UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended ~~September 30, 2008~~March 31, 2009


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: 1-11961

CARRIAGE SERVICES, INC.

(Exact name of registrant as specified in its charter)


DELAWARE		76-0423828
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)


3040 Post Oak Boulevard, Suite 300, Houston, TX		77056
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (713) 332-8400

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 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). Yeso Noþ

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 filero		Accelerated filerþ		Non-accelerated filero (Do not check if a smaller reporting company)		Smaller ~~reporting company~~Reporting Companyo

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 ~~November 1, 2008~~April 30, 2009 was ~~18,209,399.~~17,882,436.

CARRIAGE SERVICES, INC.

INDEX


	Page

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements(Unaudited)

Consolidated Balance Sheets as of December 31, ~~2007~~2008 and ~~September 30, 2008~~March 31, 2009		3

Consolidated Statements of Operations for the Three Months ended ~~September 30, 2007 and~~March 31, 2008 and ~~Nine months ended September 30, 2007 and 2008~~2009		4

Consolidated Statements of Cash Flows for the ~~Nine~~Three Months ended ~~September 30, 2007~~March 31, 2008 and ~~2008~~2009		5

Condensed Notes to Consolidated Financial Statements		6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		17

Item 3. Quantitative and Qualitative Disclosures About Market Risk		2524

Item 4. Controls and Procedures		2524

PART II — OTHER INFORMATION

Item 1. Legal Proceedings		25

Item 1A. Risk Factors		25

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		25

Item 3. Defaults Upon Senior Securities		2625

Item 4. Submission of Matters to a Vote of Security Holders		2625

Item 5. Other Information		2625

Item 6. Exhibits		2625

Signature

~~Certifications~~
~~EX-10.1~~
EX-11.1
EX-31.1
EX-31.2
EX-32

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

CARRIAGE SERVICES, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)


	December 31,			September 30,			December 31,			March 31,
	2007			2008			2008			2009
				(unaudited)						(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	3,446		$	3,257		$	5,007		$	2,654
Accounts receivable, net of allowance for doubtful accounts of $1,142 in 2007 and $770 in 2008		16,421			13,016
Accounts receivable, net of allowance for bad debts of $833 in 2008 and $948 in 2009								14,637			13,863
Inventories and other current assets		13,686			12,120			15,144			14,685

Total current assets		33,553			28,393			34,788			31,202

Preneed cemetery trust investments		61,114			52,408			44,375			39,661
Preneed funeral trust investments		68,292			62,679			55,150			50,411
Preneed receivables, net of allowance for cancellations and doubtful accounts of $1,159 in 2007 and $761 in 2008		18,333			13,463
Preneed receivables, net of allowance for bad debts of $847 in 2008 and $1,064 in 2009								13,783			14,189
Receivables from preneed funeral trusts		15,012			13,593			12,694			12,570
Property, plant and equipment, at cost, net of accumulated depreciation of $53,304 in 2007 and $57,564 in 2008		125,608			125,953
Property, plant and equipment, net of accumulated depreciation of $59,324 in 2008 and $61,161 in 2009								126,164			124,940
Cemetery property		68,028			69,646			70,213			70,838
Goodwill		167,263			164,520			164,515			164,515
Deferred charges and other non-current assets		16,402			16,130			12,293			10,894
Cemetery perpetual care trust investments		37,202			31,271			26,318			23,885

Total assets	$	610,807		$	578,056		$	560,293		$	543,105

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of senior long-term debt and capital leases obligations	$	1,256		$	801
Current portion of senior long-term debt and capital lease obligations							$	815		$	754
Accounts payable		6,091			5,742			5,128			6,688
Accrued liabilities		14,559			12,128			20,732			11,201

Total current liabilities		21,906			18,671			26,675			18,643
Senior long-term debt, net of current portion		132,994			132,532			132,345			133,058
Convertible junior subordinated debenture due in 2029 to an affiliated trust		93,750			93,750
Convertible junior subordinated debentures due in 2029 to an affiliated trust								93,750			93,750
Obligations under capital leases, net of current portion		4,663			4,602			4,572			4,557
Deferred preneed cemetery revenue		50,610			50,038			49,527			49,383
Deferred preneed funeral revenue		34,277			24,707			24,111			23,986
Non-controlling interests in cemetery trust investments		61,114			52,408
Non-controlling interests in funeral trust investments		68,292			62,679
Deferred preneed cemetery receipts held in trust								44,375			39,661
Deferred preneed funeral receipts held in trust								55,150			50,411

Total liabilities		467,606			439,387			430,505			413,449

Commitments and contingencies
Non-controlling interests in perpetual care trust investments		36,301			31,208
Mandatorily redeemable convertible preferred stock		—			200
Care trusts’ corpus								26,078			23,770
Redeemable preferred stock								200			200

Stockholders’ equity:
Common Stock, $.01 par value; 80,000,000 shares authorized; 19,216,000 and 18,668,000 shares issued and outstanding at December 31, 2007 and September 30, 2008, respectively		192			195
Common Stock, $.01 par value; 80,000,000 shares authorized; 17,835,000 and 17,946,000 shares issued and outstanding at December 31, 2008 and March 31, 2009, respectively								196			200
Additional paid-in capital		193,006			194,687			195,104			195,647
Accumulated deficit		(86,298	)		(84,239	)		(86,050	)		(83,699	)
Treasury stock, at cost; 854,700 shares at September 30, 2008		—			(3,382	)
Treasury stock, at cost; 1,731,000 shares at December 31, 2008 and 2,080,000 shares at March 31, 2009								(5,740	)		(6,462	)

Total stockholders’ equity		106,900			107,261			103,510			105,686

Total liabilities and stockholders’ equity	$	610,807		$	578,056		$	560,293		$	543,105

The accompanying condensed notes are an integral part of these consolidated financial statements.

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CARRIAGE SERVICES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited and in thousands, except per share data)


	For the three months						For the nine months						For the three months
	ended September 30,						ended September 30,						ended March 31,
	2007			2008			2007			2008			2008			2009
Revenues:
Funeral	$	29,478		$	31,596		$	91,625		$	100,764		$	37,016		$	34,840
Cemetery		10,924			11,616			32,255			32,328			10,127			10,963

														47,143			45,803
		40,402			43,212			123,880			133,092
Field costs and expenses:
Funeral		19,199			21,587			57,378			64,832			21,701			21,301
Cemetery		7,553			8,301			21,316			23,476			7,294			7,959
Depreciation and amortization		2,061			2,270			6,106			6,540			2,115			2,189
Regional and unallocated funeral and cemetery costs		1,843			1,837			5,442			5,309			2,065			1,829

		30,656			33,995			90,242			100,157			33,175			33,278

Gross profit		9,746			9,217			33,638			32,935			13,968			12,525
Corporate costs and expenses:
General, administrative and other		3,734			4,114			10,735			12,541			3,650			3,558
Home office depreciation and amortization		337			400			1,047			1,204			409			415

		4,071			4,514			11,782			13,745			4,059			3,973

Interest and other:
Operating Income														9,909			8,552
Interest expense		4,579			4,525			13,785			13,701			(4,620	)		(4,598	)
Interest income and other, net		(191	)		(83	)		(1,066	)		(224	)		90			2

Total interest and other														(4,530	)		(4,596	)
		4,388			4,442			12,719			13,477

Income from continuing operations before income taxes		1,287			261			9,137			5,713			5,379			3,956
Provision for income taxes		584			103			3,607			2,256			(2,125	)		(1,602	)

Net income from continuing operations		703			158			5,530			3,457			3,254			2,354
Income (loss) from discontinued operations, net of tax		(9	)		—			538			(1,390	)
Income from discontinued operations, net of tax														35			—

Net income		694			158			6,068			2,067			3,289			2,354
Preferred stock dividend		—			4			—			8			—			4

Net income available to common stockholders	$	694		$	154		$	6,068		$	2,059		$	3,289		$	2,350


Basic earnings (loss) per common share:
Basic earnings per common share:
Continuing operations	$	0.04		$	0.01		$	0.29		$	0.18		$	0.17		$	0.13
Discontinued operations		—			—			0.03			(0.07	)		—			—

Net income	$	0.04		$	0.01		$	0.32		$	0.11		$	0.17		$	0.13

Diluted earnings (loss) per common share:
Diluted earnings per common share:
Continuing operations	$	0.04		$	0.01		$	0.28		$	0.18		$	0.17		$	0.13
Discontinued operations		—			—			0.03			(0.07	)		—			—

Net income	$	0.04		$	0.01		$	0.31		$	0.11		$	0.17		$	0.13


Weighted average number of common and common equivalent shares outstanding:

Basic		19,117			19,279			18,949			19,351			19,002			17,451


Diluted		19,586			19,354			19,439			19,655			19,428			17,520

The accompanying condensed notes are an integral part of these consolidated financial statements.

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CARRIAGE SERVICES, INC

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited and in thousands)


	For the nine months						For the three months
	ended September 30,						ended March 31,
	2007			2008			2008			2009
Cash flows from operating activities:
Net income	$	6,068		$	2,067		$	3,289		$	2,354
Adjustments to reconcile net income to net cash provided by operating activities:
(Income) loss from discontinued operations		(538	)		1,390
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Income from discontinued operations								(35	)		—
Depreciation and amortization		7,153			7,744			2,523			2,474
Amortization of deferred financing costs		536			536			179			201
Provision for losses on accounts receivable		2,047			2,969			1,012			557
Stock-based compensation expense		868			1,235			347			507
Deferred income taxes		3,302			2,179			2,086			1,602
Other		16			(78	)		(22	)		2
Changes in operating assets and liabilities that provided (required) cash, net of effects from acquisitions and dispositions:
Accounts receivable		(449	)		485
Accounts and preneed receivables								4,441			46
Inventories and other current assets		432			446			(583	)		(74	)
Deferred charges and other		(1,161	)		60			60			—
Preneed funeral and cemetery trust investments		(6,786	)		7,872			433			8,007
Accounts payable and accrued liabilities		(5,486	)		(3,963	)		(5,991	)		(7,977	)
Deferred preneed funeral and cemetery revenue		(4,385	)		(9,321	)		(4,986	)		(269	)
Non-controlling interests in preneed funeral and cemetery trusts		7,700			(1,566	)
Deferred preneed funeral and cemetery receipts held in trust								594			(7,985	)
Net cash provided by operating activities of discontinued operations		217			156			62			—

Net cash provided by operating activities		9,534			12,211

Net cash provided by (used in) operating activities								3,409			(555	)
Cash flows from investing activities:
Acquisitions		(32,531	)		—
Maturities of corporate investments		10,303			—
Capital expenditures		(8,372	)		(9,647	)		(1,759	)		(1,712	)
Withdrawal of restricted cash		2,888			—
Net cash provided by investing activities of discontinued operations		2,520			1,029

Net cash used in investing activities		(25,192	)		(8,618	)		(1,759	)		(1,712	)

Cash flows from financing activities:
Net borrowings under credit facility								—			800
Payments on senior long-term debt and obligations under capital leases		(1,007	)		(978	)		(459	)		(162	)
Proceeds from the exercise of stock options and employee stock purchase plan		1,210			584			165			46
Tax benefit from stock-based compensation								41			—
Purchase of treasury stock								—			(722	)
Dividend on redeemable preferred stock		—			(6	)		—			(4	)
Purchase of treasury stock		—			(3,382	)
Net cash used in financing activities of discontinued operations		(124	)		—
Payment of loan fees								—			(44	)

Net cash provided by (used in) financing activities		79			(3,782	)
Net cash used in financing activities								(253	)		(86	)

Net decrease in cash and cash equivalents		(15,579	)		(189	)
Net increase (decrease) in cash and cash equivalents								1,397			(2,353	)
Cash and cash equivalents at beginning of period		22,820			3,446			3,446			5,007

Cash and cash equivalents at end of period	$	7,241		$	3,257		$	4,843		$	2,654

The accompanying condensed notes are an integral part of these consolidated financial statements.

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CARRIAGE SERVICES, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

~~(a)~~ The Company

Carriage Services, Inc. (“Carriage” or the “Company”) is a leading provider of death care services and merchandise in the United States. As of ~~September 30, 2008,~~March 31, 2009, the Company owned and operated ~~136~~135 funeral homes in 25 states and 32 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 month period ended March 31, 2008 and ~~nine month periods ended September 30, 2007 and 2008~~2009 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 as of and for the interim periods presented. 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, ~~2007,~~2008, 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) Business Combinations~~

Tangible and intangible assets acquired and liabilities assumed are recorded at fair value and goodwill is recognized for any difference between the price of the acquisition and our fair value determination. We customarily estimate our purchase costs and other related transactions known at closing of the acquisition. To the extent that information not available to us at the closing date subsequently becomes available during the allocation period we may adjust goodwill, assets, or liabilities associated with the acquisition.

~~(g)~~ Discontinued Operations

In accordance with the Company’s strategic portfolio 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 held for sale location are reclassified as held for sale 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 statements of operations, along with the income tax effect.

~~- 6 -~~

~~(h)~~ Stock Plans and Stock-Based Compensation

The Company has stock-based employee compensation plans in the form of restricted stock, performance units, stock option and employee stock purchase plans, which are described in more detail in Note 1811 to the consolidated financial statements in our Form 10-K for the year ended December 31, ~~2007.~~2008. The Company accounts for stock-based compensation under SFAS No. 123R, “Share-Based Payment” (“~~FAS~~SFAS No. 123R”). ~~The Company adopted FAS No. 123R in the first quarter of 2006, using the modified prospective application method. FAS~~SFAS 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 options or awards containing options is determined using the Black-Scholes valuation model.

