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. Yesþ       Noo

     Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Securities Exchange Act of 1934. (Check one):

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yeso       Noþ

     The number of shares of the Registrant’s Common Stock, $.01 par value per share, outstanding as of MayAugust 1, 2007 was 18,940,190.19,047,339.

     (a) The Company

     Carriage Services, Inc. (“Carriage” or the “Company”) is a leading provider of products and services in the death care industry in the United States. As of March 31,June 30, 2007, the Company owned and operated 129130 funeral homes in 27 states and 2932 cemeteries in 11 states.

     (b) Principles of Consolidation

     The accompanying consolidated financial statements include the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated.

     (c) Interim Condensed Disclosures

     The information for the three and six month periods months ended March 31,June 30, 2006 and 2007 is unaudited, but in the opinion of management, reflects all adjustments which are normal, recurring and necessary for a fair presentation of financial position and results of operations for the interim periods. Certain information and footnote disclosures, normally included in annual financial statements, have been condensed or omitted. The accompanying consolidated financial statements have been prepared consistent with the accounting policies described in our annual report on Form 10-K for the year ended December 31, 2006, and should be read in conjunction therewith.

     (d) Cash Equivalents

     The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

     (e) Use of Estimates

          The preparation of the consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an on-going basis, we evaluate estimates and judgments, including those related to revenue recognition, realization of accounts receivable, intangible assets, property and equipment and deferred tax assets. We base our estimates on historical experience, third party data and assumptions that we believe to be reasonable under the circumstances. The results of these considerations form the basis for making judgments about the amount and timing of revenues and expenses, the carrying value of assets and the recorded amounts of liabilities. Actual results may differ from these estimates and such estimates may change if the underlying conditions or assumptions change. Historical performance should not be viewed as indicative of future performance, as there can be no assurance the margins, operating income and net earnings as a percentage of revenues will be consistent from year to year.

     (f) Discontinued Operations

     In accordance with the Company’s strategic portfolio policy,optimization model, non-strategic businesses are reviewed to determine whether the business should be sold and proceeds redeployed elsewhere. A marketing plan is then developed for those locations which are identified as held for sale. When the Company receives a letter of intent and financing commitment from the buyer and the sale is expected to occur within one year, the location is no longer reported within the Company’s continuing operations. The assets and liabilities associated with the location are reclassified as held for sale location are reclassified on the balance sheet and the operating results, as well as impairments, are presented on a comparative basis in the discontinued operations section of the Consolidated Statementsconsolidated statements of Operations,operations, along with the income tax effect.

     (g) Stock Plans and Stock-Based Compensation

     The Company has stock-based employee compensation plans in the form of restricted stock, stock option and employee stock purchase plans, which are described in more detail in Note 16 to the consolidated financial statements in our Form 10-K for the year ended December 31, 2006. The Company accounts for stock-based compensation under SFAS No. 123R, “Share-Based Payment” (“FAS No. 123R”). FAS No. 123R requires companies to recognize compensation expense in an amount equal to the fair value of the share-based awards issued to employees over the period of vesting and applies to all transactions involving issuance of equity by a company in exchange for goods and services, including employee services. The fair value of awards for options or awards containing options is determined using the Black-Scholes valuation model. The Company adopted FAS No. 123R in the first quarter of 2006, using the modified prospective application method.

     (h) Accounting Changes and Error Corrections

     The Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting No. 154, “Accounting Changes and Error Corrections” (“FAS No. 154”). This statement is a replacement of Accounting Principles Board Opinion No. 20 and FAS No. 3. FAS No. 154 changes the requirements for the accounting for and reporting of a change in accounting principle and error corrections. It establishes, unless impracticable and absence of explicit transition requirements, retrospective application as the required method of a change in accounting principle to the newly adopted accounting principle. Also, it establishes guidance for reporting corrections of errors as reporting errors involves adjustments to previously issued financial statements similar to those generally applicable to reporting accounting changes retrospectively. FAS No. 154 also provides guidance for determining and reporting a change when retrospective application is impracticable. FAS No. 154 is effective for accounting changes and corrections of errors made in the fiscal years beginning after December 15, 2005. The Company adopted the requirements beginning January 1, 2006, which had no affect on the Company’s presentation and disclosure.

