/cemetery combination locations, crematoria, and related businesses. We sell cemetery property and funeral and cemetery products and services at the time of need and on a preneed basis.

Our financial position is enhanced by our $~~6.8~~7.2 billion backlog of future revenues from both trust and insurance-funded sales at ~~September 30, 2011~~March 31, 2012, which is the result of preneed funeral and cemetery sales. We believe we have the financial strength and flexibility to reward shareholders through dividends while maintaining a prudent capital structure and pursuing new opportunities for profitable growth. We currently have approximately $~~138.6~~138.5 million authorized to repurchase our common stock.

Financial Condition, Liquidity and Capital Resources

Trust Investments

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services or merchandise will not be provided until sometime in the future, most states and provinces require that all or a portion of the funds collected from customers on preneed funeral and cemetery contracts be paid into trusts and/or preneed escrow accounts until the merchandise is delivered or the service is performed. Investment earnings associated with the trust investments are

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expected to mitigate the inflationary costs of providing the preneed funeral and cemetery services and merchandise in the future for the prices that were guaranteed at the time of sale.

Also, we are required by state and provincial law to pay a portion of the proceeds from the sale of cemetery property interment rights into perpetual care trusts. For these investments, the original corpus remains in the trust in perpetuity and the net ordinary earnings are intended to offset the expense to maintain the cemetery property. The majority of states require that net gains or losses are retained and added to the corpus, but certain states allow the net realized gains and losses to be included in the income that is distributed.

Independent trustees manage and invest all of the funds deposited into the funeral and cemetery merchandise and service trusts as well as the cemetery perpetual care trusts. The trustees are selected based on their respective geographic footprint and qualifications per state and provincial regulations. All of the trustees engage the same independent investment advisor either directly or indirectly through SCI's wholly-owned registered investment advisor. The trustees, with input from the investment advisor, establish an investment policy that serves as an operating document to guide the investment activities of the trusts including asset allocation and manager selection. The investments are also governed by state and provincial guidelines. Asset allocation for the funeral and cemetery merchandise and service trusts is generally based on matching the time period that we expect the funeral or cemetery preneed contract to be outstanding. Since net ordinary earnings are distributed monthly from the cemetery perpetual care trusts to offset cemetery maintenance costs, the cemetery perpetual care trusts contain a higher fixed income allocation than the funeral and cemetery merchandise and service trusts. The investment advisor recommends investment managers to the trustees that are selected on the basis of various criteria set forth in the investment policy. The primary investment objectives for the funeral and cemetery merchandise and service trusts include (1) achieving growth of principal over time sufficient to preserve and increase the purchasing power of the assets, and (2) preserving capital within acceptable levels of volatility. Preneed funeral and cemetery contracts generally take years to mature. Therefore, the funds associated with these contracts are often invested for several market cycles. While cemetery perpetual care trusts share the same investment objectives as listed above, these trusts emphasize providing a steady stream of investment income with some capital appreciation. The trusts seek to control risk and volatility through a combination of asset styles, asset classes, and institutional investment managers.

As of ~~September 30, 2011~~March 31, 2012, 84% of our trusts were under the control and custody of two large financial institutions engaged as preferred trustees. The U.S. trustees primarily use common trust fund structures as the investment vehicle for their trusts. Through the common trust fund structure, each respective trustee manages the allocation of assets through individual managed accounts or institutional mutual funds. In the event a particular state prohibits the use of a common trust fund as a qualified investment, the trustee utilizes institutional mutual funds. The U.S. trusts include a modest allocation to alternative investments, which are comprised primarily of private equity and real estate investments. These investments are structured as limited liability companies (LLCs) and are managed by certain trustees. The trusts that are eligible to allocate a portion of their investments to alternative investments purchase units of the respective LLCs.

Fixed Income Securities

Fixed income investments are intended to preserve principal, provide a source of current income, and reduce overall portfolio volatility. The SCI trusts have direct investments primarily in government fixed income securities. Insurance backed fixed income investments preserve the principal, guarantee annual appreciation, and reduce overall portfolio volatility.

Canadian government fixed income securities are investments in Canadian federal and provincial government instruments. In many cases, regulatory restrictions mandate that the funds from the sales of preneed funeral and cemetery products sold in certain Canadian jurisdictions must be invested in these instruments.

Equity Securities

Equity investments have historically provided long-term capital appreciation in excess of inflation. The SCI trusts have direct investments primarily in domestic equity portfolios that include large, mid, and small capitalization companies of different investment objectives (i.e., growth and value). The majority of the equity portfolio is managed by multiple institutional investment managers that specialize in an objective-specific area of expertise. Our equity securities are exposed to market risk; however, these securities are well-diversified. As of ~~September 30, 2011~~March 31, 2012, the largest single equity position represented less than 1% of the total equity securities portfolio.

Mutual Funds

The SCI trust funds employ institutional mutual funds where operationally or economically efficient. Institutional mutual funds are utilized to invest in various asset classes including US equities, non-US equities, convertible bonds, corporate bonds,

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government bonds, Treasury inflation protected securities (TIPS), high yield bonds, real estate investment trusts (REITs), and commodities. The mutual funds are governed by guidelines outlined in their individual prospectuses.

Private Equity

The objective of these investments is to provide high rates of return with controlled volatility. These investments are typically

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long-term in duration. These investments are diversified by strategy, sector, manager, and vintage year. Private equity exposure is accessed through LLCs established by certain preferred trustees. These LLCs invest in numerous limited partnerships, including private equity, fund of funds, distressed debt, and mezzanine financing. The trustees that have oversight of their respective LLCs work closely with the investment advisor in making all current investments.

Trust Performance

The trust fund income recognized from these investment assets continues to be volatile. During the twelve months ended ~~September 30, 2011~~March 31, 2012, the Standard and Poor’s 500 Index increased approximately ~~1.1%~~8.5% and the Barclay’s Aggregate Index increased approximately ~~5.3%~~7.7%, while the combined SCI trusts increased approximately ~~2.1%~~5.0%.

SCI, its trustees, and its investment advisor continue to monitor the capital markets and the trusts on an ongoing basis. The trustees, with input from the investment advisor, will take prudent action as needed to achieve the investment goals and objectives of the trusts.

Capital Allocation Considerations

We rely on cash flow from operations as a significant source of liquidity. Our cash flow from operating activities provided $~~291.3~~95.8 million in the first ~~nine months ended September 30, 2011~~quarter of 2012. In addition, we have $~~401.7~~402.3 million in excess borrowing capacity under our bank credit facility. We currently have no significant maturities of long-term debt until October 2014.

Our bank credit facility requires us to maintain certain leverage and interest coverage ratios. As of ~~September 30, 2011~~March 31, 2012 we were in compliance with all of our debt covenants. Our financial covenant requirements and actual ratios as of ~~September 30, 2011~~March 31, 2012 are as follows:



	Per Credit Agreement	Actual
Leverage ratio	4.00 (Max)	~~3.16~~3.18
Interest coverage ratio	3.00 (Min)	~~4.34~~4.31

We believe our sources of liquidity can be supplemented by our ability to access the capital markets for additional debt or equity securities. We believe that our cash on hand, future operating cash flows, and the available capacity under our credit facility will be adequate to meet our financial obligations over the next 12 months.

We expect to continue to focus on funding growth initiatives that generate increased profitability, revenue, and cash flows. These capital investments include the construction of high-end cemetery property (such as private family estates) and the construction of funeral home facilities. We will also consider the acquisition of additional deathcare operations that fit our long-term customer-focused strategy, if such acquisitions have the proper return on investment.

Since November 2007, we have paid quarterly dividends of $0.04 per common share. On February 9, 2011, our Board of Directors approved the payment of a quarterly dividend of $0.05 per share. While we intend to pay regular quarterly cash dividends for the foreseeable future, all future dividends are subject to limitations in our debt covenants and final determination by our Board of Directors each quarter upon review of our financial performance.

Currently, we have approximately $~~138.6~~138.5 million authorized under our share repurchase program. We intend to make purchases from time to time in the open market or through privately negotiated transactions, subject to market conditions, debt covenants, and normal trading restrictions. Our credit agreement contains covenants that limit our ability to repurchase our common stock. There can be no assurance that we will buy our common stock under our share repurchase program in the future.

Cash Flow

We believe our ability to generate strong operating cash flow is one of our fundamental financial strengths and provides us with substantial flexibility in meeting operating and investing needs.

