e10vq

Per credit

agreement

Actual

Leverage ratio

Interest coverage ratio

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Tg1d0wZbfhYe+PqvQjcS3uQh+5uJUMvEha6DJfkYWExmy9sSWDxU7u2PHFyFSeOR h/FXTQPo8SfCmNJTJIfU9w== 0000950123-09-031515.txt : 20090807 0000950123-09-031515.hdr.sgml : 20090807 20090807060735 ACCESSION NUMBER: 0000950123-09-031515 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20090630 FILED AS OF DATE: 20090807 DATE AS OF CHANGE: 20090807 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SERVICE CORPORATION INTERNATIONAL CENTRAL INDEX KEY: 0000089089 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PERSONAL SERVICES [7200] IRS NUMBER: 741488375 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06402 FILM NUMBER: 09993457 BUSINESS ADDRESS: STREET 1: 1929 ALLEN PKWY STREET 2: P O BOX 130548 CITY: HOUSTON STATE: TX ZIP: 77019 BUSINESS PHONE: 7135225141 MAIL ADDRESS: STREET 1: P O BOX 130548 CITY: HOUSTON STATE: TX ZIP: 77219-0548 10-Q 1 h67613e10vq.htm FORM 10-Q e10vq

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q


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

For the quarterly period ended June 30, 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 1-6402-1

SERVICE CORPORATION INTERNATIONAL

(Exact name of registrant as specified in its charter)


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

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

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

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

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

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

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


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

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

The number of shares outstanding of the registrant’s common stock as of August 5, 2009 was 251,004,884 (net of treasury shares).

SERVICE CORPORATION INTERNATIONAL

INDEX


	Page
Glossary		3
Part I. Financial Information		4
Item 1. Financial Statements		4
Unaudited Condensed Consolidated Statement of Operations — Three and Six Months Ended June 30, 2009 and 2008		4
Unaudited Condensed Consolidated Balance Sheet — June 30, 2009 and December 31, 2008		5
Unaudited Condensed Consolidated Statement of Cash Flows — Six Months Ended June 30, 2009 and 2008		6
Unaudited Condensed Consolidated Statement of Stockholders’ Equity — Six Months Ended June 30, 2009		7
Notes to Unaudited Condensed Consolidated Financial Statements		8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		35
The Company		35
Financial Condition, Liquidity, and Capital Resources		35
Results of Operations — Three Months Ended June 30, 2009 and 2008		41
Results of Operations — Six Months Ended June 30, 2009 and 2008		44
Critical Accounting Policies		48
Cautionary Statement on Forward-Looking Statements		49
Item 3. Quantitative and Qualitative Disclosures About Market Risk		51
Item 4. Controls and Procedures		51
Part II. Other Information		52
Item 1. Legal Proceedings		52
Item 1A. Risk Factors		52
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		52
Item 4. Submission of Matters to a Vote of Security Holders		52
Item 6. Exhibits		52
Signature		54
EX-10.1
EX-12.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2

GLOSSARY

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

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

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

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

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

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

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

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

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

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

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

Preneed — Purchase of products and services prior to use.

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

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

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

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SERVICE CORPORATION INTERNATIONAL

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(In thousands, except per share amounts)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2009			2008			2009			2008
Revenues	$	513,949		$	548,782		$	1,024,544		$	1,122,233
Costs and expenses		(412,124	)		(441,621	)		(822,599	)		(877,475	)

Gross profit		101,825			107,161			201,945			244,758
General and administrative expenses		(26,466	)		(21,655	)		(48,252	)		(46,730	)
(Loss) gain on divestitures and impairment charges, net		(6,289	)		(3,858	)		941			(15,904	)
Other operating income, net		—			1,691			—			585

Operating income		69,070			83,339			154,634			182,709
Interest expense		(32,386	)		(33,311	)		(64,056	)		(67,380	)
Gain on early extinguishment of debt		1,830			—			3,440			—
Interest income		585			1,454			1,288			3,374
Other income (expense), net		803			687			(743	)		(61	)

Income from continuing operations before income taxes		39,902			52,169			94,563			118,642
Provision for income taxes		(16,322	)		(20,395	)		(36,603	)		(45,364	)

Income from continuing operations		23,580			31,774			57,960			73,278
Loss from discontinued operations (net of income tax benefit of $0, $195, $0, and $195, respectively)		—			(377	)		—			(362	)

Net income		23,580			31,397			57,960			72,916
Net income attributable to noncontrolling interests		(476	)		—			(326	)		—

Net income attributable to common stockholders	$	23,104		$	31,397		$	57,634		$	72,916

Basic earnings per share:
Income from continuing operations attributable to common stockholders	$	.09		$	.12		$	.23		$	.28
Net income attributable to common stockholders	$	.09		$	.12		$	.23		$	.28
Diluted earnings per share:
Income from continuing operations attributable to common stockholders	$	.09		$	.12		$	.23		$	.28
Net income attributable to common stockholders	$	.09		$	.12		$	.23		$	.28
Basic weighted average number of shares		250,977			259,655			250,461			260,565

Diluted weighted average number of shares		251,130			263,132			250,672			264,228

Dividends declared per share	$	.04		$	.04		$	.08		$	.08

(See notes to unaudited condensed consolidated financial statements)

SERVICE CORPORATION INTERNATIONAL

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


	June 30, 2009			December 31, 2008
Assets
Current assets:
Cash and cash equivalents	$	170,389		$	128,397
Receivables, net		74,949			96,145
Inventories		31,111			31,603
Deferred tax asset		79,571			79,571
Current assets held for sale		1,397			1,279
Other		29,955			18,515

Total current assets		387,372			355,510

Preneed funeral receivables, net and trust investments		1,250,633			1,191,692
Preneed cemetery receivables, net and trust investments		1,186,044			1,062,952
Cemetery property, at cost		1,457,823			1,458,981
Property and equipment, net		1,549,955			1,567,875
Non-current assets held for sale		100,375			97,512
Goodwill		1,171,695			1,178,969
Deferred charges and other assets		363,294			452,634
Cemetery perpetual care trust investments		767,740			744,758

	$	8,234,931		$	8,110,883


Liabilities & Stockholders’ Equity
Current liabilities:
Accounts payable and accrued liabilities	$	288,823		$	294,859
Current maturities of long-term debt		27,971			27,104
Current liabilities held for sale		659			465
Income taxes		2,092			4,354

Total current liabilities		319,545			326,782

Long-term debt		1,727,092			1,821,404
Deferred preneed funeral revenues		594,679			588,198
Deferred preneed cemetery revenues		811,496			771,117
Deferred income taxes		319,374			288,677
Non-current liabilities held for sale		76,397			75,537
Other liabilities		321,704			356,090
Deferred preneed funeral and cemetery receipts held in trust		1,936,470			1,817,665
Care trusts’ corpus		767,981			772,234
Commitments and contingencies (Note 15)
Stockholders’ equity:
Common stock, $1 per share par value, 500,000,000 shares authorized, 251,414,517, and 249,953,075 shares issued, respectively, 251,004,884 and 249,472,075 shares outstanding, respectively		251,005			249,472
Capital in excess of par value		1,720,182			1,733,814
Accumulated deficit		(669,122	)		(726,756	)
Accumulated other comprehensive income		57,907			36,649

Total common stockholders’ equity		1,359,972			1,293,179
Noncontrolling interests		221			—

Total stockholders’ equity		1,360,193			1,293,179

	$	8,234,931		$	8,110,883

(See notes to unaudited condensed consolidated financial statements)

SERVICE CORPORATION INTERNATIONAL

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(In thousands)


	Six Months Ended
	June 30,
	2009			2008
Cash flows from operating activities:
Net income	$	57,960		$	72,916
Adjustments to reconcile net income to net cash provided by operating activities:
Loss from discontinued operations		—			362
Gain on early extinguishment of debt		(3,440	)		—
Depreciation and amortization		55,438			55,675
Amortization of intangible assets		10,855			12,333
Amortization of cemetery property		13,940			16,526
Amortization of loan costs		1,694			1,863
Provision for doubtful accounts		5,905			3,915
Provision for deferred income taxes		32,924			28,079
(Gain) loss on divestitures and impairment charges, net		(941	)		15,904
Share-based compensation		5,168			5,256
Excess tax benefits from share-based awards		—			(2,170	)
Change in assets and liabilities, net of effects from acquisitions and divestitures:
Decrease in receivables		12,642			6,484
Decrease (increase) in other assets		9,183			(10,069	)
Increase (decrease) in payables and other liabilities		4,105			(128,320	)
Effect of preneed funeral production and maturities:
Decrease in preneed funeral receivables, net and trust investments		11,019			15,098
Increase in deferred preneed funeral revenue		4,752			20,836
Decrease in deferred preneed funeral receipts held in trust		(15,838	)		(24,640	)
Effect of cemetery production and maturities:
(Increase) decrease in preneed cemetery receivables, net and trust investments		(5,369	)		24,206
Increase in deferred preneed cemetery revenue		20,794			20,421
Decrease in deferred preneed cemetery receipts held in trust		(9,673	)		(17,578	)
Other		—			(585	)

Net cash provided by operating activities		211,118			116,512
Cash flows from investing activities:
Capital expenditures		(42,470	)		(68,035	)
Proceeds from divestitures and sales of property and equipment, net		14,788			12,831
Acquisitions		(219	)		(7,871	)
Net withdrawals (deposits) of restricted funds and other		129			(21,477	)

Net cash used in investing activities from continuing operations		(27,772	)		(84,552	)
Net cash provided by investing activities from discontinued operations		—			858

Net cash used in investing activities		(27,772	)		(83,694	)
Cash flows from financing activities:
Proceeds from the issuance of long-term debt		—			72,000
Payments of debt		(101,229	)		(54,367	)
Principal payments on capital leases		(13,045	)		(12,013	)
Purchase of Company common stock		—			(79,470	)
Proceeds from exercise of stock options		2,363			3,596
Excess tax benefits from share-based awards		—			2,170
Payments of dividends		(20,020	)		(20,879	)
Bank overdrafts and other		(13,394	)		(6,714	)

Net cash used in financing activities		(145,325	)		(95,677	)
Effect of foreign currency on cash and cash equivalents		3,971			(1,035	)

Net increase (decrease) in cash and cash equivalents		41,992			(63,894	)
Cash and cash equivalents at beginning of period		128,397			168,594

Cash and cash equivalents at end of period	$	170,389		$	104,700

(See notes to unaudited condensed consolidated financial statements)

SERVICE CORPORATION INTERNATIONAL

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(UNAUDITED)
(In thousands)


											Accumulated
					Capital in						Other
	Outstanding		Common		Excess of			Accumulated			Comprehensive		Noncontrolling
	Shares		Stock		Par Value			Deficit			Income		Interests			Total
Balance at December 31, 2008		249,472	$	249,472	$	1,733,814		$	(726,756	)	$	36,649	$	—		$	1,293,179
Net income									57,634					326			57,960
Other comprehensive income												21,258					21,258
Dividends declared on common stock ($.08 per share)						(20,085	)										(20,085	)
Employee share-based compensation earned						5,168											5,168
Stock option exercises		631		631		1,732											2,363
Restricted stock awards, net of forfeitures		830		830		(830	)										—
Issuance of shares from treasury		72		72		383											455
Other														(105	)		(105	)

Balance at June 30, 2009		251,005	$	251,005	$	1,720,182		$	(669,122	)	$	57,907	$	221		$	1,360,193

(See notes to unaudited condensed consolidated financial statements)

SERVICE CORPORATION INTERNATIONAL

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

1. Nature of Operations

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

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

2. Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

Our unaudited condensed consolidated financial statements include the accounts of Service Corporation International and all subsidiaries in which we hold a controlling financial interest. Our financial statements also include the accounts of the funeral merchandise and service trusts, cemetery merchandise and service trusts, and cemetery perpetual care trusts in which we have a variable interest and are the primary beneficiary. Our interim unaudited condensed consolidated financial statements are unaudited but include all adjustments, consisting of normal recurring accruals and any other adjustments, which management considers necessary for a fair presentation of our results for these periods. Our unaudited condensed consolidated financial statements have been prepared in a manner consistent with the accounting policies described in our annual report on Form 10-K for the year ended December 31, 2008, unless otherwise disclosed herein, and should be read in conjunction therewith. The accompanying year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year period.

We recorded several immaterial adjustments to correct errors related to prior accounting periods during the three and six months ended June 30, 2009. The net impact of these adjustments was a decrease to our pre-tax income and net income in the amount of $5.4 million and $3.2 million, respectively, for the three months ended June 30, 2009. The net impact of these adjustments was a decrease to our pre-tax income and net income in the amount of $7.4 million and $4.5 million, respectively, for the six months ended June 30, 2009. We do not believe these adjustments are qualitatively material to our unaudited condensed consolidated financial statements for the three and six months ended June 30, 2009, nor are they quantitatively or qualitatively material to our expected 2009 annual financial results. Additionally, such items are not quantitatively or qualitatively material to any of our prior annual or quarterly financial statements.

Reclassifications

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

Use of Estimates in the Preparation of Financial Statements

The preparation of the unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions as described in our Form 10-K for the year ended December 31, 2008. These estimates and assumptions may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. As a result, actual results could differ from these estimates.

Business Combinations

In December 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS)

No. 141 (revised 2007), “Business Combinations” (SFAS 141(R)), which establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired (including goodwill), the liabilities assumed, and any noncontrolling interest in the acquiree. Subsequently, on April 1, 2009, the FASB issued FASB Staff Position No. SFAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination that Arise from Contingencies” (FSP SFAS 141(R)-1), which amends and clarifies the previous statement in certain aspects of its guidance on initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. Per FASB guidance, we will apply the provisions provided in both SFAS 141(R) and FSP SFAS 141(R)-1 to all business combinations for which the acquisition date is on or after January 1, 2009 and certain future income tax effects related to our prior business combinations, should they arise. In these acquisitions, tangible and intangible assets acquired and liabilities assumed will be recorded at fair value and goodwill will be recognized for any difference between the price of the acquisition and our fair value determination.

Noncontrolling Interests

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51” (SFAS 160), 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 an unconsolidated investment, is an ownership interest in the consolidated entity that should be reported as a component of equity in the consolidated financial statements. Among other requirements, SFAS 160 requires consolidated net income to be reported at amounts attributable to both the parent and the noncontrolling 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 to the noncontrolling interest. We adopted the provisions of SFAS 160 on January 1, 2009. As a result, we have modified our condensed consolidated statement of operations, condensed consolidated balance sheet, condensed consolidated statement of cash flows, and condensed consolidated statement of stockholders’ equity to incorporate the required disclosure of noncontrolling interest information as required by SFAS 160.

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 trusts’ financial statements can be a noncontrolling interest in the consolidated financial statements. 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. In addition, since the earnings from our cemetery perpetual care trusts are used to support the maintenance of our cemeteries, the interest in these trusts also retains the characteristics of a liability. Accordingly, effective December 31, 2008, we re-characterized the amounts historically described as “Non-controlling interest in funeral and cemetery trusts” as either “Deferred preneed funeral receipts held in trust” or “Deferred preneed cemetery receipts held in trust”, as appropriate. Additionally, we re-characterized the amounts historically described as “Non-controlling interest in cemetery perpetual care trusts” as “Care trusts’ corpus”.

Fair Value Measurements

We measure the available-for-sale securities held by our funeral merchandise and service, cemetery merchandise and service, and cemetery perpetual care trusts at fair value on a recurring basis in accordance with SFAS No. 157, “Fair Value Measurements” (SFAS 157). SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, establishes a framework for measuring fair value, and expands disclosures about instruments measured at fair value. SFAS 157 establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:

	•		Level 1 — inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets;

	•		Level 2 — inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument;

	•		Level 3 — inputs to the valuation methodology are unobservable and significant to the fair value measurement.

management judgment required as a result of the absence of quoted market prices, inherent lack of liquidity, or the long-term nature of the securities. For additional disclosures required by SFAS 157 for all of our available-for-sale securities, see Notes 4, 5, and 6.

In February 2008, the FASB issued FASB Staff Position (FSP) No. SFAS 157-2, “Effective Date of FASB Statement No. 157” (FSP 157-2). FSP SFAS 157-2 provided a one-year deferral of the effective date of SFAS 157 for non-financial assets and liabilities, except those that are recognized or disclosed in the financial statements at fair value at least annually. In accordance with FSP 157-2, we adopted the provisions of SFAS 157 for our non-financial assets and liabilities, such as goodwill and property and equipment, that we disclose or recognize at fair value on a non-recurring basis as of January 1, 2009. As none of our non-financial assets or liabilities within the scope of SFAS 157 experienced an event that required fair value measurement in the first half of 2009, our adoption for these assets and liabilities has had no impact on our results of operations, consolidated financial position, or cash flows.

Determination of the Useful Life of Intangible Assets

In April 2008, the FASB issued FSP SFAS No. 142-3, “Determination of the Useful Life of Intangible Assets” (FSP 142-3). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS 142, “Goodwill and Other Intangible Assets” and requires enhanced related disclosures. FSP 142-3 must be applied prospectively to all intangible assets recognized as of or acquired subsequent to January 1, 2009. Our adoption of FSP 142-3 did not impact our unaudited condensed consolidated financial statements.

3. Recently Issued Accounting Standards

Other-Than-Temporary Impairments

In April 2009, the FASB issued FSP No. SFAS 115-2 and SFAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments” (FSP SFAS 115-2), which modifies the requirements for recognizing other-than-temporary-impairment on debt securities and significantly changes the impairment model for such securities. The FSP also modifies the presentation of other-than-temporary impairment losses and increases related disclosure requirements. In addition, the SEC issued Staff Accounting Bulletin (SAB) No. 111, “Other Than Temporary Impairments of Certain Investments in Debt and Equity Securities (Topic 5 M.)” (SAB 111), which modified the SEC’s rules related to other-than-temporary impairment to conform to the FSP. The FSP and SAB are effective for us in the second quarter of 2009. Our second quarter 2009 adoption of FSP SFAS 115-2 and SAB 111 did not have a material impact on our results of operations, consolidated financial position, or cash flows; however, we have included additional disclosures, as required, regarding our other-than-temporary impairments. See Notes 4, 5, and 6.

Interim Fair Value Disclosures

In April 2009, the FASB issued FSP No. 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Statements” (FSP SFAS 107-1), which requires companies to disclose the fair value of financial instruments within interim financial statements, adding to the current requirement to provide those disclosures annually. The FSP is effective for us in the second quarter of 2009 and we have included additional disclosures as required.

Fair Value Measurements

In April 2009, the FASB issued FSP No. 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (FSP 157-4). FSP 157-4 provides additional guidance on how to determine the fair value of assets and liabilities in an environment where the volume and level of activity for the asset or liability have significantly decreased and re-emphasizes that the objective of a fair value measurement remains an exit price. The FSP is effective for us in the second quarter of 2009. The adoption of FSP SFAS 157-4 did not have a material impact on our results of operations, consolidated financial position, or cash flows.

Subsequent Events

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (SFAS 165). SFAS 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS 165 is effective for us in the second quarter of 2009. We adopted SFAS 165 during the three months ended June 30, 2009 and evaluated subsequent events through August 6, 2009. SFAS 165 did not have an impact on our unaudited condensed consolidated financial statements.

Variable Interest Entities

In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (SFAS 167). SFAS 167 was issued to improve financial reporting by enterprises involved with variable interest entities, specifically to address: (1) the effects on certain provision of FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities, “ (FIN46(R)) as a result of the elimination of the qualifying special-purpose entity concept in SFAS No. 166, “Accounting for Transfers of Financial Assets,” and (2) constituent concerns about the application of certain key provisions of FIN46(R), including those in which the accounting and disclosures under FIN46(R) do not always provide timely and useful information about an enterprise’s involvement in a variable interest entity. SFAS 167 is effective for us on January 1, 2010, and we are still assessing the impact on our unaudited condensed consolidated financial statements.

Accounting Standards Codification and Hierarchy

In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162” (SFAS 168). SFAS 168 establishes the FASB Accounting Standards Codification™ as the source of authoritative U.S. GAAP recognized by the FASB to be applied by non-governmental entities. Following FAS 168, the FASB will not issue new standards in the form of Statements, FASB Staff Positions or EITF Abstracts. Instead, it will issue Accounting Standards Updates to update the Codification. SFAS 168 is effective for interim or annual financial periods ending after September 15, 2009. We expect to adopt SFAS 168 during the three months ended September 30, 2009 and it will not have an impact on our unaudited condensed consolidated financial statements.

4. Preneed Funeral Activities

Preneed funeral receivables, net and trust investments represent trust investments, including investment earnings, and customer receivables, net of unearned finance charges, related to unperformed, price-guaranteed preneed funeral contracts. Our funeral merchandise and service trusts are defined as variable interest entities pursuant to FIN46(R). In accordance with FIN46(R), we have determined that we are the primary beneficiary of these trusts, as we absorb a majority of the losses and returns associated with these trusts. Our cemetery trust investments detailed in Notes 5 and 6 are also accounted for in accordance with FIN46(R). When we receive payments from the customer, we deposit the amount required by law into the trust and reclassify the corresponding amount from Deferred preneed funeral revenues into Deferred preneed funeral and cemetery receipts held in trust. Amounts are withdrawn from the trusts after the contract obligations are performed. Cash flows from preneed funeral contracts are presented as operating cash flows in our unaudited condensed consolidated statement of cash flows.

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


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2009			2008			2009			2008
	(In thousands)						(In thousands)
Deposits	$	23,271		$	23,860		$	40,387		$	44,772
Withdrawals		30,766			31,595			53,941			70,511
Purchases of available-for-sale securities		63,574			55,105			130,484			190,387
Sales of available-for-sale securities		110,484			134,117			175,545			234,837
Realized gains from sales of available-for-sale securities		5,056			9,510			7,358			30,309
Realized losses from sales of available-for-sale securities		(15,455	)		(11,892	)		(41,193	)		(26,890	)

The components of Preneed funeral receivables, net and trust investments in our unaudited condensed consolidated balance sheet at June 30, 2009 and December 31, 2008 are as follows:


	June 30, 2009			December 31, 2008
	(In thousands)
Trust investments at market	$	659,405		$	636,712
Cash and cash equivalents		165,181			125,657
Insurance-backed fixed income securities		207,890			216,394
Receivables from customers		256,077			249,224
Unearned finance charge		(6,303	)		(6,316	)

		1,282,250			1,221,671
Allowance for cancellation		(31,617	)		(29,979	)

Preneed funeral receivables, net and trust investments	$	1,250,633		$	1,191,692

The cost and market values associated with our funeral merchandise and service trust investments recorded at fair market value at June 30, 2009 are detailed below. Cost reflects the investment (net of redemptions) of control holders in common trust funds, mutual funds, and private equity investments. Fair market value represents the value of the underlying securities held by the common trust funds, mutual funds at published values, and the estimated market value of private equity investments.


	June 30, 2009
			Unrealized		Unrealized			Fair Market
	Cost		Gains		Losses			Value
	(In thousands)
Fixed income securities:
U.S. Treasury	$	34,215	$	626	$	(422	)	$	34,419
Canadian government		82,384		982		(146	)		83,220
Corporate		30,153		432		(112	)		30,473
Mortgage-backed		5,346		51		(17	)		5,380
Asset-backed		147		3		—			150
Equity securities:
Common stock (based on investment objectives):
Growth		150,361		12,019		(26,799	)		135,581
Value		166,106		7,240		(32,025	)		141,321
Mutual funds:
Equity		126,267		1,390		(49,186	)		78,471
Fixed income		170,853		1,868		(32,510	)		140,211
Private equity		19,035		1,360		(9,378	)		11,017
Other		4,842		93		(3,606	)		1,329

Trust investments	$	789,709	$	26,064	$	(154,201	)	$	661,572

Less: Assets associated with businesses held for sale									(2,167	)

								$	659,405


	December 31, 2008
			Unrealized		Unrealized			Fair Market
	Cost		Gains		Losses			Value
	(In thousands)
Fixed income securities:
U.S. Treasury	$	61,907	$	569	$	(17,533	)	$	44,943
Canadian government		86,216		951		(828	)		86,339
Corporate		21,144		106		(670	)		20,580
Mortgage-backed		26,230		233		(7,728	)		18,735
Asset-backed		20		—		—			20
Equity securities:
Common stock (based on investment objectives):
Growth		158,337		1,497		(47,427	)		112,407
Value		184,807		1,747		(55,355	)		131,199
Mutual funds:
Equity		98,499		691		(33,276	)		65,914
Fixed income		156,393		2,475		(40,380	)		118,488
Private equity		18,597		1,872		(6,717	)		13,752
Other		29,261		825		(2,958	)		27,128

Trust investments	$	841,411	$	10,966	$	(212,872	)	$	639,505

Less: Assets associated with businesses held for sale									(2,793	)

								$	636,712

Where quoted prices are available in an active market, securities held by the common trust funds and mutual funds are classified as Level 1 investments pursuant to the three-level valuation hierarchy provided in SFAS 157.