~~(i) Fair Value Measurements~~

~~FAS 157, which~~ See Note 11 to the Company adopted effective January 1, 2008, defines fair value as the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FAS 157 requires disclosureconsolidated financial statements for additional information of the extent to which fair value is used to measure financial assets and liabilities, the inputs utilized in calculating valuation measurements, and the effect of the measurement of significant unobservable inputs on earnings, or changes in net assets, as of the measurement date.Company’s stock-based compensation plans.

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FASB Staff Position No. FAS 157-2 (FSP 157-2), issued in February 2008, delayed the effective date of FAS No. 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until fiscal years beginning after November 15, 2008. We adopted FAS No. 157 effective January 1, 2008, with the exceptions allowed under FSP 157-2, the adoption of which has not affected our financial position or results of operations but did result in additional required disclosures, which are provided in Note 19.

In February 2007, the FASB issued Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115” (“FAS No. 159”). FAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. FAS No. 159 is effective for fiscal years beginning after November 15, 2007. We have not elected to apply the provisions of Statement No. 159 to any additional financial instruments; therefore, the adoption of Statement No. 159 effective January 1, 2008 has not affected our financial position or results of operations.

2. RECENTLY ISSUED ACCOUNTING STANDARDS

Business Combinations

Tangible and intangible assets acquired and liabilities assumed are recorded at fair value and goodwill is recognized for any difference between the price of the acquisition and our fair value determination. We customarily estimate our purchase costs and other related transactions known at closing of the acquisition. To the extent that information not available to us at the closing date subsequently becomes available during the allocation period, we may adjust goodwill, assets, or liabilities associated with the acquisition.

In December 2007, the FASB issued FAS No. 141 (revised 2007), “Business Combinations” (“FAS No. 141R”). FAS No. 141R requires the acquiring entity to recognize the assets acquired, the liabilities assumed and any non-controlling interest in the acquiree at the acquisition date, measured at the fair values as of that date. Goodwill is measured as a residual of the fair values at acquisition date. Acquisition related costs are recognized separately from the acquisition. ~~This~~We adopted the statement effective January 1, 2009 and it will be applied for businesses acquired after the effective date.

Fair Value Measurements

SFAS 157 “Fair Value Measurements” (“SFAS 157”), which the Company adopted effective January 1, 2008, defines fair value as the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. SFAS 157 requires disclosure of the extent to which fair value is ~~effective~~used to measure financial assets and liabilities, the inputs utilized in calculating valuation measurements, and the effect of the measurement of significant unobservable inputs on earnings, or changes in net assets, as of the measurement date.

FASB Staff Position No. FAS 157-2 (“FSP 157-2”), issued in February 2008, delayed the effective date of SFAS 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until fiscal years beginning ~~of the first fiscal year that begins~~ after ~~December~~November 15, 2008. ~~The Company is currently evaluating~~We adopted SFAS 157 effective January 1, 2008, with the ~~impact, if any, of~~exceptions allowed under FSP 157-2, the adoption of ~~FAS~~which has not affected our financial position or results of operations but did result in additional required disclosures, which are provided in Note 8.

In February 2007, the FASB issued Statement No. ~~141R will~~159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115” (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. We have ~~on its consolidated~~not elected to apply the provisions of Statement No. 159 to any additional financial ~~statements.~~instruments; therefore, the adoption of SFAS 159, effective January 1, 2008, has not affected our financial position or results of operations.

Non-controlling Interests

In December 2007, the FASB issued ~~Statement No.~~SFAS 160, ~~“Noncontrolling~~“Noncontrolling Interests in Consolidated Financial ~~Statements”,~~Statements — an amendment of ARB No. ~~51 (“FAS No.~~51”(“SFAS 160”)~~. FAS No. 160 requires that non-controlling interests~~, which establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 clarifies that a noncontrolling interest in a subsidiary, which is sometimes referred to as unconsolidated investment, is an ownership interest in the consolidated entity that should be reported as a component of equity in the consolidated financial ~~statements, the attributable~~statements. Among other requirements, SFAS 160 requires consolidated net income to be ~~identified~~reported at amounts that include the amounts attributable to both the parent and ~~presented~~the non-controlling interest. It also requires disclosure, on the face of the consolidated income statement, of the amounts of consolidated net income attributable to the parent and ~~changes~~to the noncontrolling interest. We adopted SFAS 160 effective for us on January 1, 2009. The adoption of this statement has not affected our financial position or results of operations.

During our examination of SFAS 160 and its impact on our current accounting, we determined that balances historically designated as “non-controlling interest” in our consolidated preneed funeral and cemetery trusts and our cemetery perpetual care trusts do not meet the criteria for non-controlling interest as prescribed by SFAS 160. SFAS 160 indicates that only a financial instrument classified as equity in the ~~ownership~~trusts’ financial statements can be accounted for consistently. The statement also includes requirements when an interest is deconsolidated. Disclosure should be sufficient to clearly identify and distinguish between the interests of the reporting entity and that of thea non-controlling interest ~~owners. This statement is effective as of~~in the ~~beginning of the first fiscal year that begins after December 15, 2008. The Company is currently evaluating the impact, if any, of the adoption of FAS No. 160 will have on its~~ consolidated financial statements.

~~3. CHANGE IN ACCOUNTING FOR INCOME TAX UNCERTAINTIES~~ The interest related to our merchandise and service trusts is classified as a liability because the preneed contracts underlying these trusts are unconditionally redeemable upon the occurrence of an event that is certain to occur. Since the earnings from our cemetery perpetual care trusts are used to support the maintenance of our cemeteries, we believe the interest in these trusts also retains the characteristics of a liability. Accordingly, effective December 31, 2008, the amounts historically described as "Non-controlling interest in funeral and cemetery trusts” are characterized as either “Deferred preneed funeral receipts held in trust” or “Deferred preneed cemetery receipts held in trust”, as appropriate. The amounts historically described as “Non-controlling interest in cemetery perpetual care trusts” are characterized as “Care trusts’ corpus”.

~~In June 2006,~~Accounting for Income Tax Uncertainties

FASB issued FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (“FIN 48”)~~. FIN 48~~ which 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,

- 7 -

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 $0.2 million to the January 1, 2007 retained earnings balance.

The Company has unrecognized tax benefits for Federal and state income tax purposes totaling ~~$6.0~~approximately $6 million as of ~~December~~March 31, ~~2007,~~2009, resulting from deductions ~~totaling $15.2~~of approximately $17 million on Federal returns and ~~$13.4~~$15 million on various state returns. The effect of applying FIN 48 for the ~~nine~~three months ended ~~September 30, 2008~~March 31, 2009 was not material to the Company’s operations. The Company has federal and state net operating loss carryforwards exceeding these deductions, and has accounted for these

~~- 7 -~~

unrecognized tax benefits by reducing the net operating loss carryforwards by the amount of these unrecognized deductions. In certain states without net operating loss carryforwards, 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 entire balance of unrecognized tax benefits, if recognized, would affect the Company’s effective tax rate. The Company does not anticipate a significant increase or decrease in its unrecognized tax benefits during the next twelve months. The ~~amount of penalty and interest recognized in the balance sheet and statement of operations was not material. The~~ Company’s policy with respect to potential penalties and interest is to record them as “other” expense and interest expense, respectively. The amount of penalty and interest recognized in the balance sheet and statement of operations was not material.

The Company’s Federal income tax returns for 2001 through 2008 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 2002 through 2008.]

4.3. DISCONTINUED OPERATIONS

The Company continually reviews locations to optimize the sustainable earning power and return on invested capital of the Company. The Company’s strategy, the Strategic Portfolio Optimization Model, uses strategic ranking criteria to identify disposition candidates. The execution of this strategy entails selling non-strategic businesses.

~~Two~~No businesses were sold during the three months ending March 31, 2008 and 2009. Discontinued operations during the first quarter of 2008 relates to funeral home businesses that were sold during the second quarter of 2008 ~~for approximately $1.0 million, from which a net loss~~and reclassified as of ~~$1.4 million was recorded. No businesses were sold during the first or third quarters of 2008.~~

In the first quarter of 2007, the Company sold two funeral home businesses for approximately $2.4 million and recognized a gain of $0.6 million. In the second quarter of 2007, the Company sold a funeral home business for approximately $0.8 million and recognized a gain of $0.1 million.March 31, 2008 in accordance with our Discontinued Operations policy.

No businesses were held for sale at December 31, ~~2007~~2008 and ~~September 30, 2008.~~March 31, 2009.

The operating results of businesses discontinued during the periods presented, as well as 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. Revenues and operating income for the businesses presented in the discontinued operations section are as follows (in thousands):

For the three months For the nine months
ended September 30, ended September 30,
2007 2008 2007 2008
Revenues $ 297 $ — $ 1,341 $ 477

Operating income $ 14 $ — $ 173 $ 146
(Gain) loss on sale 31 — (697 ) 2,370
Provision (benefit) for income taxes (8 ) — 332 (834 )

Income (loss) from discontinued operations $ (9 ) $ — $ 538 $ (1,390 )


	For the three months
	ended March 31,
	2008		2009
Revenues	$	235	$	—


Operating income	$	56	$	—
Provision for income taxes		21		—

Income from discontinued operations	$	35	$	—

~~5. GOODWILL~~

Many of the acquired funeral homes, former owners and staff have provided high quality service to families for generations. The resulting loyalty often represents a substantial portion of the value of a funeral business. The excess of the purchase price over the fair value of net identifiable assets acquired, as determined by management in business acquisition transactions accounted for as purchases, is recorded as goodwill.

~~The following table presents the changes in goodwill in the accompanying consolidated balance sheet (in thousands)~~:

September 30,
2008
Goodwill at beginning of year $ 167,263
Acquisitions 30
Discontinued operations (2,773 )

Goodwill at end of period $ 164,520

~~- 8 -~~

6.4. PRENEED TRUST INVESTMENTS

Preneed cemetery trust investments

Preneed cemetery trust investments represent trust fund assets that the Company will withdraw when the merchandise or services are provided. The cost and market values associated with preneed cemetery trust investments at ~~September 30, 2008~~March 31, 2009 are detailed below (in thousands). The Company determines whether or not the assets in the preneed cemetery trusts have an other-than-temporary impairment on a security-by-security basis. This assessment is made based upon a number of criteria, including the length of time a security has been in a loss position, changes in market conditions and concerns related to the specific issuer. If a loss is considered to be other-than-temporary, the cost basis of the security is adjusted downward to its market value. Any reduction in the cost basis due to an other-than-temporary impairment is recorded in deferred revenue. There will be no impact on earnings unless and until such time that this asset is withdrawn from the trust in accordance with state regulations at an amount that is less than its original basis.

- 8 -


			Unrealized		Unrealized								Unrealized		Unrealized
	Cost		Gains		Losses			Market			Cost		Gains		Losses			Market
Cash and money market accounts	$	5,684	$	—	$	—		$	5,684		$	1,063	$	—	$	—		$	1,063
Fixed income securities:
U.S. and Agency obligations		8,438		117		(5	)		8,550
State and municipal obligations		351		—		(3	)		348
Corporate		1,659		9		(33	)		1,635			18,871		588		(2,411	)		17,048
Other		4		—		—			4			4		—		—			4
Common stock		18,917		463		(3,702	)		15,678			21,806		453		(7,350	)		14,909
Mutual funds:
Equity		18,466		2		(3,891	)		14,577			10,218		—		(4,188	)		6,030
Fixed income		6,697		—		(957	)		5,740

Trust investments	$	60,216	$	591	$	(8,591	)	$	52,216		$	51,962	$	1,041	$	(13,949	)	$	39,054


Accrued investment income	$	192						$	192		$	607						$	607


Trust assets								$	52,408									$	39,661


Market value as a percentage of cost									87.0	%									76.3	%

The estimated maturities of the fixed income securities included above are as follows (in thousands):


			Net
			Unrealized
	Cost		Gain/(Loss)			Market
Due in one year or less	$	1,810	$	2		$	1,812	$	—
Due in one to five years		8,225		86			8,311		3,956
Due in five to ten years		413		(3	)		410		5,523
Thereafter		4		—			4		7,573

	$	10,452	$	85		$	10,537	$	17,052

Preneed funeral trust investments

Preneed funeral trust investments represent trust fund assets that the Company expects to withdraw when the services and merchandise are provided. Such contracts are secured by funds paid by the customer to the Company. Preneed funeral receivables and trust investments are reduced by the trust ~~investment~~ earnings the Company has been allowed to withdraw prior to performance by the Company and amounts received from customers that are not required to be deposited into trust, pursuant to various state laws.

The cost and market values associated with preneed funeral trust investments at ~~September 30, 2008~~March 31, 2009 are detailed below (in thousands). The Company determines whether or not the assets in the preneed funeral trusts have an other-than-temporary impairment on a security-by-security basis. This assessment is made based upon a number of criteria including the length of time a security has been in a loss position, changes in market conditions and concerns related to the specific issuer. If a loss is considered to be other-than-temporary, the cost basis of the security is adjusted downward to its market value. Any reduction in the cost basis due to an other-than-temporary impairment is recorded in deferred revenue. There will be no impact on earnings unless and until such time that this asset is withdrawn from the trust in accordance with state regulations at an amount that is less than its original basis.