Operating Activities

Net cash provided by operating activities ~~increased~~decreased $~~25.2~~12.2 million to $~~291.3~~95.8 million in the first ~~nine months ended September 30, 2011~~quarter of 2012 from $~~266.1~~108.0 million in the first ~~nine months ended September 30, 2010~~quarter of 2011. This ~~increase~~decrease was ~~driven by:~~

primarily due to an $~~82.2 million~~anticipated increase in ~~cash receipts from customers resulting from increased revenues primarily from the Keystone acquisition and improved collection rates at existing locations;~~

~~a $16.7 million~~ ~~increase in tax refunds and lower~~net cash tax ~~payments;~~payments of $7.4

~~a $12.3 million~~ ~~increase in General Agency (GA) receipts;~~

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~~a $4.7~~million. Additionally, we also experienced higher annual and long-term incentive compensation payments of $9.6 million ~~increase~~ resulting from improved financial performance and total shareholder return. These decreases were partially offset by $6.2 million in higher net trust ~~fund withdrawals;~~

~~a $3.5 million~~ ~~increase in royalty income;~~

~~a $3.1 million~~ ~~decrease in cash interest payments; partially offset by,~~

~~a $61.7 million~~ ~~increase in vendor payments resulting primarily from increases in variable costs from the Keystone acquisition; and~~

~~a $38.4 million~~ ~~increase in employee compensation in the~~ ~~first nine months ended September 30, 2011~~ ~~compared to the~~ ~~first nine months ended September 30, 2010~~ ~~primarily from acquisitions.~~

withdrawals.

Investing Activities

Cash flows from investing activities used $~~167.2~~22.7 million in the first ~~nine months ended September 30, 2011~~quarter of 2012 compared to using $~~239.9~~27.4 million in the same period of ~~2010.~~2011. This decrease was primarily attributable to a decrease of ~~$184.3~~$9.7 million in cash spent on acquisitions, ~~(primarily the Keystone acquisition in 2010),~~ partially offset by a ~~$67.6~~$4.4 million decrease in cash receipts from divestitures and asset ~~sales, a $25.5 million decrease in withdrawals of restricted funds, and an $18.5 million increase in capital expenditures.~~sales.

Financing Activities

Financing activities used $~~166.2~~89.1 million in the first ~~nine months ended September 30, 2011~~quarter of 2012 compared to using $~~73.3~~43.4 million in the same period of ~~2010.~~2011. This increase was primarily driven by a ~~$173.8 million decrease in proceeds from the issuance of long-term debt (net of debt issuance costs) and a $59.7~~$44.9 million increase in the repurchases of Company common ~~stock, partially offset by a $129.2 million decrease in debt payments, a $9.2 million increase in bank overdrafts and other, and a $6.2 million increase from proceeds from exercise of stock options.~~stock.

~~Proceeds from long-term debt (net of debt issuance costs) were $65.0~~ ~~million in the~~ ~~first nine months ended September 30, 2011~~ ~~due to a drawdown under our bank credit facility. Proceeds from long-term debt (net of debt issuance costs) were $238.8~~ ~~million in the~~ ~~first nine months ended September 30, 2010~~ ~~due to a $150.0 million issuance of the 8.00% Senior Notes due November 2021 and a $95.0 million drawdown under our bank credit facility.~~

~~The table below sets forth the payments of debt for the~~ ~~nine~~ ~~months ended~~ ~~September 30, 2011~~ ~~and 2010 (in millions):~~

Nine Months Ended
September 30,
2011 2010
7.875% Debentures due February 2013 $ 3.9
$ 25.0
7.375% Debentures due October 2014 —
70.5
6.75% Senior Notes due April 2015 22.3
3.0
6.75% Senior Notes due April 2016 16.8
20.1
Bank credit facility due March 2016 —
30.0
Obligations under capital leases 17.2
40.7
Mortgage notes and other debt, maturities through 2047 2.2
2.4
Total Debt Payments $ 62.4
$ 191.7

We repurchased ~~14.8~~6.8 million shares in the first ~~nine months ended September 30, 2011~~quarter of 2012 for $~~146.6~~75.1 million and ~~10.4~~3.2 million shares in the same period of ~~2010~~2011 for $~~86.9~~30.2 million.

We paid cash dividends of $~~33.4~~11.1 million in the first ~~nine months ended September 30, 2011~~quarter of 2012 and $~~30.2~~9.6 million in the same period of ~~2010.~~2011.

Financial Assurances

In support of our operations, we have entered into arrangements with certain surety companies whereby such companies agree to issue surety bonds on our behalf as financial assurance and/or as required by existing state and local regulations. The surety bonds are used for various business purposes; however, the majority of the surety bonds issued and outstanding have been used to support our preneed funeral and cemetery sales activities. The obligations underlying these surety bonds are recorded on the unaudited condensed consolidated balance sheet as Deferred preneed funeral revenues and Deferred preneed cemetery revenues. The breakdown of surety bonds between funeral and cemetery preneed arrangements, as well as surety bonds for other activities, is described below.

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	September 30, 2011		December 31, 2010		March 31, 2012		December 31, 2011
	(Dollars in millions)				(Dollars in millions)
Preneed funeral	$	116.6	$	121.0	$	110.6	$	116.6
Preneed cemetery:
Merchandise and services	116.6		120.2		114.0		116.6
Pre-construction	5.1		5.1		6.4		6.3
Bonds supporting preneed funeral and cemetery obligations	238.3		246.3		231.0		239.5
Bonds supporting preneed business permits	2.2		5.1		2.6		2.2
Other bonds	24.6		14.2		15.5		15.4
Total surety bonds outstanding	$	265.1	$	265.6	$	249.1	$	257.1

When selling preneed funeral and cemetery contracts, we may post surety bonds where allowed by state law. We post the surety bonds in lieu of trusting a certain amount of funds received from the customer. The amount of the bond posted is generally determined by the total amount of the preneed contract that would otherwise be required to be trusted, in accordance with applicable state law. For ~~both~~ the three months ended ~~September 30, 2011~~March 31, 2012 and ~~2010~~2011, we had $4.8 million ~~of cash receipts attributable to bonded sales. For the~~ ~~nine~~ ~~months ended~~ ~~September 30, 2011~~and ~~2010, we had $14.5 million and $14.7~~$4.6 million, respectively, of cash receipts attributable to bonded sales. These amounts do not consider reductions associated with taxes, obtaining costs, or other costs.

Surety bond premiums are paid annually and are automatically renewable until maturity of the underlying preneed contracts, unless we are given prior notice of cancellation. Except for cemetery pre-construction bonds (which are irrevocable), the surety companies generally have the right to cancel the surety bonds at any time with appropriate notice. In the event a surety company were to cancel the surety bond, we are required to obtain replacement surety assurance from another surety company or fund a trust for an amount generally less than the posted bond amount. Management does not expect that we will be required to fund material future amounts related to these surety bonds because of lack of surety capacity or surety company non-performance.

Preneed Funeral and Cemetery Activities and Backlog of Contracts

In addition to selling our products and services to client families at the time of need, we sell price-guaranteed preneed funeral and cemetery contracts, which provide for future funeral or cemetery services and merchandise. Since preneed funeral and cemetery services or merchandise will not be provided until sometime in the future, most states and provinces require that all or a portion of the funds collected from customers on preneed funeral and cemetery contracts be paid into merchandise and service trusts until the merchandise is delivered or the service is performed. These trust funds own investments in equity and debt securities and

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mutual funds, which are sensitive to current market prices. In certain situations, as described above, where permitted by state or provincial laws, we post a surety bond as financial assurance for a certain amount of the preneed funeral or cemetery contract in lieu of placing funds into trust accounts.

Trust-Funded Preneed Funeral and Cemetery Contracts: The funds are deposited into trust and invested by independent trustees in accordance with state and provincial laws. We retain any funds above the amounts required to be deposited into trust accounts and use them for working capital purposes, generally to offset the selling and administrative costs of our preneed programs.

The tables below detail our results of preneed funeral and cemetery production and maturities, excluding insurance contracts, for the three ~~and nine~~ months ended ~~September 30, 2011~~March 31, 2012 and ~~2010.~~2011.

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	North America								North America
	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
	2011		2010		2011		2010		2012		2011
	(Dollars in millions)				(Dollars in millions)				(Dollars in millions)
Funeral:
Preneed trust-funded (including bonded):
Sales production(1)	$	49.8	30.3		$	98.6	$	93.4	$	37.7	$	24.7
Sales production (number of contracts)(1)	13,963		6,978		24,926		21,632		14,077		5,437
Maturities(1)	$	60.4	42.6		$	153.5	$	135.8	$	56.1	$	48.2
Maturities (number of contracts)(1)	13,766		9,786		34,485		31,080		14,235		10,784
Cemetery:
Sales production:
Preneed	$	115.8	$	94.5	$	349.6	$	301.2	$	124.5	$	110.3
Atneed	57.4		56.5		178.3		181.5		59.4		61.7
Total sales production	$	173.2	$	151.0	$	527.9	$	482.7	$	183.9	$	172.0
Sales production deferred to backlog:
Preneed	$	46.2	$	39.3	$	143.9	$	129.1	$	55.2	$	45.9
Atneed	43.1		43.1		135.2		136.5		45.4		47.0
Total sales production deferred to backlog	$	89.3	$	82.4	$	279.1	$	265.6	$	100.6	$	92.9
Revenue recognized from backlog:
Preneed	$	41.3	$	41.1	$	110.8	$	109.2	$	32.3	$	34.0
Atneed	44.0		43.5		135.4		135.5		44.0		44.4
Total revenue recognized from backlog	$	85.3	$	84.6	$	246.2	$	244.7	$	76.3	$	78.4

(1) The increase in sales production and maturities in 2012 is the result of our acquisition of Neptune Cremation Society, which has a lower average selling price per contract.