Where quoted market prices are not available for the specific security, fair values are estimated by using either quoted prices of securities with similar characteristics or a fair value model with observable inputs that include a combination of interest rates, yield curves, credit risks, prepayment speeds, rating, and tax-exempt status.

The valuation of private equity and other investments requires significant management judgment due to the absence of quoted market prices, inherent lack of liquidity, and the long-term nature of such assets. The fair value of these investments is estimated based on the market value of the underlying real estate and private equity investments. The underlying real estate value is determined using the most recent available appraisals. Private equity investments are valued using market appraisals or a discounted cash flow methodology depending on the nature of the underlying assets. The appraisals assess value based on a combination of replacement cost, comparative sales analysis, and discounted cash flow analysis.

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

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


	Quoted
	Market Prices		Significant Other		Significant
	in Active Markets		Observable Inputs		Unobservable		Fair Market
	(Level 1)		(Level 2)		Inputs (Level 3)		Value
	(In thousands)
Trust investments at June 30, 2009	$	495,584	$	153,642	$	12,346	$	661,572
Trust investments at December 31, 2008	$	428,008	$	170,617	$	40,880	$	639,505

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


	Three Months Ended						Six Months Ended
	June 30,					June 30,
	2009			2008			2009			2008
Fair market value, beginning balance	$	12,988		$	41,381	$	40,880		$	37,865
Net unrealized (losses) gains included in Other comprehensive income (1)		(1,594	)		5,610		(7,210	)		9,249
Net gains included in Other income (expense), net (2)		—			—		19			—
Purchases, sales, contributions, and distributions, net		952			89		548			(34	)
Transfers out of Level 3		—			—		(21,891	)		—

Fair market value, ending balance	$	12,346		$	47,080	$	12,346		$	47,080


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

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

Maturity dates of our fixed income securities range from 2009 to 2039. Maturities of fixed income securities (excluding mutual funds) at June 30, 2009 are estimated as follows:


	Fair Market
	Value
	(In thousands)
Due in one year or less	$	73,222
Due in one to five years		36,993
Due in five to ten years		32,100
Thereafter		11,327

	$	153,642

Earnings from all trust investments are recognized in funeral revenues when a service is performed or merchandise is delivered. In addition, we are entitled to retain, in certain jurisdictions, a portion of collected customer payments when a customer cancels a preneed contract; these amounts are also recognized in current revenues. Recognized earnings (realized and unrealized) related to our trust investments were $5.0 million and $9.9 million for the three months ended June 30, 2009 and 2008, respectively. Recognized earnings (realized and unrealized) related to our trust investments were $10.9 million and $21.1 million for the six months ended June 30, 2009 and 2008, respectively.

We assess our trust investments for other-than-temporary declines in fair value on a quarterly basis. Impairment charges, resulting from this assessment, are recognized as investment losses in Other income (expense), net and a decrease to Preneed funeral receivables, net and trust investments. These investment losses, if any, are offset by a corresponding reclassification in Other income (expense), net, which reduces Deferred preneed funeral and cemetery receipts held in trust. See Note 7 for further information related to our Deferred preneed funeral and cemetery receipts held in trust. We recorded an impairment charge for other-than-temporary declines in fair value related to unrealized losses on certain securities of $3.7 million and $10.4 million for the three and six months ended June 30, 2009, respectively. We did not record an impairment charge in the first half of 2008.

We have determined that the remaining unrealized losses in our funeral trust investments at June 30, 2009 are considered temporary in nature, as the unrealized losses were due to temporary fluctuations in interest rates and equity prices. The investments are diversified across multiple industry segments using a balanced allocation strategy to minimize long-term risk. The unrealized losses reflect the effects of the current economic crisis. We believe that none of the securities are other-than-temporarily impaired based on our analysis of the investments. Our analysis included a review of the portfolio holdings and discussions with the individual money managers as to the sector exposures, credit ratings, and the severity and duration of the unrealized losses. Our funeral trust investment unrealized losses, their associated fair market values and the duration of unrealized losses as of June 30, 2009 are shown in the following table:


	June 30, 2009
	In Loss Position					In Loss Position
	Less Than 12 Months					Greater Than 12 Months					Total
	Fair					Fair					Fair
	Market		Unrealized			Market		Unrealized			Market		Unrealized
	Value		Losses			Value		Losses			Value		Losses
	(In thousands)
Fixed income securities:
U.S. Treasury	$	13,784	$	(406	)	$	342	$	(16	)	$	14,126	$	(422	)
Canadian government		6,735		(146	)		—		—			6,735		(146	)
Corporate		4,546		(109	)		323		(3	)		4,869		(112	)
Mortgage-backed		2,696		(13	)		460		(4	)		3,156		(17	)
Equity securities:
Common stock (based on investment objectives):
Growth		57,238		(16,308	)		16,072		(10,491	)		73,310		(26,799	)
Value		70,315		(19,338	)		29,091		(12,687	)		99,406		(32,025	)
Mutual funds:
Equity		52,806		(38,397	)		16,778		(10,789	)		69,584		(49,186	)
Fixed income		74,203		(31,009	)		6,234		(1,501	)		80,437		(32,510	)
Private equity		5,856		(1,154	)		13,849		(8,224	)		19,705		(9,378	)
Other		1,824		(359	)		3,895		(3,247	)		5,719		(3,606	)

Total temporarily impaired securities	$	290,003	$	(107,239	)	$	87,044	$	(46,962	)	$	377,047	$	(154,201	)


	December 31, 2008
	In Loss Position					In Loss Position
	Less Than 12 Months					Greater Than 12 Months					Total
	Fair					Fair					Fair
	Market		Unrealized			Market		Unrealized			Market		Unrealized
	Value		Losses			Value		Losses			Value		Losses
	(In thousands)
Fixed income securities:
U.S. Treasury	$	18,750	$	(7,944	)	$	15,513	$	(9,589	)	$	34,263	$	(17,533	)
Canadian government		19,711		(828	)		—		—			19,711		(828	)
Corporate		9,751		(453	)		411		(217	)		10,162		(670	)
Mortgage-backed		8,118		(3,495	)		6,925		(4,233	)		15,043		(7,728	)
Equity securities:
Common stock (based on investment objectives):
Growth		57,436		(24,296	)		41,992		(23,131	)		99,428		(47,427	)
Value		67,038		(28,356	)		49,011		(26,999	)		116,049		(55,355	)
Mutual funds:
Equity		33,709		(15,589	)		27,181		(17,687	)		60,890		(33,276	)
Fixed income		43,432		(19,348	)		33,975		(21,032	)		77,407		(40,380	)
Private equity		1,608		(691	)		12,850		(6,026	)		14,458		(6,717	)
Other		709		(304	)		5,659		(2,654	)		6,368		(2,958	)

Total temporarily impaired securities	$	260,262	$	(101,304	)	$	193,517	$	(111,568	)	$	453,779	$	(212,872	)

5. Preneed Cemetery Activities

Preneed cemetery receivables, net and trust investments represent trust investments, including investment earnings, and customer receivables, net of unearned finance charges, for contracts sold in advance of when the property interment rights, merchandise, or services are needed. Our cemetery merchandise and service trusts are defined as variable interest entities pursuant to FIN46(R). In accordance with FIN46(R), we have determined that we are the primary beneficiary of these trusts, as we absorb a majority of the losses and returns associated with these trusts. The trust investments detailed in Notes 4 and 6 are also accounted for in accordance with FIN46(R). When we receive payments from the customer, we deposit the amount required by law into the trust and reclassify the corresponding amount from Deferred preneed cemetery revenues into Deferred preneed funeral and cemetery receipts held in trust. Amounts are withdrawn from the trusts when the contract obligations are performed. Cash flows from preneed cemetery contracts are presented as operating cash flows in our unaudited condensed consolidated statement of cash flows.

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


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2009			2008			2009			2008
	(In thousands)						(In thousands)
Deposits	$	24,320		$	30,011		$	43,663		$	55,312
Withdrawals		24,990			41,530			53,858			72,739
Purchases of available-for-sale securities		127,443			69,366			184,315			634,677
Sales of available-for-sale securities		94,259			143,073			147,921			247,341
Realized gains from sales of available-for-sale securities		4,902			11,959			6,030			23,414
Realized losses from sales of available-for-sale securities		(16,616	)		(13,320	)		(39,330	)		(29,811	)

The components of Preneed cemetery receivables, net and trust investments in our unaudited condensed consolidated balance sheet at June 30, 2009 and December 31, 2008 are as follows:


	June 30, 2009			December 31, 2008
	(In thousands)
Trust investments, at market	$	770,379		$	659,149
Cash and cash equivalents		136,194			139,753
Receivables from customers		355,149			341,688
Unearned finance charges		(45,653	)		(48,999	)

		1,216,069			1,091,591
Allowance for cancellation		(30,025	)		(28,639	)

Preneed cemetery receivables, net and trust investments	$	1,186,044		$	1,062,952

The cost and market values associated with our cemetery merchandise and service trust investments recorded at fair market value at June 30, 2009 are detailed below. Cost reflects the investment (net of redemptions) of control holders in common trust funds, mutual funds, and private equity investments. Fair market value represents the value of the underlying securities held by the common trust funds, mutual funds at published values, and the estimated market value of private equity investments.


	June 30, 2009
			Unrealized		Unrealized			Fair Market
	Cost		Gains		Losses			Value
	(In thousands)
Fixed income securities:
U.S. Treasury	$	46,089	$	600	$	(1,028	)	$	45,661
Canadian government		13,715		177		(39	)		13,853
Corporate		8,523		317		(59	)		8,781
Mortgage-backed		14,072		14		(69	)		14,017
Equity securities:
Common stock (based on investment objectives):
Growth		210,984		15,230		(35,648	)		190,566
Value		244,771		9,060		(41,436	)		212,395
Mutual funds:
Equity		258,106		888		(89,342	)		169,652
Fixed income		195,882		1,236		(41,383	)		155,735
Private equity		10,519		30		(6,564	)		3,985
Other		4,647		11		(3,255	)		1,403

Trust investments	$	1,007,308	$	27,563	$	(218,823	)	$	816,048

Less: Assets associated with businesses held for sale									(45,669	)

								$	770,379


	December 31, 2008
			Unrealized		Unrealized			Fair Market
	Cost		Gains		Losses			Value
	(In thousands)
Fixed income securities:
U.S. Treasury	$	60,699	$	139	$	(19,146	)	$	41,692
Canadian government		11,949		466		—			12,415
Corporate		9,726		130		(520	)		9,336
Mortgage-backed		21,832		50		(6,867	)		15,015
Equity securities:
Common stock (based on investment objectives):
Growth		194,429		544		(57,876	)		137,097
Value		262,819		735		(78,233	)		185,321
Mutual funds:
Equity		203,032		480		(67,330	)		136,182
Fixed income		189,492		952		(55,452	)		134,992
Private equity		11,795		678		(3,538	)		8,935
Other		25,154		533		(2,785	)		22,902

Trust investments	$	990,927	$	4,707	$	(291,747	)	$	703,887

Less: Assets associated with businesses held for sale									(44,738	)

								$	659,149

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

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


	Quoted
	Market Prices		Significant		Significant
	in Active Markets		Other Observable		Unobservable Inputs		Fair Market
	(Level 1)		Inputs (Level 2)		(Level 3)		Value
	(In thousands)
Trust investments at June 30, 2009	$	728,348	$	82,312	$	5,388	$	816,048
Trust investments at December 31, 2008	$	593,592	$	78,458	$	31,837	$	703,887

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


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2009			2008			2009			2008
Fair market value, beginning balance	$	4,978		$	24,771		$	31,837		$	21,809
Net unrealized (losses) gains included in Other comprehensive income (1)		(620	)		528			(11,443	)		3,711
Net realized gains included in Other income (expense), net (2)		—			—			18			—
Purchases, sales, contributions, and distributions, net		1,030			(1,044	)		569			(1,265	)
Transfers out of Level 3		—			—			(15,593	)		—

Fair market value, ending balance	$	5,388		$	24,255		$	5,388		$	24,255


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

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

Maturity dates of our fixed income securities range from 2009 to 2039. Maturities of fixed income securities (excluding mutual funds) at June 30, 2009 are estimated as follows:


	Fair Market
	Value
	(In thousands)
Due in one year or less	$	688
Due in one to five years		30,664
Due in five to ten years		26,258
Thereafter		24,702

	$	82,312

Earnings from all trust investments are recognized in cemetery revenues when a service is performed or merchandise is delivered. In addition, we are entitled to retain, in certain jurisdictions, a portion of collected customer payments when a customer cancels a preneed contract; these amounts are also recognized in current revenues. Recognized earnings (realized and unrealized) related to our trust investments were $2.9 million and $5.1 million for the three months ended June 30, 2009 and 2008, respectively. Recognized earnings (realized and unrealized) related to our trust investments were $1.8 million and $9.6 million for the six months ended June 30, 2009 and 2008, respectively.

to our Deferred preneed funeral and cemetery receipts held in trust. We recorded an impairment charge for other-than-temporary declines in fair value related to unrealized losses on certain securities of $3.3 million and $12.9 million for the three and six months ended June 30, 2009, respectively. We did not record an impairment charge in the first half of 2008.

We have determined that the remaining unrealized losses in our cemetery trust investments at June 30, 2009 are considered temporary in nature, as the unrealized losses were due to temporary fluctuations in interest rates and equity prices. The investments are diversified across multiple industry segments using a balanced allocation strategy to minimize long-term risk. The unrealized losses reflect the effects of the current economic crisis. We believe that none of the securities are other-than-temporarily impaired based on our analysis of the investments. Our analysis included a review of the portfolio holdings and discussions with the individual money managers as to the sector exposures, credit ratings, and the severity and duration of the unrealized losses. Our cemetery trust investment unrealized losses, their associated fair market values and the duration of unrealized losses as of June 30, 2009 are shown in the following table:


	June 30, 2009
	In Loss Position					In Loss Position
	Less Than 12 Months					Greater Than 12 Months					Total
	Fair					Fair					Fair
	Market		Unrealized			Market		Unrealized			Market		Unrealized
	Value		Losses			Value		Losses			Value		Losses
	(In thousands)
Fixed income securities:
U.S. Treasury	$	28,737	$	(992	)	$	560	$	(36	)	$	29,297	$	(1,028	)
Foreign government		4,247		(39	)		—		—			4,247		(39	)
Corporate		833		(59	)		—		—			833		(59	)
Mortgage-backed		5,542		(47	)		2,051		(22	)		7,593		(69	)
Equity securities:
Common stock (based on investment objectives):
Growth		77,025		(20,536	)		17,601		(15,112	)		94,626		(35,648	)
Value		101,080		(29,561	)		32,667		(11,875	)		133,747		(41,436	)
Mutual funds:
Equity		107,560		(59,843	)		36,213		(29,499	)		143,773		(89,342	)
Fixed income		91,202		(35,146	)		22,701		(6,237	)		113,903		(41,383	)
Private equity		10,339		(1,373	)		9,519		(5,191	)		19,858		(6,564	)
Other		3,390		(466	)		3,083		(2,789	)		6,473		(3,255	)

Total temporarily impaired securities	$	429,955	$	(148,062	)	$	124,395	$	(70,761	)	$	554,350	$	(218,823	)


	December 31, 2008
	In Loss Position					In Loss Position
	Less Than 12 Months					Greater Than 12 Months					Total
	Fair					Fair					Fair
	Market		Unrealized			Market		Unrealized			Market		Unrealized
	Value		Losses			Value		Losses			Value		Losses
	(In thousands)
Fixed income securities:
U.S. Treasury	$	34,817	$	(15,637	)	$	5,757	$	(3,509	)	$	40,574	$	(19,146	)
Corporate		4,204		(435	)		113		(85	)		4,317		(520	)
Mortgage-backed		12,491		(5,610	)		2,066		(1,257	)		14,557		(6,867	)
Equity securities:
Common stock (based on investment objectives):
Growth		113,100		(50,671	)		18,104		(7,205	)		131,204		(57,876	)
Value		152,885		(68,495	)		24,471		(9,738	)		177,356		(78,233	)
Mutual funds:
Equity		101,895		(46,405	)		29,282		(20,925	)		131,177		(67,330	)
Fixed income		100,882		(46,308	)		15,045		(9,144	)		115,927		(55,452	)
Private equity		660		(231	)		7,536		(3,307	)		8,196		(3,538	)
Other		519		(182	)		5,933		(2,603	)		6,452		(2,785	)

Total temporarily impaired securities	$	521,453	$	(233,974	)	$	108,307	$	(57,773	)	$	629,760	$	(291,747	)

6. Cemetery Perpetual Care Trusts

We are required by state or provincial law to pay into cemetery perpetual care trusts a portion of the proceeds from the sale of cemetery property interment rights. Our cemetery perpetual care trusts are defined as variable interest entities pursuant to FIN46(R). In accordance with FIN46(R), we have determined that we are the primary beneficiary of these trusts, as we absorb a majority of the losses and returns associated with these trusts. The merchandise and service trust investments detailed in Notes 4 and 5 are also accounted for in accordance with FIN46(R). We consolidate our cemetery perpetual care trust investments with a corresponding amount recorded as Care trusts’ corpus. Cash flows from cemetery perpetual care contracts are presented as operating cash flows in our unaudited condensed consolidated statement of cash flows.

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


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2009			2008			2009			2008
	(In thousands)						(In thousands)
Deposits	$	5,963		$	6,111		$	11,330		$	11,935
Withdrawals		5,962			9,280			15,107			14,457
Purchases of available-for-sale securities		59,396			58,293			104,243			117,078
Sales of available-for-sale securities		36,520			64,464			68,995			125,897
Realized gains from sales of available-for-sale securities		2,905			865			3,724			10,352
Realized losses from sales of available-for-sale securities		(1,508	)		(638	)		(11,121	)		(13,631	)

The components of Cemetery perpetual care trust investments in our unaudited condensed consolidated balance sheet at June 30, 2009 and December 31, 2008 are as follows:


	June 30, 2009		December 31, 2008
	(In thousands)
Trust investments, at market	$	686,542	$	673,237
Cash and cash equivalents		81,198		71,521

Cemetery perpetual care trust investments	$	767,740	$	744,758

The cost and market values associated with our cemetery perpetual care trust investments recorded at fair market value at June 30, 2009 are detailed below. Cost reflects the investment (net of redemptions) of control holders in common trust funds, mutual funds, and private equity investments. Fair market value represents the value of the underlying securities or cash held by the common trust funds, mutual funds at published values, and the estimated market value of private equity investments.


	June 30, 2009
			Unrealized		Unrealized			Fair Market
	Cost		Gains		Losses			Value
	(In thousands)
Fixed income securities:
U.S. Treasury	$	5,065	$	843	$	(120	)	$	5,788
Canadian government		24,002		300		(69	)		24,233
Corporate		39,504		1,364		(2,220	)		38,648
Mortgage-backed		3,243		14		(15	)		3,242
Equity securities:
Preferred stock		5,609		1,133		(617	)		6,125
Common stock (based on investment objectives):
Growth		3,301		169		(588	)		2,882
Value		115,985		3,050		(31,062	)		87,973
Mutual funds:
Equity		110,214		263		(31,624	)		78,853
Fixed income		493,975		588		(50,186	)		444,377
Private equity		21,678		287		(13,917	)		8,048
Other		16,122		841		(10,614	)		6,349

Cemetery perpetual care trust investments	$	838,698	$	8,852	$	(141,032	)	$	706,518

Less: Assets associated with businesses held for sale									(19,976	)

								$	686,542


	December 31, 2008
			Unrealized		Unrealized			Fair Market
	Cost		Gains		Losses			Value
	(In thousands)
Fixed income securities:
U.S. Treasury	$	5,805	$	769	$	(808	)	$	5,766
Canadian government		20,837		773		—			21,610
Corporate		42,139		202		(5,079	)		37,262
Mortgage-backed		4,376		1		(835	)		3,542
Equity securities:
Preferred stock		5,558		1		(1,186	)		4,373
Common stock (based on investment objectives):
Growth		5,744		70		(1,200	)		4,614
Value		106,709		1,303		(22,287	)		85,725
Mutual funds:
Equity		90,044		25		(20,931	)		69,138
Fixed income		519,132		233		(106,187	)		413,178
Private equity		20,561		668		(2,812	)		18,417
Other		32,482		816		(3,439	)		29,859

Cemetery perpetual care trust investments	$	853,387	$	4,861	$	(164,764	)	$	693,484

Less: Assets associated with businesses held for sale									(20,247	)

								$	673,237

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

The inputs into the fair value of our market-based cemetery perpetual care trust investments are categorized as follows:


	Quoted
	Market Prices		Significant		Significant
	in Active		Other Observable		Unobservable Inputs		Fair Market
	Markets (Level 1)		Inputs (Level 2)		(Level 3)		Value
	(In thousands)
Trust investments at June 30, 2009	$	614,085	$	78,036	$	14,397	$	706,518
Trust investments at December 31, 2008	$	572,655	$	72,553	$	48,276	$	693,484

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


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2009			2008			2009			2008
Fair market value, beginning balance	$	15,689		$	33,261		$	48,276		$	32,644
Net unrealized (losses) gains included in Other comprehensive income (1)		(6,712	)		1,770			(28,719	)		5,101
Net realized losses included in Other income (expense), net (2)		—			—			(5	)		—
Purchases, sales, contributions, and distributions, net		5,420			(1,712	)		2,057			(4,426	)
Transfers out of Level 3		—			—			(7,212	)		—

Fair market value, ending balance	$	14,397		$	33,319		$	14,397		$	33,319


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

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

Maturity dates of our fixed income securities range from 2009 to 2039. Maturities of fixed income securities (excluding mutual funds) at June 30, 2009 are estimated as follows:


	Fair Market
	Value
	(In thousands)
Due in one year or less	$	2,473
Due in one to five years		36,575
Due in five to ten years		17,322
Thereafter		15,541

	$	71,911

Distributable earnings from these cemetery perpetual care trust investments are recognized in current cemetery revenues to the extent we incur qualifying cemetery maintenance costs. Recognized earnings related to these cemetery perpetual care trust investments were $9.6 million and $10.2 million for the three months ended June 30, 2009 and 2008, respectively. Recognized earnings related to these cemetery perpetual care trust investments were $18.1 million and $20.0 million for the six months ended June 30, 2009 and 2008, respectively.

We assess our trust investments for other-than-temporary declines in fair value on a quarterly basis. Impairment charges, resulting from this assessment, are recognized as investment losses, in Other income (expense), net, and a decrease to Cemetery perpetual care trust investments. These investment losses, if any, are offset by a corresponding reclassification in Other income (expense), net, which reduces Care trusts’ corpus. See Note 7 for further information related to our Care trusts’ corpus. We recorded an impairment charge for other-than-temporary declines in fair value related to unrealized losses on certain securities of $1.7 million and $5.9 million for the three and six months ended June 30, 2009, respectively. We did not record an impairment charge in the first half of 2008.