			Unrealized		Unrealized
	Cost		Gains		Losses			Market
Cash and money market accounts	$	11,543	$	—	$	—		$	11,543
Fixed income securities:
U.S. Treasury		6,089		339		—			6,428
Corporate		15,994		504		(1,938	)		14,560
US Agency Obligations		1,184		59		—			1,243
Common stock		14,348		457		(4,482	)		10,323
Mutual funds:
Equity		8,540		—		(4,199	)		4,341
Fixed Income		2,180		2		(209	)		1,973

Trust investments	$	59,878	$	1,361	$	(10,828	)	$	50,411


Market value as a percentage of cost									84.2	%

- 9 -

Unrealized Unrealized
Cost Gains Losses Market
Cash and money market accounts $ 18,558 $ — $ — $ 18,558
Fixed income securities:
U.S. Treasury 6,098 264 — 6,362
State and municipal obligations 464 17 — 481
Corporate 1,655 18 (26 ) 1,647
Mortgage Backed Securities 3,833 32 12 3,877
Common stock 7,825 494 (1,670 ) 6,649
Mutual funds:
Equity 20,145 161 (3,931 ) 16,375
Fixed income 9,469 73 (812 ) 8,730

Trust investments $ 68,047 $ 1,059 $ (6,427 ) $ 62,679

Market value as a percentage of cost 92.1 %

The estimated maturities of the fixed income securities included above are as follows (in thousands):


			Net
			Unrealized
	Cost		Gain/(Loss)			Market
Due in one year or less	$	3,488	$	(85	)	$	3,403	$	1,835
Due in one to five years		8,444		397			8,841		11,274
Due in five to ten years		118		5			123		3,098
Thereafter									6,024

	$	12,050	$	317		$	12,367	$	22,231

Upon cancellation of a preneed funeral or cemetery contract, a customer is generally entitled to receive a refund of the corpus and some or all of the earnings held in trust. In certain jurisdictions, the Company is obligated to fund any shortfall if the amounts deposited by the customer exceed the funds in trust, including some or all investment income. As a result, when realized or unrealized losses of a trust result in the trust being under-funded, the Company assesses whether it is responsible for replenishing the corpus of the trust, in which case a loss provision would be recorded. ~~No loss amounts have been required to be recognized for the periods presented herein.~~

Trust Investment Security Transactions

Cemetery and funeral trust investment security transactions recorded in ~~Interest~~interest income and other, net in the Consolidated Statement of Operations (unaudited) for the three ~~and nine~~ months ended ~~September 30, 2007~~March 31, 2008 and ~~2008~~2009 are as follows (in thousands):


	For the three months						For the nine months						For the three months
	ended September 30,						ended September 30,						ended March 31,
	2007			2008			2007			2008			2008			2009
Investment income	$	1,104		$	1,044		$	2,928		$	3,648		$	1,451		$	662
Realized gains		713			144			2,193			516			105			284
Realized losses		(90	)		(459	)		(384	)		(592	)		(110	)		(4,083	)
Expenses		(280	)		(348	)		(831	)		(1,565	)		(305	)		(274	)
Increase in non-controlling interests in trust investments		(1,447	)		(381	)		(3,906	)		(2,007	)
(Increase) decrease in deferred preneed funeral and cemetery receipts held in trust														(1,141	)		3,411

	$	—		$	—		$	—		$	—		$	—		$	—

7.5. RECEIVABLES FROM PRENEED FUNERAL TRUSTS

The receivables from ~~preneed~~ funeral trusts represent assets in trusts which are controlled and operated by third parties in which the Company does not have a controlling financial interest (less than 50%) in the trust assets. The Company accounts for these investments at cost (in thousands).


	December 31,			September 30,			December 31,			March 31,
	2007			2008			2008			2009
Amount due from preneed funeral trust funds	$	16,717		$	15,136		$	14,138		$	14,000
Less: allowance for contract cancellation		(1,705	)		(1,543	)		(1,444	)		(1,430	)

	$	15,012		$	13,593		$	12,694		$	12,570

~~- 10 -~~

8.6. CONTRACTS SECURED BY INSURANCE

Certain preneed funeral contracts are secured by life insurance contracts. Generally, the proceeds of the life insurance policies have been assigned to the Company and will be paid upon the death of the insured. The proceeds will be used to satisfy the beneficiary’s obligations under the preneed contract for services and merchandise. The preneed funeral contracts secured by insurance totaled $195 million and $196 million at ~~September 30,~~December 31, 2008 and March 31, 2009, respectively, and are not included in the Company’s ~~consolidated~~ balance sheet.

9.7. CEMETERY PERPETUAL CARE TRUST INVESTMENTS

The Company is required by state law to pay a portion of the proceeds from the sale of cemetery property interment rights into perpetual care trust funds. The cost and market values associated with the trust investments held in perpetual care trust funds at ~~September 30, 2008~~March 31, 2009 are detailed below (in thousands). The Company determines whether or not the assets in the cemetery perpetual care trusts have an other-than-temporary impairment on a security-by-security basis. This assessment is made based upon a number of criteria, including the length of time a security has been in a loss position, changes in market conditions and concerns related to the specific issuer. If a loss is considered to be other-than-temporary, the cost basis of the security is adjusted downward to its market value. Any reduction in the cost basis due to an other-than-temporary impairment is recorded in deferred revenue. There will be no impact on earnings unless and until such time that this asset is withdrawn from the trust in accordance with state regulations at an amount that is less than its original basis.

- 10 -


			Unrealized		Unrealized								Unrealized		Unrealized
	Cost		Gains		Losses			Market			Cost		Gains		Losses			Market
Cash and money market accounts	$	3,962	$	—	$	—		$	3,962		$	688	$	—	$	—		$	688
Fixed income securities:
U.S. and Agency Obligations		4,329		68		—			4,397
State and municipal obligations		489		—		(5	)		484
Corporate		826		17		(3	)		840			11,199		257		(1,176	)		10,280
Mortgage backed securities		253		—		—			253
Common stock		12,439		337		(2,635	)		10,141			14,021		286		(5,180	)		9,127
Mutual funds:
Equity		8,634		—		(2,200	)		6,434			5,425		—		(2,923	)		2,502
Fixed income		5,501		1		(793	)		4,709			1,848		—		(910	)		938

Trust investments	$	36,433	$	423	$	(5,636	)	$	31,220		$	33,181	$	543	$	(10,189	)	$	23,535


Accrued net investment income	$	51							51		$	350						$	350


Trust assets								$	31,271									$	23,885


Market value as a percentage of cost									85.8	%									72.0	%

The estimated maturities of the fixed income securities included above are as follows (in thousands):


			Net
			Unrealized
	Cost		Gain/(Loss)			Market
Due in one year or less	$	812	$	9		$	821	$	—
Due in one to five years		4,271		71			4,342		2,123
Due in five to ten years		814		(3	)		811		4,308
Thereafter									3,849

	$	5,897	$	77		$	5,974	$	10,280

~~Non-controlling interests in cemetery perpetual~~Cemetery care ~~trusts~~trusts’ corpus represent the corpus of those trusts plus undistributed income. The components of ~~non-controlling interests in~~ cemetery ~~perpetual~~ care ~~trusts~~trusts’ as of December 31, ~~2007~~2008 and ~~September 30, 2008~~March 31, 2009 are as follows (in thousands):


	December 31,			September 30,			December 31,			March 31,
	2007			2008			2008			2009
Trust assets, at market value	$	37,202		$	31,271		$	26,318		$	23,885
Pending withdrawals of income		(901	)		(63	)		(240	)		(115	)

Non-controlling interests	$	36,301		$	31,208
Care trusts’ corpus							$	26,078		$	23,770

~~- 11 -~~

Trust Investment Security Transactions

Perpetual care trust investment security transactions recorded in ~~Interest~~interest income and other, net in the Consolidated Statement of Operations (unaudited) for the three ~~and nine~~ months ended ~~September 30, 2007~~March 31, 2008 and ~~2008~~2009 are as follows (in thousands).

For the three months For the nine months
ended September 30, ended September 30,
2007 2008 2007 2008
Undistributable realized gains $ — $ 34 $ 976 $ 129
Undistributable realized losses (34 ) (31 ) (91 ) (96 )
Decrease (increase) in non-controlling interests in perpetual care trust investments 34 (3 ) (885 ) (33 )

$ — $ — $ — $ —

~~10. MAJOR SEGMENTS OF BUSINESS~~

~~Carriage conducts funeral and cemetery operations only in the United States. The following table presents revenue, pre-tax income from continuing operations and total assets by segment (in thousands):~~

Funeral Cemetery Corporate Consolidated
Revenues from continuing operations:
Nine months ended September 30, 2008 $ 100,764 $ 32,328 $ — $ 133,092
Nine months ended September 30, 2007 $ 91,625 $ 32,255 $ — $ 123,880

Income (loss) from continuing operations before income taxes:
Nine months ended September 30, 2008 $ 27,546 $ 5,013 $ (26,846 ) $ 5,713
Nine months ended September 30, 2007 $ 26,393 $ 6,766 $ (24,022 ) $ 9,137

Total assets:
September 30, 2008 $ 354,021 $ 193,459 $ 30,576 $ 578,056
December 31, 2007 $ 371,921 $ 206,840 $ 32,046 $ 610,807

~~11. SUPPLEMENTAL DISCLOSURE OF STATEMENT OF OPERATIONS INFORMATION~~

~~The following information is supplemental disclosure for the Consolidated Statements of Operations (in thousands):~~

For the three months For the nine months
ended September 30, ended September 30,
2007 2008 2007 2008
Revenues
Goods
Funeral $ 12,144 $ 12,807 $ 38,280 $ 40,886
Cemetery 7,239 8,329 22,333 22,090

Total goods $ 19,383 $ 21,136 $ 60,613 $ 62,976

Services
Funeral $ 17,334 $ 18,789 $ 53,345 $ 59,878
Cemetery 3,685 3,287 9,922 10,238

Total services $ 21,019 $ 22,076 $ 63,267 $ 70,116

Total revenues $ 40,402 $ 43,212 $ 123,880 $ 133,092

Cost of revenues
Goods
Funeral $ 10,332 $ 11,256 $ 31,721 $ 34,441
Cemetery 5,325 6,296 15,586 17,010

Total goods $ 15,657 $ 17,552 $ 47,307 $ 51,451

Services
Funeral $ 8,867 $ 10,331 $ 25,657 $ 30,391
Cemetery 2,228 2,005 5,730 6,466

Total services $ 11,095 $ 12,336 $ 31,387 $ 36,857

Total cost of revenues $ 26,752 $ 29,888 $ 78,694 $ 88,308


	For the three months
	ended March 31,
	2008			2009
Undistributable realized gains	$	34		$	24
Undistributable realized losses		(56	)		(661	)
Decrease in care trusts’ corpus		22			637

	$	—		$	—

- 1211 -

~~12. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION~~8. FAIR VALUE MEASUREMENTS

SFAS 157, which the Company adopted effective January 1, 2008, defines fair value as the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. SFAS 157 requires disclosure of the extent to which fair value is used to measure financial assets and liabilities, the inputs utilized in calculating valuation measurements, and the effect of the measurement of significant unobservable inputs on earnings, or changes in net assets, as of the measurement date.

The ~~following~~Company evaluated its financial assets and liabilities for those financial assets and liabilities that met the criteria of the disclosure requirements and fair value framework of SFAS 157. The Company identified investments in fixed income securities, common stock and mutual funds presented within the preneed and perpetual care trust investments categories on the consolidated balance sheets as having met such criteria. SFAS 157 establishes a three-level valuation hierarchy based upon the transparency of inputs utilized in the measurement and valuation of financial assets or liabilities as of the measurement date:

	•		Level 1—Fair value of securities based on unadjusted quoted prices for identical assets or liabilities in active markets. Our investments classified as Level 1 securities include Common Stock, certain fixed income securities, and most equity and fixed income mutual funds;

	•		Level 2—Fair value of securities estimated based on quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs other than quoted market prices that are observable or that can be corroborated by observable market data by correlation. These inputs include interest rates, yield curves, credit risk, prepayment speeds, rating and tax-exempt status. Our investments classified as Level 2 securities include corporate, U.S. agency and state obligation fixed income securities, and certain mutual funds; and

	•		Level 3—Unobservable inputs based upon the reporting entity’s internally developed assumptions which market participants would use in pricing the asset or liability. As of March 31, 2009, the Company did not have any assets that had fair values determined by Level 3 inputs and no liabilities measured at fair value.

The Company accounts for its investments under SFAS 115, “Accounting for Certain Investments in Debt and Equity Instruments (as amended),” which established standards of financial accounting and reporting for investments in equity instruments that have readily determinable fair values and for all investments in debt securities. Accordingly, the Company designates these investments as available-for-sale and measures them at fair value.

The table below presents information ~~is supplemental disclosure~~about our assets measured at fair value (in thousands) on a recurring basis and indicates the fair value hierarchy of the valuation techniques utilized by us to determine the fair values as of March 31, 2009. These assets have previously been measured at fair value in accordance with existing generally accepted accounting principles, and our accounting for these assets and liabilities was not impacted by our adoption of SFAS 159. Certain fixed income and other securities are reported at fair value using Level 2 inputs. For these securities, the ~~Consolidated Statement~~Company uses pricing services and dealer quotes. As of ~~Cash Flows (in thousands):~~March 31, 2009, the Company did not have any assets that had fair values determined by Level 3 inputs and no liabilities measured at fair value.