Insurance-Funded Preneed Funeral Contracts: Where permitted by state or provincial law, customers may arrange their preneed funeral contract by purchasing a life insurance or annuity policy from third-party insurance companies, for which we earn a commission as general sales agent for the insurance company. The policy amount of the insurance contract between the customer and the third-party insurance company generally equals the amount of the preneed funeral contract. We do not reflect the unfulfilled insurance-funded preneed funeral contract amounts in our unaudited condensed consolidated balance sheet.

The table below details the results of insurance-funded preneed funeral production and maturities for the three ~~and nine~~ months ended ~~September 30, 2011~~March 31, 2012 and ~~2010,~~2011, and the number of contracts associated with those transactions.

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	North America				North America
	Three Months Ended		Nine Months Ended		Three Months Ended
	September 30,		September 30,		March 31,
	2011	2010	2011	2010	2012		2011
	(Dollars in millions)		(Dollars in millions)		(Dollars in millions)
Preneed funeral insurance-funded:
Sales production (1)	124.8	102.0	359.8	313.8	$	134.4	$	100.0
Sales production (number of contracts) (1)	21,461	17,664	62,224	54,375	22,776		17,563
General agency revenue	23.0	19.7	66.7	51.0	$	23.3	$	19.3
Maturities	69.9	68.3	217.8	209.9	$	83.1	$	76.8
Maturities (number of contracts)	12,569	12,676	39,649	39,094	14,672		13,942


(1)	Amounts are not included in our unaudited condensed consolidated balance sheet.

North America Backlog of Preneed Funeral and Cemetery Contracts: The following table reflects our North America backlog of trust-funded deferred preneed funeral and cemetery contract revenues, including amounts related to Deferred preneed funeral and cemetery receipts held in trust at ~~September 30, 2011~~March 31, 2012 and December 31, ~~2010.~~2011. Additionally, the table reflects our backlog of unfulfilled insurance-funded contracts (which are not included in our unaudited condensed consolidated balance sheet) at

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~~September 30, 2011~~March 31, 2012 and December 31, ~~2010.~~2011. The backlog amounts presented are reduced by an amount that we believe will cancel before maturity based on historical experience.

The table also reflects our preneed funeral and cemetery receivables and trust investments (market and cost bases) associated with the backlog of deferred preneed funeral and cemetery contract revenues, net of the estimated cancellation allowance. We believe that the table below is meaningful because it sets forth the aggregate amount of future revenues we expect to recognize as a result of preneed sales, as well as the amount of assets associated with those revenues. Because the future revenues exceed the asset amounts, future revenues will exceed the cash distributions actually received from the associated trusts.


	September 30, 2011						December 31, 2010						March 31, 2012						December 31, 2011
	Market			Cost			Market			Cost			Market			Cost			Market			Cost
				(Dollars in billions)												(Dollars in billions)
Deferred preneed funeral revenues	$	0.58		$	0.58		$	0.58		$	0.58		$	0.56		$	0.56		$	0.58		$	0.58
Deferred preneed funeral receipts held in trust	1.24			1.29			1.22			1.18			1.32			1.30			1.27			1.29
	$	1.82		$	1.87		$	1.80		$	1.76		$	1.88		$	1.86		$	1.85		$	1.87
Allowance for cancellation on trust investments	(0.15		)	(0.15		)	(0.13		)	(0.13		)	(0.15		)	(0.15		)	(0.15		)	(0.15		)
Backlog of trust-funded preneed funeral revenues	$	1.67		$	1.72		$	1.67		$	1.63		$	1.73		$	1.71		$	1.70		$	1.72
Backlog of insurance-funded preneed funeral revenues	3.34			3.34			3.28			3.28			3.46			3.46			3.40			3.40
Total backlog of preneed funeral revenues	$	5.01		$	5.06		$	4.95		$	4.91		$	5.19		$	5.17		$	5.10		$	5.12
Preneed funeral receivables and trust investments	$	1.46		$	1.51		$	1.42		$	1.40		$	1.52		$	1.50		$	1.48		$	1.50
Allowance for cancellation on trust investments	(0.14		)	(0.14		)	(0.12		)	(0.12		)	(0.13		)	(0.13		)	(0.14		)	(0.14		)
Assets associated with backlog of trust-funded deferred preneed funeral revenues, net of estimated allowance for cancellation	$	1.32		$	1.37		$	1.30		$	1.28		$	1.39		$	1.37		$	1.34		$	1.36
Insurance policies associated with insurance-funded deferred preneed funeral revenues, net of estimated allowance for cancellation	3.34			3.34			3.28			3.28			3.46			3.46			3.40			3.40
Total assets associated with backlog of preneed funeral revenues, net of estimated allowance for cancellation	$	4.66		$	4.71		$	4.58		$	4.56		$	4.85		$	4.83		$	4.74		$	4.76
Deferred preneed cemetery revenues	$	0.84		$	0.84		$	0.81		$	0.81		$	0.86		$	0.86		$	0.83		$	0.83
Deferred preneed cemetery receipts held in trust	1.09			1.13			1.19			1.13			1.24			1.18			1.15			1.15
	$	1.93		$	1.97		$	2.00		$	1.94		$	2.10		$	2.04		$	1.98		$	1.98
Allowance for cancellation on trust investments	(0.16		)	(0.16		)	(0.15		)	(0.15		)	(0.14		)	(0.15		)	(0.16		)	(0.16		)
Total backlog of deferred cemetery revenues	$	1.77		$	1.81		$	1.85		$	1.79		$	1.96		$	1.89		$	1.82		$	1.82
Preneed cemetery receivables and trust investments	$	1.51		$	1.55		$	1.56		$	1.50		$	1.72		$	1.63		$	1.60		$	1.59
Allowance for cancellation on trust investments	(0.15		)	(0.14		)	(0.16		)	(0.16		)	(0.15		)	(0.15		)	(0.15		)	(0.15		)
Total assets associated with backlog of deferred cemetery revenues, net of estimated allowance for cancellation	$	1.36		$	1.41		$	1.40		$	1.34		$	1.57		$	1.48		$	1.45		$	1.44

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The market value of our funeral and cemetery trust investments was based on a combination of quoted market prices, observable inputs such as interest rates or yield curves, and appraisals. The difference between the backlog and asset amounts represents the contracts for which we have posted surety bonds as financial assurance in lieu of trusting, the amounts collected from customers that were not required to be deposited into trust, and allowable cash distributions from trust assets. The table also reflects the amounts expected to be received from insurance companies through the assignment of policy proceeds related to insurance-funded funeral contracts.

Results of Operations — Three Months Ended ~~September 30,~~March 31, 2012 ~~2011~~ and ~~2010~~2011

Management Summary

Key highlights in the ~~third~~first quarter of ~~2011~~2012 were as follows:

Funeral gross profits ~~were flat as~~increased $0.7 million, or 0.7%, due to higher case volume ~~higher average revenues per case,~~ and higher General Agency Revenues (insurance commissions) related to preneed funeral production, ~~were~~partially offset by higher ~~advertising and~~ selling related expenses; and

Cemetery gross profits increased $~~4.4~~0.5 million, or ~~13.1%~~1.8%, due to higher cemetery preneed property sales production and other cemetery revenues, partially offset by higher ~~advertising and~~ selling related expenses.

Results of Operations

In the ~~third~~first quarter of ~~2011~~2012, we reported net income attributable to common stockholders of $~~35.5~~48.0 million ($~~.15~~.22 per diluted

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share) compared to net income attributable to common stockholders in the ~~third~~first quarter of ~~2010~~2011 of $~~18.8~~38.8 million ($~~.08~~.16 per diluted share). These results were impacted by the following items:


	2011			2010			2012			2011
	(Dollars in thousands)						(Dollars in thousands)
Net after-tax gains (losses) from the sale of assets	$	3,823		$	(8,479	)
Net after-tax losses from the sale of assets							$	(354	)	$	(458	)
After-tax losses from the early extinguishment of debt, net	$	(864	)	$	(5,343	)	$	—		$	(185	)
After-tax expenses related to acquisitions	$	(310	)	$	(1,844	)	$	(35	)	$	(580	)
Change in certain tax reserves and other	$	(934	)	$	2,533		$	3,326		$	(1,003	)

Consolidated Versus Comparable Results

The table below reconciles our consolidated GAAP results to our comparable, or “same store,” results for the three months ended ~~September 30,~~March 31,2012 ~~2011~~ and ~~2010.~~2011. We define comparable operations (or same store operations) as those funeral and cemetery locations that were owned for the entire period beginning January 1, ~~2010~~2011 and ending ~~September 30,~~March 31,2012 ~~2011.~~. The following tables present operating results for funeral and cemetery locations that were owned by us during this period.