We have determined that the remaining unrealized losses in our cemetery perpetual care trust investments at June 30, 2009, are considered temporary in nature, as the unrealized losses were due to temporary fluctuations in interest rates and equity prices. The investments are diversified across multiple industry segments using a balanced allocation strategy to minimize long-term risk. The unrealized losses reflect the effects of the current economic crisis. We believe that none of the securities are other-than-temporarily impaired based on our analysis of the investments. Our analysis included a review of the portfolio holdings and discussions with the individual money managers as to the sector exposures, credit ratings, and the severity and duration of the unrealized losses. Our cemetery perpetual care trust investment unrealized losses, their associated fair market values and the duration of unrealized losses as of June 30, 2009 are shown in the following table:


	June 30, 2009
	In Loss Position					In Loss Position
	Less Than 12 Months					Greater Than 12 Months					Total
	Fair					Fair					Fair
	Market		Unrealized			Market		Unrealized			Market		Unrealized
	Value		Losses			Value		Losses			Value		Losses
	(In thousands)
Fixed income securities:
U.S. Treasury	$	2,192	$	(120	)	$	—	$	—		$	2,192	$	(120	)
Foreign government		7,296		(69	)		—		—			7,296		(69	)
Corporate		13,248		(1,868	)		1,852		(352	)		15,100		(2,220	)
Mortgage-backed		1,262		(10	)		546		(5	)		1,808		(15	)
Equity securities:
Preferred stock		350		(10	)		1,268		(607	)		1,618		(617	)
Common stock (based on investment objectives):
Growth		2,075		(559	)		65		(29	)		2,140		(588	)
Value		49,858		(23,626	)		13,752		(7,436	)		63,610		(31,062	)
Mutual funds:
Equity		59,925		(21,302	)		16,438		(10,322	)		76,363		(31,624	)
Fixed income		304,364		(35,138	)		125,950		(15,048	)		430,314		(50,186	)
Private equity		5,534		(3,741	)		10,370		(10,176	)		15,904		(13,917	)
Other		3,900		(2,636	)		7,293		(7,978	)		11,193		(10,614	)

Total temporarily impaired securities	$	450,004	$	(89,079	)	$	177,534	$	(51,953	)	$	627,538	$	(141,032	)


	December 31, 2008
	In Loss Position					In Loss Position
	Less Than 12 Months					Greater Than 12 Months					Total
	Fair					Fair					Fair
	Market		Unrealized			Market		Unrealized			Market		Unrealized
	Value		Losses			Value		Losses			Value		Losses
	(In thousands)
Fixed income securities:
U.S. Treasury	$	2,729	$	(435	)	$	1,358	$	(373	)	$	4,087	$	(808	)
Corporate		17,224		(2,997	)		9,932		(2,082	)		27,156		(5,079	)
Mortgage-backed		1,705		(410	)		1,507		(425	)		3,212		(835	)
Equity securities:
Preferred stock		2,335		(562	)		2,085		(624	)		4,420		(1,186	)
Common stock (based on investment objectives):
Growth		2,486		(661	)		1,905		(539	)		4,391		(1,200	)
Value		46,190		(12,276	)		35,387		(10,011	)		81,577		(22,287	)
Mutual funds:
Equity		40,611		(11,959	)		28,635		(8,972	)		69,246		(20,931	)
Fixed income		231,564		(53,735	)		182,207		(52,452	)		413,771		(106,187	)
Private equity		8,764		(1,564	)		4,760		(1,248	)		13,524		(2,812	)
Other		10,716		(1,912	)		5,822		(1,527	)		16,538		(3,439	)

Total temporarily impaired securities	$	364,324	$	(86,511	)	$	273,598	$	(78,253	)	$	637,922	$	(164,764	)

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

Deferred Preneed Funeral and Cemetery Receipts Held in Trust

We consolidate the merchandise and service trusts associated with our preneed funeral and cemetery activities in accordance with FIN46(R). Although FIN46(R) requires the consolidation of the merchandise and service trusts, it does not change the legal relationships among the trusts, us, or our customers. The customers are the legal beneficiaries of these merchandise and service trusts, and therefore their interests in these trusts represent a liability.

The components of Deferred preneed funeral and cemetery receipts held in trust in our unaudited condensed consolidated balance sheet at June 30, 2009 and December 31, 2008 are detailed below.


	June 30, 2009
	Preneed			Preneed
	Funeral			Cemetery			Total
	(In thousands)
Trust investments, at market	$	659,405		$	770,379		$	1,429,784
Cash and cash equivalents		165,181			136,194			301,375
Insurance-backed fixed income securities		207,890			—			207,890
Accrued trust operating payables, deferred tax assets, and other		(1,018	)		(1,561	)		(2,579	)

Deferred preneed funeral and cemetery receipts held in trust	$	1,031,458		$	905,012		$	1,936,470


	December 31, 2008
	Preneed		Preneed
	Funeral		Cemetery		Total
	(In thousands)
Trust investments, at market	$	636,712	$	659,149	$	1,295,861
Cash and cash equivalents		125,657		139,753		265,410
Insurance-backed fixed income securities		216,394		—		216,394
Accrued trust operating payables, deferred tax assets, and other		16,816		23,184		40,000

Deferred preneed funeral and cemetery receipts held in trust	$	995,579	$	822,086	$	1,817,665

Care Trusts’ Corpus

The Care trusts’ corpus reflected in our unaudited condensed consolidated balance sheet represents the cemetery perpetual care trusts, including the related accrued expenses, deferred tax assets, and other long-term liabilities of our cemetery perpetual care trusts.

The components of Care trusts’ corpus in our unaudited condensed consolidated balance sheet at June 30, 2009 and December 31, 2008 are detailed below.


	June 30,		December 31,
	2009		2008
	(In thousands)
Trust investments, at market	$	686,542	$	673,237
Cash and cash equivalents		81,198		71,521
Accrued trust operating payables, deferred tax assets, and other		241		27,476

Care trusts’ corpus	$	767,981	$	772,234

Other Income (Expense), Net

The components of Other income (expense), net in our unaudited condensed consolidated statement of operations for the three and six months ended June 30, 2009 and 2008 are detailed below. See Notes 4, 5, and 6 for further discussion of the amounts related to the funeral, cemetery, and cemetery perpetual care trusts.


	Three Months Ended June 30, 2009
							Cemetery
	Funeral			Cemetery			Perpetual
	Trusts			Trusts			Care Trusts			Other, Net		Total
	(In thousands)
Realized gains	$	5,056		$	4,902		$	2,905		$	—	$	12,863
Realized losses and impairment charges		(19,128	)		(19,952	)		(3,204	)		—		(42,284	)
Interest, dividend, and other ordinary income		5,573			3,722			8,495			—		17,790
Trust expenses and income taxes		(968	)		(1,260	)		(5,275	)		—		(7,503	)

Net trust investment (loss) income		(9,467	)		(12,588	)		2,921			—		(19,134	)
Reclassification to deferred preneed funeral and cemetery receipts held in trust and care trusts’ corpus		9,467			12,588			(2,921	)		—		19,134
Other income, net		—			—			—			803		803

Total other income, net	$	—		$	—		$	—		$	803	$	803


	Six Months Ended June 30, 2009
							Cemetery
	Funeral			Cemetery			Perpetual
	Trusts			Trusts			Care Trusts			Other, Net			Total
	(In thousands)
Realized gains	$	7,358		$	6,030		$	3,724		$	—		$	17,112
Realized losses and impairment charges		(51,527	)		(52,248	)		(16,972	)		—			(120,747	)
Interest, dividend, and other ordinary income		10,858			11,505			20,872			—			43,235
Trust expenses and income taxes		(978	)		(19	)		(5,690	)		—			(6,687	)

Net trust investment income (loss)		(34,289	)		(34,732	)		1,934			—			(67,087	)
Reclassification to deferred preneed funeral and cemetery receipts held in trust and care trusts’ corpus		34,289			34,732			(1,934	)		—			67,087
Other expense, net		—			—			—			(743	)		(743	)

Total other expense, net	$	—		$	—		$	—		$	(743	)	$	(743	)


	Three Months Ended June 30, 2008
							Cemetery
	Funeral			Cemetery			Perpetual
	Trusts			Trusts			Care Trusts			Other, Net		Total
	(In thousands)
Realized gains	$	9,510		$	11,959		$	865		$	—	$	22,334
Realized losses		(11,892	)		(13,320	)		(638	)		—		(25,850	)
Interest, dividend, and other ordinary income		14,902			12,502			9,990			—		37,394
Trust expenses and income taxes		(4,408	)		(10,972	)		(2,386	)		—		(17,766	)

Net trust investment income		8,112			169			7,831			—		16,112
Reclassification to deferred preneed funeral and cemetery receipts held in trust and care trusts’ corpus		(8,112	)		(169	)		(7,831	)		—		(16,112	)
Other income, net		—			—			—			687		687

Total other income, net	$	—		$	—		$	—		$	687	$	687


	Six Months Ended June 30, 2008
							Cemetery
	Funeral			Cemetery			Perpetual
	Trusts			Trusts			Care Trusts			Other, Net			Total
	(In thousands)
Realized gains	$	30,309		$	23,414		$	10,352		$	—		$	64,075
Realized losses		(26,890	)		(29,811	)		(13,631	)		—			(70,332	)
Interest, dividend, and other ordinary income		20,287			16,738			18,376			—			55,401
Trust expenses and income taxes		(9,071	)		(15,394	)		(2,922	)		—			(27,387	)

Net trust investment income (loss)		14,635			(5,053	)		12,175			—			21,757
Reclassification to deferred preneed funeral and cemetery receipts held in trust and care trusts’ corpus		(14,635	)		5,053			(12,175	)		—			(21,757	)
Other expense, net		—			—			—			(61	)		(61	)

Total other expense, net	$	—		$	—		$	—		$	(61	)	$	(61	)

8. Income Taxes

Income tax expense during interim periods is based on our estimated annual effective income tax rate plus any discrete items, which are recorded in the period in which they occur. Discrete items include, among others, such events as tax audit settlements, expiration of statute of limitations, and increases or decreases in valuation allowances due to changes in projected future earnings. For the three months ended June 30, 2009 and 2008, our effective tax rate was 40.9% and 39.1%, respectively. For the six months ended June 30, 2009 and 2008, our effective tax rate was 38.7% and 38.2%, respectively. The increase in the effective tax rate for both periods is primarily due to the increase in divestitures that include non-deductible goodwill.

We file numerous federal, state, and foreign income tax returns. A number of years may elapse before particular tax matters, for which we have unrecognized tax benefits, are audited and finally settled. In the United States, the Internal Revenue Service has recently completed its field work for tax years 1999 through 2002 and is currently auditing tax years 2003 through 2005. Various state and foreign jurisdictions are auditing years through 2005. It is reasonably possible that one or more of the multi-jurisdictional audits will be settled by December 31, 2009, and if favorably resolved could result in a significant reduction in the amount of our unrecognized tax benefits.

9. Debt

Debt as of June 30, 2009 and December 31, 2008 was as follows:


	June 30, 2009			December 31, 2008
	(In thousands)
7.7% Notes due April 2009	$	—		$	28,731
7.875% Debentures due February 2013		32,127			55,627
7.375% Senior notes due October 2014		250,000			250,000
6.75% Notes due April 2015		160,250			200,000
6.75% Notes due April 2016		245,500			250,000
7.0% Notes due June 2017		295,000			300,000
7.625% Senior notes due October 2018		250,000			250,000
7.5% Notes due April 2027		200,000			200,000
Series B senior notes due November 2011		150,000			150,000
Obligations under capital leases		115,605			109,782
Mortgage notes and other debt, maturities through 2047		60,598			58,976
Unamortized pricing discounts and other		(4,017	)		(4,608	)

Total debt	$	1,755,063		$	1,848,508
Less current maturities		(27,971	)		(27,104	)

Total long-term debt	$	1,727,092		$	1,821,404

Current maturities of debt at June 30, 2009 were primarily comprised of our capital lease obligations. Our consolidated debt had a weighted average interest rate of 6.32% at June 30, 2009 and 6.70% at December 31, 2008. Approximately 82% and 87% of our total debt had a fixed interest rate at June 30, 2009 and December 31, 2008, respectively.

Bank Credit Facility

We entered into a five-year $450 million bank credit facility in November 2006 with a syndicate of financial institutions, comprised of a $300 million revolving credit facility and a $150 million term loan facility, including a sublimit of $175 million for letters of credit.

The bank credit facility matures in November 2011. As of June 30, 2009, we have used the facility to support $52.6 million of letters of credit. The credit facility provides us with flexibility for working capital, if needed, and is guaranteed by our domestic subsidiaries. The subsidiary guaranty is a guaranty of payment of the outstanding amount of the total lending commitment, including letters of credit. The credit facility contains certain financial covenants, including a minimum interest coverage ratio, a maximum leverage ratio, and certain dividend and share repurchase restrictions. We pay a quarterly fee on the unused commitment, which ranges from 0.25% to 0.50%. As of June 30, 2009, we have no outstanding cash advances on the revolving credit facility.

Debt Extinguishments and Reductions

In the first half of 2009, we made debt payments of $101.2 million, including the following scheduled payments and purchases on the open market:

	•		$28.7 million balance of our 7.7% Notes due April 2009;

	•		$23.5 million aggregate principal amount of our 7.875% Debentures due February 2013;

	•		$39.8 million aggregate principal amount of our 6.75% Notes due April 2015;

	•		$4.5 million aggregate principal amount of our 6.75% Notes due April 2016; and

	•		$5.0 million aggregate principal amount of our 7.0% Notes due June 2017.

Certain of the above transactions resulted in the recognition of a $3.4 million gain recorded in Gain on early extinguishment of debt in the first half of 2009, which represents the write-off of unamortized deferred loan costs of $1.0 million and a $4.4 million discount on the purchase of the notes.

In the first half of 2008, we repaid $45.2 million aggregate principal amount of our 6.50% Notes due March 2008. There was no gain or loss recognized as a result of this repayment.

Capital Leases

During the six months ended June 30, 2009 and 2008, we acquired $12.6 million and $14.3 million, respectively, of transportation equipment using capital leases.

10. Fair Value of Financial Instruments

Fair Value Estimates

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

The fair value of our debt instruments at June 30, 2009 and December 31, 2008 was as follows:


	June 30, 2009		December 31, 2008
	(In thousands)
7.7% Notes due April 2009	$	—	$	27,869
7.875% Debentures due February 2013		30,922		49,441
7.375% Senior notes due October 2014		240,000		215,000
6.75% Notes due April 2015		143,424		154,500
6.75% Notes due April 2016		222,178		190,000
7.0% Notes due June 2017		270,294		234,000
7.625% Senior notes due October 2018		233,125		194,750
7.5% Notes due April 2027		160,000		129,750
Series B senior notes due November 2011		126,404		106,222
Mortgage notes and other debt, maturities through 2047		51,907		43,674

Total fair value of debt instruments	$	1,478,254	$	1,345,206

The fair values of our long-term, fixed rate securities were estimated using market prices for those securities, and therefore they are classified within Level 1 of the SFAS 157 hierarchy discussed in Note 2. The Series B senior notes due 2011 and the mortgage and other debt fall within Level 3 of the SFAS 157 hierarchy. The fair values of these instruments have been estimated using discounted cash flow analysis based on our incremental borrowing rate for similar borrowing arrangements.

11. Share-Based Compensation

Stock Benefit Plans

We utilize the Black-Scholes option valuation model for estimating the fair value of our stock options. This model allows the use of a range of assumptions related to volatility, the risk-free interest rate, the expected life, and the dividend yield. The expected volatility utilized in the valuation model is based on the historical volatility of our stock price. The dividend yield and expected holding period are based on historical experience and management’s estimate of future events. The risk-free interest rate is derived from the U.S. Treasury yield curve based on the expected life of the option in effect at the time of the grant. The fair values of our stock options are calculated using the following weighted average assumptions for the six months ended June 30, 2009:


	Six Months Ended
Assumptions	June 30, 2009
Dividend yield		3.5	%
Expected volatility		32.3	%
Risk-free interest rate		1.8	%
Expected holding period		5.0	years

Stock Options

The following table sets forth stock option activity for the six months ended June 30, 2009:


				Weighted-Average
	Options			Exercise Price
Outstanding at December 31, 2008		10,861,889		$	7.77
Granted		3,995,080			4.19
Exercised		(631,000	)		3.75
Canceled		(539,287	)		6.81

Outstanding at June 30, 2009		13,686,682		$	6.95

Exercisable at June 30, 2009		8,152,874		$	7.43

As of June 30, 2009, the unrecognized compensation expense related to stock options of $8.1 million is expected to be recognized over a weighted average period of 1.3 years.

Restricted Shares

Restricted share activity for the six months ended June 30, 2009 was as follows:


				Weighted-Average
	Restricted			Grant-Date
	shares			Fair Value
Nonvested restricted shares at December 31, 2008		591,941		$	10.69
Granted		829,400			4.19
Vested		(319,901	)		9.94

Nonvested restricted shares at June 30, 2009		1,101,440		$	6.01

As of June 30, 2009, the unrecognized compensation expense related to restricted shares of $5.2 million is expected to be recognized over a weighted average period of 1.5 years.

12. Stockholders’ Equity

Our components of Accumulated other comprehensive income are as follows:


	Foreign					Accumulated
	Currency		Unrealized			Other
	Translation		Gains and			Comprehensive
	Adjustment		Losses			Income
	(In thousands)
Balance at December 31, 2008	$	36,649	$	—		$	36,649
Foreign currency translation effects		21,258		—			21,258
Increase in net unrealized gains associated with available-for-sale securities of the trusts, net of taxes of $(75,417)		—		121,855			121,855
Reclassification of net unrealized gains activity attributable to the deferred preneed funeral and cemetery receipts held in trust and care trusts’ corpus, net of taxes of $75,417		—		(121,855	)		(121,855	)

Balance at June 30, 2009	$	57,907	$	—		$	57,907

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

Our components of comprehensive income are as follows for the three and six months ended June 30, 2009 and 2008:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2009		2008		2009		2008
	(In thousands)				(In thousands)
Comprehensive income:
Net income	$	23,580	$	31,397	$	57,960	$	72,916
Other comprehensive income (loss)		29,011		4,959		21,258		(17,147	)

Comprehensive income	$	52,591	$	36,356	$	79,218	$	55,769

Cash Dividends

On May 13, 2009, our Board of Directors approved a cash dividend of $.04 per common share. At June 30, 2009, this dividend totaling $10.0 million was recorded in Accounts payable and accrued liabilities and Capital in excess of par value in our unaudited condensed consolidated balance sheet. This dividend was paid on July 31, 2009.

Share Repurchase Program

Subject to market conditions, normal trading restrictions, and limitations in our debt covenants, we may make purchases in the open market or through privately negotiated transactions under our stock repurchase program. We did not repurchase any shares of our common stock during the six months ended June 30, 2009. During the six months ended June 30, 2008, we purchased 7.0 million shares of common stock at an aggregate cost of $79.5 million and an average cost per share of $11.34. The remaining dollar value of shares authorized to be purchased under the share repurchase program was $123.4 million at June 30, 2009.

13. Segment Reporting

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

Our reportable segment information is as follows:


					Reportable
	Funeral		Cemetery		Segments
	(In thousands)
Three months ended June 30,
Revenues from external customers:
2009	$	342,705	$	171,244	$	513,949
2008	$	363,262	$	185,520	$	548,782
Gross profit:
2009	$	71,169	$	30,656	$	101,825
2008	$	72,258	$	34,903	$	107,161
Six months ended June 30,
Revenues from external customers:
2009	$	707,614	$	316,930	$	1,024,544
2008	$	768,841	$	353,392	$	1,122,233
Gross profit:
2009	$	155,241	$	46,704	$	201,945
2008	$	180,891	$	63,867	$	244,758

The following table reconciles gross profit from reportable segments to our consolidated income from continuing operations before income taxes:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2009			2008			2009			2008
	(In thousands)
Gross profit from reportable segments	$	101,825		$	107,161		$	201,945		$	244,758
General and administrative expenses		(26,466	)		(21,655	)		(48,252	)		(46,730	)
(Loss) gain on divestitures and impairment charges, net		(6,289	)		(3,858	)		941			(15,904	)
Other operating income, net		—			1,691			—			585

Operating income		69,070			83,339			154,634			182,709
Interest expense		(32,386	)		(33,311	)		(64,056	)		(67,380	)
Gain on early extinguishment of debt		1,830			—			3,440			—
Interest income		585			1,454			1,288			3,374
Other income (expense), net		803			687			(743	)		(61	)

Income from continuing operations before income taxes	$	39,902		$	52,169		$	94,563		$	118,642

Our geographic area information is as follows:


	United
	States		Canada		Germany		Total
	(In thousands)
Three months ended June 30,
Revenues from external customers:
2009	$	469,765	$	42,652	$	1,532	$	513,949
2008	$	492,297	$	54,617	$	1,868	$	548,782
Six months ended June 30,
Revenues from external customers:
2009	$	937,241	$	84,067	$	3,236	$	1,024,544
2008	$	1,011,344	$	107,058	$	3,831	$	1,122,233

14. Supplementary Information

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


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2009		2008		2009		2008
	(In thousands)				(In thousands)
Merchandise revenues:
Funeral	$	110,858	$	118,312	$	229,265	$	252,533
Cemetery		116,787		129,021		208,648		237,453

Total merchandise revenues		227,645		247,333		437,913		489,986
Services revenues:
Funeral		216,180		229,537		450,893		489,048
Cemetery		46,255		47,862		91,414		98,912

Total services revenues		262,435		277,399		542,307		587,960

Other revenues		23,869		24,050		44,324		44,287

Total revenues	$	513,949	$	548,782	$	1,024,544	$	1,122,233

Merchandise costs and expenses:
Funeral	$	55,207	$	61,262	$	117,210	$	129,925
Cemetery		50,165		58,320		91,908		104,696

Total cost of merchandise		105,372		119,582		209,118		234,621
Services costs and expenses:
Funeral		106,149		113,534		209,632		225,591
Cemetery		25,534		28,176		51,028		55,355

Total cost of services		131,683		141,710		260,660		280,946

Overhead and other expenses		175,069		180,329		352,821		361,908

Total costs and expenses	$	412,124	$	441,621	$	822,599	$	877,475

15. Commitments and Contingencies

Representations and Warranties

As of June 30, 2009, we have contingent obligations of $10.7 million (of which $4.5 million is reflected in our unaudited condensed consolidated financial statements as a liability) resulting from our previous international asset sales and joint venture transactions. In some cases, we have agreed to guarantee certain representations and warranties made in such divestiture transactions with letters of credit or interest-bearing cash investments. We have interest-bearing cash investments of $23.3 million included in Deferred charges and other assets collateralizing certain of these contingent obligations. We believe it is remote that we will ultimately be required to fund third-party claims against these representations and warranties above the carrying value of the liability.

In 2004, we disposed of our funeral operations in France to a newly formed, third-party company. As a result of this sale, we recognized certain Euro-denominated contractual obligations related to representations, warranties, and other indemnifications. The remaining obligation related to these indemnifications was €1.6 million, or $2.2 million at June 30, 2009.

During the first half of 2009, we released certain value-added tax (VAT) and social security indemnifications related to our former French operations as a result of the expiration of the statutory period of limitations. In addition, we reduced our related litigation reserves as a result of recent favorable court rulings. These transactions, after consideration of related foreign currency translation effects, resulted in a $3.6 million and $17.7 million reduction of the carrying value of our obligation for the three and six months ended June 30, 2009, respectively. These indemnification reserve reductions were recorded in (Loss) gain on divestitures and impairment charges, net in the first half of 2009.

Insurance Loss Reserves

We purchase comprehensive general liability, morticians and cemetery professional liability, automobile liability, and workers’ compensation insurance coverage structured with high deductibles. The high-deductible insurance program means we are primarily self-insured for claims and associated costs and losses covered by these policies. As of June 30, 2009 and December 31, 2008, we have self-insurance reserves of $66.3 million and $63.6 million, respectively.

Litigation

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

Conley Investment Counsel v. Service Corporation International, et al.; Civil Action 04-MD-1609; In the United States District Court for the Southern District of Texas, Houston Division (the “2003 Securities Lawsuit”). The 2003 Securities Lawsuit resulted from the transfer and consolidation by the Judicial Panel on Multidistrict Litigation of three lawsuits — Edgar Neufeld v. Service Corporation International, et al.; Cause No. CV-S-03-1561-HDM-PAL; in the United States District Court for the District of Nevada; and Rujira Srisythemp v. Service Corporation International, et al.; Cause No. CV-S-03-1392-LDG-LRL; in the United States District Court for the District of Nevada; and Joshua Ackerman v. Service Corporation International, et al.; Cause No. 04-CV-20114; in the United States District Court for the Southern District of Florida. The 2003 Securities Lawsuit names as defendants SCI and several of SCI’s current and former executive officers or directors. The 2003 Securities Lawsuit is a purported class action alleging that the defendants failed to disclose the unlawful treatment of human remains and burial sites at two cemeteries in Fort Lauderdale and West Palm Beach, Florida. No discovery has occurred, and we cannot quantify our ultimate liability, if any, for the payment of damages.

Burial Practices Claims. We are named as a defendant in various lawsuits alleging improper burial practices at certain of our cemetery locations. These lawsuits include the Valls and Garcia lawsuits described in the following paragraphs.