For the nine months ended
September 30,
2007 2008
Cash paid for interest and financing costs $ 16,039 $ 16,011
Cash paid for income taxes 407 831
Restricted common stock issued to officers and directors 2,271 1,227
Restricted common stock withheld for payroll taxes — 133
Net (deposits) withdrawals into preneed funeral trusts (376 ) 1,056
Net (deposits) withdrawals into/from preneed cemetery trusts (4,766 ) 1,121
Net deposits into perpetual care trusts (2,206 ) (593 )
Net decrease in preneed funeral receivables 918 4,323
Net (increase) decrease in preneed cemetery receivables (729 ) 547
Net withdrawals of receivables from preneed funeral trusts 373 1,418
Net change in preneed funeral receivables decreasing deferred revenue (1,734 ) (9,569 )
Net change in preneed cemetery receivables increasing (decreasing) deferred revenue (2,651 ) 248
Net deposits (withdrawals) in preneed funeral trust accounts increasing (decreasing) noncontrolling interests 377 (1,056 )
Net deposits (withdrawals) in cemetery trust accounts increasing (decreasing) noncontrolling interests 4,766 (1,121 )
Net deposits in perpetual care trust accounts increasing noncontrolling interests 2,557 611

Restricted cash investing and financing activities:
Proceeds from the sale of available for sale securities within the funeral and cemetery trusts 29,653 108,724
Purchases of available for sale securities within the funeral and cemetery trusts 56,601 126,994


	Fair Value Measurements (in 000s) Using
	Quoted Prices in		Significant Other		Significant
	Active Markets		Observable Inputs		Unobservable Inputs
	(Level 1)		(Level 2)		(Level 3)		March 31, 2009
Assets:
Fixed income securities	$	11,889	$	46,477	$	—	$	58,366
Common stock		35,757		—		—		35,757
Mutual funds and other		13,556		2,911		—		16,467

~~13.~~9. SENIOR LONG-TERM DEBT

The Company has outstanding a principal amount of $130 million of 7.875% Senior Notes, due in 2015, ~~and $93.75 million of 7.00% subordinated debt~~interest is payable ~~to an unconsolidated affiliate, Carriage Services Capital Trust, due in 2029.~~semi-annually. The Company also has a ~~$35 million~~ senior secured revolving credit facility (the “credit facility”) for which borrowings bear interest at prime or LIBOR options with the current LIBOR option set at LIBOR plus 275 basis points and is collateralized by all personal property and by funeral home real property in certain states. Interest is payable ~~semiannually~~quarterly. As of March 31, 2009, the Company had $0.8 million outstanding on the ~~Senior Notes~~line of credit and ~~quarterly on~~used $0.1 million of the ~~subordinated debt and~~ credit ~~facility.~~facility for letters of credit. The credit facility matures in ~~2010 is currently undrawn except for $0.4 million in letters of credit that were issued and outstanding under the credit facility at September 30, 2008.~~April 2010.

Carriage, the parent entity, has no material assets or operations independent of its subsidiaries. All assets and operations are held and conducted by subsidiaries, each of which (except for Carriage Services Capital Trust which is a single purpose entity that holds the debentures issued in connection with our TIDES) have fully and unconditionally guaranteed ~~our~~the Company’s obligations under the 7.875% Senior Notes. Additionally, the Company does not currently have any significant restrictions on our ability to receive dividends or loans from any subsidiary guarantor under the 7.875% Senior Notes.

- 12 -

~~14.~~10. COMMITMENTS AND CONTINGENCIES

Litigation

We are a party to various litigation matters 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 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.

Spencer Cranney, et al., v. Carriage Services, Inc., et al.,United States District Court, District of Nevada, Case No. 2:07-cv-01587— On November 28, 2007, five former Funeral Directors filed suit for themselves and on behalf of all non-exempt employees of Carriage in the United States District Court for the District of Nevada. Plaintiffs allege violations of state wage and hour laws and the federal Fair Labor Standards Act (FLSA), as well as related tort and contract claims. Specifically, Plaintiffs allege that Carriage: failed to compensate employees properly for time spent on community work, on-call time, pre-needs appointments, and training; failed to provide required meal and rest breaks under California state law; and failed to maintain proper records. Carriage filed its Answer to the Complaint on January 28, 2008, denying all material allegations and asserting appropriate affirmative defenses. On February 29, 2008, the Court granted Plaintiffs’

~~- 13 -~~

motion for conditional certification under the FLSA. The parties then effectuated notice of the lawsuit to all potential class members pursuant to the Court’s order. The opt-in period expired on August 5, 2008, by which time 441 people had filed consent forms to join the action. ~~Currently,~~The parties reached a tentative settlement in this matter, pending Court approval. As a result of the ~~litigation is~~settlement, the Company recorded a $3.5 million charge, including related legal fees of $0.2 million, in the ~~discovery stage, but has been stayed while~~fourth quarter of 2008 and funded the ~~parties engaged~~settlement in ~~mediation.~~the first quarter of 2009. The ~~mediation was not successful. Due to the inherent uncertainties of litigation, we cannot predict the outcome of this matter.~~

~~Means v. Carriage Cemetery Services, Inc., et al.~~~~, Indiana Superior~~ Court Marion County, Indiana, Case No. 49D12-0704-PL-016504. On April 20, 2007, Plaintiff Cecilia Means (“Plaintiff”) filed a putative class action alleging that one or more of the current and past owners of Grandview Cemetery in Madison, Indiana—including the Carriage subsidiaries that owned the cemetery from January 1997 until February 2001—and one or more of the bank trustees who served as trustee of Grandview Cemetery’s Pre-Arrangement Trust Fund (the “Grandview Trust Fund”), improperly withdrew funds from the Grandview Trust Fund. Carriage denies all material allegations because the subject withdrawals occurred in a period other than during Carriage’s ownership, and filed a motion for summary judgment with respect to Plaintiff’s claims against it. Plaintiff, in turn, has filed a motion to certify a class. On October 2, 2008, Plaintiff and Carriage entered into a settlement agreement, under which Carriage has agreed to provide, among other things, pre-paid burial goods to class members at their time of need. The Court preliminarily approved the settlement on ~~October 7, 2008. The settlement remains subject to final approval by the Court on January 23, 2009 after notice to potential class members.~~May 5, 2009.

Leathermon, et al. v. Grandview Memorial Gardens, Inc., et al., United States District Court, Southern District of Indiana, Case No. 4:07-cv-137. On August 17, 2007, five plaintiffs ~~(“Plaintiffs”)~~ filed a putative class action against the current and past owners of Grandview Cemetery in Madison, Indiana—including the Carriage subsidiaries that owned the cemetery from January 1997 until February 2001—on behalf of all individuals who purchased cemetery and burial goods and services at Grandview Cemetery. Plaintiffs claim that the cemetery owners performed burials negligently, breached plaintiffs’ contracts, and made misrepresentations regarding the cemetery. On October 15, 2007, the case was removed from Jefferson County Circuit Court, Indiana to the Southern District of Indiana. ~~The Company has filed its answer denying~~Currently, the ~~claims~~litigation is in the discovery stage, and ~~will~~Carriage intends to defend this action vigorously. Because the lawsuit is in its preliminary stages, we are unable to evaluate the likelihood of an unfavorable outcome to the Company or to estimate the amount or range of any potential loss, if any, at this time.

Fuqua,et al.,v. Lytle-Gans-Andrews Funeral Home, et al., United States District Court, Southern District of Indiana, Case No. 4:08-cv-00134-DFH-WGH. On July 29, 2008, Kenneth R. Fuqua, II and Elizabeth R. Fuqua ~~(“Plaintiffs”)~~ filed an action against several defendants in Indiana Circuit Court, Jefferson County, Indiana, alleging improper handling of remains and improper burial practices by Lytle-Gans-Andrews Funeral Home and Grandview Memorial Gardens, Inc. Carriage has denied these allegations because the burial occurred before Carriage owned Lytle-Gans-Andrews Funeral Home and Grandview Memorial Gardens, Inc. On August 28, 2008, the case was removed from Jefferson County Circuit Court, Indiana to the Southern District of Indiana, but briefing is currently pending with the Court regarding whether the case should be remanded to the Jefferson County Circuit Court. Carriage has moved to dismiss Plaintiffs’ claims with respect to the funeral home because, among other reasons, Carriage ~~assumed~~purchased only Lytle-Gans-Andrews’ assets ~~and not its liabilities,~~ under the Asset Purchase ~~Agreement.~~Agreement and did not assume its liabilities. The ~~court~~Court has not yet ruled on Carriage’s motion. The Company will defend these actions vigorously. Because the lawsuit is in its preliminary stages, we are unable to evaluate the likelihood of an unfavorable outcome to the Company or to estimate the amount or range of any potential loss, if any, at this time.

Kendall v. Carriage Funeral Holdings, Inc., et al., Indiana Circuit Court, Jefferson County, Indiana, Case No. 39C01-0707-CT-386 (filed July 27, 2007);Lapine Hillard, et al. v. Carriage Funeral Holdings, Inc., et al., Indiana Circuit Court, Jefferson County, Case No. 39C01-0708-CT-398 (filed August 7, ~~2007)~~2007, dismissed by joint agreement of the parties on April 14, 2009);Lawson v. Carriage Funeral Holdings, Inc., Indiana Circuit Court, Jefferson County, Indiana, Case No. 39C01-0708-CT-429 (filed August 17, 2007);Wiley, et al. v. Carriage Funeral Holdings, Inc., et al., Indiana Circuit Court, Jefferson County, Indiana, Case No. 39C01-0706-CT-287 (filed June 6, 2007). In these individual actions, Plaintiffs allege improper handling of remains or improper burial practices by Vail-Holt Funeral Home in Madison, Indiana and/or Grandview Memorial Gardens, Inc. Carriage has denied these allegations because these burials all occurred before Carriage owned Grandview Cemetery and Vail-Holt Funeral Home. Carriage has moved to dismiss Plaintiffs’ claims with respect to the funeral home because, among other reasons, Carriage ~~assumed~~purchased only Vail-Holt’s assets ~~and not its liabilities,~~ under the Asset Purchase ~~Agreement.~~Agreement and did not assume its liabilities. Carriage has also moved to dismiss certain claims with respect to Grandview Cemetery because Plaintiffs released Grandview Cemetery from contractual liability pursuant to an exculpatory clause. The ~~court~~Court has not yet ruled on Carriage’s motions. The Company will defend these actions vigorously. Because the lawsuit is in its preliminary stages, we are unable to evaluate the likelihood of an unfavorable outcome to the Company or to estimate the amount or range of any potential loss, if any, at this time.

~~15. REDEEMABLE PREFERRED STOCK~~

During the second quarter of 2008 the Company issued 20,000 shares of a newly designated series of mandatorily redeemable convertible preferred stock (the “Preferred Stock”) to a key employee in exchange for certain intellectual property rights. The preferred stock has a liquidation value of $10 per share and is convertible at any time prior to February 22, 2013 into

- 1413 -

the Company’s common stock on a one-for-one basis. If not converted into the Company’s common stock, the preferred stock is subject to mandatory redemption on February 22, 2013. Dividends accrue on a cumulative basis at the rate of 7% per year, payable quarterly.

~~16. SHARE REPURCHASE PROGRAM~~

During June 2008, the Board of Directors approved the repurchase of up to an aggregate of $5 million of the Company’s common stock. The repurchase is executed in the open market and through privately negotiated transactions subject to market conditions, normal trading restrictions and other relevant factors. Through September 30, 2008, the Company repurchased 854,700 shares of common stock at an aggregate cost of $3,381,631 and an average cost per share of $3.93. The repurchased shares are held as treasury stock.

~~17.~~11. STOCK-BASED COMPENSATION

Stock options and employee stock purchase plan

No stock options were awarded during the ~~nine~~three months ended ~~September 30, 2008.~~March 31, 2009. For the ~~third~~first quarter of ~~2008,~~2009, employees purchased a total of ~~35,314~~79,298 shares of common stock through the employee stock purchase plan (“ESPP”) at a weighted average price of ~~$2.98~~$1.30 per share. The Company recorded pre-tax stock-based compensation expense for the ESPP and for vesting of stock options totaling ~~$33,000~~$66,000 and ~~$37,000~~$75,000 for the three months ended ~~September 30, 2007 and~~March 31, 2008 and ~~$104,000 and $145,000 for the nine months ended September 30, 2007 and 2008,~~2009, respectively. All currently outstanding stock options have vested.

The fair value of the right (option) to purchase shares under the ESPP during ~~2007~~2008 and ~~2008,~~2009, respectively, is estimated on the date of grant to the four quarterly purchase dates using the Black-Sholes option-pricing model with the following weighted average assumptions:


Employee Stock Purchase Plan	2007	2008	2008			2009
Dividend yield	None	None		0	%		0	%
Expected volatilities	23.65%	39.48%		39	%		76	%
Risk-free interest rate	4.94%, 4.91%, 4.96%, 5.00%	3.26%, 3.32%, 3.25%, 3.17%		3.26%, 3.32%, 3.25%, 3.17%			0.09%, 0.27%, 0.31%, 0.35%
Expected life (in years)	0.25, .50, .75, 1	0.25, .50, .75, 1		.25, .50, .75, 1			.25, .50, .75, 1

Expected volatilities are based on the historical volatility during the previous twelve months of the underlying common stock. The risk-free rate for the quarterly purchase periods is based on the U.S. Treasury yields in effect at the time of grant (January 1).

Common stock grants

The Company granted ~~155,428~~271,500 shares of restricted common stock to certain officers and employees during the first quarter of ~~2008 and 15,000 in the third quarter.~~2009. The restricted stock vests in 25% increments over four years. The Company recorded ~~$501,000~~$214,000 and ~~$861,000~~$137,000 in pre-tax compensation expense for the ~~nine~~three months ended ~~September 30, 2007~~March 31, 2008 and ~~2008,~~2009, respectively, related to the vesting of previous restricted stock awards. As of ~~September 30, 2008,~~March 31, 2009, there was ~~$2.4~~$2.6 million of total unrecognized compensation costs related to unvested restricted stock awards, which are expected to be recognized over a weighted average period of approximately ~~2.7~~3.1 years.

Directors may elect to receive all or a portion of their fees in stock. During the three months ended ~~September 30, 2007~~March 31, 2008 and ~~2008,~~2009, the Company issued ~~2,866~~7,564 and ~~4,918~~20,560 shares of unrestricted common stock to directors in lieu of payment in cash for their fees, the value of which totaled ~~$23,000~~$67,000 and ~~$24,600,~~$42,000, respectively, and is included in general, administrative and other expenses. Two new directors joined the Board of Directors during the first quarter of 2009, at which time they were granted shares valued at $200,000 in total. One-half of those shares vested immediately; the remainder vesting over two years. Approximately $100,000 is included in general, administrative and other expenses related to the vested shares.