Three Months Ended September 30, 2011	Consolidated		Less: Results Associated with Acquisition/New Construction		Less: Results Associated with Divestitures			Comparable
Three Months Ended March 31, 2012										Consolidated			Less: Results Associated with Acquisition/New Construction		Less: Results Associated with Divestitures			Comparable
			(Dollars in millions)										(Dollars in millions)
North America Revenue
Funeral revenue	$	382.6	$	41.7	$	0.4		$	340.5	$	422.5		$	21.0	$	—		$	401.5
Cemetery revenue	189.0		1.6		0.6			186.8		178.2			—		0.3			177.9
	571.6		43.3		1.0			527.3		600.7			21.0		0.3			579.4
Germany revenue	1.4		—		—			1.4		1.8			—		—			1.8
Total revenue	$	573.0	$	43.3	$	1.0		$	528.7	$	602.5		$	21.0	$	0.3		$	581.2
North America Gross Profits
Funeral gross profits	$	69.0	$	4.8	$	(0.2	)	$	64.4	$	100.2		$	2.4	$	(0.9	)	$	98.7
Cemetery gross profits	38.0		0.1		(0.1		)	38.0		27.6			—		0.2			27.4
	107.0		4.9		(0.3		)	102.4		127.8			2.4		(0.7		)	126.1
Germany gross profits	—		—		—			—		(0.2		)	—		—			(0.2		)
Total gross profits	$	107.0	$	4.9	$	(0.3	)	$	102.4	$	127.6		$	2.4	$	(0.7	)	$	125.9

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Three Months Ended September 30, 2010	Consolidated		Less: Results Associated with Acquisition/New Construction		Less: Results Associated with Divestitures			Comparable
Three Months Ended March 31, 2011										Consolidated		Less: Results Associated with Acquisition/New Construction			Less: Results Associated with Divestitures		Comparable
			(Dollars in millions)									(Dollars in millions)
North America Revenue
Funeral revenue	$	357.4	$	23.8	$	2.2		$	331.4	$	406.5	$	1.5		$	1.5	$	403.5
Cemetery revenue	174.2		0.9		1.6			171.7		171.3		—			2.0		169.3
	531.6		24.7		3.8			503.1		577.8		1.5			3.5		572.8
Germany revenue	1.6		—		—			1.6		1.9		—			—		1.9
Total revenue	$	533.2	$	24.7	$	3.8		$	504.7	$	579.7	$	1.5		$	3.5	$	574.7
North America Gross Profits
Funeral gross profits	$	68.8	$	5.1	$	(0.2	)	$	63.9	$	99.1	$	0.6		$	0.1	$	98.4
Cemetery gross profits	33.6		0.1		0.1			33.4		27.1		(0.1		)	0.3		26.9
	102.4		5.2		(0.1		)	97.3		126.2		0.5			0.4		125.3
Germany gross profits	0.2		—		—			0.2		0.2		—			—		0.2
Total gross profits	$	102.6	$	5.2	$	(0.1	)	$	97.5	$	126.4	$	0.5		$	0.4	$	125.5

The following table provides the data necessary to calculate our consolidated average revenue per funeral service for the three

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months ended ~~September 30,~~March 31,2012 ~~2011~~ and ~~2010.~~2011. We calculate average revenue per funeral service by dividing consolidated funeral revenue, excluding General Agency (GA) revenues and certain other revenues to avoid distorting our averages of normal funeral services revenue, by the number of consolidated funeral services performed during the period.


	Three Months Ended				Three Months Ended
	September 30,				March 31,
	2011		2010		2012		2011
	(Dollars in millions, except average revenue per funeral service)				(Dollars in millions, except average revenue per funeral service)
Consolidated funeral revenue	$	384.0	$	359.0	$	424.3	$	408.4
Less: Consolidated GA revenue	23.0		19.7		23.3		19.3
Less: Other revenue	12.3		2.3		13.2		2.5
Adjusted consolidated funeral revenue	$	348.7	$	337.0	$	387.8	$	386.6
Consolidated funeral services performed	67,374		64,680		74,706		72,968
Consolidated average revenue per funeral service	$	5,176	$	5,210	$	5,191	$	5,298

The following table provides the data necessary to calculate our comparable average revenue per funeral service for the three months ended ~~September 30,~~March 31,2012 ~~2011~~ and ~~2010.~~2011. We calculate average revenue per funeral service by dividing comparable funeral revenue, excluding comparable GA revenues and certain other revenues to avoid distorting our averages of normal funeral services revenue, by the number of comparable funeral services performed during the period.


	Three Months Ended				Three Months Ended
	September 30,				March 31,
	2011		2010		2012		2011
	(Dollars in millions, except average revenue per funeral service)				(Dollars in millions, except average revenue per funeral service)
Comparable funeral revenue	$	341.9	$	333.0	$	403.3	$	405.4
Less: Comparable GA revenue	22.2		19.3		23.1		19.3
Less: Other revenue	1.7		2.2		2.6		2.5
Adjusted comparable funeral revenue	$	318.0	$	311.5	$	377.6	$	383.6
Comparable funeral services performed	58,541		59,973		69,130		72,432
Comparable average revenue per funeral service	$	5,432	$	5,194	$	5,462	$	5,296

Funeral Results

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Funeral Revenue

Consolidated revenues from funeral operations were $~~384.0~~424.3 million in the ~~third~~first quarter of ~~2011~~2012 compared to $~~359.0~~408.4 million for the same period in ~~2010.~~2011. This increase is ~~primarily~~ attributable to ~~the~~ $~~8.9~~ ~~million increase in comparable revenues described below and~~ ~~$17.9~~19.5 million of additional revenues as the result of acquisitions in ~~2011 and 2010.~~2011. These increases were partially offset by a decline of $~~1.8~~1.5 million in revenues contributed by non-strategic assets that were divested throughout 2012 and 2011 and ~~2010.~~the $2.1 million decrease in comparable revenues described below.

Comparable revenues from funeral operations were $~~341.9~~403.3 million in the ~~third~~first quarter of ~~2011~~2012 compared to $~~333.0~~405.4 million for the same period in ~~2010.~~2011. This ~~increase~~decrease was primarily due to ~~the~~ ~~4.6%~~lower funeral services performed, partially offset by an increase in the average revenue per funeral ~~service described below~~ and a $~~2.9~~3.8 million increase in GA revenues (insurance commissions) that resulted from increased insurance funded preneed funeral ~~arrangements, partially offset by a decrease in the number of funeral services performed described below.~~production.

Funeral Services Performed

Our consolidated funeral services performed increased ~~4.2%~~2.4% during the ~~third~~first quarter of ~~2011~~2012 compared to the same period in ~~2010~~2011 primarily as the result of acquisitions in 2012 and 2011, ~~and 2010,~~partially offset by a ~~2.4%~~4.6% decrease in comparable funeral services performed. We believe the comparable decrease is consistent with trends experienced by other funeral service providers and industry vendors. Our ~~consolidated cremation rate of~~ ~~50.3%~~ ~~in the~~ ~~third quarter of 2011~~ ~~increased from~~ ~~41.9%~~ ~~in 2010, while our~~ comparable cremation rate of ~~44.6%~~45.0% in the ~~third~~first quarter of ~~2011~~2012 increased from ~~41.9%~~44.1% in ~~2010.~~2011. We continue to expand our cremation memorialization products and services, which have resulted in higher average sales for cremation services.

Average Revenue Per Funeral Service

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Our consolidated average revenue per funeral service ~~increased~~decreased $34107, or ~~0.7%~~2.0% ,in the ~~third~~first quarter of ~~2011~~2012 compared to ~~2010,~~2011, primarily as a result of ~~increased~~our acquisition of Neptune which has a lower average partially offset by the increase in comparable average revenue per funeral service described ~~below, more than offset by acquisitions and non-strategic assets divested throughout 2011 and 2010.~~below. Our comparable average revenue per funeral service increased $~~238~~166, or ~~4.6%~~3.1%, in the ~~third~~first quarter of ~~2011~~2012 compared to the same period in ~~2010.~~2011. Excluding an unfavorable Canadian currency impact and higher funeral trust fund income, the average revenue per funeral service grew approximately 3.2%.

Funeral Gross Profits

Consolidated funeral gross profits ~~were flat~~increased $0.7 million, or 0.7%, in the ~~third~~first quarter of ~~2011~~2012 compared to the same period in ~~2010.~~ 2011. This increase is primarily attributable to $1.8 million of additional gross profits related to acquisitions that occurred in 2011, partially offset by a $0.1 million decrease in comparable gross profits and a decline of $1.0 million of gross profits that were contributed by non-strategic assets divested throughout 2012 and 2011.