Maria Valls, Pedro Valls, and Roberto Valls, on behalf of themselves and all other similarly situated v. SCI Funeral Services of Florida, Inc. d/b/a Memorial Plan a/k/a Flagler Memorial Park, John Does and Jane Does ; Case No. 23693CA08; in the Circuit Court of the 11th Judicial Circuit in and for Miami-Dade County, Florida (“Valls Lawsuit”). The Valls Lawsuit was filed December 5, 2005, and named a subsidiary of SCI as a defendant. Plaintiffs have requested that the court certify this matter as a class action. The plaintiffs allege the defendants improperly handled remains, did not keep adequate records of interments, and engaged in various other improprieties in connection with the operation of the cemetery. Although the plaintiffs seek to certify as a class all family members of persons buried at the cemetery, the court has dismissed plaintiffs’ class action allegations on two occasions; however, the dismissals were without prejudice. Plaintiffs filed a third amended complaint and we again moved to dismiss the class action allegations. The court dismissed the class allegations with prejudice, and the plaintiffs appealed the ruling. The appellate court has affirmed the dismissal of plaintiffs’ class action claims with prejudice and the time to appeal the dismissal of the class action claims has expired. Since the class allegations in this case have been dismissed, we will remove this case from our future litigation reports.

Reyvis Garcia and Alicia Garcia v. Alderwoods Group, Inc., Osiris Holding of Florida, Inc, a Florida corporation, d/b/a Graceland Memorial Park South, f/k/a Paradise Memorial Gardens, Inc., was filed in December 2004, in the Circuit Court of the Eleventh Judicial Circuit in and for Miami-Dade County, Florida, Case No.: 04-25646 CA 32. Plaintiffs are the son and sister of the decedent, Eloisa Garcia, who was buried at Graceland Memorial Park South in March 1986, when the cemetery was owned by Paradise Memorial Gardens, Inc. Initially, the suit sought damages on the individual claims of the plaintiffs relating to the burial of Eloisa Garcia. Plaintiffs claimed that due to poor record keeping, spacing issues and maps, and the fact that the family could not afford to purchase a marker for the grave, the burial location of the decedent could not be readily located. Subsequently, the decedent’s grave was located and verified. In July 2006, plaintiffs amended their complaint, seeking to certify a class of all persons buried at this cemetery whose burial sites cannot be located, claiming that this was due to poor record keeping, maps, and surveys at the cemetery. Plaintiffs subsequently filed a third amended class action complaint and added two additional named plaintiffs. The plaintiffs are seeking unspecified monetary damages, as well as equitable and injunctive relief. No class has been certified in this matter. Since the action is in its preliminary stages, we cannot quantify our ultimate liability, if any, for the payment of any damages.

Funeral Regulations Lawsuits. We are named as a defendant in various lawsuits alleging violations of federal and state funeral related regulations and/or statutes, including the Sanchez lawsuit described in the following paragraph.

Richard Sanchez et al v. Alderwoods Group, Inc. et al., was filed in February 2005 in the Superior Court of the State of California, for the County of Los Angeles, Central District; Case No. BC328962. Plaintiffs seek to certify a nationwide class on behalf of all consumers who purchased funeral goods and services from Alderwoods. Plaintiffs allege in essence that the Federal Trade Commission’s Funeral Rule requires Alderwoods to disclose its markups on all items obtained from third-parties in connection with funeral service contracts. Plaintiffs allege further that Alderwoods has failed to make such disclosures. Plaintiffs seek to recover an unspecified amount of monetary damages, attorney’s fees, costs, and unspecified “injunctive and declaratory relief.” This case is

substantially similar to the lawsuit styled Mary Louise Baudino, et al. v. Service Corporation International, et al., in which we prevailed as reported in our Form 10-K for the year ended December 31, 2008. In June 2009, the plaintiffs dismissed this case with prejudice, thereby ending the case.

Antitrust Claims. We are named as a defendant in a class action antitrust case filed in 2005. The case is Cause No 4:05-CV-03394; Funeral Consumers Alliance, Inc. v. Service Corporation International, et al.; in the United States District Court for the Southern District of Texas — Houston (“Funeral Consumers Case”). This is a purported class action on behalf of casket consumers throughout the United States alleging that we and several other companies involved in the funeral industry violated federal antitrust laws and state consumer laws by engaging in various anti-competitive conduct associated with the sale of caskets.

The Funeral Consumers Case seeks injunctions, monetary damages, and treble damages. The plaintiffs filed an expert report indicating that the damages sought from all defendants range from approximately $950 million to $1.5 billion, before trebling. We deny that we engaged in anticompetitive practices related to our casket sales and we have filed reports of our experts, which vigorously dispute the validity of the plaintiffs’ damages theories and calculations. We intend to vigorously contest the plaintiffs’ claims and damages report but we cannot quantify our ultimate liability, if any, for the payment of damages.

In November 2008, the Magistrate Judge issued recommendations that motions for class certification be denied in the Funeral Consumers Case. In March 2009, the District Court affirmed the Magistrate Judge’s recommendations and denied class certification. The plaintiffs appealed.

In June 2009, the Fifth Circuit Court of Appeals denied the plaintiffs’ motion requesting permission to appeal the District Court’s ruling denying class certification. The plaintiffs in the case have filed a motion requesting that the appellate court reconsider its ruling.

In addition to the Funeral Consumers Case, we received Civil Investigative Demands, dated August 2005 and February 2006, from the Attorney General of Maryland on behalf of itself and other state attorneys general, who have commenced an investigation of alleged anticompetitive practices in the funeral industry. We have also received similar Civil Investigative Demands from the Attorneys General of Florida and Connecticut. In June 2009, we received a letter from the Attorney General of Connecticut stating that his office has closed its investigation.

Wage and Hour Claims. We are named a defendant in various lawsuits alleging violations of federal and state laws regulating wage and hour overtime pay, including the Prise, Bryant, Bryant, Stickle, and Welch lawsuits described in the following paragraphs.

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

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

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

Bryant, et al. v. Service Corporation International, et al.; Case No. RG-07359593; and Helm, et al. v. AWGI & SCI; Case No. RG-07359602; In the Superior Court of the State of California, County of Almeda. These cases were filed on December 5, 2007 by counsel for plaintiffs in the Wage and Hour Lawsuit. These cases assert state law claims like those previously dismissed in the Wage and Hour Lawsuit. These cases were removed to federal court in the U.S. District Court for the Northern District of California, San Francisco/Oakland Division. The Bryant case is now Case No. 3:08-CV-01190-SI and the Helm case is now Case No. 2:-CV-01184- SI. We cannot quantify our ultimate liability, if any, in these lawsuits.

Stickle, et al. v. Service Corporation International, et al.; Case No. 08-CV-83; in the U.S. District Court for Arizona, Phoenix Division. Counsel for plaintiffs in the Wage and Hour Lawsuit filed this case on January 17, 2008, against SCI and various related entities and individuals asserting FLSA and other ancillary claims based on the alleged failure to pay for overtime. Plaintiffs seek the same class notice to SCI and related entities that were rejected by the Court in the Wage and Hour Lawsuit. We cannot quantify our ultimate liability, if any, in this lawsuit.

Shauna Welch v. California Cemetery & Funeral Services, LLC; Case No. BC 396793; in the Superior Court of the State of California, for the County of Los Angeles. In August 2008, the plaintiff filed a class action on behalf of employees of a subsidiary in California for alleged violations of the California Labor Code and the Business & Professions Code. The plaintiff specifically alleges that she and the putative class are unable to negotiate their paychecks without paying a fee and/or without being subject to a waiting period since paychecks are issued from an out-of-state bank. We cannot quantify our ultimate liability, if any, in this lawsuit.

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

16. Earnings Per Share

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

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


	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2009		2008			2009		2008
	(In thousands, except per					(In thousands, except per
	share amounts)					share amounts)
Amounts attributable to common stockholders:
Income from continuing operations:
Income from continuing operations — basic	$	23,104	$	31,774		$	57,634	$	73,278
After-tax interest on convertible debt		—		13			25		25

Income from continuing operations — diluted	$	23,104	$	31,787		$	57,659	$	73,303

Loss from discontinued operations, net of tax	$	—	$	(377	)	$	—	$	(362	)
Net income:
Net income — basic	$	23,104	$	31,397		$	57,634	$	72,916
After tax interest on convertible debt		—		13			25		25

Net income — diluted	$	23,104	$	31,410		$	57,659	$	72,941

Weighted average shares:
Weighted average shares — basic		250,977		259,655			250,461		260,565
Stock options		153		3,356			90		3,542
Convertible debt		—		121			121		121

Weighted average shares — diluted		251,130		263,132			250,672		264,228

Income from continuing operations per share:
Basic	$	.09	$	.12		$	.23	$	.28
Diluted	$	.09	$	.12		$	.23	$	.28

Net income per share:
Basic	$	.09	$	.12		$	.23	$	.28
Diluted	$	.09	$	.12		$	.23	$	.28

The computation of diluted EPS excludes outstanding stock options and convertible debt in certain periods in which the inclusion of such options and debt would be antidilutive in the periods presented. Total options and convertible debentures not currently included in the computation of dilutive EPS are as follows (in shares):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2009		2008		2009		2008
	(In thousands)				(In thousands)
Antidilutive options		9,697		3,526		9,576		1,544
Antidilutive convertible debentures		121		52		—		52

Total common stock equivalents excluded from computation		9,818		3,578		9,576		1,596

We adopted the provision of FSP No. Emerging Issues Task Force (EITF) 03-6-1 “Determining Whether Instruments Granted in Share-based Payment Transactions are Participating Securities”, on January 1, 2009. Our adoption had no material impact on our reported EPS as reflected in these unaudited condensed consolidated financial statements.

17. Divestiture-Related Activities

As divestitures occur in the normal course of business, gains or losses on the sale of such businesses are recognized in the income statement line item (Loss) gain on divestitures and impairment charges, net. Additionally, as divestitures occur pursuant to our ongoing asset sale programs, adjustments are made through this income statement line item to reflect the difference between actual proceeds received from the sale compared to the original estimates.

(Loss) gain on divestitures and impairment charges, net consists of the following:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2009			2008			2009			2008
	(In thousands)						(In thousands)
Gain (loss) on divestitures, net	$	960		$	604		$	11,825		$	(8,471	)
Impairment losses		(7,249	)		(4,462	)		(10,884	)		(7,433	)

	$	(6,289	)	$	(3,858	)	$	941		$	(15,904	)

In the second quarter of 2009, we recognized $9.9 million in impairment charges and asset divestitures partially offset by a $3.6 million gain due to the release of social security indemnifications related to our former French operations. In the first half of 2009, we recognized $16.8 million in impairment charges and asset divestitures offset by a $17.7 million gain due to the release of VAT and social security indemnifications and a reduction of certain litigation indemnifications related to our former French operations. See Note 15 for further discussion of the indemnification liability.

Assets Held for Sale

Net assets held for sale were as follows:


	June 30, 2009		December 31, 2008
	(In thousands)
Assets:
Current assets	$	1,397	$	1,279
Preneed funeral receivables, net and trust investments		2,055		3,099
Preneed cemetery receivables, net and trust investments		50,894		49,985
Cemetery property, at cost		10,190		11,047
Property and equipment, net		6,040		1,386
Deferred charges and other assets		11,220		11,748
Cemetery perpetual care trust investments		19,976		20,247

Total assets		101,772		98,791

Liabilities:
Accounts payable and accrued liabilities		659		465
Deferred preneed funeral revenues		2,380		2,640
Deferred preneed cemetery revenues		53,111		51,730
Other liabilities		930		920
Care trusts’ corpus		19,976		20,247

Total liabilities		77,056		76,002

Net assets held for sale	$	24,716	$	22,789

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

The Company

We are North America’s leading provider of deathcare products and services, with a network of funeral homes and cemeteries unequalled in geographic scale and reach. At June 30, 2009, we operated 1,264 funeral service locations and 365 cemeteries (including 207 combination locations) in North America, which are geographically diversified across 43 states, eight Canadian provinces, the District of Columbia, and Puerto Rico. Our funeral segment also includes the operations of 12 funeral homes in Germany that we intend to exit when economic values and conditions are conducive to a sale. Our funeral service and cemetery operations consist of funeral service locations, cemeteries, funeral service/cemetery combination locations, crematoria, and related businesses. We sell cemetery property and funeral and cemetery products and services at the time of need and on a preneed basis.

Our financial stability is further enhanced by our $6.5 billion backlog of future revenues from both trust and insurance-funded sales at June 30, 2009, which is the result of preneed funeral and cemetery sales. We believe we have the financial strength and flexibility to reward shareholders through dividends while maintaining a prudent capital structure and pursuing new opportunities for profitable growth.

Financial Condition, Liquidity and Capital Resources

Recent Volatility in Financial Markets

The weakened economy has negatively impacted our preneed cemetery property sales. In the first half of 2009, preneed and atneed comparable cemetery property production declined 12.5%, which significantly decreased our cemetery revenue. However, in the second quarter of 2009, we did see some recovery, with preneed and atneed comparable cemetery property production declining only 9.2% from the prior year second quarter, which was better than expectations. See Item 1A of our Form 10-K for the fiscal year ended December 31, 2008 for further discussion of risks presented by the weakening economy.

Our funeral, cemetery merchandise and service, and cemetery perpetual care trusts have been and continue to be impacted by adverse conditions in the U.S. and global financial markets. The fair market value of our trust investments declined sharply in the second half of 2008. In the first half of 2009, we realized aggregate net losses (excluding impairments) of $67.1 million in our preneed funeral and cemetery merchandise and service trusts. In addition, we realized aggregate net losses (excluding impairments) of $7.4 million in our cemetery perpetual care trusts.

As of June 30, 2009, we have cumulative net unrealized losses of $319.4 million in our preneed funeral and cemetery merchandise and service trusts, and cumulative net unrealized losses of $132.2 million in our cemetery perpetual care trusts, as discussed in Notes 4, 5, and 6 in Part I, Item 1, Financial Statements. In the second quarter of 2009, we experienced some recovery in our trust investments. During the second quarter of 2009, we had investment activity that reduced the net unrealized losses by $181.4 million in our preneed funeral and cemetery merchandise and service trusts, and net unrealized losses by $57.1 million in our cemetery perpetual care trusts. At June 30, 2009, these net unrealized losses represented 17% of our original cost basis of $2.6 billion. As explained in “Critical Accounting Policies, Fair Value Measurements” in our 2008 Annual Report on Form 10-K, changes in unrealized gains and/or losses related to these securities are reflected in Other comprehensive income (loss) and offset by the Deferred preneed funeral and cemetery receipts held in trust and Care trusts’ corpus interests in those unrealized gains and/or losses. Therefore, the majority of these significant net unrealized losses are not reflected in our consolidated statement of operations for the six months ended June 30, 2009. We do, however, rely on our trust investments to provide funding for the various contractual obligations that arise upon maturity of the underlying preneed contracts. Because of the long-term relationship between the establishment of trust investments and the required performance of the underlying contractual obligations, the impact of current market conditions that may exist at any given time is not necessarily indicative of our ability to generate profit on our future performance obligations.

Trust Investments

In addition to selling our products and services to client families at the time of need, we sell price-guaranteed preneed funeral and cemetery contracts, which provide for future funeral or cemetery services and merchandise. Since preneed funeral and cemetery services or merchandise will not be provided until sometime in the future, most states and provinces require that all or a portion of the funds collected from customers on preneed funeral and cemetery contracts be paid into trusts until the merchandise is delivered or the service is performed. Investment earnings associated with the trust investments are expected to mitigate the inflationary costs of providing the preneed funeral and cemetery services and merchandise in the future for the prices that were guaranteed at the time of sale.

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

Independent trustees manage and invest all of the funds deposited into the funeral and cemetery merchandise and service trusts as well as the cemetery perpetual care trusts. The trustees are selected based on their respective geographic footprint and qualifications per state regulations. All of the trustees engage the same independent investment advisor. The investment guidelines are governed by state and provincial legislation. The trustees, with input from the investment advisor, establish an investment policy that serves as an operating document to guide the investment activities of the trusts including asset allocation and manager selection. Asset allocation is based on regulatory guidelines and matched to the liability structure of each trust.

The investment advisor recommends investment managers to the trustees that are selected on the basis of various criteria set forth in the investment policy. The primary investment objectives for the funeral and cemetery merchandise and service trusts include (1) achieving growth of principal over time sufficient to preserve and increase the purchasing power of the assets; (2) producing current income to support the specific objectives of each trust type; and (3) preserving capital within acceptable levels of volatility. Preneed funeral and cemetery contracts generally take years to mature. Therefore, the funds associated with these contracts are often invested for several market cycles. While cemetery perpetual care trusts share the same investment objectives as listed above, these trusts emphasize providing a steady stream of investment income with some capital appreciation. The trusts seek to control risk and volatility through a combination of asset class, manager, and security level diversification.

The market values of our trust investments at June 30, 2009 are detailed below (in thousands).


							Total Funeral
	Funeral			Cemetery			and Cemetery			Cemetery
	Merchandise			Merchandise			Merchandise			Perpetual
	and Service			and Service			and Service			Care Funds			Total
Fixed income securities:
U.S. Treasury	$	34,419		$	45,661		$	80,080		$	5,788		$	85,868
Canadian government		83,220			13,853			97,073			24,233			121,306
Corporate		30,473			8,781			39,254			38,648			77,902
Mortgage-backed		5,380			14,017			19,397			3,242			22,639
Asset-backed		150			—			150			—			150
Equity securities:
Preferred stock		—			—			—			6,125			6,125
Common stock (based on investment objectives):
Growth		135,581			190,566			326,147			2,882			329,029
Value		141,321			212,395			353,716			87,973			441,689
Mutual funds:
Equity		78,471			169,652			248,123			78,853			326,976
Fixed income		140,211			155,735			295,946			444,377			740,323
Private equity		11,017			3,985			15,002			8,048			23,050
Other		1,329			1,403			2,732			6,349			9,081

		661,572			816,048			1,477,620			706,518			2,184,138

Assets associated with businesses held for sale		(2,167	)		(45,669	)		(47,836	)		(19,976	)		(67,812	)
Cash and cash equivalents		165,181			136,194			301,375			81,198			382,573
Insurance-backed fixed income securities		207,890			—			207,890			—			207,890

Total trust assets	$	1,032,476		$	906,573		$	1,939,049		$	767,740		$	2,706,789

As of the end of the quarter, 95% of our trusts were under the control and custody of four preferred trustees. The three large U.S. trustees primarily use common trust fund structures as the investment vehicle for their trusts. Through the common trust fund structure, each respective trustee manages the allocation of assets through individual managed accounts or institutional mutual funds. In the event a particular state prohibits the use of a common trust fund as a qualified investment, the trustee utilizes institutional mutual funds. The U.S. trusts include a modest allocation to alternative investments, which are comprised primarily of private equity and real estate investments. These investments are structured as limited liability companies (LLCs) and are managed by certain trustees. The trusts that are eligible to allocate a portion of their investments to alternative investments purchase units of the respective LLCs.

Fixed Income Securities

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

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

Equity Securities

Equity investments have historically provided long-term capital appreciation in excess of inflation. The SCI trusts have direct investments primarily in domestic equity portfolios that include large, mid and small capitalization companies of different investment objectives (i.e., growth and value). The majority of the equity portfolio is managed by multiple institutional investment managers that specialize in an objective-specific area of expertise. Our equity securities are exposed to market risk; however, these securities are well diversified. As of June 30, 2009, the largest single equity position represented less than 1% of the total equity securities portfolio.

Mutual Funds

The SCI trust funds employ institutional mutual funds where operationally or economically efficient. Institutional mutual funds are utilized to invest in various asset classes including US equities, non-US equities, convertible bonds, corporate bonds, government bonds, Treasury inflation protected securities (TIPS), high yield bonds, real estate investment trusts (REITs), and commodities. The mutual funds are governed by guidelines outlined in their individual prospectuses.

Private Equity

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

Outlook for Trust Investments

The trust fund income recognized from these investment assets continues to be volatile. During the recent economic downturn, the SCI trusts outperformed the broad market due to their diversified investment strategy. During the twelve months ended June 30, 2009, the Standard and Poor’s 500 Index decreased approximately 26% and the combined SCI trusts decreased approximately 13%. During the three months ended June 30, 2009, the combined SCI trusts increased approximately 12%. As the capital markets continue to improve, the SCI trusts should participate in the recovery.

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

Capital Allocation Considerations

We rely on cash flow from operations as a significant source of liquidity. Our cash flow from operating activities provided $211.1 million in the first half of 2009. Our current cash and cash equivalents balance is approximately $190 million as of July 31, 2009. In addition, we have approximately $250 million in excess borrowing capacity under our revolving credit facility.

Our credit facility requires us to maintain certain leverage and interest coverage ratios. As of June 30, 2009, we were in compliance with all of our debt covenants. Our financial covenant requirements and actual ratios as of June 30, 2009 are as follows:

Our financial covenant requirements under our credit facility become more restrictive over time. The future leverage and interest coverage ratios are as follows:


	Leverage ratio (max)
2009		4.25
2010		3.75
Thereafter		3.50


	Interest coverage ratio (min)
2009 thru June 2010		2.75
Thereafter		3.00

We currently have no significant maturities of long-term debt until November 2011. We believe these sources of liquidity can be supplemented by our ability to access the capital markets for additional debt or equity securities. However, given the current environment, interest rates on new borrowings are significantly higher than levels experienced in recent history. We believe that our cash on hand, future operating cash flows, and the available capacity under our credit facility will be adequate to meet our financial obligations over the next 12 months.

Cash Flow

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

Operating Activities

Net cash provided by operating activities increased $94.6 million in the first half of 2009 compared to the first half of 2008, which was primarily due to a $90.0 million United States Federal transaction-related tax payment in 2008. We did experience declines in atneed customer cash receipts in both the funeral and cemetery segments which we believe primarily relates to the decrease in the number of deaths in our markets. However, customer collection rates related to our funeral and cemetery preneed contracts was in line with our expectations. These preneed cash collections, coupled with a $26.5 million decrease in incentive compensation payments, a decrease in payroll cost of $16.5 million primarily related to cost control initiatives, and $14.4 million of lower variable merchandise costs resulted in operating cash flows that were in line with our expectations and comparable to prior year.

Investing Activities — Net cash used in investing activities decreased $55.9 million in the first half of 2009 compared to the first half of 2008, primarily due to a decrease of $25.6 million in capital expenditures, a $21.6 million decrease in deposits of restricted funds, and a $7.7 million decrease in acquisition activity.

Financing Activities — Net cash used in financing activities increased by $49.6 million in the first half of 2009 compared to the first half of 2008, primarily due to a $47.9 million increase in debt payments in 2009 to early extinguish certain of our debt.

Financial Assurances

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


	June 30, 2009		December 31, 2008
	(Dollars in millions)
Preneed funeral	$	126.8	$	130.6
Preneed cemetery:
Merchandise and service		126.5		132.4
Pre-construction		2.2		2.9

Bonds supporting preneed funeral and cemetery obligations		255.5		265.9

Bonds supporting preneed business permits		4.9		5.1
Other bonds		19.3		17.7

Total surety bonds outstanding	$	279.7	$	288.7

When selling preneed funeral and cemetery contracts, we may post surety bonds where allowed by state law. We post the surety bonds in lieu of trusting a certain amount of funds received from the customer. The amount of the bond posted is generally determined by the total amount of the preneed contract that would otherwise be required to be trusted, in accordance with applicable state law. For the three months ended June 30, 2009 and 2008, we had $6.3 million and $7.9 million, respectively, of cash receipts attributable to bonded sales. For the six months ended June 30, 2009 and 2008, we had $12.6 million and $15.8 million, respectively, of cash receipts attributable to bonded sales. These amounts do not consider reductions associated with taxes, obtaining costs, or other costs.

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

Preneed Funeral and Cemetery Activities and Backlog of Contracts

Since preneed funeral and cemetery services or merchandise will not be provided until sometime in the future, most states and provinces require that all or a portion of the funds collected from customers on preneed funeral and cemetery contracts be paid into merchandise and service trusts until the merchandise is delivered or the service is performed. These trust funds own investments in equity and debt securities and mutual funds, which are sensitive to current market prices. In certain situations, as described above, where permitted by state or provincial laws, we post a surety bond as financial assurance for a certain amount of the preneed funeral or cemetery contract in lieu of placing funds into trust accounts.

The tables below detail our results of preneed funeral and cemetery production and maturities, excluding insurance contracts, for the three and six months ended June 30, 2009 and 2008.