12. PREFERRED STOCK

The Company has 40,000,000 authorized shares of preferred stock. During the ~~nine months ended September 30, 2007 and~~second quarter of 2008, the Company issued ~~24,888 and 27,312~~20,000 shares of ~~unrestricted~~a newly designated series of mandatorily redeemable convertible preferred stock to a key employee in exchange for certain intellectual property rights. The preferred stock has a liquidation value of $10 per share and is convertible at any time prior to February 22, 2013 into the Company’s common stock on a one-for-one basis. If not converted into the Company’s common stock, the preferred stock is subject to ~~directors in lieu~~mandatory redemption on February 22, 2013. Dividends accrue on a cumulative basis at the rate of ~~payment in cash for their fees, the value of which totaled $179,216 and $187,000, respectively.~~7% per year, payable quarterly.

~~18.~~13. SHARE REPURCHASE PROGRAM

During June 2008 and again in November 2008, the Board of Directors approved share repurchase programs authorizing the Company to purchase up to $5 million of the Company’s common stock for each of the two programs. The repurchases are executed in the open market and through privately negotiated transactions subject to market conditions, normal trading restrictions and other relevant factors. The program approved in June was completed in October 2008. During 2008, the Company repurchased 1,730,969 shares of Common Stock at an aggregate cost of $5,740,000 and an average cost per share of $3.29. During the three months ended March 31, 2009, the Company repurchased 349,390 shares of Common Stock at an aggregate cost of $722,000 and an average cost per share of $2.07. The repurchased shares are held as treasury stock.

14. RELATED PARTY TRANSACTIONS

The Company engaged a law ~~firms~~firm in which one of their partners is the spouse of the Company’s Senior Vice President and General Counsel. The ~~firms were~~firm was used for various legal matters during the ~~period.~~periods. During the ~~nine~~three months ended ~~September 30,~~March 31, 2008 and 2009, the Company paid the law firm ~~$0.7 million.~~$64,000 and $213,000, respectively.

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~~19. FAIR VALUE MEASUREMENTS~~15. MAJOR SEGMENTS OF BUSINESS

~~FAS 157, which the Company adopted effective January 1, 2008, defines fair value as the price that would be received~~Carriage conducts funeral and cemetery operations only in the ~~sale~~United States. The following table presents revenue, pre-tax income from continuing operations and total assets by segment (in thousands):


	Funeral		Cemetery		Corporate			Consolidated
Revenues from continuing operations:
Three months ended March 31, 2009	$	34,840	$	10,963	$	—		$	45,803
Three months ended March 31, 2008	$	37,016	$	10,127	$	—		$	47,143

Income (loss) from continuing operations before income taxes:
Three months ended March 31, 2009	$	13,539	$	3,004	$	(12,587	)	$	3,956
Three months ended March 31, 2008	$	15,315	$	2,833	$	(12,768	)	$	5,380

Total assets:
March 31, 2009	$	340,805	$	174,941	$	27,359		$	543,105
December 31, 2008	$	347,906	$	181,408	$	30,979		$	560,293

16. SUPPLEMENTAL DISCLOSURE OF STATEMENT OF OPERATIONS INFORMATION

The following information is supplemental disclosure for the Consolidated Statements of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FAS 157 requires disclosure of the extent to which fair value is used to measure financial assets and liabilities, the inputs utilized in calculating valuation measurements, and the effect of the measurement of significant unobservable inputs on earnings, or changesOperations (in thousands):


	For the three months
	ended March 31,
	2008		2009
Revenues
Goods
Funeral	$	14,948	$	14,349
Cemetery		6,651		7,510

Total goods	$	21,599	$	21,859

Services
Funeral	$	22,068	$	20,490
Cemetery		3,476		3,454

Total services	$	25,544	$	23,944


Total revenues	$	47,143	$	45,803


Cost of revenues
Goods
Funeral	$	11,773	$	11,528
Cemetery		5,089		5,742

Total goods	$	16,862	$	17,270

Services
Funeral	$	9,928	$	9,772
Cemetery		2,205		2,218

Total services	$	12,133	$	11,990


Total cost of revenues	$	28,995	$	29,260

- 15 -

in net assets, as of the measurement date. FAS 157 establishes a three-level valuation hierarchy based upon the transparency of inputs utilized in the measurement and valuation of financial assets or liabilities as of the measurement date:

	•		~~Level 1—unadjusted quoted prices for identical assets or liabilities in active markets;~~

	•		Level 2—quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs other than quoted market prices that are observable or that can be corroborated by observable market data by correlation; and

	•		~~Level 3—unobservable inputs based upon the reporting entity’s internally developed assumptions which market participants would use in pricing the asset or liability.~~

17. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

The ~~Company evaluated its financial assets and liabilities~~following information is supplemental disclosure for ~~those financial assets and liabilities that met~~ the ~~criteria~~Consolidated Statement of the disclosure requirements and fair value framework of FAS 157. The Company identified investments in fixed income securities, common stock and mutual funds presented within the preneed and perpetual trust investments categories on the consolidated balance sheets as having met such criteria.

The Company accounts for its investments under SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Instruments (as amended),” which established standards of financial accounting and reporting for investments in equity instruments that have readily determinable fair values and for all investments in debt securities. Accordingly, the Company designates these investments as available-for-sale and measures them at fair value.

~~The table below presents information about our assets measured at fair value~~Cash Flows (in thousands) on a recurring basis and indicates the fair value hierarchy of the valuation techniques utilized by us to determine the fair values as of September 30, 2008. These assets have previously been measured at fair value in accordance with existing generally accepted accounting principles, and our accounting for these assets and liabilities was not impacted by our adoption of Statement No. 159. Certain fixed income and other securities are reported at fair value using Level 2 inputs. For these securities, the Company uses pricing services and dealer quotes. As of September 30, 2008, the Company did not have any assets that had fair values determined by Level 3 inputs and no liabilities measured at fair value.:

Fair Value Measurements (in 000s) Using
Quoted Prices in Significant Other Significant
Active Markets Observable Inputs Unobservable Inputs September 30,
(Level 1) (Level 2) (Level 3) 2008
Assets:
Fixed income securities $ 23,185 $ 5,693 $ — $ 28,878
Common stock 32,468 — — 32,468
Mutual funds and other 37,386 19,179 — 56,565


	For the three months ended
	March 31,
	2008			2009
Cash paid for interest and financing costs	$	7,088		$	6,978
Cash paid for income taxes		164			(39	)
Fair value of stock issued to officers or directors		1,170			597
Net (deposits) withdrawals into preneed funeral trusts		(2,312	)		2,985
Net withdrawals from preneed cemetery trusts		1,006			2,455
Net withdrawals from perpetual care trusts		1,409			2,433
Net decrease (increase) in preneed funeral receivables		3,936			187
Net decrease (increase) in preneed cemetery receivables		160			(357	)
Net withdrawals of receivables from preneed funeral trusts		330			124
Net change in preneed funeral receivables decreasing deferred revenue		(6,963	)		(125	)
Net change in preneed cemetery receivables increasing (decreasing) deferred revenue		1,981			(144	)
Net (deposits) withdrawals in preneed funeral trust accounts increasing (decreasing) deferred preneed funeral receipts		2,312			(2,985	)
Net withdrawals in cemetery trust accounts decreasing deferred cemetery receipts		(1,006	)		(2,455	)
Withdrawals in perpetual care trust accounts decreasing perpetual care trusts’ corpus		(712	)		(2,544	)

Restricted cash investing and financing activities:
Proceeds from the sale of available for sale securities of the funeral and cemetery trusts		14,699			22,202
Purchases of available for sale securities of the funeral and cemetery trusts		(15,556	)		(24,247	)

- 16 -

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

Forward-Looking Statements

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 forward-looking 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.

Cautionary Statements

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~~Risks associated with our business and the death care industry ~~see~~are presented in Item 1A —– Risk Factors in our Annual Report filed on Form 10-K for the year ended December 31, ~~2007.~~2008.

~~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 or litigation, 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 Operating Model.~~

~~(7) The success of our businesses is typically dependent upon one or a few key employees for success because of the localized and personal nature of our business.~~

~~(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 and growing 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.~~

~~- 17 -~~

OVERVIEW

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 service businesses 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 outer burial containers. As of ~~September 30, 2008,~~March 31, 2009, we operated ~~136~~135 funeral homes in 25 states and 32 cemeteries in 11 states within the United States. Substantially all administrative activities are conducted or coordinated through our home office in Houston, Texas.

We have implemented several significant long-term initiatives in our operations designed to improve 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 in favor of the standards. 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.

At the end of the third quarter of 2008, we announced the following near-term initiatives to improve revenue and profitability:

	•		Increase the number and quality of the sales staff at our larger cemeteries to increase preneed cemetery sales and profits.

	•		Convert direct cremations to cremations with services to increase the average revenue per cremation service.

	•		Manage costs and expenses lower.

The impact of these initiatives is discussed in Results of Operations.

Funeral Operations

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 one-third 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 ~~21,588~~21,568 in ~~2004~~2005 to ~~20,716~~20,900 in ~~2007~~2008 (compound annual decline of ~~1.4%~~1.0%) consistent with a period of weak death rates nationally and the loss of market share in certain markets. We experienced ~~higher~~a dramatic decline of 9.9% in volumes ~~equal to 1.8% during~~in comparing the first ~~three quarters~~quarter of ~~2008 compared~~2009 to the first ~~three quarters~~quarter of ~~2007.~~2008 because the strong flu season in the 2008 period did not repeat itself in 2009. Our same store funeral operations have increased revenue steadily from ~~$106.5~~$109.4 million in ~~2004~~2005 to ~~$113.0~~$115.7 million in ~~2007~~2008 (compound annual increase of ~~2.0%~~1.9%) because we have been able to increase the average revenue per funeral through expanded service offerings and packages. ~~Continuing that trend into 2008, same~~Same store revenues for the ~~nine~~three months ended ~~September 30, 2008~~March 31, 2009 were ~~up 2.3%~~down 6.3% compared to the ~~nine~~three months ended ~~September 30, 2007.~~March 31, 2008. The percentage of funeral

- 17 -

services involving cremations has increased from ~~30.7%~~33.1% for ~~2003~~2005 to ~~35.8%~~39.8% for ~~2007,~~2008, an average increase of ~~1.3%~~223 basis points per year, and ~~39.9%~~to 41.4% for the first ~~nine~~three months of ~~2008.~~2009. We expect our average revenue per funeral to increase over time as we seek to provide increased services to our cremation families in order to offset higher cremation rates.

Cemetery Operations

The cemetery operating results are affected by the size and success of our sales organization. Approximately ~~50%~~53% of our cemetery revenues relate to preneed sales of interment rights and mausoleums and related merchandise and 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. The current environment of high unemployment and low consumer confidence represents a formidable challenge to the cemetery sales staff. Approximately 10% of our cemetery revenues 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.

Our same store cemetery financial performance from ~~2003~~2005 through ~~2007~~2008 was characterized by ~~increasing~~fluctuating revenues ~~but~~and slightly declining field level profit margins. Revenues and profits on a same store basis have ~~declined~~increased for the first ~~nine~~three months of ~~2008~~2009 compared to the same period of ~~2007 in part, we believe, from~~2008 and to the ~~negative impact of the economy on the consumer and in part~~fourth quarter 2008 primarily due to ~~turnover~~increases in ~~sales personnel at certain large parks.~~preneed property sales. Our goal is to build broader and deeper teams of sales leaders and counselors in our larger and more strategically located cemeteries that can sustain consistent, modest growth in preneed property sales over time and to diversify and substantially increase our cemetery operating and financial results. Additionally, a portion of our capital expenditures in ~~2008~~2009 is designed to expand our cemetery product offerings.

~~- 18 -~~

Acquisitions

Our growth strategy includes the execution of the Strategic Portfolio Optimization Model. The goal of that model is to build concentrated groups of businesses in ten to fifteen strategic markets. We assess acquisition candidates using six strategic ranking ~~criteria. These~~ criteria ~~enable us~~and to ~~determine~~differentiate the price we are willing to ~~pay for a particular acquisition candidate.~~pay. Those criteria are:

	•		Size of business

	•		Size of market

	•		Competitive standing

	•		Demographics

	•		Strength of brand

	•		Barriers to entry

In general terms, our price expectations range from four to five times pre-tax earnings before depreciation for “tuck-ins” to six to seven times pre-tax earnings before depreciation for businesses that rank very high in the ranking criteria. We derive the pre-tax earnings amounts used in the pricing based primarily on the size and product mix of the target business applied to our standards-based operating model. During 2007, we completed seven acquisitions. The consideration paid in each of the acquisitions was cash. We have not incurred any debt to buy these businesses. The number of completed acquisitions during 2007 was greater than expected. We ~~have~~did not ~~acquired~~acquire any businesses in 2008 or to date in ~~2008.~~2009. Our five year goal is to acquire approximately $10 million of annualized revenue each year.

Financial Highlights

Net income from continuing operations for the three months ended ~~September 30, 2008~~March 31, 2009 totaled ~~$0.2~~$2.4 million, equal to ~~$0.01~~$0.13 per diluted share, compared to net income from continuing operations for the ~~third~~first quarter of ~~2007~~2008 of ~~$0.7~~$3.3 million, or ~~$0.04~~$0.17 per diluted share. The ~~negative variance between~~first quarter of 2008 benefitted from an unusually strong flu season, which increased death rates and resulted in strong financial results. Because there was virtually no flu season in the ~~two periods was primarily due to pre-tax declines~~first quarter of ~~$0.4~~2009, revenues declined $1.3 million, ~~in gross profit from our same store funeral operations~~or 2.8%, and $0.6 million from our same store cemetery operations, along with an increase of $0.4 million in corporate general and administrative expenses. These three areas combined to reduce diluted earnings per share by $0.05. Acquiredoperating income declined $1.4 million.