Comparable funeral gross profits ~~increased~~ ~~$0.3~~ ~~million,~~were relatively flat as we were able to reduce fixed and variable costs to offset the revenue decline and the comparable gross margin percentage ~~decreased~~increased from ~~19.2%~~24.3% to ~~18.8%~~24.4% in the ~~third~~first quarter of ~~2011~~2012 when compared to the same period in 2010. The increase in gross profit is primarily the result of the increase in comparable revenue described above and a decrease in the number of funeral services performed, partially offset by the following:

a $4.2 million increase in comparable selling costs resulting from higher advertising and selling expenses related to increased lead generation. Selling costs are recognized in the period incurred; however, the revenue associated with the preneed production is not recognized until the services are performed as described in Critical Accounting Policies, Recent Accounting Pronouncements, and Accounting Changes below;

~~a $2.0 million increase associated with incentive compensation expense; and~~

~~a $1.8 million unfavorable Canadian currency impact on expenses.~~2011.

Cemetery Results

Cemetery Revenue

Consolidated cemetery revenues increased $~~14.8~~6.9 million, or ~~8.5%~~4.0%, in the ~~third~~first quarter of ~~2011~~2012 compared to the same period in ~~2010.~~2011. This increase ~~is primarily the result~~was partially offset by a decline of ~~the increase~~$1.7 million in ~~comparable revenues.~~revenues contributed by non-strategic assets that were divested throughout 2012 and 2011. Comparable cemetery revenues increased $~~15.1~~8.6 million, or ~~8.8%~~5.1%, primarily as a result of higher cemetery preneed property sales ~~production. We also recognized $3.5 million in other cemetery revenue that was earned through a property rights easement negotiated at one of our cemeteries.~~production and higher trust fund income during the current quarter, partially offset by lower atneed revenues.

Cemetery Gross Profits

Consolidated cemetery gross profits increased $~~4.4~~0.5 million, or ~~13.1%~~1.8%, in the ~~third~~first quarter of ~~2011~~2012 compared to the same period in ~~2010.~~2011. This increase is primarily the result of the increase in comparable gross profits.

Comparable cemetery gross profits increased $~~4.6~~0.5 million, or ~~13.8%~~1.9%, and gross margin percentage ~~increased~~decreased from ~~19.5%~~15.9% to ~~20.3%~~15.4% in the ~~third~~first quarter of ~~2011~~2012 compared to the same period in ~~2010.~~2011. The increase in revenues was partially offset by higher ~~advertising and~~ selling expenses related to current quarter preneed sales initiatives. Selling costs are recognized in the period incurred; however, the revenue associated with the preneed production is not recognized until the services are performed as described in Critical Accounting Policies, Recent Accounting Pronouncements, and Accounting Changes below.

Other Financial Statement Items

General and Administrative Expenses

General and administrative expenses decreased $~~3.0~~2.8 million to $~~23.9~~26.0 million during the ~~third~~first quarter of ~~2011~~2012 compared to $~~26.9 million~~ ~~in the same period of 2010. This decrease is due to a $1.6 million~~ ~~decrease in acquisition and transition costs and a $1.4 million reduction in net legal costs offset by an increase in incentive compensation expenses.~~

~~Interest Expense~~

~~Interest expense increased~~ ~~$1.5 million~~ ~~to $33.0 million~~ ~~during the~~ ~~third quarter of 2011~~ ~~compared to $31.5 million~~ in the same period of 2010. The increase in interest expense is due to the November 2010 issuance of our 7.0% Senior Notes due May 2019, partially offset by open market debt repurchases in 2011 and 2010. Certain of these debt repurchases were refinanced through our credit facility, which has a lower interest rate.

~~(Losses) Gains on Divestitures and Impairment Charges, net~~

~~We recognized a $5.0 million~~ ~~net pre-tax loss on divestitures and impairment charges in the~~ ~~third~~ ~~quarter of 2011, due to the sale of underperforming locations in North America. In the~~ ~~third~~ ~~quarter of 2010, we recognized a $7.3 million~~ ~~net pre-tax loss on divestitures and impairment charges due to the impairment of certain assets and other losses on the dispositions of various businesses in North America.~~

~~Losses on Early Extinguishment of Debt~~

~~During the third quarter of 2011, we purchased $13.8 million~~ ~~of our senior notes and debentures on the open market. As a~~

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~~result of these transactions, we recognized a loss of~~ $~~1.4 million, which represents the write-off of unamortized deferred loan costs of $0.2~~28.8 million ~~and~~in the same period of 2011. This decrease is due to a reduction of $2.7 million in other professional fees which is associated with a favorable legal settlement of $2.1 million.

Other Income, Net

Other income, net increased $~~1.2~~3.2 million ~~cost~~ to ~~early extinguish~~$3.9 million during the ~~debt. For additional information regarding these debt payments, see Part I, Item 1. Financial Statements, Note 9.~~first quarter of 2012, primarily due to a favorable foreign currency impact from liability settlements between the U.S. and Canadian Subsidiaries.

Provision for Income Taxes

We sold our Puerto Rican subsidiary in the third quarter of 2011. Our outside tax basis in the business was higher than our book basis. Consequently, we recognized a tax loss that was higher than the book loss on the sale which is permanent in nature. The ~~decrease in the~~ effective tax rate of 32.4%for the ~~three and nine months ended September 30, 2011 is primarily due to that sale. Additionally, our effective~~first quarter of 2012 was below the 35% federal statutory tax rate ~~for the three months ended September 30, 2010 was reduced by the release of state valuation allowances~~ due to the ~~restructuring~~benefits associated with the settlement of ~~our legal entities in certain states.~~a tax audit and foreign jurisdictions taxed at different rates, which is partially offset by state tax expense.

Weighted Average Shares

The diluted weighted average number of shares outstanding was ~~235.5 million~~ ~~during the~~ ~~third quarter of 2011, compared to~~ ~~247.5 million~~ ~~in the same period of 2010. The decrease in the number of shares reflects the impact of shares repurchased under our share repurchase program.~~

~~Results of Operations —~~ ~~Nine Months Ended September 30, 2011~~ ~~and 2010~~

~~Management Summary~~

~~Key highlights in the first nine months of 2011 were as follows:~~

~~Funeral gross profit increased $12.6~~ ~~million, or~~ ~~5.4%~~, due to higher atneed case volume primarily from the Keystone acquisition, higher average revenue per case, and higher General Agency revenues, partially offset by higher advertising and selling expenses related to increased lead generation; and

~~Cemetery gross profit increased $11.6~~ ~~million, or~~ ~~12.5%~~, due to an increase in cemetery preneed property sales production, trust fund income, and other cemetery revenues, partially offset by higher selling related expenses along with higher maintenance costs.

~~Results of Operations~~

~~In the~~ ~~first nine months of 2011, we reported net income attributable to common stockholders of~~ ~~$100.4 million~~ ($~~0.42~~ ~~per diluted share) compared to net income attributable to common stockholders in the~~ ~~first nine months of 2010~~ of ~~$90.0 million~~ ($~~0.36~~ ~~per diluted share). These results were impacted by the following items:~~

2011 2010
(Dollars in thousands)
Net after-tax losses from the sale of assets (3,064 ) (3,168 )
After-tax losses from the early extinguishment of debt, net (2,181 ) (5,520 )
After-tax expenses related to acquisitions (1,300 ) (6,381 )
Change in certain tax reserves and other (2,746 ) 1,048

~~Consolidated Versus Comparable Results~~

~~The table below reconciles our consolidated GAAP results to our comparable, or “same store,” results for the~~ ~~nine~~ ~~months ended~~ ~~September 30,~~ ~~2011 and 2010. We define comparable operations (or same store operations) as those funeral and cemetery locations that were owned for the entire period beginning January 1, 2010 and ending~~ ~~September 30,~~ ~~2011. The following tables present operating results for funeral and cemetery locations that were owned by us during this period.~~

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Nine Months Ended
September 30, 2011
Consolidated
Less:
Results Associated with Acquisition/New Construction

Less:
Results Associated with Divestitures
Comparable
(Dollars in millions)
North America Revenue
Funeral revenue $ 1,173.4
$ 103.0
$ 2.7
$ 1,067.7
Cemetery revenue 551.1
4.5
4.3
542.3
1,724.5
107.5
7.0
1,610.0
Germany revenue 5.0
—
—
5.0
Total revenue $ 1,729.5
$ 107.5
$ 7.0
$ 1,615.0
North America Gross Profits
Funeral gross profits $ 243.4
$ 17.9
$ (0.3 ) $ 225.8
Cemetery gross profits 104.7
0.7
0.3
103.7
348.1
18.6
—
329.5
Germany gross profits 0.4
—
—
0.4
Total gross profits $ 348.5
$ 18.6
$ —
$ 329.9

Nine Months Ended
September 30, 2010
Consolidated
Less:
Results Associated with Acquisition/New Construction

Less:
Results Associated with Divestitures
Comparable
(Dollars in millions)
North America Revenue
Funeral revenue $ 1,100.8
$ 50.2
$ 12.8
$ 1,037.8
Cemetery revenue 513.6
2.2
7.5
503.9
1,614.4
52.4
20.3
1,541.7
Germany revenue 4.9
—
—
4.9
Total revenue $ 1,619.3
$ 52.4
$ 20.3
$ 1,546.6
North America Gross Profits
Funeral gross profits $ 230.8
$ 13.5
$ 0.2
$ 217.1
Cemetery gross profits 93.1
0.2
0.3
92.6
323.9
13.7
0.5
309.7
Germany gross profits 0.4
—
—
0.4
Total gross profits $ 324.3
$ 13.7
$ 0.5
$ 310.1

~~The following table provides the data necessary to calculate our consolidated average revenue per funeral service for the~~ ~~nine~~ ~~months ended~~ ~~September 30,~~ 2011 and 2010. We calculate average revenue per funeral service by dividing consolidated funeral revenue, excluding General Agency (GA) revenues and certain other revenues to avoid distorting our averages of normal funeral services revenue, by the number of consolidated funeral services performed during the period.