	North America
	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2009		2008		2009		2008
	(Dollars in millions)				(Dollars in millions)
Funeral:
Preneed trust-funded (including bonded):
Sales production	$	37.8	$	40.5	$	76.0	$	78.4

Sales production (number of contracts)		7,022		8,464		14,358		15,973

Maturities	$	43.4	$	51.7	$	89.2	$	108.2

Maturities (number of contracts)		10,964		11,651		22,522		23,940

Cemetery:
Sales production:
Preneed	$	106.7	$	110.5	$	187.7	$	200.5
Atneed		62.0		63.4		121.7		131.2

Total sales production	$	168.7	$	173.9	$	309.4	$	331.7

Sales production deferred to backlog:
Preneed	$	45.6	$	46.2	$	78.8	$	80.8
Atneed		47.7		48.8		94.1		99.9

Total sales production deferred to backlog	$	93.3	$	95.0	$	172.9	$	180.7

Revenue recognized from backlog:
Preneed	$	37.3	$	59.1	$	67.9	$	89.2
Atneed		46.9		52.8		92.2		101.5

Total revenue recognized from backlog	$	84.2	$	111.9	$	160.1	$	190.7

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

The table below details the results of insurance-funded preneed funeral production and maturities for the three and six months ended June 30, 2009 and 2008, and the number of contracts associated with those transactions.


	North America
	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2009		2008		2009		2008
	(Dollars in millions)				(Dollars in millions)
Preneed funeral insurance-funded (1):
Sales production	$	82.0	$	81.6	$	151.6	$	150.4

Sales production (number of contracts)		13,706		13,610		25,665		25,203

General agency revenue	$	14.8	$	14.7	$	26.6	$	26.2

Maturities	$	59.3	$	58.9	$	124.3	$	126.7

Maturities (number of contracts)		11,104		11,329		23,175		24,941


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

Backlog of Preneed Funeral and Cemetery Contracts: The following table reflects our backlog of trust-funded deferred preneed funeral and cemetery contract revenues, including amounts related to Deferred preneed funeral and cemetery receipts held in trust, as of June 30, 2009. Additionally, the table reflects our backlog of unfulfilled insurance-funded contracts (which are not included in our unaudited condensed consolidated balance sheet) at June 30, 2009. The backlog amounts presented are reduced by an amount that we believe will cancel before maturity based on historical experience.

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


	June 30, 2009
	Market			Cost
	(Dollars in billions)
Deferred preneed funeral revenues	$	0.59		$	0.59
Deferred preneed funeral receipts held in trust		1.03			1.15

	$	1.62		$	1.74
Allowance for cancellation on trust investments		(0.11	)		(0.11	)

Backlog of trust-funded deferred preneed funeral revenues	$	1.51		$	1.63
Backlog of insurance-funded preneed funeral revenues		3.41			3.41

Total backlog of preneed funeral revenues	$	4.92		$	5.04


Preneed funeral receivables and trust investments	$	1.25		$	1.37
Allowance for cancellation on trust investments		(0.10	)		(0.10	)

Assets associated with backlog of trust-funded deferred preneed funeral revenues, net of estimated allowance for cancellation	$	1.15		$	1.27
Insurance policies associated with insurance-funded deferred preneed funeral revenues, net of estimated allowance for cancellation		3.41			3.41

Total assets associated with backlog of preneed funeral revenues	$	4.56		$	4.68


Deferred preneed cemetery revenues	$	0.81		$	0.81
Deferred preneed cemetery receipts held in trust		0.91			1.10

	$	1.72		$	1.91


	June 30, 2009
	Market			Cost
	(Dollars in billions)
Allowance for cancellation on trust investments		(0.14	)		(0.14	)

Backlog of deferred cemetery revenues	$	1.58		$	1.77


Preneed cemetery receivables and trust investments	$	1.19		$	1.38
Allowance for cancellation on trust investments		(0.12	)		(0.12	)

Assets associated with backlog of deferred cemetery revenues, net of estimated allowance for cancellation	$	1.07		$	1.26

The difference between the backlog and asset amounts represents the contracts for which we have posted surety bonds as financial assurance in lieu of trusting, the amounts collected from customers that were not required to be deposited into trust, and allowable cash distributions from trust assets. The table also reflects the amounts expected to be received from insurance companies through the assignment of policy proceeds related to insurance-funded funeral contracts.

Results of Operations — Three Months Ended June 30, 2009 and 2008

Management Summary

Key highlights in the second quarter of 2009 were as follows:

	•		Funeral gross profit decreased $1.2 million or 1.7%, due to the impact of lower funeral services performed and a decrease in funeral trust fund income, which were partially offset by lower variable merchandise costs and a decline in personnel costs related to work-force initiatives; and

	•		Cemetery gross profit decreased $4.2 million due to revenue declines, which were largely offset by lower variable selling compensation and merchandise expenses and a decline in personnel costs related to work-force initiatives.

Results of Operations

In the second quarter of 2009, we reported net income attributable to common stockholders of $23.1 million ($.09 per diluted share) compared to net income in the second quarter of 2008 of $31.4 million ($.12 per diluted share). These results were impacted by the following items:

	•		a net after-tax loss on asset sales of $5.7 million in the second quarter of 2009, primarily due to an impairment charge on various locations in North America partially offset by a reduction in indemnifications related to our former French operations, as compared to an after-tax loss on asset sales of $3.4 million in the second quarter of 2008;

	•		change in certain tax reserves of $2.4 million in the second quarter of 2009 as compared to $1.2 million in the second quarter of 2008;

	•		an after-tax gain from the early extinguishment of debt of $1.2 million in the second quarter of 2009; and

	•		an after-tax loss from discontinued operations of $0.4 million in the second quarter of 2008.

Consolidated Versus Comparable Results

The table below reconciles our consolidated GAAP results to our comparable, or “same store,” results for the three months ended June 30, 2009 and 2008. We define comparable operations (or same store operations) as those funeral and cemetery locations that were owned for the entire period beginning January 1, 2008 and ending June 30, 2009. The following tables present operating results for funeral and cemetery locations that were owned by us during this period.


				Less:
				Results Associated		Less:
Three Months Ended				with Acquisition/		Results Associated
June 30, 2009	Consolidated			New Construction		with Divestitures		Comparable
	(Dollars in millions)
North America Revenue
Funeral revenue	$	341.2		$	1.1	$	4.9	$	335.2
Cemetery revenue		171.2			—		2.2		169.0

		512.4			1.1		7.1		504.2
Germany revenue		1.5			—		—		1.5

Total revenue	$	513.9		$	1.1	$	7.1	$	505.7

North America Gross Profits
Funeral gross profits	$	71.2		$	0.4	$	0.3	$	70.5
Cemetery gross profits		30.7			—		1.3		29.4

		101.9			0.4		1.6		99.9
Germany gross profits		(0.1	)		—		—		(0.1	)

Total gross profits	$	101.8		$	0.4	$	1.6	$	99.8


			Less:
			Results Associated		Less:
Three Months Ended			with Acquisition/		Results Associated
June 30, 2008	Consolidated		New Construction		with Divestitures			Comparable
	(Dollars in millions)
North America Revenue
Funeral revenue	$	361.4	$	0.1	$	4.6		$	356.7
Cemetery revenue		185.5		—		0.6			184.9

		546.9		0.1		5.2			541.6
Germany revenue		1.9		—		—			1.9

Total revenue	$	548.8	$	0.1	$	5.2		$	543.5

North America Gross Profits
Funeral gross profits	$	72.2	$	0.3	$	(1.0	)	$	72.9
Cemetery gross profits		34.9		—		0.1			34.8

		107.1		0.3		(0.9	)		107.7
Germany gross profits		0.1		—		—			0.1

Total gross profits	$	107.2	$	0.3	$	(0.9	)	$	107.8

The following table provides the data necessary to calculate our consolidated average revenue per funeral service for the three months ended June 30, 2009 and 2008. We calculate average revenue per funeral service by dividing consolidated funeral revenue, excluding General Agency (GA) revenues and certain other revenues to avoid distorting our averages of normal funeral services revenue, by the consolidated number of funeral services performed during the period.


	Three Months Ended
	June 30,
	2009		2008
	(Dollars in millions, except
	average revenue per funeral
	service)
Consolidated funeral revenue	$	342.7	$	363.3
Less: consolidated GA revenue		14.8		14.7
Less: other revenue		2.4		2.6

Adjusted consolidated funeral revenue	$	325.5	$	346.0

Consolidated funeral services performed		63,749		67,919
Consolidated average revenue per funeral service	$	5,106	$	5,094

The following table provides the data necessary to calculate our comparable average revenue per funeral service for the three months ended June 30, 2009 and 2008. We calculate average revenue per funeral service by dividing comparable funeral revenue, excluding comparable GA revenues and certain other revenues to avoid distorting our averages of normal funeral services revenue, by the comparable number of funeral services performed during the period.


	Three Months Ended
	June 30,
	2009		2008
	(Dollars in millions, except
	average revenue per funeral
	service)
Comparable funeral revenue	$	336.7	$	358.6
Less: comparable GA revenue		14.7		14.7
Less: other revenue		2.4		2.5

Adjusted comparable funeral revenue	$	319.6	$	341.4

Comparable funeral services performed		62,433		67,169
Comparable average revenue per funeral service	$	5,119	$	5,083

Funeral Results

Funeral Revenue

Consolidated revenues from funeral operations were $342.7 million in the second quarter of 2009 compared to $363.3 million in the same period in 2008. This decrease is due to a 6.1% decline in funeral services performed, an unfavorable Canadian currency impact of $5.3 million, and $4.9 million in decreased trust fund income.

Funeral Services Performed

Our consolidated funeral services performed decreased 6.1% in the second quarter of 2009 compared to the same period in 2008. Our comparable funeral services performed decreased 7.1% in the second quarter of 2009 compared to the same period in 2008. We believe the decline in deaths in our markets is consistent with trends experienced by other funeral service providers and industry vendors. Our comparable cremation rate of 42.9% in the second quarter of 2009 increased slightly from 42.7% in 2008.

Average Revenue Per Funeral

Our consolidated average revenue per funeral service increased $12, or 0.2% in the second quarter of 2009 compared to the same period in 2008. Our comparable average revenue per funeral service increased $36, or 0.7%, in the second quarter of 2009 over the same period in 2008. Excluding an unfavorable Canadian currency impact of $5.3 million and decreased trust fund income, the comparable average revenue per funeral service grew approximately 4%.

Funeral Gross Profit

Consolidated funeral gross profits decreased $1.2 million in the second quarter of 2009 compared to same period in 2008. The consolidated gross margin percentage increased to 20.7% from 19.9%. Comparable funeral gross profits decreased $2.6 million, or 3.6%, when compared to the same period in 2008. This decrease is due to the impact of lower funeral services performed and a decrease in funeral trust fund income, which were partially offset by lower variable merchandise costs and a decline in personnel costs related to work-force initiatives.

Cemetery Results

Cemetery Revenue

Consolidated revenues from our cemetery operations decreased $14.3 million, or 7.7%, in the second quarter of 2009 compared to the same period in 2008. Comparable cemetery revenues declined $15.9 million, or 8.6%, when compared with the same period in 2008. This decrease was primarily driven by a $7.7 million decline in property production as well as a $4.2 million decline in merchandise revenue, which was in line with our expectations and continued to be impacted by negative consumer sentiment resulting from the difficult economic environment. Other revenue decreased $2.8 million as cemetery trust fund income recognized from our preneed merchandise and service trusts declined $2.0 million due to negative market returns experienced in late 2008 and early 2009.

Cemetery Gross Profits

Consolidated cemetery gross profit decreased $4.2 million, or 12.0%, in the second quarter of 2009 compared to the same period in 2008. Our consolidated cemetery gross margin percentage was 17.9% compared to 18.8% in the same period in 2008. These decreases reflect the revenue declines discussed above, which were partially offset by lower variable selling compensation expenses and a decline in personnel costs related to work-force initiatives. The cemetery gross profit in the quarter exceeded our expectations as cost control initiatives and higher-than-expected property production more than offset lower-than-expected at need revenues due to a reduced number of deaths in our markets.

Other Financial Statement Items

General and Administrative Expenses

General and administrative expenses were $26.5 million in the second quarter of 2009 compared to $21.7 million in the second quarter of 2008 primarily due to increases in certain legal and investigative fees and higher compensation expenses, including life insurance benefits related to prior periods as discussed in Part I, Item 1. Financial Statements, Note 2.

Gain (Loss) on Divestitures and Impairment Charges, Net

We recognized a $6.3 million net pre-tax loss on divestitures and impairment in the second quarter of 2009. This loss was due primarily to a $9.9 million impairment charge on various locations in North America partially offset by a $3.6 million release of social security indemnifications related to our former French operations. In the second quarter of 2008, we recognized a $3.9 million net pretax loss from impairment charges and asset divestitures primarily associated with non-strategic funeral and cemetery businesses in the United States and Canada.

Interest Expense

Interest expense decreased to $32.4 million in the second quarter of 2009, compared to $33.3 million in the second quarter of 2008. The decrease was primarily due to recent debt repayments. For additional information see Part I, Item 1. Financial Statements, Note 9.

Gain on Early Extinguishment of Debt

During the second quarter of 2009, we purchased $64.7 million of our senior notes and debentures on the open market. As a result of these transactions, we recognized a gain of $1.8 million, which represents the write-off of unamortized deferred loan costs of $0.8 million and a $2.6 million discount to early extinguish the debt. For additional information regarding these debt payments, see Part I, Item 1. Financial Statements, Note 9.

Provision for Income Taxes

The income tax rate was 40.9% in the second quarter of 2009 as compared to 39.1% in the second quarter of 2008.

Weighted Average Shares

The diluted weighted average number of shares outstanding was 251.1 million in the second quarter of 2009, compared to 263.1 million in the second quarter of 2008, reflecting share repurchases under our Board-approved share repurchase program.

Results of Operations — Six Months Ended June 30, 2009 and 2008

Management Summary

Key highlights in the first half of 2009 were as follows:

	•		Funeral gross profit decreased $25.7 million or 14.2%, due to the impact of lower funeral services performed and a decrease in funeral trust fund income, which were partially offset by lower variable merchandise costs and a decline in personnel costs related to work-force initiatives; and

	•		Cemetery gross profit decreased $17.2 million due to revenue declines, which were largely offset by lower variable selling

compensation and merchandise expenses and a decline in personnel costs related to work-force initiatives.

Results of Operations

In the first half of 2009, we reported net income attributable to common stockholders of $57.6 million ($.23 per diluted share) compared to net income in the first half of 2008 of $72.9 million ($.28 per diluted share). These results were impacted by the following items:

	•		a net after-tax loss on asset sales of $3.0 million in the first half of 2009 partially offset by a reduction in indemnifications related to our former French operations, as compared to an after-tax loss on asset sales of $11.6 million in the first half of 2008;

	•		change in certain tax reserves of $2.4 million in the second quarter of 2009 as compared to $2.6 million in the second quarter of 2008;

	•		an after-tax gain from the early extinguishment of debt of $2.1 million in the first half of 2009;

	•		an after-tax expense related to our acquisition and integration of Alderwoods of $0.7 million in the first half of 2008; and

	•		an after-tax loss from discontinued operations of $0.4 million in the first half of 2008.

Consolidated Versus Comparable Results

The table below reconciles our consolidated GAAP results to our comparable, or “same store,” results for the six months ended June 30, 2009 and 2008. We define comparable operations (or same store operations) as those funeral and cemetery locations that were owned for the entire period beginning January 1, 2008 and ending June 30, 2009. The following tables present operating results for funeral and cemetery locations that were owned by us during this period.


			Less:
			Results Associated		Less:
Six Months Ended			with Acquisition/		Results Associated
June 30, 2009	Consolidated		New Construction		with Divestitures			Comparable
	(Dollars in millions)
North America Revenue
Funeral revenue	$	704.4	$	1.7	$	10.6		$	692.1
Cemetery revenue		316.9		—		4.3			312.6

		1,021.3		1.7		14.9			1,004.7
Germany revenue		3.2		—		—			3.2

Total revenue	$	1,024.5	$	1.7	$	14.9		$	1,007.9

North America Gross Profits
Funeral gross profits	$	155.0	$	0.5	$	(1.5	)	$	156.0
Cemetery gross profits		46.7		—		1.7			45.0

		201.7		0.5		0.2			201.0
Germany gross profits		0.2		—		—			0.2

Total gross profits	$	201.9	$	0.5	$	0.2		$	201.2


			Less:
			Results Associated		Less:
Six Months Ended			with Acquisition/		Results Associated
June 30, 2008	Consolidated		New Construction		with Divestitures			Comparable
	(Dollars in millions)
North America Revenue
Funeral revenue	$	765.0	$	0.1	$	10.4		$	754.5
Cemetery revenue		353.4		0.1		1.5			351.8

		1,118.4		0.2		11.9			1,106.3
Germany revenue		3.8		—		—			3.8

Total revenue	$	1,122.2	$	0.2	$	11.9		$	1,110.1

North America Gross Profits
Funeral gross profits	$	180.6	$	0.3	$	(1.0	)	$	181.3
Cemetery gross profits		63.9		—		—			63.9

		244.5		0.3		(1.0	)		245.2
Germany gross profits		0.3		—		—			0.3

Total gross profits	$	244.8	$	0.3	$	(1.0	)	$	245.5

The following table provides the data necessary to calculate our consolidated average revenue per funeral service for the six months ended June 30, 2009 and 2008. We calculate average revenue per funeral service by dividing consolidated funeral revenue, excluding GA revenues and certain other revenues to avoid distorting our averages of normal funeral services revenue, by the consolidated number of funeral services performed during the period.


	Six Months Ended
	June 30,
	2009		2008
	(Dollars in millions, except
	average revenue per funeral
	service)
Consolidated funeral revenue	$	707.6	$	768.8
Less: consolidated GA revenue		26.6		26.2
Less: other revenue		4.1		4.9

Adjusted consolidated funeral revenue	$	676.9	$	737.7

Consolidated funeral services performed		133,078		145,305
Consolidated average revenue per funeral service	$	5,086	$	5,077

The following table provides the data necessary to calculate our comparable average revenue per funeral service for the six months ended June 30, 2009 and 2008. We calculate average revenue per funeral service by dividing comparable funeral revenue, excluding comparable GA revenues and certain other revenues to avoid distorting our averages of normal funeral services revenue, by the comparable number of funeral services performed during the period.


	Six Months Ended
	June 30,
	2009		2008
	(Dollars in millions, except
	average revenue per funeral
	service)
Comparable funeral revenue	$	695.3	$	758.3
Less: comparable GA revenue		26.4		26.3
Less: other revenue		4.3		4.7

Adjusted comparable funeral revenue	$	664.6	$	727.3

Comparable funeral services performed		130,148		143,412
Comparable average revenue per funeral service	$	5,106	$	5,071

Funeral Results

Funeral Revenue

Consolidated revenues from funeral operations were $707.6 million in the first half of 2009 compared to $768.8 million in the same period in 2008. This decrease is due to an 8.4% decline in funeral services performed, an unfavorable Canadian currency impact of $13.3 million, and $10.2 million in decreased trust fund income.

Funeral Services Performed

Our consolidated funeral services performed decreased 8.4% in the first half of 2009 compared to the same period in 2008. Our comparable funeral services performed decreased 9.2% in the first half of 2009 compared to the same period in 2008. We believe the decline in deaths in our markets is consistent with trends experienced by other funeral service providers and industry vendors and was due in part to a relatively mild influenza season compared to the first half of 2008 and an additional day due to a leap year in the prior year quarter. Our comparable cremation rate of 42.9% in the first half of 2009 increased from 41.9% in 2008.

Average Revenue Per Funeral

Our consolidated average revenue per funeral service increased $9, or 0.2% in the first half of 2009 compared to the same period in 2008. Our comparable average revenue per funeral service increased $35, or 0.7%, in the first half of 2009 over the same period in 2008. Excluding an unfavorable Canadian currency impact of $13.3 million and decreased trust fund income, the comparable average revenue per funeral service grew approximately 4%.

Funeral Gross Profit

Consolidated funeral gross profits decreased $25.7 million in the first half of 2009 compared to same period in 2008. The consolidated gross margin percentage decreased to 21.9% from 23.5%. Comparable funeral gross profits decreased $25.4 million, or 14.0%, when compared to the same period in 2008. This decrease is due to the impact of lower funeral services performed and a decrease in funeral trust fund income, which were partially offset by lower variable merchandise costs and a decline in personnel costs related to work-force initiatives.

Cemetery Results

Cemetery Revenue

Consolidated revenues from our cemetery operations decreased $36.5 million, or 10.3%, in the first half of 2009 compared to the same period in 2008. Comparable cemetery revenues declined $39.2 million, or 11.1%, when compared with the same period in 2008. This decrease was primarily driven by a $15.4 million decline in comparable recognized preneed revenues as well as a $12.6 million decline in atneed revenues, which was in line with our expectations and continued to be impacted by negative consumer sentiment resulting from the difficult economic environment. Other revenue decreased $8.9 million as cemetery trust fund income recognized from our preneed merchandise and service trusts declined $7.5 million due to negative market returns experienced in late 2008 and early 2009.

Cemetery Gross Profits

Consolidated cemetery gross profit decreased $17.2 million, or 26.9%, in the first half of 2009 compared to the same period in 2008. Our consolidated cemetery gross margin percentage was 14.7% compared to 18.1% in the same period in 2008. These decreases reflect the revenue declines discussed above, which were partially offset by lower variable selling compensation expenses and a decline in personnel costs related to work-force initiatives. The cemetery gross profit in the first half of 2009 exceeded our expectations as cost control initiatives helped to offset lower-than-expected atneed revenues due to a reduced number of deaths in our markets.

Other Financial Statement Items

General and Administrative Expenses

General and administrative expenses were $48.3 million in the first half of 2009 compared to $46.7 million in the first half of 2008 primarily due to increases in certain legal and investigative fees.

Gain (Loss) on Divestitures and Impairment Charges, Net

We recognized a $0.9 million net pre-tax gain on divestitures and impairment in the first half of 2009. This gain was due to a $16.8 million impairment charge and asset divestitures offset by a $17.7 million release of VAT, social security, and litigation

indemnifications related to our former French operations. In the first half of 2008, we recognized a $15.9 million net pretax loss from impairment charges and asset divestitures primarily associated with non-strategic funeral and cemetery businesses in the United States and Canada.

Interest Expense

Interest expense decreased to $64.1 million in the first half of 2009, compared to $67.4 million in the first half of 2008. The decrease was primarily due to repayment and maturity of our senior notes and debentures, and lower rates associated with floating rate debt. For additional information see Part I, Item 1. Financial Statements, Note 9.

Gain on Early Extinguishment of Debt

During the first half of 2009, we purchased $74.0 million of our senior notes and debentures on the open market. As a result of these transactions, we recognized a gain of $3.4 million, which represents the write-off of unamortized deferred loan costs of $1.0 million and a $4.4 million discount to early extinguish the debt. For additional information regarding the debt payments, see Part I, Item 1. Financial Statements, Note 9.

Provision for Income Taxes

The income tax rate was 38.7% in the first half of 2009 as compared to 38.2% in the first half of 2008.

Weighted Average Shares

The diluted weighted average number of shares outstanding was 250.7 million in the first half of 2009, compared to 264.2 million in the first half of 2008, reflecting share repurchases under our Board-approved share repurchase program.

Critical Accounting Policies

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Except as described below, our critical accounting policies are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2008.

Noncontrolling Interests

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 trusts’ financial statements can be a non-controlling interest in the consolidated financial statements. 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. In addition, since the earnings from our cemetery perpetual care trusts are used to support the maintenance of our cemeteries, the interest in these trusts also retains the characteristics of a liability. Accordingly, effective December 31, 2008, we re-characterized the amounts historically described as “Non-controlling interest in funeral and cemetery trusts” as either “Deferred preneed funeral receipts held in trust” or “Deferred preneed cemetery receipts held in trust”, as appropriate. Additionally we re-characterized the amounts historically described as “Non-controlling interest in cemetery perpetual care trusts” as “Care trusts’ corpus”.

Fair Value Measurements

	•		Level 1 — inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets;

	•		Level 2 — inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument;

	•		Level 3 — inputs to the valuation methodology are unobservable and significant to the fair value measurement.

An asset’s or liability’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Certain available-for-sale securities held by our funeral merchandise and service, cemetery merchandise and service, and cemetery perpetual care trusts have been classified in Level 3 of the SFAS 157 hierarchy due to significant management judgment required as a result of the absence of quoted market prices, inherent lack of liquidity, or the long-term nature of the securities. For additional disclosures required by SFAS 157 for all of our available-for-sale securities, see Part I, Item 1. Financial Statements, Notes 4, 5, and 6.