No businesses ~~provided an increase in pre-tax gross profit of $0.5 million, equal to approximately $0.02 per diluted share.~~

Wewere sold ~~two funeral homes at a loss~~ during the ~~three months ended June 30, 2008. The loss from discontinued~~first quarter of 2009. Discontinued operations ~~attributable to those two funeral homes~~presented in the results for the ~~nine months ended September 30,~~first quarter of 2008 ~~was $1.4 million, equal~~relate to ~~$0.07 per diluted share. During the nine months ended September 30, 2007, the Company completed the sale of three~~ funeral home businesses ~~resulting~~that were sold during the second quarter of 2008 and reclassified as of March 31, 2008 in ~~a pre-tax gain of $0.7 million.~~accordance with our Discontinued Operations policy.

~~- 19 -~~

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of the ~~consolidated financial statements~~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, inventories, 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, asbecause there can be no assurance the margins, operating income and net earnings as a percentage of revenues will be consistent from year to year.

- 18 -

Management’s discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements presented herewith, which have been prepared in accordance with accounting principles generally accepted in the United States excluding certain year end adjustments because of the interim nature of the consolidated financial statements. Our significant accounting policies are more fully described in Note 1 to the Consolidated Financial ~~Statements included in our Annual Report on Form 10-K for the year ended December 31, 2007.~~Statements. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our ~~consolidated financial statements.~~Consolidated Financial Statements.

Funeral and Cemetery Operations

We record the sales of funeral and cemetery merchandise and services when the merchandise is delivered or service is performed. Sales of cemetery interment rights are recorded as revenue in accordance with the retail land sales provisions of Statement of Financial Accounting Standards ~~(FAS)~~ No. 66, “Accounting for Sales of Real Estate”. This method generally provides for the recognition of revenue in the period in which the customer’s cumulative payments exceed 10% of the contract price related to the real estate. Costs related to the sales of interment rights, which include property and other costs related to cemetery development activities, are charged to operations using the specific identification method in the period in which the sale of the interment right is recognized as revenue. Revenues to be recognized and cash flow from the delivery of merchandise and performance of services related to preneed contracts that were acquired in acquisitions are typically lower than those originated by us.

Allowances for bad debts and customer cancellations are provided at the date that the sale is recognized as revenue. In addition, we monitor changes in delinquency rates and provide additional bad debt and cancellation reserves when warranted.

When preneed funeral services and merchandise are funded through third-party insurance policies, we earn a commission on the sale of the policies. Insurance commissions earned by the Company are recognized as revenues when the commission is no longer subject to refund, which is usually one year after the policy is issued. Preneed selling costs consist of sales commissions that we pay our sales counselors and other direct related costs of originating preneed sales contracts and are expensed as incurred.

Goodwill

The excess of the purchase price over the fair value of identifiable net ~~identifiable~~ assets of funeral home businesses acquired ~~as determined by management~~ in ~~transactions accounted for as purchases,~~business combinations is recorded as goodwill. ~~Many~~Goodwill has not historically been recorded in connection with the acquisition of cemetery businesses. Goodwill is tested for impairment by assessing the ~~acquired funeral homes have provided high quality service to families for generations. The resulting loyalty often represents a substantial portion of the~~fair value of aeach of our reporting units. The funeral ~~business. Goodwill is typically not associated with or recorded for~~segment reporting units consist of our East, Central and West regions in the ~~cemetery businesses. In~~United States. We performed our annual impairment test of goodwill in accordance with SFAS No. 142 ~~“Goodwill~~“Goodwill and Other ~~Tangible Assets”,~~Intangible Assets” (“SFAS 142”) using information as of August 31, 2008. In addition, we ~~review~~assess the impairment of goodwill whenever events or changes in circumstances indicate that the carrying value ~~of goodwill at least annually on reporting units (aggregated geographically) to determine if facts and circumstances exist which would suggest that this intangible asset might~~may be ~~carried in excess of~~greater than fair value. ~~Fair~~Factors that could trigger an interim impairment review include, but are not limited to significant adverse changes in the business climate which may be indicated by a decline in the Company’s market capitalization or decline in operating results. We updated the test as of December 31, 2008 because the market valuation of the Company declined during the fourth quarter of 2008.

Our goodwill impairment test involves estimates and management judgment. In the first step of our goodwill testing, we compare the fair value of each reporting unit to its carrying value, including goodwill. We determine fair value for each reporting unit using both a market approach, weighted 70%, and an income approach, weighted 30%. Funeral home selling prices are typically quoted in the marketplace as a multiple of EBITDA (earnings before interest, taxes, depreciation and amortization). Our methodology for determining a market approach fair value utilized recent sales transactions in the industry, which ranged from 6.5 to 9.6 times EBITDA. Our methodology for determining an income-based fair value is ~~determined by~~based on discounting ~~the estimated~~projected future cash flows. The projected future cash flows ~~of the businesses in each reporting unit at the Company’s~~include assumptions concerning future operating performance that may differ from actual future cash flows using a weighted average cost of capital ~~less debt allocable to~~for Carriage and other public deathcare companies. Goodwill impairment is not recorded where the fair value of the reporting unit ~~and by reference to recent sales transactions of similar businesses. The calculation of~~exceeds its carrying amount. If the fair value ~~can vary dramatically with changes in estimates~~ of the ~~number~~reporting unit is less than its carrying value, the implied fair value of ~~future services performed, inflation~~goodwill (as defined in ~~costs, and the Company’s cost of capital, which~~SFAS 142) is ~~impacted by long-term interest rates. If impairment is indicated, then an adjustment will be made~~compared to ~~reduce~~ the carrying amount of the reporting units goodwill and if the carrying amount exceeds the implied value, an impairment charge would be recorded in an amount equal to ~~fair value.~~that excess. We conducted a review of the funeral home reporting units using March 31, 2009 data, and concluded that there was no impairment of goodwill.

Income Taxes

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—an interpretation of FASB No. 109”. 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.

FASB issued FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (“FIN 48”) which 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,

- 2019 -

measured, and derecognized in financial statements; requires certain disclosures of uncertain tax matters; specifies how reserves for uncertain tax positions should be classified on the balance sheet; and provides transition and interim period guidance, among other provisions. FIN 48 was adopted by the Company as of January 1, 2007. We have reviewed our income tax positions and identified certain tax deductions, primarily related to business acquisitions, that are not certain. Our policy with respect to potential penalties and interest is to record them as “other” expense and interest expense, respectively.

~~Stock Compensation Plans~~Preneed Funeral and Cemetery Trust Funds

The Company’s preneed and perpetual care trust funds are reported in accordance with FASB Interpretation No. 46, as revised, (“FIN 46R”),“Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin (ARB) No. 51”. The investments of such trust funds are classified as available-for-sale and are reported at market value; therefore, an allocation of unrealized gains and losses, income and gains and losses are recorded toDeferred preneed receipts held in trustandCare trusts’ corpusin the Company’s consolidated balance sheet. The Company’s future obligations to deliver merchandise and services are reported at estimated settlement amounts. Preneed funeral and cemetery 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 inDeferred preneed funeral and cemetery revenuesuntil the service is performed or the merchandise is delivered.

Although FIN 46R requires consolidation of preneed and perpetual care trusts, it did not change the legal relationships among the trusts, the Company and its customers. In the case of preneed trusts, the customers are the legal beneficiaries. In the case of perpetual care trusts, the Company does not have a right to access the corpus in the perpetual care trusts. For these reasons, the Company has ~~stock-based employee compensation plans~~recognized financial interests of third parties in the ~~form~~trust funds in our financial statements asDeferred preneed funeral and cemetery receipts held in trustandCare trusts’ corpus.

Business Combinations

Tangible and intangible assets acquired and liabilities assumed are recorded at fair value and goodwill is recognized for any difference between the price of ~~restricted stock, performance unit, stock option~~the acquisition and ~~employee stock~~our fair value determination. We customarily estimate our purchase ~~plans. The Company accounts for stock-based compensation under Statement of Financial Accounting Standards~~costs and other related transactions known at closing. To the extent that information not available to us at the closing date subsequently becomes available during the allocation period, we may adjust goodwill, assets, or liabilities associated with the acquisition.

In December 2007, the FASB issued FAS No. ~~123R, “Share-Based Payment”~~141 (revised 2007), “Business Combinations” (“FAS No. ~~123R”~~141R”). FAS No. ~~123R~~141R requires ~~companies~~the acquiring entity to recognize ~~compensation expense~~the assets acquired, the liabilities assumed and any non-controlling interest in ~~an amount equal to~~the acquiree at the acquisition date, measured at the fair ~~value~~values as of that date. Goodwill is measured as a residual of the ~~share-based payment issued to employees over~~fair values at acquisition date. Acquisition related costs are recognized separately from the ~~period of vesting. The fair value of stock options~~acquisition. We adopted the statement effective January 1, 2009 and ~~awards containing options is determined using~~it will be applied on businesses acquired after the ~~Black-Scholes valuation model. FAS No. 123R applies to all transactions involving issuance of equity by a company in exchange for goods and services, including employee services.~~effective date.

Discontinued Operations

In accordance with the Company’s strategic portfolio ~~policy,~~optimization model, non-strategic businesses are reviewed to determine whether the ~~businesses~~business should be sold and the 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 Statements~~consolidated statements of ~~Operations,~~operations, along with the income tax effect.

RESULTS OF OPERATIONS

The following is a discussion of the Company’s results of operations for the three month period ended March 31, 2008 and ~~nine month periods ended September 30, 2007 and 2008.~~2009. Funeral homes and cemeteries owned and operated for the entirety of each period being compared are referred to as “same-store” or “existing operations.” Funeral homes and cemeteries purchased after January 2005 (date of refinancing our ~~Senior Debt)~~senior debt) are referred to as ~~“acquired”.~~“acquired.”

Funeral Home Segment. The following table sets forth certain information regarding the revenues and gross profit of the Company from its funeral home operations for the three ~~and nine~~ months ended ~~September 30, 2007~~March 31, 2008 compared to the three ~~and nine~~ months ended ~~September 30, 2008.~~March 31, 2009.

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Three months ended ~~September 30, 2007~~March 31, 2008 compared to three months ended ~~September 30, 2008~~March 31, 2009 (dollars in thousands):


	Three Months Ended										Three Months Ended
	September 30,				Change						March 31,				Change
	2007		2008		Amount			%			2008		2009		Amount			%
Total same-store revenue	$	25,884	$	26,657	$	773			3.0	%	$	31,303	$	29,455	$	(1,848	)		(5.9	)%
Acquired		3,092		4,313		1,221			*			4,961		4,797		(164	)		(3.3	)%
Preneed insurance commissions revenue		502		626		124			24.7	%		752		588		(164	)		*

Revenues from continuing operations	$	29,478	$	31,596	$	2,118			7.2	%	$	37,016	$	34,840	$	(2,176	)		(5.9	)%

Revenues from discontinued operations	$	297	$	—	$	(297	)		*		$	235	$	—	$	(235	)		*


Total same-store gross profit	$	6,450	$	6,048	$	(402	)		(6.2	%)
Total same-store operating profit											$	13,195	$	11,855	$	(1,340	)		(10.2	)%
Acquired		1,064		1,101		37			*			1,739		1,610		(129	)		(7.4	)%
Preneed insurance gross profit		46		145		99			*			381		74		(307	)		*

Gross profit from continuing operations	$	7,560	$	7,294	$	(266	)		(3.5	%)
Operating profit from continuing operations											$	15,315	$	13,539	$	(1,776	)		(11.6	)%

Gross profit from discontinued operations	$	7	$	—	$	(7	)		*
Operating profit from discontinued operations											$	56	$	—	$	(56	)		*


*		not meaningful

Funeral same-store revenues for the three months ended ~~September 30, 2008 increased $0.8~~March 31, 2009 decreased $1.8 million, or ~~3.0%~~5.9%, when compared to the three months ended ~~September 30, 2007~~March 31, 2008 as we experienced a ~~0.9% increase~~9.9% decrease in the number of contracts and an increase of ~~2.1%~~4.5% to ~~$5,422~~$5,647 in the average revenue per contract for those existing operations. The number of burial contracts similarly decreased 9.9% while the average per burial contract ~~for at need burial services declined slightly, an indication that the economy may be affecting the consumer.~~increased 3.5% to $7,910. The cremation rate for the same-store businesses rose from ~~35.9%~~37.5% to ~~37.7%. The growth in total contracts was concentrated in~~38.8% and the average revenue per cremation ~~contracts which~~contract increased ~~5.8%~~3.1%.

Total same-store ~~gross~~operating profit for the three months ended ~~September 30, 2008~~March 31, 2009 decreased ~~$0.4~~$1.3 million, or ~~6.2%~~10.2% from the comparable three months of ~~2007,~~2008, and as a percentage of funeral same-store revenue, decreased from ~~24.9%~~42.1% to ~~22.7%~~40.2% as a function of the fixed cost nature of the business applied against lower revenues. Same-store controllable expenses, such as salaries and wages, transportation, bad debts, administrative and promotional expenses declined $0.6 million or 5.2%, for the three month ended March 31, 2009, when compared to the three months ended March 31, 2008, as the location managing partners focused on managing their costs and expenses lower. The gains from managing the controllable costs were offset in part by increases in costs outside of their control, such as insurance and property taxes which increased $0.5 million.