Nine Months Ended
September 30,
2011 2010

(Dollars in millions,
except average
revenue per funeral service)
Consolidated funeral revenue $ 1,178.4
$ 1,105.7
Less: Consolidated GA revenue 66.7
51.0
Less: Other revenue 22.0
8.6
Adjusted consolidated funeral revenue $ 1,089.7
$ 1,046.1
Consolidated funeral services performed 207,873
200,672
Consolidated average revenue per funeral service $ 5,242
$ 5,213

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~~The following table provides the data necessary to calculate our comparable average revenue per funeral service for the~~ ~~nine~~ ~~months ended~~ ~~September 30,~~ 2011 and 2010. We calculate average revenue per funeral service by dividing comparable funeral revenue, excluding comparable GA revenues and certain other revenues to avoid distorting our averages of normal funeral services revenue, by the number of comparable funeral services performed during the period.

Nine Months Ended
September 30,
2011 2010

(Dollars in millions,
except average
revenue per funeral service)
Comparable funeral revenue $ 1,072.7
$ 1,042.7
Less: Comparable GA revenue 64.6
50.0
Less: Other revenue 6.1
6.7
Adjusted comparable funeral revenue $ 1,002.0
$ 986.0
Comparable funeral services performed 187,051
189,601
Comparable average revenue per funeral service $ 5,357
$ 5,200

~~Funeral Results~~

~~Funeral Revenue~~

~~Consolidated revenues from funeral operations were~~ ~~$1,178.4~~ ~~million in the~~ ~~first nine months ended September 30, 2011~~ ~~compared to~~ ~~$1,105.7~~ ~~million for the same period in 2010. This increase is primarily attributable to the~~ ~~$30.0~~ ~~million increase in comparable revenues described below and~~ ~~$52.8~~ ~~million of additional revenues as the result of acquisitions in 2011 and 2010. These increases were partially offset by a decline of~~ ~~$10.1~~ ~~million in revenues contributed by non-strategic assets that were divested throughout 2011 and 2010.~~

~~Comparable revenues from funeral operations were~~ ~~$1,072.7~~ ~~million in the~~ ~~first nine months ended September 30, 2011~~ ~~compared to~~ ~~$1,042.7~~ ~~million for the same period in 2010. This increase was primarily due to the~~ ~~3.0%~~ ~~increase in average revenue per funeral service described below and a~~ ~~$14.6~~ ~~million increase in GA revenues (insurance commissions) that resulted from increased preneed funeral arrangements.~~

~~Funeral Services Performed~~

~~Our consolidated funeral services performed increased~~ ~~3.6%~~ ~~during the~~ ~~first nine months ended September 30, 2011~~ ~~compared to the same period in 2010 primarily as the result of acquisitions in 2011 and 2010, offset by a~~ ~~1.3%~~ decrease in comparable funeral services performed. We believe the comparable decrease was somewhat impacted by extreme weather throughout North America, and we believe is consistent with trends experienced by other funeral service providers and industry vendors. Our consolidated cremation rate of ~~46.5%~~ ~~in the~~ ~~first nine months ended September 30, 2011~~ ~~increased from~~ ~~41.7%~~ ~~in 2010, while our comparable cremation rate of~~ ~~44.3%~~ ~~in the~~ ~~first nine months ended September 30, 2011~~ ~~increased from~~ ~~41.7%~~ ~~in 2010. We continue to expand our cremation memorialization products and services, which have resulted in higher average sales for cremation services.~~

~~Average Revenue Per Funeral Service~~

~~Our consolidated average revenue per funeral service increased~~ ~~$29, or~~ ~~0.6%~~ ~~in the~~ ~~first nine months ended September 30, 2011~~ compared to 2010, primarily as a result of increased comparable average revenue per funeral service described below, more than offset by non-strategic assets divested throughout 2011 and 2010. Our comparable average revenue per funeral service increased ~~$157, or~~ ~~3.0%~~ in ~~first nine months ended September 30, 2011~~ compared to the same period in 2010. Excluding a favorable Canadian currency impact and higher funeral trust fund income, the average revenue per funeral service grew approximately 1.7% despite an increase in cremation rates.

~~Funeral Gross Profits~~

~~Consolidated funeral gross profits increased~~ ~~$12.6~~ ~~million in the~~ ~~first nine months ended September 30, 2011~~ ~~compared to the same period in 2010. This increase is primarily attributable to~~ ~~$4.4~~ ~~million of additional gross profits related to acquisitions that occurred in 2011 and 2010 and an~~ ~~$8.7~~ ~~million increase in comparable gross profits described below, partially offset by a decline of~~ ~~$0.5~~ ~~million of gross profits that were contributed by non-strategic assets divested throughout 2011 and 2010.~~

~~Comparable funeral gross profits increased~~ ~~$8.7~~ ~~million, or~~ ~~4.0%, and the comparable gross margin percentage increased from~~ ~~20.9%~~ to ~~21.1%~~ ~~in the~~ ~~first nine months ended September 30, 2011~~ ~~when compared to the same period in 2010 primarily as~~

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~~a result of the increase in comparable revenue described above, partially offset by the following:~~

a $12.6 million increase in comparable selling costs resulting from increased advertising and selling expenses related to lead generation. Selling costs are recognized in the period incurred; however, the revenue associated with the preneed production is not recognized until the services are performed as described in Critical Accounting Policies, Recent Accounting Pronouncements, and Accounting Changes below;

~~a $4.5 million increase in direct costs of services performed as the result of the increase in funeral revenue described above; and~~

~~a $3.8 million increase in compensation expense.~~

~~Cemetery Results~~

~~Cemetery Revenue~~

~~Consolidated revenues from our cemetery operations increased~~ ~~$37.5 million, or~~ ~~7.3%, in the~~ ~~first nine months ended September 30, 2011~~ ~~compared to the same period in 2010. This increase is primarily a result of the increase in comparable revenues. Comparable cemetery revenues increased~~ ~~$38.4 million, or~~ ~~7.6%~~, primarily as a result of higher cemetery preneed property sales production and trust fund income. We also recognized $3.5 million in other cemetery revenue that was earned through a property rights easement negotiated at one of our cemeteries.

~~Cemetery Gross Profits~~

~~Consolidated cemetery gross profits increased~~ ~~$11.6 million, or~~ ~~12.5%, in the first nine months of 2011 compared to the same period in 2010. This increase is primarily the result of the increase in comparable gross profits.~~

~~Comparable cemetery gross profits increased~~ ~~$11.1 million, or~~ ~~12.0%, and gross margin percentage increased from~~ ~~18.4%~~ to ~~19.1%~~ ~~in the first nine months of 2011 compared to the same period in 2010. This increase is primarily the result of the increase in comparable revenues described above, partially offset by the following:~~

a $14.0 million increase in comparable selling costs resulting from increased advertising and selling expenses related to lead generation. Selling costs are recognized in the period incurred; however, the revenue associated with the preneed production is not recognized until the services are performed as described in Critical Accounting Policies, Recent Accounting Pronouncements, and Accounting Changes below;

~~a $4.6 million increase in property expense; and~~

~~a $2.6 million increase in maintenance expense.~~

~~Other Financial Statement Items~~

~~General and Administrative Expenses~~

~~General and administrative expenses were $77.4~~223.2 million during the first ~~nine months ended September 30, 2011~~quarter of 2012, compared to $~~80.1~~242.1 million0.0 million ~~for the same period in 2010. This decrease is primarily due to a decrease in acquisition and transition costs.~~

~~Interest Expense~~

~~Interest expense increased~~ ~~$4.2 million~~ ~~to $100.5 million~~ ~~during the~~ ~~first nine months ended September 30, 2011~~ ~~compared to $96.3 million~~in the same period of 2010. The increase in interest expense is primarily due to the November 2010 issuance of our 7.0% Senior Notes due May 2019, partially offset by open market debt repurchases in 2011 and 2010. Certain of these debt repurchases were refinanced through our credit facility, which has a lower interest rate.

~~(Losses) Gains on Divestitures and Impairment Charges, net~~

~~We recognized a $15.3 million~~ net pre-tax loss on divestitures and impairment charges in the first nine months of 2011, due to the sale of underperforming locations in North America and losses on indemnification reserves. In the first nine months of 2010, we recognized a $~~5.8 million~~ net pre-tax gain on divestitures and impairment charges due to gains incurred on various divestitures, primarily the sale of former SCI properties included in the 22 funeral homes and five cemeteries divested as a result of our agreement with Federal Trade Commission in conjunction with the Keystone acquisition.