     (i) Consideration of Misstatements

     In September 2006, the SEC released Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (SAB 108), which provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. The SEC staff believes that registrants should quantify errors using both a balance sheet and an income statement approach and evaluate whether either approach results in quantifying a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. The provisions of SAB 108 is effective for financial statements as of the beginning of the first fiscal year ending after November 15, 2006. The Company adopted the requirements at the beginning of the first quarter of 2007, which had no effect on the financial statements.

     In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFASFAS No. 157”), which establishes a framework for measuring fair value in accordance with Generally Accepted Accounting Principles (“GAAP”) and expands disclosures about fair value measurements. This statement is effective as of the beginning of the entity’s first fiscal year that begins after November 15, 2007. The Company is currently evaluating the impact, if any, the adoption of SFASFAS No. 157 will have on its consolidated financial statements.

     In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115 (“SFASFAS No. 159”). This statement permits entities to choose to measure many financial assets and liabilities and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This statement is effective as of the beginning of the entity’s first fiscal year beginning after November 15, 2007. The Company is currently evaluating the impact, if any, the adoption of SFASFAS No. 159 will have on its consolidated financial statements.

     In June 2006, FASB issued FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” FIN 48 prescribes how tax benefits for uncertain tax positions are to be recognized, measured, and derecognized in financial statements; requires certain disclosures of uncertain tax matters; specifies how reserves for uncertain tax position should be classified on the balance sheet; and provides transition and interim period guidance, among other provisions. FIN 48 is effective for fiscal years beginning after December 15, 2006 and was adopted by the Company at the beginning of the first quarter of 2007. The Company has reviewed its income tax positions and identified certain tax deductions, primarily related to business acquisitions that are not certain. The cumulative effect of adopting FIN 48 has been recorded as a reduction to the 2007 opening balance of Retained Earnings and an increase in noncurrent liabilities in the amount of $241,000, which includes accrued interest and penalties totaling $86,000. The Company’s policy with respect to potential penalties and interest is to record them as “other” expense and interest expense, respectively.

     The Company has unrecognized tax benefits for Federal and state income tax purposes totaling $5.0$5.1 million at January 31,1, 2007, resulting from deductions totaling $13.4$13.8 million on Federal returns and $7.9 million on various state returns. The effect of applying FIN 48 for the threesix months ended March 31,June 30, 2007 was not material to operations. The Company has net operating loss carryforwards exceeding these deductions, and has accounted for these unrecognized tax benefits by reducing the net operating loss carryforwards by the amount of these unrecognized deductions. In certain states, the Company has previously reduced its taxes payable by deductions that are not considered more likely than not. The cumulative effect of adopting FIN 48 specifically relates to those state income tax returns.

     The Company’s Federal income tax returns for 2001 through 2006 are open tax years that may be examined by the Internal Revenue Service. The Company’s unrecognized state tax benefits are related to state returns open from 2001 through 2006. The Company believes it is reasonably possible it will recognize the unrecognized tax benefits upon the expiration of statutes of limitations of previously deducted expenses.

     Effective January 1,April 2, 2007, the Company acquired a combination funeral home and cemetery business in California for cash in the amount of $8.2 million. Effective June 12, 2007, the Company acquired a combination funeral home and cemetery business and a funeral homecemetery business in TexasIdaho for cash in the amount of $6.4$9.0 million and the assumption of liabilities totaling $4.7$0.8 million. TheFor these acquisitions, the Company acquired substantially all the assets and assumed certain operating liabilities including obligations associated with existing preneed contracts. The assets and liabilities were recorded at fair value and included goodwill in the amount of $4.3$5.5 million. Also the Company acquired certain assets of a funeral home business in New Mexico for $0.9 million which have been integrated with an existing business in the same market. The results of the acquired businesses are included in the Company’s results from the date of acquisition. The proforma impact of the acquisitionacquisitions on the prior period is not presented as the impact is not material to reported results.