In February 2008, the FASB issued FSP No. FAS 157-2, “Effective Date of FASB Statement No. 157” (FSP 157-2). FSP FAS 157-2 provided a one-year deferral of the effective date of SFAS 157 for non-financial assets and liabilities, except those that are recognized or disclosed in the financial statements at fair value at least annually. In accordance with FSP 157-2, we adopted the provisions of SFAS 157 for our non-financial assets and liabilities, such as goodwill and property and equipment, that we disclose or recognize at fair value on a nonrecurring basis as of January 1, 2009. As none of our non-financial assets or liabilities within the scope of SFAS 157 experienced an event that required fair value measurement in the first half of 2009, our adoption of SFAS 157 for these assets and liabilities has had no impact on our results of operations, consolidated financial position, or cash flows.

Recent Accounting Pronouncements and Accounting Changes

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

Cautionary Statement on Forward-Looking Statements

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

•		Changes in general economic conditions, both domestically and internationally, impacting financial markets (e.g., marketable security values, access to capital markets, as well as currency and interest rate fluctuations) that could negatively affect us, particularly, but not limited to, levels of trust fund income, interest expense, and negative currency translation effects.

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

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

•		Inability to complete acquisitions, divestitures or strategic alliances as planned or to realize expected synergies and strategic benefits.

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

•		Allegations regarding compliance with laws, regulations, industry standards, and customs regarding funeral or burial procedures and practices.

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

•		Amounts that we may be required to replenish into our affiliated funeral and cemetery trust funds to meet minimal funding requirements.

•		The outcome of pending Internal Revenue Service audits. We maintain accruals for tax liabilities that relate to uncertain tax matters. If these tax matters are unfavorably resolved, we will make any required payments to tax authorities. If these tax matters are favorably resolved, the accruals maintained by us will no longer be required, and these amounts will be released through the tax provision at the time of resolution.

•		Our ability to manage changes in consumer demand and/or pricing for our products and services due to several factors, such as changes in numbers of deaths, cremation rates, competitive pressures, and local economic conditions.

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

•		Changes in credit relationships impacting the availability of credit and the general availability of credit in the marketplace.

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

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

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

•		The possibility that restrictive covenants in our credit agreement and privately placed debt securities may prevent us from engaging in certain transactions.

•		Our ability to buy our common stock under our share repurchase programs, which could be impacted by, among others, restrictive covenants in our bank agreements, unfavorable market conditions, the market price of our common stock, the nature of other investment opportunities presented to us from time to time, and the availability of funds necessary to continue purchasing common stock.

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

•		Continued economic crisis and financial market declines could reduce future potential earnings and cash flows and could result in future goodwill impairment.

•		The weakening economy may cause customers to reassess preneed funeral or cemetery arrangements or decrease the amounts atneed customers are willing to pay or consider cremation as opposed to burial.

•		Changes in our funeral and cemetery trust funds, investments in equity securities, fixed income securities, and mutual funds could be significantly negatively impacted by the weakening economy.

For further information on these and other risks and uncertainties, see our Securities and Exchange Commission filings, including our 2008 Annual Report on Form 10-K. Copies of this document as well as other SEC filings can be obtained from our website at

www.sci-corp.com. We assume no obligation to publicly update or revise any forward-looking statements made herein or any other forward-looking statements made by us, whether as a result of new information, future events or otherwise.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Marketable Equity and Debt Securities — Price Risk

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

Cost and market values as of June 30, 2009 are presented in Part I, Item 1. Financial Statements and Notes 4, 5, and 6 of this Form 10-Q. Also, see Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, Financial Conditions, Liquidity and Capital Resources, for discussion of recent volatility in financial markets.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

As of June 30, 2009, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the Securities and Exchange Commission (“SEC”) reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time period specified by the SEC’s rules and forms and that such information is accumulated and communicated to management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. In light of the material weakness set forth below, these officers have concluded that our disclosure controls and procedures were not effective as of June 30, 2009. To address the material weakness described below, we performed additional review and analysis and other post-closing procedures to ensure that our income tax provision and related tax disclosures were prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP). Based on the additional procedures performed, management has concluded that the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial condition, result of operations and cash flows for the periods presented in conformity with US GAAP.

Material Weaknesses in Internal Control over Financial Reporting and Status of Remediation Efforts

As reported in our Form 10-K as of December 31, 2008, we did not maintain effective internal control over financial reporting as of December 31, 2008 as a result of the material weakness in accounting for income taxes. Specifically, we did not maintain effective controls over the completeness and accuracy of our quarterly and year-end tax provision calculations and related deferred income taxes and income taxes payable in accordance with US GAAP.

In response to the identified material weakness, our management, with oversight from our Audit Committee, has dedicated significant resources to enhance our internal control over financial reporting and to remedy the identified material weakness. However, this material weakness continues to exist as of June 30, 2009. Management is in the process of conducting an assessment of the Company’s accounting for income tax processes with the assistance of an outside Big Four public accounting firm. This assessment will identify areas for process and technological improvements to integrate tax information, optimize the tax organization structure, and reduce manual processes. Additionally, management has implemented, or will implement, the remediation steps listed in Item 9A of our Annual Report on Form 10-K to enhance our internal controls over the calculation of our income tax provision and related balance sheet accounts.

We believe these remediation steps, once implemented, will address the material weakness in our accounting for income taxes, and will enhance our internal control over financial reporting and our disclosure controls and procedures.

Changes in Internal Control over Financial Reporting

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

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

There have been no material changes in our Risk Factors as set forth in Item 1A of our Form 10-K for the fiscal year ended December 31, 2008.

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

On April 30, 2009, we issued 1,732 deferred common stock equivalents, or units, pursuant to provisions regarding dividends under the Amended and Restated Director Fee Plan to four non-employee directors. We did not receive any monetary consideration for the issuances. These issuances were unregistered because they did not constitute a “sale” within the meaning of Section 2(3) of the Securities Act of 1933, as amended.

As of June 30, 2009, the aggregate purchases pursuant to our share repurchase program totaled $1.0 billion. As of June 30, 2009, the remaining authorized dollar value of shares that may yet be purchased under our share repurchase program was approximately $123.4 million. No shares were repurchased in the first half of 2009.

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

On May 13, 2009, we held our annual meeting of shareholders and elected four directors. The shares voting on the director nominees were cast as follows:


			Abstentions or votes
Nominee	Votes for		withheld
R. L. Waltrip		220,224,367		4,229,103
Anthony L. Coelho		190,930,715		33,522,756
A. J. Foyt, Jr.		220,223,279		4,230,191
Edward E. Williams		182,760,338		41,693,132

In addition, the shareholders approved the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for 2009. The shares voting were cast as follows:


Votes for	Votes against	Abstentions or votes withheld	Broker non-votes
222,653,528	1,493,123	306,818	0

Item 6. Exhibits

10.1		Executive Deferred Compensation Plan

12.1		Ratio of earnings to fixed charges for the three and six months ended June 30, 2009 and 2008.

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

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

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

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

Undertaking

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

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.

August 6, 2009


	SERVICE CORPORATION INTERNATIONAL
	By:	/s/ Tammy R. Moore
		Tammy R. Moore
		Corporate Controller (Chief Accounting Officer)

Index to Exhibits

10.1		Executive Deferred Compensation Plan

12.1		Ratio of earnings to fixed charges for the three and six months ended June 30, 2009 and 2008.

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

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

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

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

EX-10.1 2 h67613exv10w1.htm EX-10.1 exv10w1

Exhibit 10.1

Service Corporation International
Executive Deferred Compensation Plan

Amended and Restated Effective May 12, 2009

TABLE OF CONTENTS


	Page
ARTICLE 1 Definitions		1

ARTICLE 2 Selection, Enrollment, Eligibility		8

2.1 Selection by Committee		8
2.2 Enrollment and Eligibility Requirements; Commencement of Participation		8

ARTICLE 3 Deferral Commitments/Company Contribution Amounts/Company Restoration Matching Amounts /Vesting/Crediting/Taxes		9

3.1 Annual Deferral Amount		9
3.2 Timing of Deferral Elections; Effect of Election Form		9
3.3 Withholding and Crediting of Annual Deferral Amounts		11
3.4 Company Contribution Amount		11
3.5 Company Restoration Matching Amount		11
3.6 Vesting		12
3.7 Crediting/Debiting of Account Balances		13
3.8 FICA and Other Taxes		14

ARTICLE 4 Scheduled Distributions; Unforeseeable Emergencies		15

4.1 Scheduled Distributions		15
4.2 Postponing Scheduled Distributions		15
4.3 Other Benefits Take Precedence Over Scheduled Distributions		15
4.4 Unforeseeable Emergencies		16

ARTICLE 5 Change In Control Benefit		16

5.1 Change in Control Benefit		16
5.2 Payment of Change in Control Benefit		16

ARTICLE 6 Retirement Benefit		16

6.1 Retirement Benefit		16
6.2 Payment of Retirement Benefit		17

ARTICLE 7 Termination Benefit		18

7.1 Termination Benefit		18
6.2 Payment of Retirement Benefit		18

ARTICLE 8 Disability Benefit		19

8.1 Disability Benefit		19
8.2 Payment of Disability Benefit		19

ARTICLE 9 Death Benefit		19

-i-


	Page
9.1 Death Benefit		19
9.2 Payment of Death Benefit		20

ARTICLE 10 Beneficiary Designation		20

10.1 Beneficiary		20
10.2 Beneficiary Designation; Change; Spousal Consent		20
10.3 Acknowledgement		20
10.4 No Beneficiary Designation		20
10.5 Doubt as to Beneficiary		20
10.6 Discharge of Obligations		20

ARTICLE 11 Leave of Absence		20

11.1 Paid Leave of Absence		20
11.2 Unpaid Leave of Absence		21

ARTICLE 12 Termination of Plan, Amendment or Modification		21

12.1 Termination of Plan		21
12.2 Amendment		21
12.3 Plan Agreement		21
12.4 Effect of Payment		22

ARTICLE 13 Administration		22

13.1 Committee Duties		22
13.2 Administration Upon Change In Control		22
13.3 Agents		22
13.4 Binding Effect of Decisions		22
13.5 Indemnity of Committee		22
13.6 Employer Information		22

ARTICLE 14 Other Benefits and Agreements		23

14.1 Coordination with Other Benefits		23

ARTICLE 15 Claims Procedures		23

15.1 Presentation of Claim		23
15.2 Notification of Decision		23
15.3 Review of a Denied Claim		24
15.4 Decision on Review		24
15.5 Legal Action		24

ARTICLE 16 Trust		24

16.1 Establishment of the Trust		24
16.2 Interrelationship of the Plan and the Trust		25

-ii-


	Page
16.3 Distributions From the Trust		25

ARTICLE 17 Miscellaneous		25

17.1 Status of Plan		25
17.2 Unsecured General Creditor		25
17.3 Employer’s Liability		25
17.4 Nonassignability		25
17.5 Not a Contract of Employment		25
17.6 Furnishing Information		26
17.7 Terms		26
17.8 Captions		26
17.9 Governing Law		26
17.10 Notice		26
17.11 Successors		26
17.12 Spouse’s Interest		26
17.13 Validity		27
17.14 Incompetent		27
17.15 Domestic Relations Orders		27
17.16 Distribution in the Event of Income Inclusion Under Code Section 409A		27
17.17 Deduction Limitation on Benefit Payments		27

-iii-

SERVICE CORPORATION INTERNATIONAL
Executive Deferred Compensation Plan
Amended and Restated May 12, 2009

Purpose

The Plan was originally adopted effective as of January 1, 2005. The purpose of this Plan is to provide specified benefits to Directors and a select group of management or highly compensated Employees who contribute materially to the continued growth, development and future business success of Service Corporation International, a Texas corporation, and its subsidiaries, if any, that sponsor this Plan. This Plan shall be unfunded for tax purposes and for purposes of Title I of ERISA.

The Plan was previously amended and restated in its entirety to comply with all applicable laws, including Code Section 409A and related Treasury guidance and Regulations, and shall be operated and interpreted in accordance with this intention. The Plan is now again amended and restated in its entirety to revise its vesting provisions. The provisions of this Plan, as amended and restated, shall apply to any Participant with at least one hour of service on or after May 12, 2009.

ARTICLE 1
Definitions

For the purposes of this Plan, unless otherwise clearly apparent from the context, the following phrases or terms shall have the following indicated meanings:

1.1		“Account Balance” shall mean, with respect to a Participant, an entry on the records of the Employer equal to the sum of the Participant’s Annual Accounts. The Account Balance shall be a bookkeeping entry only and shall be utilized solely as a device for the measurement and determination of the amounts to be paid to a Participant, or his or her designated Beneficiary, pursuant to this Plan.

		If a Participant is both an Employee and a Director and participates in the Plan in each capacity, then separate Account Balances (and separate Annual Accounts, if applicable) shall be established for such Participant as a device for the measurement and determination of the (i) amounts deferred under the Plan that are attributable to the Participant’s status as an Employee, and (ii) amounts deferred under the Plan that are attributable to the Participant’s status as a Director.

1.2		“Annual Account” shall mean, with respect to a Participant, an entry on the records of the Employer equal to (i) the sum of the Participant’s Annual Deferral Amount, Company Contribution Amount and Company Restoration Matching Amount for any one Plan Year, plus (ii) amounts credited or debited to such amounts pursuant to this Plan, less (iii) all distributions made to the Participant or his or her Beneficiary pursuant to this Plan that relate to the Annual Account for such Plan Year. The Annual Account shall be a bookkeeping entry only and shall be utilized solely as a device for the measurement and determination of the amounts to be paid to a Participant, or his or her designated Beneficiary, pursuant to this Plan.

1.3		“Annual Deferral Amount” shall mean that portion of a Participant’s Base Salary, Bonus, Director Fees and LTIP Amounts that a Participant defers in accordance with Article 3 for any

		one Plan Year, without regard to whether such amounts are withheld and credited during such Plan Year.

1.4		“Annual Installment Method” shall mean the method used to determine the amount of each payment due to a Participant who has elected to receive a benefit over a period of years in accordance with the applicable provisions of the Plan. The amount of each annual payment due to the Participant shall be calculated by multiplying the balance of the Participant’s benefit by a fraction, the numerator of which is one and the denominator of which is the remaining number of annual payments due to the Participant. The amount of the first annual payment shall be calculated as of the close of business on or around the Participant’s Benefit Distribution Date, and the amount of each subsequent annual payment shall be calculated on or around each anniversary of such Benefit Distribution Date. For purposes of this Plan, the right to receive a benefit payment in annual installments shall be treated as the entitlement to a single payment.

1.5		“Base Salary” shall mean the annual cash compensation relating to services performed during any calendar year, excluding distributions from nonqualified deferred compensation plans, bonuses, commissions, overtime, fringe benefits, stock options, relocation expenses, incentive payments, non-monetary awards, director fees and other fees, and automobile and other allowances paid to a Participant for employment services rendered (whether or not such allowances are included in the Employee’s gross income). Base Salary shall be calculated before reduction for compensation voluntarily deferred or contributed by the Participant pursuant to all qualified or nonqualified plans of any Employer and shall be calculated to include amounts not otherwise included in the Participant’s gross income under Code Sections 125, 402(e)(3), 402(h), or 403(b) pursuant to plans established by any Employer; provided, however, that all such amounts will be included in compensation only to the extent that had there been no such plan, the amount would have been payable in cash to the Employee.

1.6		“Beneficiary” shall mean one or more persons, trusts, estates or other entities, designated in accordance with Article 10, that are entitled to receive benefits under this Plan upon the death of a Participant.

1.7		“Beneficiary Designation Form” shall mean the form established from time to time by the Committee that a Participant completes, signs and returns to the Committee to designate one or more Beneficiaries.

1.8		“Benefit Distribution Date” shall mean the date upon which all or an objectively determinable portion of a Participant’s vested benefits will become eligible for distribution. Except as otherwise provided in the Plan, a Participant’s Benefit Distribution Date shall be determined based on the earliest to occur of an event or scheduled date set forth in Articles 4 through 9, as applicable.

1.9		“Board” shall mean the board of directors of the Company.

1.10		“Bonus” shall mean any compensation, in addition to Base Salary, and LTIP Amounts, earned by a Participant under any Employer’s annual bonus and cash incentive plans.

1.11		“Change in Control” shall mean the occurrence of a “change in the ownership,” a “change in the effective control” or a “change in the ownership of a substantial portion of the assets” of a corporation, as determined in accordance with this Section. In order for an event described below to constitute a Change in Control with respect to a Participant, except as otherwise

provided in Subsection (b)(ii), the applicable event must relate to the corporation for which the Participant is providing services, the corporation that is liable for payment of the Participant’s Account Balance (or all corporations liable for payment if more than one), as identified by the Committee in accordance with Treas. Reg. § 1.409A-3(i)(5)(ii)(A)(2), or such other corporation identified by the Committee in accordance with Treas. Reg. § 1.409A-3(i)(5)(ii)(A)(3).

In determining whether an event shall be considered a “change in the ownership,” a “change in the effective control” or a “change in the ownership of a substantial portion of the assets” of a corporation, the following provisions shall apply:

	(a)		A “change in the ownership” of the applicable corporation shall occur on the date on which any one person, or more than one person acting as a group, acquires ownership of stock of such corporation that, together with stock held by such person or group, constitutes more than 50% of the total fair market value or total voting power of the stock of such corporation, as determined in accordance with Treas. Reg. § 1.409A-3(i)(5)(v). If a person or group is considered either to own more than 50% of the total fair market value or total voting power of the stock of such corporation, or to have effective control of such corporation within the meaning of Subsection (b), and such person or group acquires additional stock of such corporation, the acquisition of additional stock by such person or group shall not be considered to cause a “change in the ownership” of such corporation.

	(b)		A “change in the effective control” of the applicable corporation shall occur on either of the following dates:

	(i)		The date on which any one person, or more than one person acting as a group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of such corporation possessing 30% or more of the total voting power of the stock of such corporation, as determined in accordance with Treas. Reg. § 1.409A-3(i)(5)(vi). If a person or group is considered to possess 30% or more of the total voting power of the stock of a corporation, and such person or group acquires additional stock of such corporation, the acquisition of additional stock by such person or group shall not be considered to cause a “change in the effective control” of such corporation; or

	(ii)		The date on which a majority of the members of the applicable corporation’s board of directors is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of such corporation’s board of directors before the date of the appointment or election, as determined in accordance with Treas. Reg. §1.409A-3(i)(5)(vi). In determining whether the event described in the preceding sentence has occurred, the applicable corporation to which the event must relate shall only include a corporation identified in accordance with Treas. Reg. §1.409A-3(i)(5)(ii) for which no other corporation is a majority shareholder.

(c)

A “change in the ownership of a substantial portion of the assets” of the applicable corporation shall occur on the date on which any one person, or more than one person acting as a group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) assets from the corporation

that have a total gross fair market value equal to or more than 40% of the total gross fair market value of all of the assets of the corporation immediately before such acquisition or acquisitions, as determined in accordance with Treas. Reg. §1.409A-3(i)(5)(vii). A transfer of assets shall not be treated as a “change in the ownership of a substantial portion of the assets” when such transfer is made to an entity that is controlled by the shareholders of the transferor corporation, as determined in accordance with Treas. Reg. §1.409A-3(i)(5)(vii)(B).

1.12		“Code” shall mean the Internal Revenue Code of 1986, as it may be amended from time to time.

1.13		“Committee” shall mean the committee described in Article 13.

1.14		“Company” shall mean Service Corporation International, a Texas corporation, and any successor to all or substantially all of the Company’s assets or business.

1.15		“Company Contribution Amount” shall mean, for any one Plan Year, the amount determined in accordance with Section 3.4.

1.16		“Company Restoration Matching Amount” shall mean, for any one Plan Year, the amount determined in accordance with Section 3.5.

1.17		“Death Benefit” shall have the meaning provided in Section 9.1.

1.18		“Director” shall mean any member of the board of directors of any Employer.

1.19		“Director Fees” shall mean the annual fees earned by a Director from any Employer, including retainer fees and meetings fees, as compensation for serving on the board of directors.

1.20		“Disability” or “Disabled” shall mean that a Participant is either (i) unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or (ii) by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than 3 months under an accident and health plan covering employees of the Participant’s Employer. For purposes of this Plan, a Participant shall be deemed Disabled if determined to be totally disabled by the Social Security Administration. A Participant shall also be deemed Disabled if determined to be disabled in accordance with the applicable disability insurance program of such Participant’s Employer, provided that the definition of “disability” applied under such disability insurance program complies with the requirements of this Section.

1.21		“Disability Benefit” shall have the meaning provided in Section 8.1.

1.22		“Election Form” shall mean the form, which may be in electronic format, established from time to time by the Committee that a Participant completes, signs and returns to the Committee to make an election under the Plan.

1.23		“Employee” shall mean a person who is an employee of an Employer.

1.24		“Employer(s)” shall be defined as follows:

	(a)		Except as otherwise provided in Subsection (b), the term “Employer” shall mean the Company and/or any of its subsidiaries (now in existence or hereafter formed or acquired) that have been selected by the Board to participate in the Plan and have adopted the Plan as a sponsor.

	(b)		For the purpose of determining whether a Participant has experienced a Separation from Service, the term “Employer” shall mean:

	(i)		The entity for which the Participant performs services and with respect to which the legally binding right to compensation deferred or contributed under this Plan arises; and

	(ii)		All other entities with which the entity described above would be aggregated and treated as a single employer under Code Section 414(b) (controlled group of corporations) and Code Section 414(c) (a group of trades or businesses, whether or not incorporated, under common control), as applicable. In order to identify the group of entities described in the preceding sentence, the Committee shall use an ownership threshold of at least 50% as a substitute for the 80% minimum ownership threshold that appears in, and otherwise must be used when applying, the applicable provisions of (A) Code Section 1563 for determining a controlled group of corporations under Code Section 414(b), and (B) Treas. Reg. §1.414(c)-2 for determining the trades or businesses that are under common control under Code Section 414(c).

1.25		“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as it may be amended from time to time.

1.26		“401(k) Plan” shall mean the SCI Retirement Savings Plan, as it may be amended from time to time, or any successor thereto.

1.27		“LTIP Amounts” shall mean any portion of the compensation attributable to a Plan Year that is earned by a Participant under the Company’s Performance Unit Plan or any other “performance-based compensation plan within the meaning of Code Section 409A and so designated by the Committee.

1.28		“Participant” shall mean any Employee or Director (i) who is selected to participate in the Plan, (ii) whose executed Plan Agreement, Election Form and Beneficiary Designation Form are accepted by the Committee, and (iii) whose Plan Agreement has not terminated.

1.29		“Performance-Based Compensation” shall mean compensation the entitlement to or amount of which is contingent on the satisfaction of pre-established organizational or individual performance criteria relating to a performance period of at least 12 consecutive months, as determined by the Committee in accordance with Treas. Reg. §1.409A-1(e).

1.30		“Plan” shall mean the Service Corporation International Executive Deferred Compensation Plan, which shall be evidenced by this instrument, as it may be amended from time to time, and by any other documents that together with this instrument define a Participant’s rights to amounts credited to his or her Account Balance.

1.31		“Plan Agreement” shall mean a written agreement in the form prescribed by or acceptable to the Committee that evidences a Participant’s agreement to the terms of the Plan and which may establish additional terms or conditions of Plan participation for a Participant. Unless otherwise determined by the Committee, the most recent Plan Agreement accepted with respect to a Participant shall supersede any prior Plan Agreements for such Participant. Plan Agreements may vary among Participants and may provide additional benefits not set forth in the Plan or limit the benefits otherwise provided under the Plan.

1.32		“Plan Year” shall mean a period beginning on January 1 of each calendar year and continuing through December 31 of such calendar year.

1.33		“Retirement,” “Retire(s)” or “Retired” shall mean with respect to a Participant who is an Employee, a Separation from Service on or after the attainment of age 60 with five Years of Service, and shall mean with respect to a Participant who is a Director, a Separation from Service. If a Participant is both an Employee and a Director and participates in the Plan in each capacity, (i) the determination of whether the Participant qualifies for Retirement as an Employee shall be made when the Participant experiences a Separation from Service as an Employee and such determination shall only apply to the applicable Account Balance established in accordance with Section 1.1 for amounts deferred under the Plan as an Employee, and (ii) the determination of whether the Participant qualifies for Retirement as a Director shall be made at the time the Participant experiences a Separation from Service as a Director and such determination shall only apply to the applicable Account Balance established in accordance with Section 1.1 for amounts deferred under the Plan as a Director.