~~Losses on Early Extinguishment of Debt~~

~~During the~~ ~~first nine months of~~ 2011~~, we purchased $40.0 million~~ ~~of our senior notes and debentures on the open market. As a result of these transactions, we recognized a loss of $3.5 million, which represents the write-off of unamortized deferred~~

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~~loan costs of $0.4 million~~ ~~and $3.1 million~~ ~~cost to early extinguish the debt. For additional information regarding these debt payments, see Part I, Item 1. Financial Statements, Note 9.~~

~~Provision for Income Taxes~~

We sold our Puerto Rican subsidiary in the third quarter of 2011. Our outside tax basis in the business was higher than our book basis. Consequently, we recognized a tax loss that was higher than the book loss on the sale which is permanent in nature. The decrease in the effective tax rate for the three and nine months ended September 30, 2011 is primarily due to that sale. Additionally, our effective tax rate for the three months ended September 30, 2010 was reduced by the release of state valuation allowances due to the restructuring of our legal entities in certain states.

~~Weighted Average Shares~~

~~The diluted weighted average number of shares outstanding was~~ ~~239.5 million~~ ~~during the~~ ~~first nine months ended September 30, 2011, compared to~~ ~~252.5 million~~ ~~in the same period of 2010.~~. The decrease in the number of shares reflects the impact of shares repurchased under our share repurchase program.

Critical Accounting Policies

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Our critical accounting policies are disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2010.~~2011.

No other significant changes to our accounting policies have occurred subsequent to December 31, ~~2010,~~2011, except as described below within Recent Accounting Pronouncements and Accounting Changes.

Recent Accounting Pronouncements and Accounting Changes

For discussion of recent accounting pronouncements and accounting changes, see Part I, Item 1. Financial Statements, Note 3.

Cautionary Statement on Forward-Looking Statements

The statements in this Form 10-Q that are not historical facts are forward-looking statements made in reliance on the “safe harbor” protections provided under the Private Securities Litigation Reform Act of 1995. These statements may be accompanied by words such as “believe,” “estimate,” “project,” “expect,” “anticipate,” or “predict,” that convey the uncertainty of future events or outcomes. These statements are based on assumptions that we believe are reasonable; however, many important factors could cause our actual results in the future to differ materially from the forward-looking statements made herein and in any other documents or oral presentations made by us, or on our behalf. Important factors, which could cause actual results to differ materially from those in forward-looking statements include, among others, the following:

~~Changes~~Our affiliated funeral and cemetery trust funds own investments in ~~general economic~~equity securities, fixed income securities, and mutual funds, which are affected by market conditions ~~both domestically and internationally, impacting financial markets (e.g., marketable security values, access to capital markets, as well as currency and interest rate fluctuations)~~ that ~~could negatively affect us, particularly, but not limited to, levels of trust fund income, interest expense, and negative currency translation effects.~~are beyond our control.

~~Changes in operating conditions such as supply disruptions and labor disputes.~~

Our inability to achieve the level of cost savings, productivity improvements or earnings growth anticipated by management, whether due to significant increases in energy costs (e.g., electricity, natural gas and fuel oil), costs of other materials, employee-related costs or other factors.

~~Our inability to complete acquisitions, divestitures or strategic alliances as planned or to realize expected synergies and strategic benefits.~~

The outcomes of pending lawsuits, proceedings, and claims against us and the possibility that insurance coverage is deemed not to apply to these matters or that an insurance carrier is unable to pay any covered amounts to us.

~~Allegations regarding compliance with laws, regulations, industry standards, and customs regarding burial procedures~~

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~~and practices.~~

~~The amounts payable by us with respect to our outstanding legal matters exceed our established reserves.~~

~~Amounts that we~~We may be required to replenish ~~into~~ our affiliated funeral and cemetery trust funds in order to meet minimum funding ~~requirements.~~

The outcome of pending Internal Revenue Service audits. We maintain accruals for tax liabilities that relate to uncertain tax matters. If these tax matters are unfavorably resolved, we will make any required payments to tax authorities. While such paymentsrequirements, which would ~~affect~~have a negative effect on our earnings and cash flow, we do not believe it would impair our ability to service debt or our overall liquidity. If these tax matters are favorably resolved, the accruals maintained by us will no longer be required, and these amounts will be reversed through the tax provision at the time of resolution.flow.

Our ability to ~~manage changes in consumer demand and/or pricing for~~execute our ~~products and services due to several~~strategic plan depends on many factors, ~~such as changes in numbers~~some of ~~deaths, cremation rates, competitive pressures, and local economic conditions.~~

~~Changes in domestic and international political and/or regulatory environments in~~ which ~~we operate, including potential changes in tax, accounting, and trusting policies.~~

~~Changes in credit relationships impacting the availability of credit and the general availability of credit in the marketplace.~~are beyond our control.

Our ~~ability to successfully access surety and insurance markets at a reasonable cost.~~

~~Our ability to successfully leverage our substantial purchasing power with certain of our vendors.~~

The effectiveness of our internal control over financial reporting, and our ability to certify the effectiveness of the internal controls and to obtain an unqualified attestation report of our auditors regarding the effectiveness of our internal control over financial reporting.

~~The possibility~~credit agreements contain covenants that ~~restrictive covenants in our credit agreement and debt securities~~ may prevent us from engaging in certain transactions.

~~Our~~If we lost the ability to ~~buy~~use surety bonding to support our ~~common stock under our share repurchase programs, which could~~preneed funeral and preneed cemetery activities, we may be ~~impacted by, among others, restrictive covenants~~required to make material cash payments to fund certain trust funds.

The funeral home and cemetery industry continues to be increasingly competitive.

Increasing death benefits related to preneed funeral contracts funded through life insurance or annuity contracts may not cover future increases in ~~our bank agreements, unfavorable market conditions,~~ the ~~market price~~cost of ~~our common stock, the nature of other investment opportunities presented to us from time to time, and the availability of funds necessary to continue purchasing common stock.~~providing a price-guaranteed funeral service.

The financial condition of third-party insurance companies that fund our preneed funeral contracts may impact our

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future revenues.

Unfavorable results of litigation could have a material adverse impact on our financial statements.

Unfavorable publicity could affect our reputation and business.

If the number of deaths in our markets declines, our cash flows and revenues may decrease.

The continuing upward trend in the number of cremations performed in North America could result in lower revenues and gross profit.

Our funeral home and cemetery businesses are high fixed-cost businesses.

Regulation and compliance could have a material adverse impact on our financial results.

Cemetery burial practice claims could have a material adverse impact on our financial results.

A number of years may elapse before particular tax matters, for which we have established accruals, are audited and finally resolved.

Declines in overall economic conditions beyond our control could reduce future potential earnings and cash flows and could result in future goodwill impairments.

~~Our funeral and cemetery trust funds’ investments in equity securities, fixed income securities, and mutual funds are impacted by market conditions that are beyond our control.~~

For further information on these and other risks and uncertainties, see our Securities and Exchange Commission filings, including our ~~2010~~2011 Annual Report on Form 10-K, which was filed February ~~14, 2011.~~13, 2012. Copies of this document as well as other SEC filings can be obtained from our website at www.sci-corp.com. We assume no obligation to publicly update or revise any forward-looking statements made herein or any other forward-looking statements made by us, whether as a result of new information, future events or otherwise.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Marketable Equity and Debt Securities — Price Risk

In connection with our preneed funeral operations and preneed cemetery merchandise and service sales, the related funeral and cemetery trust funds own investments in equity and debt securities and mutual funds, which are sensitive to current market prices.

Cost and market values as of ~~September 30, 2011~~March 31, 2012 are presented in Part I, Item 1. Financial Statements and Notes 4, 5, and 6 of this Form 10-Q. Also, see Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, Financial Conditions, Liquidity and Capital Resources, for discussion of trust investments.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

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As of ~~September 30, 2011~~March 31, 2012, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the Securities and Exchange Commission (“SEC”) reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time period specified by the SEC’s rules and forms and that such information is accumulated and communicated to management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. The officers have concluded that our disclosure controls and procedures were effective as of ~~September 30, 2011~~March 31, 2012 and that the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented in conformity with US GAAP.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Information regarding legal proceedings is set forth in Note 15 in Item 1 of Part I of this Form 10-Q, which information is hereby incorporated by reference herein.

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Item 1A. Risk Factors

There have been no material changes in our Risk Factors as set forth in Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2010.~~2011.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On ~~July 29, 2011~~January 31, 2012, we issued ~~1,135~~1,179 deferred common stock equivalents, or units, pursuant to provisions regarding dividends under the Amended and Restated Director Fee Plan to four non-employee directors. We did not receive any monetary consideration for the issuances. These issuances were unregistered because they did not constitute a “sale” within the meaning of Section 2(3) of the Securities Act of 1933, as amended.