     The effect of the acquisitionacquisitions on the consolidated balance sheet at March 31,June 30, 2007 was as follows (in thousands):

     The operating results of businesses discontinued during the periods presented, as well as impairments and gains or losses on the disposal, are presented on a comparative basis in the discontinued operations section of the consolidated statements of operations, along with the income tax effect. Likewise, the operating results, impairment charges and gains or losses from businesses sold in the prior year have been similarly reported for comparability. Revenues and operating income for the businesses presented in the discontinued operations section are as follows (in thousands):

     The estimated maturities of the fixed income securities included above are as follows:

     Cemetery and funeral trust investment security transactions recorded in Other income in the Consolidated Statement of Operations for the three and six months ended March 31,June 30, 2006 and 2007 are as follows (in thousands).

     Non-controlling interests in cemetery perpetual care trusts represent the corpus of those trusts plus undistributed income. The components of non-controlling interests in cemetery perpetual care trusts as of December 31, 2006 and March 31,June 30, 2007 are as follows:

     The following information is supplemental disclosure for the Consolidated Statement of Cash Flows (in thousands):

     The fair value of the right (option) to purchase shares under the ESPP during 2006 and 2007, respectively, is estimated on the date of grant using the Black-Sholes option-pricing model with the following weighted average assumptions:

     In addition to historical information, this Quarterly Report contains forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements include any projections of earnings, revenues, asset sales, acquisitions, cash balances and cash flow, debt levels or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. Forward-looking statements may include the words “may”, “will”, “estimate”, “intend”, “believe”, “expect”, “project”, “forecast”, “plan”, “anticipate” and other similar words.

          We caution readers that the following important factors, among others, in some cases have affected, and in the future could affect, our actual consolidated results and could cause our actual consolidated results in the future to differ materially from the goals and expectations expressed herein and in any other forward-looking statements made by or on behalf of us. For further information regarding risks associated with our business and the death care industry, see Item 1A – Risk Factors in our annual report filed on Form 10-K for the year ended December 31, 2006.

          Risks related to our business

          (1) Marketing and sales activities by existing and new competitors could cause us to lose market share and lead to lower revenues and margins.

          (2) Our ability to generate preneed sales depends on a number of factors, including sales incentives and local and general economic conditions.

          (3) Price competition could also reduce our market share or cause us to reduce prices to retain or recapture market share, either of which could reduce revenues and margins.

          (4) Our ability to execute our growth strategy is highly dependent upon our ability to successfully identify suitable acquisition candidates and negotiate transactions on favorable terms.

          (5) Increased or unanticipated costs, such as insurance, taxes and new computer systems implementations, may have a negative impact on our earnings and cash flows.

          (6) Improved performance in our funeral and cemetery segments is highly dependent upon successful execution of our standards-based Being the Best operating model.

          (7) Our smaller businesses are typically dependent upon one or a few key employees for success.

          (8) Earnings from and principal of trust funds and insurance contracts could be reduced by changes in financial markets and the mix of securities owned.

          (9) Covenant restrictions under our debt instruments may limit our flexibility in operating our business.

          Risks related to the death care industry

          (1) Declines in the number of deaths in our markets can cause a decrease in revenues. Changes in the number of deaths are not predictable from market to market or over the short term.

          (2) The increasing number of cremations in the United States could cause revenues to decline because we could lose market share to firms specializing in cremations. In addition, direct cremations produce minimal revenues for cemetery operations and lower funeral revenues.

          (3) If we are not able to respond effectively to changing consumer preferences, our market share, revenues and profitability could decrease.