1.34		“Separation from Service” shall mean a termination of services provided by a Participant to his or her Employer, whether voluntarily or involuntarily, other than by reason of death or Disability, as determined by the Committee in accordance with Treas. Reg. §1.409A-1(h). In determining whether a Participant has experienced a Separation from Service, the following provisions shall apply:

	(a)		For a Participant who provides services to an Employer as an Employee, except as otherwise provided in Subsection (c) below, a Separation from Service shall occur when such Participant has experienced a termination of employment with such Employer. A Participant shall be considered to have experienced a termination of employment when the facts and circumstances indicate that the Participant and his or her Employer reasonably anticipate that either (i) no further services will be performed for the Employer after a certain date, or (ii) that the level of bona fide services the Participant will perform for the Employer after such date (whether as an Employee or as an independent contractor) will permanently decrease to no more than 20% of the average level of bona fide services performed by such Participant (whether as an Employee or an independent contractor) over the immediately preceding 36-month period (or the full period of services to the Employer if the Participant has been providing services to the Employer less than 36 months).

			If a Participant is on military leave, sick leave, or other bona fide leave of absence, the employment relationship between the Participant and the Employer shall be treated as continuing intact, provided that the period of such leave does not exceed six months, or if longer, so long as the Participant retains a right to reemployment with the Employer under an applicable statute or by contract. If the period of a military leave, sick leave, or

			other bona fide leave of absence exceeds six months and the Participant does not retain a right to reemployment under an applicable statute or by contract, the employment relationship shall be considered to be terminated for purposes of this Plan as of the first day immediately following the end of such six month period. In applying the provisions of this paragraph, a leave of absence shall be considered a bona fide leave of absence only if there is a reasonable expectation that the Participant will return to perform services for the Employer.

	(b)		For a Participant who provides services to an Employer as a Director, a Separation from Service shall occur on the date the Participant ceases to serve on the Board of Directors of the Employer and each of its subsidiaries and affiliates.

	(c)		For a Participant who provides services to an Employer as both an Employee and a Director, a Separation from Service generally shall not occur until the Participant has ceased providing services for such Employer as both as an Employee and as a Director, as determined in accordance with the provisions set forth in Subsections (a) and (b) above, respectively. Notwithstanding the foregoing provisions in this Subsection (c), if a Participant provides services for an Employer as both an Employee and as a Director, to the extent permitted by Treas. Reg. §1.409A-1(h)(5) the services provided by such Participant as a Director shall not be taken into account in determining whether the Participant has experienced a Separation from Service as an Employee, and the services provided by such Participant as an Employee shall not be taken into account in determining whether the Participant has experienced a Separation from Service as a Director.

1.35

“Specified Employee” shall mean any Participant who is determined to be a “key employee” (as defined under Code Section 416(i) without regard to paragraph (5) thereof) for the applicable period, as determined annually by the Committee in accordance with Treas. Reg. §1.409A-1(i). In determining whether a Participant is a Specified Employee, the following provisions shall apply:

	(a)		The Committee’s identification of the individuals who fall within the definition of “key employee” under Code Section 416(i) (without regard to paragraph (5) thereof) shall be based upon the 12-month period ending on each December 31^st (referred to below as the “identification date”). In applying the applicable provisions of Code Section 416(i) to identify such individuals, “compensation” shall be determined in accordance with Treas. Reg. §1.415(c)-2(a) without regard to (i) any safe harbor provided in Treas. Reg. §1.415(c)-2(d), (ii) any of the special timing rules provided in Treas. Reg. §1.415(c)-2(e), and (iii) any of the special rules provided in Treas. Reg. §1.415(c)-2(g); and

	(b)		Each Participant who is among the individuals identified as a “key employee” in accordance with Subsection (a) shall be treated as a Specified Employee for purposes of this Plan if such Participant experiences a Separation from Service during the 12-month period that begins on the April 1^st following the applicable identification date.

1.36

“Termination Benefit” shall have the meaning provided in Section 7.1.

1.37

“Trust” shall mean one or more trusts established by the Company in accordance with Article 16.

1.38

“Unforeseeable Emergency” shall mean a severe financial hardship of the Participant resulting from (i) an illness or accident of the Participant, the Participant’s spouse, the Participant’s Beneficiary or the Participant’s dependent (as defined in Code Section 152 without regard to paragraphs (b)(1), (b)(2) and (d)(1)(b) thereof), (ii) a loss of the Participant’s property due to casualty, or (iii) such other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant, all as determined by the Committee based on the relevant facts and circumstances.

1.39

“Years of Service” shall mean the total number of full years in which a Participant has been employed by one or more Employers. For purposes of this definition, a year of employment shall be a 365 day period (or 366 day period in the case of a leap year) that, for the first year of employment, commences on the Employee’s date of hiring and that, for any subsequent year, commences on an anniversary of that hiring date. A partial year of employment shall not be treated as a Year of Service.

ARTICLE 2
Selection, Enrollment, Eligibility

2.1

Selection by Committee. Participation in the Plan shall be limited to Directors and, as determined by the Committee in its sole discretion, a select group of management or highly compensated Employees. From that group, the Committee shall select, in its sole discretion, those individuals who may actually participate in this Plan.

2.2

Enrollment and Eligibility Requirements; Commencement of Participation.

	(a)		As a condition to participation, each Director or selected Employee shall complete, execute and return to the Committee a Plan Agreement, an Election Form and a Beneficiary Designation Form by the deadline(s) established by the Committee in accordance with the applicable provisions of this Plan. In addition, the Committee shall establish from time to time such other enrollment requirements as it determines, in its sole discretion, are necessary.

	(b)		Each Director or selected Employee who is eligible to participate in the Plan shall commence participation in the Plan on the date that the Committee determines that the Director or Employee has met all enrollment requirements set forth in this Plan and required by the Committee, including returning all required documents to the Committee within the specified time period.

	(c)		If a Director or an Employee fails to meet all requirements established by the Committee within the period required, that Director or Employee shall not be eligible to participate in the Plan during such Plan Year.

ARTICLE 3
Deferral Commitments/Company Contribution Amounts/
Company Restoration Matching Amounts/ Vesting/Crediting/Taxes

3.1

Annual Deferral Amount. For each Plan Year, a Participant may elect to defer, as his or her Annual Deferral Amount, Base Salary, Bonus, LTIP Amounts and/or Director Fees up to the following maximum percentages for each deferral elected:


Deferral	Maximum Percentage
Base Salary		80	%
Bonus		90	%
LTIP Amounts		90	%
Director Fees		100	%

		Notwithstanding the foregoing, if a Participant first becomes a Participant after the first day of a Plan Year, then to the extent required by Section 3.2 and Code Section 409A and related Treasury Regulations, the maximum amount of the Participant’s Base Salary, Bonus, LTIP Amounts or Director Fees that may be deferred by the Participant for the Plan Year shall be determined by applying the percentages set forth above to the portion of such compensation attributable to services performed after the date that the Participant’s deferral election is made.

3.2		Timing of Deferral Elections; Effect of Election Form.

	(a)		General Timing Rule for Deferral Elections. Except as otherwise provided in this Section 3.2, in order for a Participant to make a valid election to defer Base Salary, Bonus, Director Fees and/or LTIP Amounts, the Participant must submit an Election Form on or before the deadline established by the Committee, which in no event shall be later than the December 31^st preceding the Plan Year in which such compensation will be earned.

			Any deferral election made in accordance with this Section 3.2(a) shall be irrevocable; provided, however, that if the Committee permits or requires Participants to make a deferral election by the deadline described above for an amount that qualifies as Performance-Based Compensation, the Committee may permit a Participant to subsequently change his or her deferral election for such compensation by submitting a new Election Form in accordance with Section 3.2(d) below.

	(b)		Timing of Deferral Elections for Newly Eligible Plan Participants. A Director or selected Employee who first becomes eligible to participate in the Plan on or after the beginning of a Plan Year, as determined in accordance with Treas. Reg. §1.409A-2(a)(7)(ii) and the “plan aggregation” rules provided in Treas. Reg. §1.409A-1(c)(2), may be permitted to make an election to defer the portion of Base Salary, Bonus, Director Fees and/or LTIP Amounts attributable to services to be performed after such election, provided that the Participant submits an Election Form on or before the deadline established by the Committee, which in no event shall be later than 30 days after the Participant first becomes eligible to participate in the Plan.

			If a deferral election made in accordance with this Section 3.2(b) relates to compensation earned based upon a specified performance period, the amount eligible for deferral shall be equal to (i) the total amount of compensation for the performance period, multiplied by (ii) a fraction, the numerator of which is the number of days remaining in the service period after the Participant’s deferral election is made, and the denominator of which is the total number of days in the performance period.

			Any deferral election made in accordance with this Section 3.2(b) shall become irrevocable no later than the 30^th day after the date the Director or selected Employee becomes eligible to participate in the Plan.

	(c)		Timing of Deferral Elections for Fiscal Year Compensation. In the event that the fiscal year of an Employer is different than the taxable year of a Participant, the Committee may determine that a deferral election may be made for “fiscal year compensation” (as defined below), by submitting an Election Form on or before the deadline established by the Committee, which in no event shall be later than the last day of the Employer’s fiscal year immediately preceding the fiscal year in which the services related to such compensation will begin to be performed. For purposes of this Section, the term “fiscal year compensation” shall only include Bonus and LTIP Amounts relating to a service period coextensive with one or more consecutive fiscal years of the Employer, of which no amount is paid or payable during the Employer’s fiscal year(s) that constitute the service period.

			A deferral election made in accordance with this Section 3.2(c) shall be irrevocable; provided, however, that if the Committee permits or requires Participants to make a deferral election by the deadline described in this Section 3.2(c) for an amount that qualifies as Performance-Based Compensation, the Committee may permit a Participant to subsequently change his or her deferral election for such compensation by submitting a new Election Form in accordance with Section 3.2(d) below.

	(d)		Timing of Deferral Elections for Performance-Based Compensation. Subject to the limitations described below, the Committee may determine that an irrevocable deferral election for an amount that qualifies as Performance-Based Compensation may be made by submitting an Election Form on or before the deadline established by the Committee, which in no event shall be later than 6 months before the end of the performance period.

			In order for a Participant to be eligible to make a deferral election for Performance-Based Compensation in accordance with the deadline established pursuant to this Section 3.2(d), the Participant must have performed services continuously from the later of (i) the beginning of the performance period for such compensation, or (ii) the date upon which the performance criteria for such compensation are established, through the date upon which the Participant makes the deferral election for such compensation. In no event shall a deferral election submitted under this Section 3.2(d) be permitted to apply to any amount of Performance-Based Compensation that has become readily ascertainable.

	(e)		Timing Rule for Deferral of Compensation Subject to Risk of Forfeiture. With respect to compensation (i) to which a Participant has a legally binding right to payment in a subsequent year, and (ii) that is subject to a forfeiture condition requiring the Participant’s continued services for a period of at least 12 months from the date the Participant obtains the legally binding right, the Committee may determine that an

			irrevocable deferral election for such compensation may be made by timely delivering an Election Form to the Committee in accordance with its rules and procedures, no later than the 30^th day after the Participant obtains the legally binding right to the compensation, provided that the election is made at least 12 months in advance of the earliest date at which the forfeiture condition could lapse, as determined in accordance with Treas. Reg. §1.409A-2(a)(5).

			Any deferral election(s) made in accordance with this Section 3.2(e) shall become irrevocable no later than the 30^th day after the Participant obtains the legally binding right to the compensation subject to such deferral election(s).

3.3

Withholding and Crediting of Annual Deferral Amounts. For each Plan Year, the Base Salary portion of the Annual Deferral Amount shall be withheld from each regularly scheduled Base Salary payroll in equal amounts, as adjusted from time to time for increases and decreases in Base Salary. The Bonus, LTIP Amounts and/or Director Fees portion of the Annual Deferral Amount shall be withheld at the time the Bonus, LTIP Amounts or Director Fees are or otherwise would be paid to the Participant, whether or not this occurs during the Plan Year itself. Annual Deferral Amounts shall be credited to the Participant’s Annual Account for such Plan Year at the time such amounts would otherwise have been paid to the Participant.

3.4

Company Contribution Amount.

	(a)		For each Plan Year, an Employer may be required to credit amounts to a Participant’s Annual Account in accordance with employment or other agreements entered into between the Participant and the Employer, which amounts shall be part of the Participant’s Company Contribution Amount for that Plan Year. Such amounts shall be credited to the Participant’s Annual Account for the applicable Plan Year on the date or dates prescribed by such agreements.

	(b)		For each Plan Year, an Employer, in its sole discretion, may, but is not required to, credit any amount it desires to any Participant’s Annual Account under this Plan, which amount shall be part of the Participant’s Company Contribution Amount for that Plan Year. The amount so credited to a Participant may be smaller or larger than the amount credited to any other Participant, and the amount credited to any Participant for a Plan Year may be zero, even though one or more other Participants receive a Company Contribution Amount for that Plan Year. The Company Contribution Amount described in this Section 3.4(b), if any, shall be credited to the Participant’s Annual Account for the applicable Plan Year on a date or dates to be determined by the Committee.

	(c)		If not otherwise specified in the Participant’s employment or other agreement entered into between the Participant and the Employer, the amount (or the method or formula for determining the amount) of a Participant’s Company Contribution Amount shall be set forth in writing in one or more documents, which shall be deemed to be incorporated into this Plan in accordance with Section 1.30, no later than the date on which such Company Contribution Amount is credited to the applicable Annual Account of the Participant.

3.5

Company Restoration Matching Amount. A Participant’s Company Restoration Matching Amount for any Plan Year shall be an amount determined by the Committee to make up for certain limits applicable to the 401(k) Plan or other qualified plan for such Plan Year, as identified by the Committee, or for such other purposes as determined by the Committee in its

sole discretion. The amount so credited to a Participant under this Plan for any Plan Year (i) may be smaller or larger than the amount credited to any other Participant, and (ii) may differ from the amount credited to such Participant in the preceding Plan Year. The Participant’s Company Restoration Matching Amount, if any, shall be credited to the Participant’s Annual Account for the applicable Plan Year on a date or dates to be determined by the Committee. The amount (or the method or formula for determining the amount) of a Participant’s Company Restoration Matching Amount shall be set forth in writing in one or more documents, which shall be deemed to be incorporated into this Plan in accordance with Section 1.30, no later than the date on which such Company Restoration Matching Amount is credited to the applicable Annual Account of the Participant.

3.6

Vesting.

	(a)		A Participant shall at all times be 100% vested in the portion of his or her Account Balance attributable to Annual Deferral Amounts, plus amounts credited or debited on such amounts pursuant to Section 3.7.

	(b)		A Participant shall be vested in the portion of his or her Account Balance attributable to any Company Contribution Amounts, plus amounts credited or debited on such amounts pursuant to Section 3.7, in accordance with the vesting schedule(s) set forth in his or her Plan Agreement, employment agreement or any other agreement entered into between the Participant and his or her Employer. If not addressed in such agreements, a Participant shall vest in the portion of his or her Account Balance attributable to any Company Contribution Amounts as provided in Subsection (c) below.

	(c)		A Participant shall be vested in the portion of his or her Account Balance attributable to any Company Restoration Matching Amounts, plus amounts credited or debited on such amounts pursuant to Section 3.7, only to the extent that the Participant would be vested in such amounts under the provisions of the 401(k) Plan, as determined by the Committee in its sole discretion.

	(d)		Notwithstanding anything to the contrary contained in this Section 3.6, in the event of (i) a Change in Control, (ii) a Participant’s Disability, (iii) a Participant’s Separation from Service on or after qualifying for Retirement, (iv) a Participant’s Separation from Service resulting from involuntary termination by the Company for any reason other than cause, (or) a Participant’s death prior to Separation from Service, any amounts that are not vested in accordance with Sections 3.6(b) or 3.6(c) above, shall immediately become 100% vested.

	(e)		Notwithstanding Section 3.6(d) above, the vesting schedules described in Sections 3.6(b) or 3.6(c) above shall not be accelerated upon a Change in Control to the extent that the Committee determines that such acceleration would cause the deduction limitations of Section 280G of the Code to become effective. In the event of such a determination, the Participant may request independent verification of the Committee’s calculations with respect to the application of Section 280G. In such case, the Committee must provide to the Participant within 90 days of such a request an opinion from a nationally recognized accounting firm selected by the Participant (the “Accounting Firm”). The opinion shall state the Accounting Firm’s opinion that any limitation in the vested percentage hereunder is necessary to avoid the limits of Section 280G and contain supporting calculations. The cost of such opinion shall be paid for by the Company.

(f)

Section 3.6(e) shall not prevent the acceleration of the vesting schedules described in Sections 3.6(b) and (c) if such Participant is entitled to a “gross-up” payment, to eliminate the effect of the Code section 4999 excise tax, pursuant to his or her employment agreement or other agreement entered into between such Participant and the Employer.

3.7

Crediting/Debiting of Account Balances. In accordance with, and subject to, the rules and procedures that are established from time to time by the Committee, in its sole discretion, amounts shall be credited or debited to a Participant’s Account Balance in accordance with the following rules:

	(a)		Measurement Funds. The Participant may elect one or more of the measurement funds selected by the Committee, in its sole discretion, which are based on certain mutual funds (the “Measurement Funds”), for the purpose of crediting or debiting additional amounts to his or her Account Balance. As necessary, the Committee may, in its sole discretion, discontinue, substitute or add a Measurement Fund. Each such action will take effect as of the first day of the first calendar quarter that begins at least 30 days after the day on which the Committee gives Participants advance written notice of such change.

	(b)		Election of Measurement Funds. A Participant, in connection with his or her initial deferral election in accordance with Section 3.2 above, shall elect, on the Election Form, one or more Measurement Fund(s) (as described in Section 3.7(a) above) to be used to determine the amounts to be credited or debited to his or her Account Balance. If a Participant does not elect any of the Measurement Funds as described in the previous sentence, the Participant’s Account Balance shall automatically be allocated into the lowest-risk Measurement Fund, as determined by the Committee, in its sole discretion. The Participant may (but is not required to) elect, by submitting an Election Form to the Committee that is accepted by the Committee, to add or delete one or more Measurement Fund(s) to be used to determine the amounts to be credited or debited to his or her Account Balance, or to change the portion of his or her Account Balance allocated to each previously or newly elected Measurement Fund. If an election is made in accordance with the previous sentence, it shall apply as of the first business day deemed reasonably practicable by the Committee, in its sole discretion, and shall continue thereafter for each subsequent day in which the Participant participates in the Plan, unless changed in accordance with the previous sentence. Notwithstanding the foregoing, the Committee, in its sole discretion, may impose limitations on the frequency with which one or more of the Measurement Funds elected in accordance with this Section 3.7(b) may be added or deleted by such Participant; furthermore, the Committee, in its sole discretion, may impose limitations on the frequency with which the Participant may change the portion of his or her Account Balance allocated to each previously or newly elected Measurement Fund.

	(c)		Proportionate Allocation. In making any election described in Section 3.7(b) above, the Participant shall specify on the Election Form, in increments of one percent (1%), the percentage of his or her Account Balance or Measurement Fund, as applicable, to be allocated/reallocated.

	(d)		Crediting or Debiting Method. The performance of each Measurement Fund (either positive or negative) will be determined on a daily basis based on the manner in which

			such Participant’s Account Balance has been hypothetically allocated among the Measurement Funds by the Participant.

	(e)		No Actual Investment. Notwithstanding any other provision of this Plan that may be interpreted to the contrary, the Measurement Funds are to be used for measurement purposes only, and a Participant’s election of any such Measurement Fund, the allocation of his or her Account Balance thereto, the calculation of additional amounts and the crediting or debiting of such amounts to a Participant’s Account Balance shall not be considered or construed in any manner as an actual investment of his or her Account Balance in any such Measurement Fund. In the event that the Company or the Trustee (as that term is defined in the Trust), in its own discretion, decides to invest funds in any or all of the investments on which the Measurement Funds are based, no Participant shall have any rights in or to such investments themselves. Without limiting the foregoing, a Participant’s Account Balance shall at all times be a bookkeeping entry only and shall not represent any investment made on his or her behalf by the Company or the Trust; the Participant shall at all times remain an unsecured creditor of the Company.

3.8

FICA and Other Taxes.

	(a)		Annual Deferral Amounts. For each Plan Year in which an Annual Deferral Amount is being withheld from a Participant, the Participant’s Employer(s) shall withhold from that portion of the Participant’s Base Salary, Bonus, and/or LTIP Amounts that is not being deferred, in a manner determined by the Employer(s), the Participant’s share of FICA and other employment taxes on such Annual Deferral Amount. If necessary, the Committee may reduce the Annual Deferral Amount in order to comply with applicable withholding requirements.

	(b)		Company Restoration Matching Amounts and Company Contribution Amounts. When a Participant becomes vested in a portion of his or her Account Balance attributable to any Company Restoration Matching Amounts and/or Company Contribution Amounts, the Participant’s Employer(s) shall withhold from that portion of the Participant’s Base Salary, Bonus, and/or LTIP Amounts that is not deferred, in a manner determined by the Employer(s), the Participant’s share of FICA and other employment taxes on such amounts. If necessary, the Committee may reduce the vested portion of the Participant’s Company Restoration Matching Amount or Company Contribution Amount, as applicable, in order to comply with applicable withholding amounts.

	(c)		Distributions. The Participant’s Employer(s), or the trustee of the Trust, shall withhold from any payments made to a Participant under this Plan all federal, state and local income, employment and other taxes required to be withheld by the Employer(s), or the trustee of the Trust, in connection with such payments, in amounts and in a manner to be determined in the sole discretion of the Employer(s) and the trustee of the Trust.

	(d)		Right to Offset Against Account Balance. To the extent determined necessary by the Committee in its sole discretion, the Company reserves the right to direct that the Participant’s Account Balance be reduced to satisfy any and all federal, state and local income, employment and other taxes required to be paid in connection with earnings of the Measurement Funds hypothetically allocated to the Participant’s Account Balance.

ARTICLE 4
Scheduled Distribution; Unforeseeable Emergencies

4.1		Scheduled Distributions. In connection with each election to defer an Annual Deferral Amount, a Participant may elect to receive all or a portion of such Annual Deferral Amount, plus amounts credited or debited on that amount pursuant to Section 3.7, in the form of a lump sum payment, calculated as of the close of business on or around the Benefit Distribution Date designated by the Participant in accordance with this Section (a “Scheduled Distribution”). The Benefit Distribution Date for the amount subject to a Scheduled Distribution election shall be the first day of any Plan Year designated by the Participant, which may be no sooner than three Plan Years after the end of the Plan Year to which the Participant’s deferral election relates, unless otherwise provided on an Election Form approved by the Committee.

		Subject to the other terms and conditions of this Plan, each Scheduled Distribution elected shall be paid out during a 60 day period commencing immediately after the Benefit Distribution Date. By way of example, if a Scheduled Distribution is elected for Annual Deferral Amounts that relate to services performed in the Plan Year commencing January 1, 2009, the earliest Benefit Distribution Date that may be designated by a Participant would be January 1, 2013, and the Scheduled Distribution would be paid out during the 60 day period commencing immediately after such Benefit Distribution Date.

4.2

Postponing Scheduled Distributions. A Participant may elect to postpone a Scheduled Distribution described in Section 4.1 above, and have such amount paid out during a 60 day period commencing immediately after an allowable alternative Benefit Distribution Date designated in accordance with this Section 4.2. In order to make such an election, the Participant must submit an Election Form to the Committee in accordance with the following criteria:

	(a)		The election of the new Benefit Distribution Date shall have no effect until at least 12 months after the date on which the election is made;

	(b)		The new Benefit Distribution Date selected by the Participant for such Scheduled Distribution must be the first day of a Plan Year that is no sooner than five years after the previously designated Benefit Distribution Date; and

	(c)		The election must be made at least 12 months prior to the Participant’s previously designated Benefit Distribution Date for such Scheduled Distribution.

			For purposes of applying the provisions of this Section 4.2, a Participant’s election to postpone a Scheduled Distribution shall not be considered to be made until the date on which the election becomes irrevocable. Such an election shall become irrevocable no later than the date that is 12 months prior to the Participant’s previously designated Benefit Distribution Date for such Scheduled Distribution.

4.3

Other Benefits Take Precedence Over Scheduled Distributions. Should an event occur prior to any Benefit Distribution Date designated for a Scheduled Distribution that would trigger a benefit under Articles 5 through 9, as applicable, all amounts subject to a Scheduled Distribution election shall be paid in accordance with the other applicable provisions of the Plan and not in accordance with this Article 4.

4.4

Unforeseeable Emergencies.