Funeral acquired revenues for the three months ended March 31, 2009 decreased $0.2 million, or 3.3%, when compared to the three months ended March 31, 2008 as we experienced ~~higher costs~~a 4.7% decrease in the number of contracts and ~~expenses. Salaries and benefits at our same-store funeral businesses increased $0.3 million or 4.1%, year over year, while self-insurance costs increased $0.4 million.~~

~~- 21 -~~

~~As previously disclosed, we completed seven acquisitions~~an increase of 1.5% to $4,028 in ~~2007 involving twelve new funeral homes. Acquired~~the average revenue ~~and gross profit is related primarily to the businesses~~per contract for those acquired ~~during 2007.~~operations. The cremation rate for the acquired businesses was ~~49.8%~~52.9% for the ~~third~~first quarter of ~~2008~~2009, up from 52.5% in the prior year period, as these businesses are located in higher cremation areas compared to the existing locations. ~~The~~Although the number of cremation contracts declined 4.0%, the average revenue per cremation contract increased 12.7% to $2,276 for the ~~third~~first quarter of ~~2008 was $4,116, a slight decline~~2009 compared to the prior year quarter.

~~Gross~~Cremations with services have risen from 36.8% of total cremation contracts in the first quarter of 2008 to 40.4% in the first quarter of 2009.

Acquired operating profit for ~~acquired businesses~~the three months ended March 31, 2009 decreased $0.1 million, or 7.4%, from the comparable three months of 2008, and as a percentage of revenue from acquired businesses, was ~~25.5%~~33.6% for the ~~third~~first quarter of 2009 compared to 35.1% for the first quarter of 2008 ~~compared to 34.4% for the third quarter of 2007. As a percentage of revenues, salaries and benefits increased year over year from 29.7% to 32.3%.~~

~~Nine months ended September 30, 2007 compared to nine months ended September 30, 2008 (dollars in thousands):~~

Nine Months Ended
September 30, Change
�� 2007 2008 Amount %
Total same-store revenue $ 83,066 $ 84,685 $ 1,619 1.9 %
Acquired 6,805 14,026 7,221 *
Preneed insurance commissions revenue 1,754 2,053 299 17.0 %

Revenues from continuing operations $ 91,625 $ 100,764 $ 9,139 10.0 %

Revenues from discontinued operations $ 1,341 $ 477 $ (864 ) *

Total same-store gross profit $ 24,214 $ 23,179 $ (1,035 ) (4.3 %)
Acquired 2,198 3,863 1,665 *
Preneed insurance gross profit 366 824 458 *

Gross profit from continuing operations $ 26,778 $ 27,866 $ 1,088 4.1 %

Gross profit from discontinued operations $ 173 $ 146 $ (27 ) *


*		~~not meaningful~~

~~Funeral same-store revenue for the nine months ended September 30, 2008 increased $1.6 million, or 1.9%, when compared~~similarly due to the ~~nine months ended September 30, 2007 as we experienced a 1.8% increase in~~fixed cost nature of the ~~number of contracts and the average revenue per contract increased 0.1% to $5,363. The cremation rate for the first nine months of 2008 was 37.4% compared to 34.6% for the first nine months of 2007.~~

The number of same-store burial contracts declined 2.4% in comparison to the prior year period and the average revenue for those burial contracts was $7,572. The number of same-store cremation contracts increased by 543, or 10.1%, and the average revenue for those cremation contracts was $3,013.

Funeral same-store gross profit for the nine months ended September 30, 2008 declined $1.0 million, or 4.3%, when compared to the nine months ended September 30, 2007, due to higher costs. Our largest area of costs in the funeral homes is salaries and benefits for the location personnel. Year to date, those labor costs have risen $1.0 million to 27.4% of same-store funeralbusiness applied against lower revenues. ~~The next largest area of cost increase is the cost of maintaining the funeral home facilities, which increased $0.5 million to 4.4% of same-store revenues.~~In total, controllable expenses were managed five percent lower than last year.

Acquired funeral homes generated $14.0 million in revenue, equal to 13.9% of our funeral home revenue, and $3.9 million in gross profit, equal to 13.9% of our funeral home gross profit. Year to date, the average revenue per contract in our acquired businesses is $4,028, and the cremation rate is 51.2%.

~~- 22 -~~

Cemetery Segment. The following table sets forth certain information regarding the revenues and gross profit of the Company from its cemetery operations for the three ~~and nine~~ months ended ~~September 30, 2007~~March 31, 2008 compared to the three ~~and nine~~ months ended ~~September 30, 2008.~~March 31, 2009.

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Three months ended ~~September 30, 2007~~March 31, 2008 compared to three months ended ~~September 30, 2008~~March 31, 2009 (dollars in thousands):


	Three Months Ended										Three Months Ended
	September 30,				Change						March 31,				Change
	2007		2008		Amount			%			2008		2009		Amount			%
Total same-store revenue	$	9,681	$	9,923	$	242			2.5	%	$	8,422	$	9,443	$	1,021			12.1	%
Acquired		1,243		1,693		450			36.2	%		1,705		1,520		(185	)		(10.9	)%

Revenues from continuing operations	$	10,924	$	11,616	$	692			6.3	%	$	10,127	$	10,963	$	836			8.3	%

Revenues from discontinued operations	$	—	$	—	$	—			*		$	—	$	—	$	—			*


Total same-store gross profit	$	2,089	$	1,402	$	(687	)		(32.9	%)	$	2,195	$	2,530	$	335			15.3	%
Acquired		97		522		425			*			638		474		(164	)		(25.7	)%

Gross profit from continuing operations	$	2,186	$	1,924	$	(262	)		(12.0	%)
Operating profit from continuing operations											$	2,833	$	3,004	$	171			6.0	%

Gross profit from discontinued operations	$	—	$	—	$	—			*
Operating profit from discontinued operations											$	—	$	—	$	—			*


*		not meaningful

Cemetery same-store revenues for the three months ended ~~September 30, 2008~~March 31, 2009 increased ~~$0.2~~$1.0 million, or ~~2.5%~~12.1% compared to the three months ended ~~September 30, 2007. Company-wide, same-store~~March 31, 2008, the majority ($0.7 million) of which was due to higher revenues at two of our largest businesses, Rolling Hills Memorial Park and Ft. Lauderdale Cemeteries, where new sales managers and larger staffs have been employed over the last twelve months. Same-store revenue from preneed property sales increased ~~$0.7 million.~~$0.9 million and revenue from preneed merchandise and services deliveries increased $0.1 million whereas same-store at-need revenues and same-store financial revenues remained flat. The number of interment rights (property) sold at the same store locations increased by 18.8% year over year and the average price per interment right was fractionally higher.

Cemetery same-store ~~gross~~operating profit for the three months ended ~~September 30, 2008 decreased $0.7~~March 31, 2009 increased $0.3 million, or ~~32.9%~~15.3%. As a percentage of revenues, cemetery same store ~~gross~~operating profit increased from 26.1% to 26.8%. Tighter management over controllable expense such as facilities, transportation and general and administrative costs produced a decline of $0.2 million, or 12.9% compared to a year ago yet there was an increase in promotional expenses of $0.5 million to produce higher sales volumes.

Cemetery acquired revenues for the three months ended March 31, 2009 decreased $0.2 million compared to the three months ended March 31, 2008. Acquired revenue from preneed property sales decreased $0.1 million and preneed revenue from merchandise and services deliveries and at-need revenues each declined slightly. As a percentage of revenues, cemetery acquired operating profit decreased from ~~21.6%~~37.4% to ~~14.1%. The~~31.2% primary ~~reasons for the decline were an increase~~due to increases of ~~bad debt expense of $0.4~~$0.1 million ~~and an increase~~ in salaries and benefits ~~of $0.2 million.~~and facilities and grounds expense.

Financial revenues (trust earnings and finance charges on installment contracts) are included in same-store and acquired revenues and ~~decreased $0.3 million~~remained flat compared to ~~$1.0 million due to declines of~~ the ~~perpetual care trust earnings.~~prior year period. Earnings from perpetual care trust funds are included in financial revenues and totaled ~~$0.4~~$0.6 million for the three months ended ~~September 30, 2008~~March 31, 2009 compared to ~~$0.7~~$0.5 million for the three months ended ~~September 30, 2007.~~

~~Nine~~March 31, 2008. Finance charges on the preneed contracts declined $0.1 million. Trust earnings on merchandise and service contracts totaled $0.1 million for the three months ended ~~September 30, 2007~~March 31, 2009 compared to ~~nine~~$0.2 million for the three months ended ~~September 30, 2008 (dollars in thousands):~~

Nine Months Ended
September 30, Change
2007 2008 Amount %
Total same-store revenue $ 29,519 $ 27,614 $ (1,905 ) (6.5 %)
Acquired 2,736 4,714 1,978 *

Revenues from continuing operations $ 32,255 $ 32,328 $ 73 0.2 %

Revenues from discontinued operations $ — $ — $ — *

Total same-store gross profit $ 6,449 $ 3,669 $ (2,780 ) (43.1 %)
Acquired 411 1,400 989 *

Gross profit from continuing operations $ 6,860 $ 5,069 $ (1,791 ) (26.1 %)

Gross profit from discontinued operations $ — $ — $ — *


*		~~not meaningful~~

Cemetery same-store revenues for the nine months ended September 30, 2008 decreased $1.9 million, or 6.5%, compared to the nine months ended September 30, 2007. Preneed property revenue at existing cemeteries declined $1.3 million, or 11.6%, to $10.1 million as the number interments sold on a preneed basis declined 15.6% and the percentage of those we were able to recognize as revenue because we received at least 10% of the sales price from the customer declined from 85.1% to 80.6%. Atneed revenues from property, merchandise and services declined $0.6 million, or 5.9%, to $9.9 million as the average sale per atneed contract and the number or interments both declined. The revenue decline was primarily at Rolling Hills Memorial Park where revenues from atneed and preneed operations were down $1.7 million, or 22.5%, year over year. Turnover in key sales positions has been the primary cause of the weaker results at Rolling Hills.

Cemetery same-store gross profit for the nine months ended September 30, 2008 decreased $2.8 million, or 43.1%, compared to the nine months ended September 30, 2007. Cost inflation was evident in most categories of costs and expenses, but the majority of the decline in gross profit was due to lower revenues.

~~- 23 -~~

~~The three cemeteries acquired in 2007 produced $1.4 million in gross profit equal to 29.7% of the revenue from the acquired businesses.~~

~~Total financial revenues for the nine months ended September 30, 2008 increased $0.1 million, or 2.5%, compared to the nine months ended September 30, 2007.~~March 31, 2008.

Corporate General, Administrative and Other. Corporate general, administrative and other expenses totaled ~~$4.5~~$3.6 million for the three months ended ~~September 30, 2008, an increase~~March 31, 2009, a decrease of ~~$0.5~~$0.1 million compared to the three months ended ~~September 30, 2007. Approximately~~March 31, 2008. We experienced an approximate $0.3 million reduction of ~~the increase was related to severance and benefits for former employees and $0.2 million of the increase was due to higher~~ legal and professional fees ~~related primarily due to the litigation described in Note 14.~~

~~Corporate general, administrative and other expenses totaled $13.7 million for the nine months ended September 30, 2008,~~yet experienced an increase of ~~$2.0~~$0.2 million ~~compared to the nine months ended September 30, 2007. Approximately $1.0 million of the increase was~~in costs related to ~~severance and benefits~~outsourcing the processing of transactions for the former Chief Financial Officer and other employees. The remainder of the year over year increase was due to higher legal and professional fees related primarily due to litigation described in Note 14 and higher salaries and benefits.cemetery businesses.

Income Taxes. The Company recorded income taxes on earnings from continuing operations at the estimated effective rate of 40.5% for the year 2009 and at 39.5% ~~during~~for the first quarter of 2008. For Federal income tax reporting purposes, Carriage has net operating loss carryforwards totaling ~~$1.4~~$10.9 million net of unrecognized tax benefits available at ~~September 30, 2008~~March 31, 2009 to offset future Federal taxable income, which expire between 2023 and ~~2025,~~2029, if not utilized. Carriage also has approximately ~~$54.2~~$64.0 million of state net operating loss carryforwards that will expire between ~~2009~~2010 and 2029, if not utilized. Based on management’s assessment of the various state net operating losses, it was determined that it is more likely than not that the Company will not be able to realize tax benefits on a substantial amount of the state losses. Accordingly, the Company established a valuation allowance against a substantial portion of the deferred tax asset related to the state operating losses.

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LIQUIDITY AND CAPITAL RESOURCES

~~Cash~~While the impact has not been dramatic yet, we believe the adverse economic conditions in the U.S. will continue to effect our business and may impair our ability to access the capital markets, if needed. Carriage began 2009 with $5.0 million in cash ~~equivalents at September 30, 2008 totaled $3.3~~and other liquid investments and ended the first quarter with $2.7 million ~~compared to $3.4~~in cash and $0.8 million ~~at December~~drawn on our bank credit facility. The elements of cash flow for the first quarter ending March 31, ~~2007, a decrease~~2009 consisted of ~~$0.1 million since year end 2007.~~the following (in millions):


Cash and liquid investments at beginning of year	$	5.0
Cash flow from operations		(0.6	)
Cash used for maintenance capital expenditures		(0.6	)
Cash used for growth capital expenditures – funeral homes		(0.1	)
Cash used for growth capital expenditures – cemeteries		(1.0	)
Share repurchase program		(0.7	)
Other financing activities		0.7

Cash at March 31, 2009	$	2.7

For the ~~nine~~three months ended ~~September 30, 2008,~~March 31, 2009, cash ~~provided~~used by operating activities ~~of continuing operations~~ was ~~$12.1~~$0.6 million as compared to ~~$9.3~~cash provided of $3.4 million for the ~~nine~~three months ended ~~September 30, 2007.~~March 31, 2008. The decline of $4.0 million in operating cash flow was primarily due to funding the $3.3 million litigation settlement announced in the fourth quarter of 2008 and related legal fees. Additionally, capital expenditures totaled ~~$9.6~~$1.7 million for the ~~nine~~three months ended ~~September 30, 2008~~March 31, 2009 compared to ~~$8.4~~$1.8 million in the ~~nine~~three months ended ~~September 30, 2007.~~March 31, 2008. Capital expenditures ~~during 2008 include $2.4 million~~ for the ~~purchase~~first quarter of ~~a tract of land to construct a new funeral home and approximately $2.3~~2009 included $1.0 million for cemetery inventory development projects.