          (4) Because the funeral and cemetery businesses are high fixed-cost businesses, changes in revenues can have a disproportionately large effect on cash flow and profits.

          (5) Changes or increases in, or failure to comply with, regulations applicable to our business could increase costs or decrease cash flows.

     General

     We operate two types of businesses: funeral homes, which account for approximately 75% of our revenues, and cemeteries, which account for approximately 25% of our revenues. Funeral homes are principally a service business that provide funeral services (burial and cremation) and sell related merchandise, such as caskets and urns. Cemeteries are primarily a sales business that sells interment rights (grave sites and mausoleums) and related merchandise such as markers and memorials.outer burial containers. As of March 31,June 30, 2007, we operated 129130 funeral homes in 27 states and 2932 cemeteries in 11 states within the United States. Substantially all administrative activities are conducted or coordinated in our home office in Houston, Texas.

     Factors affecting our funeral operating results include: demographic trends in terms of population growth and average age, which impact death rates and number of deaths; establishing and maintaining leading market share positions supported by strong local heritage and relationships; effectively responding to increasing cremation trends by packaging complementary services and merchandise; controlling salary and merchandise costs; and exercising pricing leverage related to our at-need business to increase average revenues per contract. In simple terms, volume and price are the two variables that affect funeral revenues. The average revenue per contract is influenced by the mix of traditional and cremation services because our average cremation service revenue is approximately 39%38% of the average revenue earned from a traditional burial service. Funeral homes have a relatively fixed cost structure. Thus, small changes in revenues, up or down, normally cause significant changes to our profitability.

     Our same store volumes have declined gradually each year from 22,514 in 2003 to 21,555 in 2006 (compound annual decline of 1.4%) consistent with a period of weak death rates nationally and the loss of market share primarily in our Central Region funeral operations. We have continued to experience lower volumes in 2007, primarily in our eastern and Western Regions, while the Central Region has reversed its previous trend by reporting slightly higher volumes. Our same store funeral operations have increased revenue steadily from $107.9 million in 2003 to $113.7 million in 2006 (compound annual increase of 1.8%). We expect same store portfolio volumes to stabilize and our average revenue per funeral to increase over time as we seek to provide increased services to our client families in order to offset potential weak death rates and higher cremation rates.

The cemetery operating results are affected by the size and success of our sales organization. Approximately 53%55% of our cemetery revenues for the three months ended March 31, 2007 relate to preneed sales of grave sitesinterment rights and mausoleums and related merchandise and services before the time of need.services. We believe that changes in the level of consumer confidence (a measure of whether consumers will spend for discretionary items) also affect the amount of cemetery revenues. Approximately 9%10% of our cemetery revenues for the three months ended March 31, 2007 are attributable to investment earnings on trust funds and finance charges on installment contracts. Changes in the capital markets and interest rates affect this component of our cemetery revenues.

     We have implemented several significant long-term initiativesOur same store cemetery financial performance from 2003 through 2005 was characterized by increasing revenues but slightly declining Field level profit margins. Our goal is to build broader and deeper teams of sales leaders and counselors in our operations designedlarger and more strategically located cemeteries that can sustain consistent, modest growth in preneed property sales over time and to improvediversify and substantially increase our cemetery operating and financial results by growing market share and increasing profitability. We introduced a more decentralized, entrepreneurial and local operating model that included operating and financial standards developed from our best operations, along with an incentive compensation plan to reward business managers for successfully meeting or exceeding the standards. The model essentially eliminated the use of financial budgets. The operating model and standards, which we refer to as “Being the Best,” focus on the key drivers of a successful operation, organized around three primary areas – market share, people and operating and financial metrics. The model and standards are the measures by which we judge the success of each business. To date, the “Being the Best” operating model and standards have driven significant changes in our organization, leadership and operating practices. In certain businesses we have determined that the business managers do not possess the characteristics to succeed in this type of culture, and we have been actively recruiting new managers who do. We have also determined that this model is most effective in larger businesses. Being the best is not something that occurs easily and quickly, but we believe execution of the model should result in improving performance in 2007 and beyond.results.