In ~~August 2011,~~February 2012, our Board of Directors approved an increase in our share repurchase program authorizing the investment of up to an additional $~~116.6~~120 million to repurchase our common stock, bringing total authorization up to $~~200.0~~200 million. As of ~~September 30, 2011~~March 31, 2012, the remaining dollar value of shares that may yet be purchased under our currently approved share repurchase program was approximately $~~150.3~~146.8 million.

Period Total number of shares purchased Average price paid per share Total number of shares purchased as part of publicly announced programs Dollar value of shares that may yet be purchased under the programs
July 1, 2011 — July 31, 2011 784,524
$ 11.46
784,524
$ 115,663,369

August 1, 2011 — August 31, 2011 6,821,589
$ 9.53
6,821,589
$ 167,190,203

September 1, 2011 — September 30, 2011 1,723,752
$ 9.82
1,723,752
$ 150,270,212

9,329,865
9,329,865



Period	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced programs	Dollar value of shares that may yet be purchased under the programs
January 1, 2012 — January 31, 2012	1,431,821	$	10.82	1,431,821	$	84,065,453
February 1, 2012 — February 29, 2012	4,340,300	$	11.18	4,340,300	$	155,938,132
March 1, 2012 — March 31, 2012	992,984	$	11.18	819,749	$	146,776,796
	6,765,105			6,591,870

~~Table of Contents~~

Item 6. Exhibits



12.1		Ratio of earnings to fixed charges for the three ~~and nine~~ months ended ~~September 30, 2011~~March 31, 2012 and ~~2010.~~2011.

31.1		Certification of Thomas L. Ryan as Chief Executive Officer in satisfaction of Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Eric D. Tanzberger as Principal Financial Officer in satisfaction of Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Periodic Financial Reports by Thomas L. Ryan as Chief Executive Officer in satisfaction of Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Periodic Financial Reports by Eric D. Tanzberger as Principal Financial Officer in satisfaction of Section 906 of the Sarbanes-Oxley Act of 2002.

101		The following materials from Service Corporation International’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheet (ii) Condensed Consolidated Statement of Operations, (iii) Condensed Consolidated Statement of Equity (iv) Condensed Consolidated Statement of Cash Flows and (v) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.Interactive data file.

~~Undertaking~~

We hereby undertake, pursuant to Regulation S-K, Item 601(b), paragraph (4) (iii), to furnish to the U.S. Securities and Exchange Commission, upon request, all constituent instruments defining the rights of holders of our long-term debt not filed herewith for the reason that the total amount of securities authorized under any of such instruments does not exceed 10 percent of our total consolidated assets.

5343

Table of Contents

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



~~October 27, 2011~~April 26, 2012		SERVICE CORPORATION INTERNATIONAL
	By:	/s/ Tammy Moore
		Tammy Moore
		Vice President and Corporate Controller (Principal Accounting Officer)

5444

Table of Contents

Index to Exhibits



12.1	Ratio of earnings to fixed charges for the three ~~and nine~~ months ended ~~September 30, 2011~~March 31, 2012 and ~~2010.~~2011.

31.1	Certification of Thomas L. Ryan as Chief Executive Officer in satisfaction of Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Certification of Eric D. Tanzberger as Principal Financial Officer in satisfaction of Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	Certification of Periodic Financial Reports by Thomas L. Ryan as Chief Executive Officer in satisfaction of Section 906 of the Sarbanes-Oxley Act of 2002.

32.2	Certification of Periodic Financial Reports by Eric D. Tanzberger as Principal Financial Officer in satisfaction of Section 906 of the Sarbanes-Oxley Act of 2002.

101	The following materials from Service Corporation International’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheet (ii) Condensed Consolidated Statement of Operations, (iii) Condensed Consolidated Statement of Equity (iv) Condensed Consolidated Statement of Cash Flows and (v) Notes to Condensed Consolidated Financial Statements, tagged as blocks of text.Interactive data file.

5545



	Nine Months Ended September 30, 2011
	Funeral Trusts			Cemetery Trusts			Cemetery Perpetual Care Trusts			Other, Net		Total
				(In thousands)
Realized gains	$	49,618		$	51,225		$	31,221		$	—	$	132,064
Realized losses	(18,215		)	(19,994		)	(14,506		)	—		(52,715		)
Impairment charges	(20,821		)	(26,081		)	(316		)	—		(47,218		)
Interest, dividend, and other ordinary income	15,085			16,545			25,775			—		57,405
Trust expenses and income taxes	(4,982		)	(7,385		)	(2,753		)	—		(15,120		)
Net trust investment income	20,685			14,310			39,421			—		74,416
Reclassification to deferred preneed funeral and cemetery receipts held in trust and care trusts’ corpus	(20,685		)	(14,310		)	(39,421		)	—		(74,416		)
Other income, net	—			—			—			969		969
Total other income, net	$	—		$	—		$	—		$	969	$	969



	Three Months Ended September 30, 2010
	Funeral Trusts			Cemetery Trusts			Cemetery Perpetual Care Trusts			Other, Net		Total
				(In thousands)
Realized gains	$	5,963		$	6,838		$	4,244		$	—	$	17,045
Realized losses	(8,360		)	(9,828		)	(2,068		)	—		(20,256		)
Impairment charges	(1,129		)	(1,536		)	(251		)	—		(2,916		)
Interest, dividend, and other ordinary income	3,291			5,491			9,174			—		17,956
Trust expenses and income taxes	(1,324		)	(2,555		)	(114		)	—		(3,993		)
Net trust investment (loss) income	(1,559		)	(1,590		)	10,985			—		7,836
Reclassification to deferred preneed funeral and cemetery receipts held in trust and care trusts’ corpus	1,559			1,590			(10,985		)	—		(7,836		)
Other income, net	—			—			—			688		688
Total other income, net	$	—		$	—		$	—		$	688	$	688



	Options		Weighted-Average Exercise Price
Outstanding at December 31, 2010	12,312,783		$	7.53
Granted	2,394,430		9.09
Exercised	(1,136,808	)	6.77
Canceled	(94,857	)	5.32
Outstanding at September 30, 2011	13,475,548		$	7.88
Exercisable at September 30, 2011	8,288,301		$	8.16



	(In thousands)
Accounts receivable	$	6,131
Other current assets	20,200
Cemetery property	19,949
Property and equipment, net	105,888
Preneed funeral and cemetery receivables and trust investments	66,395
Finite-lived intangible assets	34,312
Indefinite-lived intangible assets	33,700
Deferred charges and other assets	6,533
Goodwill	108,643
Total assets acquired	401,751
Current liabilities	11,719
Long-term debt	2,548
Deferred preneed funeral and cemetery revenues and deferred receipts held in trusts	69,336
Deferred tax liability	20,939
Other liabilities	8,347
Total liabilities assumed	112,889
Net assets acquired	$	288,862



	Useful life
	Minimum		Maximum	Fair Value
	(Years)			(In thousands)
Preneed customer relationships related to insurance claims			10	$	15,200
Preneed deferred revenue	10	-	14	1,740
Covenants-not-to-compete	5	-	15	13,332
Operating leases	5	-	15	440
Tradenames			5	3,600
Tradenames			Indefinite	33,200
Licenses and permits			Indefinite	500
Total intangible assets				$	68,012



Nine Months Ended September 30, 2011	Consolidated		Less: Results Associated with Acquisition/New Construction		Less: Results Associated with Divestitures			Comparable
			(Dollars in millions)
North America Revenue
Funeral revenue	$	1,173.4	$	103.0	$	2.7		$	1,067.7
Cemetery revenue	551.1		4.5		4.3			542.3
	1,724.5		107.5		7.0			1,610.0
Germany revenue	5.0		—		—			5.0
Total revenue	$	1,729.5	$	107.5	$	7.0		$	1,615.0
North America Gross Profits
Funeral gross profits	$	243.4	$	17.9	$	(0.3	)	$	225.8
Cemetery gross profits	104.7		0.7		0.3			103.7
	348.1		18.6		—			329.5
Germany gross profits	0.4		—		—			0.4
Total gross profits	$	348.5	$	18.6	$	—		$	329.9



Nine Months Ended September 30, 2010	Consolidated		Less: Results Associated with Acquisition/New Construction		Less: Results Associated with Divestitures		Comparable
			(Dollars in millions)
North America Revenue
Funeral revenue	$	1,100.8	$	50.2	$	12.8	$	1,037.8
Cemetery revenue	513.6		2.2		7.5		503.9
	1,614.4		52.4		20.3		1,541.7
Germany revenue	4.9		—		—		4.9
Total revenue	$	1,619.3	$	52.4	$	20.3	$	1,546.6
North America Gross Profits
Funeral gross profits	$	230.8	$	13.5	$	0.2	$	217.1
Cemetery gross profits	93.1		0.2		0.3		92.6
	323.9		13.7		0.5		309.7
Germany gross profits	0.4		—		—		0.4
Total gross profits	$	324.3	$	13.7	$	0.5	$	310.1