The ~~Company’s~~outstanding principal of senior debt at ~~September 30, 2008~~March 31, 2009 totaled ~~$137.9~~$138.4 million and consisted of $130.0 million in Senior Notes maturing in 2015, $0.8 million outstanding on the line of credit and ~~$7.9~~$7.6 million in acquisition indebtedness and capital lease obligations.

The Company has a ~~$35 million~~ senior secured revolving credit facility that matures in April 2010 and is collateralized by all personal property and funeral home real property in certain states. Borrowings under the ~~revolving~~ credit facility will bear interest at either prime or LIBOR ~~options with~~options. At March 31, 2009, the ~~current~~ LIBOR option was set at LIBOR plus 275 basis points. The ~~revolving~~Company had $0.8 million outstanding on the credit facility ~~is currently undrawn except for $0.4~~and additionally had $0.1 million in letters of credit ~~that are~~outstanding at March 31, 2009. Effective March 31, 2009, Carriage amended its credit facility to, in part, lower its aggregate commitment amount under the facility to $20.0 million in an effort to reduce commitment fees.

A total of $93.8 million was outstanding at December 31, 2008 on the convertible junior subordinated debentures. Amounts outstanding under the ~~credit facility at September 30, 2008.~~

~~The outstanding principal amount of the Company’s convertible junior subordinated~~ debenture ~~is $93.75 million, is~~are payable to ~~the Company’s unconsolidated~~our affiliate trust, Carriage Services Capital Trust (the “Trust”), ~~bears~~bear interest at 7%7.0% and ~~matures~~mature in 2029. Substantially all the assets of the Trust consist of the convertible junior subordinated ~~debenture of~~debentures. In 1999, the ~~Company. The~~ Trust ~~in turn,~~ issued 1.875 million shares of ~~convertible preferred~~ term income deferrable equity securities ~~(TIDES) in the public markets.~~(“TIDES”). The rights of the ~~debenture~~debentures are functionally equivalent to those of the TIDES.

The convertible junior subordinated ~~debenture~~debentures payable to the ~~affiliated trust~~Trust and the TIDES each contain a provision for the deferral of interest payments and distributions for up to 20 consecutive quarters. During any period in which distribution payments are deferred, distributions continue to accumulate at the 7% annual rate. Also, the deferred distributions themselves accumulate distributions at the annual rate of 7%. During any deferral period, Carriage is prohibited from paying dividends on the ~~common stock~~Common Stock or repurchasing its ~~common stock,~~Common Stock, subject to limited exceptions. The Company currently expects to continue paying the distributions as due.

The Company intends to use its cash, cash flow and proceeds from the sale of businesses, to repurchase ~~common stock,~~Common Stock, acquire funeral home and cemetery businesses and for internal growth projects, such as cemetery inventory development. As discussed in Note 1614 to the consolidated financial statements, we have a share repurchase program ~~whereby~~for which the ~~Company may purchase~~Board of Directors approved purchases of up to $5.0 million of its ~~common stock. The~~Common Stock. At March 31, 2009, approximately $3.5 million was still available for the Company ~~also has~~to spend under the program.

We believe our cash on hand, cash flow from operations, and the credit facility described above will be adequate to meet our working capital needs and other financial obligations over the next twelve months. However, should the current economic crisis continue for a significant period of time or if the economic crisis worsens significantly, conditions may negatively affect our ability to ~~draw on its revolving credit facility, subject to customary terms and conditions of the credit agreement, to finance acquisitions.~~refinance our long-term debt in future periods.

~~- 24 -~~

SEASONALITY

~~The Company’s~~Our business can be affected by seasonal fluctuations in the death rate. Generally, the rate is higher during the winter months because the incidences of deaths from influenza and pneumonia are higher during this period than other periods of the year.

- 23 -

INFLATION

Inflation has not had a significant impact on ~~the~~our results of ~~operations of the Company.~~operations.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Carriage is currently exposed to market risk primarily related to changes in interest rates related to the Company’s debt, decreases in interest rates related to the Company’s short-term investments and changes in the values of securities associated with its preneed and perpetual care trusts. For information regarding the Company’s exposure to certain market risks, see Item 7A, “Quantitative and Qualitative Market Risk Disclosure” in the Company’s Annual Report filed on Form 10-K for the year ended December 31, ~~2007.~~2008. There have been no significant changes in the Company’s market risk from that disclosed in the Form 10-K for the year ended December 31, ~~2007.~~2008.

Item 4. Controls and Procedures

In accordance with the Securities Exchange Act of 1934, as amended (the “Exchange Act”) Rules 13a-15 and 15d-15, we carried out an evaluation under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of ~~September 30, 2008~~March 31, 2009 to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Our disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

There has been no change in our internal control over financial reporting that occurred during the ~~nine~~three months ended ~~September 30, 2008~~March 31, 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

- 24 -

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

In addition to the matters in Note ~~14,~~10, we and ~~certain of~~ our subsidiaries are parties to a number of other legal proceedings that have arisen in the ordinary course of business. We self-insure against certain risks and carry insurance with coverage and coverage limits for risk in excess of the coverage amounts consistent with our assessment of risks in our business and of an acceptable level of financial exposure. Although there can be no assurance that self-insurance reserves and insurance will be sufficient to mitigate all damages, claims or contingencies, we believe that our reserves and insurance provide reasonable coverage for known asserted or unasserted claims. In the event ~~the Company sustains~~we sustain a loss from a claim and the insurance carrier disputes coverage or coverage limits, ~~the Company~~we may record a charge in a different period than the recovery, if any, from the insurance carrier.

Item 1A. Risk Factors

There have been no material changes in our risk factors from those disclosed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2007.~~2008.

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

~~Information required by Item 701 of Regulation S-K for~~There were no unregistered sales of equity securities ~~was previously provided in a Current Report on Form 8-K/A filed on April 22, 2008.~~during the period covered by this quarterly report.

~~- 25 -~~

As discussed in Note 1613 to the consolidated financial statements, the Company initiated a share repurchase program in June 2008, which was completed in October 2008, and again in November 2008, under which the Company may purchase up to an aggregate of $5 million of its ~~common stock.~~Common Stock for each of the two programs. Pursuant to the ~~program,~~programs, we repurchased the following shares during the ~~second and third~~first quarter of ~~2008:~~2009:

Total Number of Dollar Value
Shares Purchased of Shares That
Total Average as Part of Publicly May Yet Be
Number of Shares Price Paid Announced Purchased Under
Period Purchased Per Share Program the Program
April 1, 2008 – April 30, 2008 — — — —
May 1, 2008 – May 31, 2008 — — — —
June 1, 2008 – June 30, 2008 17,900 $ 6.80 17,900 $ 4,878,234

Total for quarter ending June 30, 2008 17,900 17,900

July 1, 2008 – July 30, 2008 — — $ 4,878,234
August 1, 2008 – August 31, 2008 208,900 $ 4.50 208,900 $ 3,937,992
September 1, 2008 – September 30, 2008 627,900 $ 3.65 627,900 $ 1,643,473

Total for quarter ending September 30, 2008 836,800 836,800
Total for year to date September 30, 2008 854,700 854,700


							Dollar Value
					Total Number of		of Shares That
	Total		Average		Shares Purchased as		May Yet Be
	Number of Shares		Price Paid		Part of Publicly		Purchased Under the
Period	Purchased		Per Share		Announced Program		Program
January 1, 2009 – January 31, 2009		138,690	$	2.37		138,690	$	3,930,513
February 1, 2009 – February 28, 2009		113,800	$	1.90		113,800	$	3,713,343
March 1, 2009 – March 31, 2009		96,900	$	1.81		96,900	$	3,537,681

Total for quarter ended March 31, 2009		349,390				349,390

Item 3. Defaults Upon Senior Securities

None

Item 4. Submission of Matters to a Vote of Security Holders

None

Item 5. Other Information

The Company reported on Form 8-K during the quarter covered by this report all information required to be reported on such form.

Item 6. Exhibits

	~~10.1~~		~~Employment agreement with Jay Dodds dated August 7, 2007.~~

	11.1		Computation of Per Share Earnings

	31.1		Certification of Periodic Financial Reports by Melvin C. Payne in satisfaction of Section 302 of the Sarbanes-Oxley Act of 2002

	31.2		Certification of Periodic Financial Reports by Terry E. Sanford in satisfaction of Section 302 of the Sarbanes-Oxley Act of 2002

	32		Certification of Periodic Financial Reports by Melvin C. Payne and Terry E. Sanford in satisfaction of Section 906 of the Sarbanes-Oxley Act of 2002 and 18 U.S.C. Section 1350

- 2625 -

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.


~~November 7, 2008~~		~~/s/ Terry E. Sanford~~

~~Date~~		~~Terry E. Sanford~~
		~~Senior Vice President and Chief Financial Officer~~

CARRIAGE SERVICES, INC.

INDEX OF EXHIBITS

~~10.1~~		~~Employment agreement with Jay Dodds dated August 7, 2007.~~

11.1		Computation of Per Share Earnings

	31.1		Certification of Periodic Financial Reports by Melvin C. Payne in satisfaction of Section 302 of the Sarbanes-Oxley Act of 2002

	31.2		Certification of Periodic Financial Reports by Terry E. Sanford in satisfaction of Section 302 of the Sarbanes-Oxley Act of 2002

	32		Certification of Periodic Financial Reports by Melvin C. Payne and Terry E. Sanford in satisfaction of Section 906 of the ~~Sarbanes-~~ ~~Oxley~~Sarbanes-Oxley Act of 2002 and 18 U.S.C. Section 1350


	September 30,
	2008
Goodwill at beginning of year	$	167,263
Acquisitions		30
Discontinued operations		(2,773	)

Goodwill at end of period	$	164,520


	For the nine months ended
	September 30,
	2007			2008
Cash paid for interest and financing costs	$	16,039		$	16,011
Cash paid for income taxes		407			831
Restricted common stock issued to officers and directors		2,271			1,227
Restricted common stock withheld for payroll taxes		—			133
Net (deposits) withdrawals into preneed funeral trusts		(376	)		1,056
Net (deposits) withdrawals into/from preneed cemetery trusts		(4,766	)		1,121
Net deposits into perpetual care trusts		(2,206	)		(593	)
Net decrease in preneed funeral receivables		918			4,323
Net (increase) decrease in preneed cemetery receivables		(729	)		547
Net withdrawals of receivables from preneed funeral trusts		373			1,418
Net change in preneed funeral receivables decreasing deferred revenue		(1,734	)		(9,569	)
Net change in preneed cemetery receivables increasing (decreasing) deferred revenue		(2,651	)		248
Net deposits (withdrawals) in preneed funeral trust accounts increasing (decreasing) noncontrolling interests		377			(1,056	)
Net deposits (withdrawals) in cemetery trust accounts increasing (decreasing) noncontrolling interests		4,766			(1,121	)
Net deposits in perpetual care trust accounts increasing noncontrolling interests		2,557			611

Restricted cash investing and financing activities:
Proceeds from the sale of available for sale securities within the funeral and cemetery trusts		29,653			108,724
Purchases of available for sale securities within the funeral and cemetery trusts		56,601			126,994


		Nine Months Ended
		September 30,				Change
	��	2007		2008		Amount			%
Total same-store revenue		$	83,066	$	84,685	$	1,619			1.9	%
Acquired			6,805		14,026		7,221			*
Preneed insurance commissions revenue			1,754		2,053		299			17.0	%

Revenues from continuing operations		$	91,625	$	100,764	$	9,139			10.0	%

Revenues from discontinued operations		$	1,341	$	477	$	(864	)		*


Total same-store gross profit		$	24,214	$	23,179	$	(1,035	)		(4.3	%)
Acquired			2,198		3,863		1,665			*
Preneed insurance gross profit			366		824		458			*

Gross profit from continuing operations		$	26,778	$	27,866	$	1,088			4.1	%

Gross profit from discontinued operations		$	173	$	146	$	(27	)		*


					Total Number of		Dollar Value
					Shares Purchased		of Shares That
	Total		Average		as Part of Publicly		May Yet Be
	Number of Shares		Price Paid		Announced		Purchased Under
Period	Purchased		Per Share		Program		the Program
April 1, 2008 – April 30, 2008		—		—		—		—
May 1, 2008 – May 31, 2008		—		—		—		—
June 1, 2008 – June 30, 2008		17,900	$	6.80		17,900	$	4,878,234

Total for quarter ending June 30, 2008		17,900				17,900

July 1, 2008 – July 30, 2008		—				—	$	4,878,234
August 1, 2008 – August 31, 2008		208,900	$	4.50		208,900	$	3,937,992
September 1, 2008 – September 30, 2008		627,900	$	3.65		627,900	$	1,643,473

Total for quarter ending September 30, 2008		836,800				836,800
Total for year to date September 30, 2008		854,700				854,700

CARRIAGE SERVICES, INC.

Date: May 8, 2009

/s/ Terry E. Sanford

Terry E. Sanford

Senior Vice President and Chief Financial Officer