     Financial Highlights

     Net income from continuing operations for the three months ended March 31,June 30, 2007 totaled $3.0$1.9 million, equal to $0.16$0.10 per diluted share as compared to net income from continuing operations of $2.3$0.6 million for the second quarter of 2006, or $0.03 per diluted share. Net income from continuing operations for the six months ended June 30, 2007 totaled $4.9 million, equal to $0.26 per diluted share as compared to net income from continuing operations of $2.9 million for the first quartersix months of 2006, or $0.12$0.15 per diluted share.

     The year to date improvement in earnings is due in large part to the success of three initiatives in which we have focused our attention to improve operating results for 2007: (1) the turnaroundsignificant improvement of existing Central Region funeral homes, (2) new leadership and sales growth at Rolling Hills Memorial Park and (3) operating results from 2007 acquisitions. The existing Central Region funeral homes generated 4.5%7.8% higher revenues and $0.4$1.2 million in additional net income, equal to $0.02$0.06 per diluted share in the first quartersix months of 2007 when compared to the same period in 2006. A new general mangerManaging Partner was hired at the beginning of 2007 at Rolling Hills Memorial Park, and with the influence of that new leadership and other improvements, revenues at Rolling Hills Memorial Park increased 28.9%30.4% which helped generate $0.3$0.7 million in additional net earnings,income, equal to $0.015$0.03 per diluted share. The acquisitionDuring the second quarter of 2007 we acquired a combination funeral home and cemetery in California and a combination funeral home and cemetery and a stand-alone funeral homecemetery in Corpus Christi,Idaho. Those acquired businesses, along with the Texas businesses acquired in January 2007the first quarter generated revenues totaling $1.3$4.0 million and net income of $0.2$0.7 million, equal to $0.012$0.04 per diluted share. We expect a continued positive trend in net income during the balance of 2007 and into 2008 from these three areas.

     Income from discontinued operations for the threesix months ended March 31,June 30, 2007 totaled $0.4 million, equal to $0.02 per diluted share. During Januarythe first six months of 2007, the Company completed the sale of athree funeral home business,businesses, resulting in a pre-tax gain of $0.7 million. Loss from discontinued operations for the threesix months ended March 31,June 30, 2006 totaled $4.0$(3.9) million, equal to $0.21$(0.20) per diluted share. In MarchDuring the 2006 period we entered into a plan to sell a funeral home business and a combination funeral home and cemetery business in the State of Indiana, both of which were in small markets not strategic to our future plans. We recorded pre-tax impairment charges of approximately $6.1$6.3 million to write down the current book value of non-strategic businesses in Indiana to the estimated net proceeds. The sales of these businesses were completed in the third quarter of 2006.proceeds.

The calculation of fair value can vary dramatically with changes in estimates of the number of future services performed, inflation in costs, and the Company’s cost of capital, which is impacted by long-term interest rates. If impairment is indicated, then an adjustment will be made to reduce the carrying amount of goodwill to fair value.

     The Company and its subsidiaries file a consolidated U.S. Federal income tax return and separate income tax returns in the states in which we operate. We record deferred taxes for temporary differences between the tax basis and financial reporting basis of assets and liabilities, in accordance with SFAS 109, “Accounting for Income Taxes” and account for uncertain tax positions in accordance with FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes”. The Company records a valuation allowance to reflect the estimated amount of deferred tax assets for which realization is uncertain. Management reviews the valuation allowance at the end of each quarter and makes adjustments if it is determined that it is more likely than not that the tax benefits will be realized.

     The Company has stock-based employee compensation plans in the form of restricted stock, stock option and employee stock purchase plans. The Company accounts for stock-based compensation under Statement of Financial Accounting Standards No. 123R, “Share-Based Payment” (“FAS No. 123R”). FAS No. 123R requires companies to recognize compensation expense in