	(a)		If a Participant experiences an Unforeseeable Emergency prior to the occurrence of a distribution event described in Articles 5 through 9, as applicable, the Participant may petition the Committee to receive a partial or full payout from the Plan. The payout, if any, from the Plan shall not exceed the lesser of (i) the Participant’s vested Account Balance, calculated as of the close of business on or around the Benefit Distribution Date for such payout, as determined by the Committee in accordance with provisions set forth below, or (ii) the amount necessary to satisfy the Unforeseeable Emergency, plus amounts necessary to pay Federal, state, or local income taxes or penalties reasonably anticipated as a result of the distribution. A Participant shall not be eligible to receive a payout from the Plan to the extent that the Unforeseeable Emergency is or may be relieved (A) through reimbursement or compensation by insurance or otherwise, (B) by liquidation of the Participant’s assets, to the extent the liquidation of such assets would not itself cause severe financial hardship or (C) by cessation of deferrals under this Plan.

			If the Committee, in its sole discretion, approves a Participant’s petition for payout from the Plan, the Participant’s Benefit Distribution Date for such payout shall be the date on which such Committee approval occurs and such payout shall be distributed to the Participant in a lump sum no later than 60 days after such Benefit Distribution Date. In addition, in the event of such approval the Participant’s outstanding deferral elections under the Plan shall be cancelled.

	(b)		A Participant’s deferral elections under this Plan shall also be cancelled to the extent the Committee determines that such action is required for the Participant to obtain a hardship distribution from an Employer’s 401(k) Plan pursuant to Treas. Reg. §1.401(k)-1(d)(3).

ARTICLE 5
Change in Control Benefit

5.1		Change in Control Benefit. A Participant, in connection with his or her commencement of participation in the Plan, shall have an opportunity to irrevocably elect to receive his or her vested Account Balance in the form of a lump sum payment in the event that a Change in Control occurs prior to the Participant’s Separation from Service, Disability or death (the “Change in Control Benefit”). The Benefit Distribution Date for the Change in Control Benefit, if any, shall be the date on which the Change in Control occurs.

		If a Participant elects not to receive a Change in Control Benefit, or fails to make an election in connection with his or her commencement of participation in the Plan, the Participant’s Account Balance shall be paid in accordance with the other applicable provisions of the Plan.

5.2

Payment of Change in Control Benefit. The Change in Control Benefit, if any, shall be calculated as of the close of business on or around the Participant’s Benefit Distribution Date, as determined by the Committee, and paid to the Participant no later than 60 days after the Participant’s Benefit Distribution Date.

ARTICLE 6
Retirement Benefit

6.1

Retirement Benefit. If a Participant experiences a Separation from Service that qualifies as a Retirement, the Participant shall be eligible to receive his or her vested Account Balance in either a lump sum or annual installment payments, as elected by the Participant in accordance

with Section 6.1 (the “Retirement Benefit”). A Participant’s Retirement Benefit shall be calculated as of the close of business on or around the applicable Benefit Distribution Date for such benefit, which shall be (i) the first day after the end of the six-month period immediately following the date on which the Participant experiences such Separation from Service if the Participant is a Specified Employee, and (ii) for all other Participants, the date on which the Participant experiences a Separation from Service; provided, however, if a Participant changes the form of distribution for the Retirement Benefit in accordance with Section 6.1(b), the Benefit Distribution Date for the Retirement Benefit shall be determined in accordance with Section 6.1(b).

6.2

Payment of Retirement Benefit.

	(a)		A Participant, in connection with his or her commencement of participation in the Plan, shall elect on an Election Form to receive the Retirement Benefit in a lump sum or pursuant to an Annual Installment Method of up to 15 years. With respect to any Employer contributions credited to a Participant’s 2005 Annual Account during the Plan Year ending December 31, 2005, or if a Participant does not make any election with respect to the payment of the Retirement Benefit, then such Participant shall be deemed to have elected to receive the Retirement Benefit as a lump sum.

	(b)		A Participant may change the form of payment for the Retirement Benefit by submitting an Election Form to the Committee in accordance with the following criteria:

	(i)		The election shall not take effect until at least 12 months after the date on which the election is made;

	(ii)		The new Benefit Distribution Date for the Participant’s Retirement Benefit shall be five years after the Benefit Distribution Date that would otherwise have been applicable to such benefit; and

	(iii)		The election must be made at least 12 months prior to the Benefit Distribution Date that would otherwise have been applicable to the Participant’s Retirement Benefit.

			For purposes of applying the provisions of this Section 6.2(b), a Participant’s election to change the form of payment for the Retirement Benefit shall not be considered to be made until the date on which the election becomes irrevocable. Such an election shall become irrevocable no later than the date that is 12 months prior to the Benefit Distribution Date that would otherwise have been applicable to the Participant’s Retirement Benefit. Subject to the requirements of this Section 6.2(b), the Election Form most recently accepted by the Committee that has become effective shall govern the form of payout of the Participant’s Retirement Benefit.

	(c)		The lump sum payment shall be made, or installment payments shall commence, no later than 60 days after the Participant’s Benefit Distribution Date. Remaining installments, if any, shall be paid no later than 60 days after each anniversary of the Participant’s Benefit Distribution Date.

ARTICLE 7
Termination Benefit

7.1

Termination Benefit. If a Participant experiences a Separation from Service that does not qualify as a Retirement, the Participant shall receive his or her vested Account Balance in the form of a lump sum payment or pursuant to an Annual Installment Method of up to five years (the “Termination Benefit”). A Participant’s Termination Benefit shall be calculated as of the close of business on or around the Benefit Distribution Date for such benefit, which shall be (i) the first day after the end of the six-month period immediately following the date on which the Participant experiences such Separation from Service if the Participant is a Specified Employee, and (ii) for all other Participants, the date on which the Participant experiences a Separation from Service.

7.2

Payment of Retirement Benefit.

	(a)		A Participant, in connection with his or her commencement of participation in the Plan, shall elect on an Election Form to receive the Termination Benefit in a lump sum or pursuant to an Annual Installment Method of up to five years. With respect to any Employer contributions credited to a Participant’s 2005 Annual Account during the Plan Year ending December 31, 2005, or if a Participant does not make any election with respect to the payment of the Termination Benefit, then such Participant shall be deemed to have elected to receive the Termination Benefit as a lump sum.

	(b)		A Participant may change the form of payment for the Termination Benefit by submitting an Election Form to the Committee in accordance with the following criteria:

	(i)		The election shall not take effect until at least 12 months after the date on which the election is made;

	(ii)		The new Benefit Distribution Date for the Participant’s Termination Benefit shall be five years after the Benefit Distribution Date that would otherwise have been applicable to such benefit; and

	(iii)		The election must be made at least 12 months prior to the Benefit Distribution Date that would otherwise have been applicable to the Participant’s Termination Benefit.

For purposes of applying the provisions of this Section 7.2(b), a Participant’s election to change the form of payment for the Termination Benefit shall not be considered to be made until the date on which the election becomes irrevocable. Such an election shall become irrevocable no later than the date that is 12 months prior to the Benefit Distribution Date that would otherwise have been applicable to the Participant’s Termination Benefit. Subject to the requirements of this Section 7.2(b), the Election Form most recently accepted by the Committee that has become effective shall govern the form of payout of the Participant’s Termination Benefit.

(c)

The lump sum payment shall be made, or installment payments shall commence, no later than 60 days after the Participant’s Benefit Distribution Date. Remaining installments, if any, shall be paid no later than 60 days after each anniversary of the Participant’s Benefit Distribution Date.

ARTICLE 8
Disability Benefit

8.1

Disability Benefit. If a Participant becomes Disabled prior to the occurrence of a distribution event described in Articles 5 through 7, as applicable, the Participant shall receive his or her vested Account Balance in the form of a lump sum payment (the “Disability Benefit”). The Disability Benefit shall be calculated as of the close of business on or around the Participant’s Benefit Distribution Date for such benefit, which shall be the date on which the Participant becomes Disabled.

8.2

Payment of Disability Benefit. The Disability Benefit shall be paid to the Participant no later than 60 days after the Participant’s Benefit Distribution Date.

	(a)		A Participant, in connection with his or her commencement of participation in the Plan, shall elect on an Election Form to receive the Disability Benefit in a lump sum or pursuant to an Annual Installment Method of up to five years. With respect to any Employer contributions credited to a Participant’s 2005 Annual Account during the Plan Year ending December 31, 2005, or if a Participant does not make any election with respect to the payment of the Disability Benefit, then such Participant shall be deemed to have elected to receive the Disability Benefit as a lump sum.

	(b)		A Participant may change the form of payment for the Disability Benefit by submitting an Election Form to the Committee in accordance with the following criteria:

	(i)		The election shall not take effect until at least 12 months after the date on which the election is made;

	(ii)		The new Benefit Distribution Date for the Participant’s Disability Benefit shall be five years after the Benefit Distribution Date that would otherwise have been applicable to such benefit; and

	(iii)		The election must be made at least 12 months prior to the Benefit Distribution Date that would otherwise have been applicable to the Participant’s Disability Benefit.

For purposes of applying the provisions of this Section 8.2(b), a Participant’s election to change the form of payment for the Disability Benefit shall not be considered to be made until the date on which the election becomes irrevocable. Such an election shall become irrevocable no later than the date that is 12 months prior to the Benefit Distribution Date that would otherwise have been applicable to the Participant’s Disability Benefit. Subject to the requirements of this Section 8.2(b), the Election Form most recently accepted by the Committee that has become effective shall govern the form of payout of the Participant’s Disability Benefit.

ARTICLE 9
Death Benefit

9.1

Death Benefit. In the event of a Participant’s death prior to the complete distribution of his or her vested Account Balance, the Participant’s Beneficiary(ies) shall receive the Participant’s unpaid vested Account Balance in a lump sum payment (the “Death Benefit”). The Death Benefit shall be calculated as of the close of business on or around the Benefit Distribution Date for such benefit, which shall be the date of the Participant’s death.

9.2

Payment of Death Benefit. The Death Benefit shall be paid to the Participant’s Beneficiary(ies) no later than 60 days after the Participant’s Benefit Distribution Date.

ARTICLE 10
Beneficiary Designation

10.1

Beneficiary. Each Participant shall have the right, at any time, to designate his or her Beneficiary(ies) (both primary as well as contingent) to receive any benefits payable under the Plan to a beneficiary upon the death of a Participant. The Beneficiary designated under this Plan may be the same as or different from the Beneficiary designation under any other plan of an Employer in which the Participant participates.

10.2

Beneficiary Designation; Change; Spousal Consent. A Participant shall designate his or her Beneficiary by completing and signing the Beneficiary Designation Form, and returning it to the Committee or its designated agent. A Participant shall have the right to change a Beneficiary by completing, signing and otherwise complying with the terms of the Beneficiary Designation Form and the Committee’s rules and procedures, as in effect from time to time. If the Participant names someone other than his or her spouse as a Beneficiary, the Committee may, in its sole discretion, determine that spousal consent is required to be provided in a form designated by the Committee, executed by such Participant’s spouse and returned to the Committee. Upon the acceptance by the Committee of a new Beneficiary Designation Form, all Beneficiary designations previously filed shall be canceled. The Committee shall be entitled to rely on the last Beneficiary Designation Form filed by the Participant and accepted by the Committee prior to his or her death.

10.3

Acknowledgment. No designation or change in designation of a Beneficiary shall be effective until received and acknowledged in writing by the Committee or its designated agent.

10.4

No Beneficiary Designation. If a Participant fails to designate a Beneficiary as provided in Sections 10.1, 10.2 and 10.3 above or, if all designated Beneficiaries predecease the Participant or die prior to complete distribution of the Participant’s benefits, then the Participant’s designated Beneficiary shall be deemed to be his or her surviving spouse. If the Participant has no surviving spouse, the benefits remaining under the Plan to be paid to a Beneficiary shall be payable to the executor or personal representative of the Participant’s estate.

10.5

Doubt as to Beneficiary. If the Committee has any doubt as to the proper Beneficiary to receive payments pursuant to this Plan, the Committee shall have the right, exercisable in its discretion, to cause the Participant’s Employer to withhold such payments until this matter is resolved to the Committee’s satisfaction.

10.6

Discharge of Obligations. The payment of benefits under the Plan to a Beneficiary shall fully and completely discharge all Employers and the Committee from all further obligations under this Plan with respect to the Participant, and that Participant’s Plan Agreement shall terminate upon such full payment of benefits.

ARTICLE 11
Leave of Absence

11.1

Paid Leave of Absence. If a Participant is authorized by the Participant’s Employer to take a paid leave of absence from the employment of the Employer, and such leave of absence does not

constitute a Separation from Service, (i) the Participant shall continue to be considered eligible for the benefits provided under the Plan, and (ii) the Annual Deferral Amount shall continue to be withheld during such paid leave of absence in accordance with Section 3.2.

11.2

Unpaid Leave of Absence. If a Participant is authorized by the Participant’s Employer to take an unpaid leave of absence from the employment of the Employer for any reason, and such leave of absence does not constitute a Separation from Service, such Participant shall continue to be eligible for the benefits provided under the Plan. During the unpaid leave of absence, the Participant shall not be allowed to make any additional deferral elections. However, if the Participant returns to employment, the Participant may elect to defer an Annual Deferral Amount for the Plan Year following his or her return to employment and for every Plan Year thereafter while a Participant in the Plan, provided such deferral elections are otherwise allowed and an Election Form is delivered to and accepted by the Committee for each such election in accordance with Section 3.2 above.

ARTICLE 12
Termination of Plan, Amendment or Modification

12.1

Termination of Plan. Although each Employer anticipates that it will continue the Plan for an indefinite period of time, there is no guarantee that any Employer will continue the Plan or will not terminate the Plan at any time in the future. Accordingly, each Employer reserves the right to terminate the Plan with respect to all of its Participants. In the event of a Plan termination no new deferral elections shall be permitted for the affected Participants and such Participants shall no longer be eligible to receive new company contributions. However, after the Plan termination the Account Balances of such Participants shall continue to be credited with Annual Deferral Amounts attributable to a deferral election that was in effect prior to the Plan termination to the extent deemed necessary to comply with Code Section 409A and related Treasury Regulations, and additional amounts shall continue to credited or debited to such Participants’ Account Balances pursuant to Section 3.7. The Measurement Funds available to Participants following the termination of the Plan shall be comparable in number and type to those Measurement Funds available to Participants in the Plan Year preceding the Plan Year in which the Plan termination is effective. In addition, following a Plan termination, Participant Account Balances shall remain in the Plan and shall not be distributed until such amounts become eligible for distribution in accordance with the other applicable provisions of the Plan. Notwithstanding the preceding sentence, to the extent permitted by Treas. Reg. §1.409A-3(j)(4)(ix), the Employer may provide that upon termination of the Plan, all Account Balances of the Participants shall be distributed, subject to and in accordance with any rules established by such Employer deemed necessary to comply with the applicable requirements and limitations of Treas. Reg. §1.409A-3(j)(4)(ix).

12.2

Amendment. Any Employer may, at any time, amend or modify the Plan in whole or in part with respect to that Employer. Notwithstanding the foregoing, (i) no amendment or modification shall be effective to decrease the value of a Participant’s vested Account Balance in existence at the time the amendment or modification is made, and (ii) no amendment or modification of this Section 12.2 or Section 13.2 of the Plan shall be effective.

12.3

Plan Agreement. Despite the provisions of Sections 12.1 and 12.2 above, if a Participant’s Plan Agreement contains benefits or limitations that are not in this Plan document, the Employer may only amend or terminate such provisions with the written consent of the Participant.

12.4

Effect of Payment. The full payment of the Participant’s vested Account Balance in accordance with the applicable provisions of the Plan shall completely discharge all obligations to a Participant and his or her designated Beneficiaries under this Plan, and the Participant’s Plan Agreement shall terminate.

ARTICLE 13
Administration

13.1

Committee Duties. Except as otherwise provided in this Article 13, this Plan shall be administered by a Committee, which shall consist of the Board, or such committee as the Board shall appoint. Members of the Committee may be Participants under this Plan. The Committee shall also have the discretion and authority to (i) make, amend, interpret, and enforce all appropriate rules and regulations for the administration of this Plan, and (ii) decide or resolve any and all questions, including benefit entitlement determinations and interpretations of this Plan, as may arise in connection with the Plan. Any individual serving on the Committee who is a Participant shall not vote or act on any matter relating solely to himself or herself. When making a determination or calculation, the Committee shall be entitled to rely on information furnished by a Participant or the Company.

13.2

Administration Upon Change In Control. Within 120 days following a Change in Control, the individuals who comprised the Committee immediately prior to the Change in Control (whether or not such individuals are members of the Committee following the Change in Control) may, by written consent of the majority of such individuals, appoint an independent third party administrator (the “Administrator”) to perform any or all of the Committee’s duties described in Section 13.1 above, including without limitation, the power to determine any questions arising in connection with the administration or interpretation of the Plan, and the power to make benefit entitlement determinations. Upon and after the effective date of such appointment, (i) the Company must pay all reasonable administrative expenses and fees of the Administrator, and (ii) the Administrator may only be terminated with the written consent of the majority of Participants with an Account Balance in the Plan as of the date of such proposed termination.

13.3

Agents. In the administration of this Plan, the Committee or the Administrator, as applicable, may, from time to time, employ agents and delegate to them such administrative duties as it sees fit (including acting through a duly appointed representative) and may from time to time consult with counsel.

13.4

Binding Effect of Decisions. The decision or action of the Committee or Administrator, as applicable, with respect to any question arising out of or in connection with the administration, interpretation and application of the Plan and the rules and regulations promulgated hereunder shall be final and conclusive and binding upon all persons having any interest in the Plan.

13.5

Indemnity of Committee. All Employers shall indemnify and hold harmless the members of the Committee, any Employee to whom the duties of the Committee may be delegated, and the Administrator against any and all claims, losses, damages, expenses or liabilities arising from any action or failure to act with respect to this Plan, except in the case of willful misconduct by the Committee, any of its members, any such Employee or the Administrator.

13.6

Employer Information. To enable the Committee and/or Administrator to perform its functions, the Company and each Employer shall supply full and timely information to the Committee and/or Administrator, as the case may be, on all matters relating to the Plan, the

Trust, the Participants and their Beneficiaries, the Account Balances of the Participants, the compensation of its Participants, the date and circumstances of the Separation from Service, Disability or death of its Participants, and such other pertinent information as the Committee or Administrator may reasonably require.

ARTICLE 14
Other Benefits and Agreements

14.1

Coordination with Other Benefits. The benefits provided for a Participant and Participant’s Beneficiary under the Plan are in addition to any other benefits available to such Participant under any other plan or program for employees of the Participant’s Employer. The Plan shall supplement and shall not supersede, modify or amend any other such plan or program except as may otherwise be expressly provided.

ARTICLE 15
Claims Procedures

15.1

Presentation of Claim. Any Participant or Beneficiary of a deceased Participant (such Participant or Beneficiary being referred to below as a “Claimant”) may deliver to the Committee a written claim for a determination with respect to the amounts distributable to such Claimant from the Plan. If such a claim relates to the contents of a notice received by the Claimant, the claim must be made within 60 days after such notice was received by the Claimant. All other claims must be made within 180 days of the date on which the event that caused the claim to arise occurred. The claim must state with particularity the determination desired by the Claimant.

15.2

Notification of Decision. The Committee shall consider a Claimant’s claim within a reasonable time, but no later than 90 days after receiving the claim. If the Committee determines that special circumstances require an extension of time for processing the claim, written notice of the extension shall be furnished to the Claimant prior to the termination of the initial 90 day period. In no event shall such extension exceed a period of 90 days from the end of the initial period. The extension notice shall indicate the special circumstances requiring an extension of time and the date by which the Committee expects to render the benefit determination. The Committee shall notify the Claimant in writing:

	(a)		that the Claimant’s requested determination has been made, and that the claim has been allowed in full; or

	(b)		that the Committee has reached a conclusion contrary, in whole or in part, to the Claimant’s requested determination, and such notice must set forth in a manner calculated to be understood by the Claimant:

	(i)		the specific reason(s) for the denial of the claim, or any part of it;

	(ii)		specific reference(s) to pertinent provisions of the Plan upon which such denial was based;

	(iii)		a description of any additional material or information necessary for the Claimant to perfect the claim, and an explanation of why such material or information is necessary;

	(iv)		an explanation of the claim review procedure set forth in Section 15.3 below; and

	(v)		a statement of the Claimant’s right to bring a civil action under ERISA Section 502(a) following an adverse benefit determination on review.

15.3

Review of a Denied Claim. On or before 60 days after receiving a notice from the Committee that a claim has been denied, in whole or in part, a Claimant (or the Claimant’s duly authorized representative) may file with the Committee a written request for a review of the denial of the claim. The Claimant (or the Claimant’s duly authorized representative):

	(a)		may, upon request and free of charge, have reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claim for benefits;

	(b)		may submit written comments or other documents; and/or

	(c)		may request a hearing, which the Committee, in its sole discretion, may grant.

15.4

Decision on Review. The Committee shall render its decision on review promptly, and no later than 60 days after the Committee receives the Claimant’s written request for a review of the denial of the claim. If the Committee determines that special circumstances require an extension of time for processing the claim, written notice of the extension shall be furnished to the Claimant prior to the termination of the initial 60 day period. In no event shall such extension exceed a period of 60 days from the end of the initial period. The extension notice shall indicate the special circumstances requiring an extension of time and the date by which the Committee expects to render the benefit determination. In rendering its decision, the Committee shall take into account all comments, documents, records and other information submitted by the Claimant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination. The decision must be written in a manner calculated to be understood by the Claimant, and it must contain:

	(a)		specific reasons for the decision;

	(b)		specific reference(s) to the pertinent Plan provisions upon which the decision was based;

	(c)		a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the Claimant’s claim for benefits; and

	(d)		a statement of the Claimant’s right to bring a civil action under ERISA Section 502(a).

15.5

Legal Action. A Claimant’s compliance with the foregoing provisions of this Article 15 is a mandatory prerequisite to a Claimant’s right to commence any legal action with respect to any claim for benefits under this Plan.

ARTICLE 16
Trust

16.1

Establishment of the Trust. In order to provide assets from which to fulfill its obligations to the Participants and their Beneficiaries under the Plan, the Company may establish a trust by a trust agreement with a third party, the trustee, to which each Employer may, in its discretion,

contribute cash or other property, including securities issued by the Company, to provide for the benefit payments under the Plan (the “Trust”).

16.2

Interrelationship of the Plan and the Trust. The provisions of the Plan and the Plan Agreement shall govern the rights of a Participant to receive distributions pursuant to the Plan. The provisions of the Trust shall govern the rights of the Employers, Participants and the creditors of the Employers to the assets transferred to the Trust. Each Employer shall at all times remain liable to carry out its obligations under the Plan.

16.3

Distributions From the Trust. Each Employer’s obligations under the Plan may be satisfied with Trust assets distributed pursuant to the terms of the Trust, and any such distribution shall reduce the Employer’s obligations under this Plan.

ARTICLE 17
Miscellaneous

17.1

Status of Plan. The Plan is intended to be a plan that is not qualified within the meaning of Code Section 401(a) and that “is unfunded and is maintained by an employer primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees” within the meaning of ERISA Sections 201(2), 301(a)(3) and 401(a)(1). The Plan shall be administered and interpreted (i) to the extent possible in a manner consistent with the intent described in the preceding sentence, and (ii) in accordance with Code Section 409A and related Treasury guidance and Regulations.

17.2

Unsecured General Creditor. Participants and their Beneficiaries, heirs, successors and assigns shall have no legal or equitable rights, interests or claims in any property or assets of an Employer. For purposes of the payment of benefits under this Plan, any and all of an Employer’s assets shall be, and remain, the general, unpledged unrestricted assets of the Employer. An Employer’s obligation under the Plan shall be merely that of an unfunded and unsecured promise to pay money in the future.

17.3

Employer’s Liability. An Employer’s liability for the payment of benefits shall be defined only by the Plan and the Plan Agreement, as entered into between the Employer and a Participant. An Employer shall have no obligation to a Participant under the Plan except as expressly provided in the Plan and his or her Plan Agreement.

17.4

Nonassignability. Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate, alienate or convey in advance of actual receipt, the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are expressly declared to be, unassignable and non-transferable. No part of the amounts payable shall, prior to actual payment, be subject to seizure, attachment, garnishment or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, be transferable by operation of law in the event of a Participant’s or any other person’s bankruptcy or insolvency or be transferable to a spouse as a result of a property settlement or otherwise.

17.5

Not a Contract of Employment. The terms and conditions of this Plan shall not be deemed to constitute a contract of employment between any Employer and the Participant. Such employment is hereby acknowledged to be an “at will” employment relationship that can be terminated at any time for any reason, or no reason, with or without cause, and with or without

notice, unless expressly provided in a written employment agreement. Nothing in this Plan shall be deemed to give a Participant the right to be retained in the service of any Employer, either as an Employee or a Director, or to interfere with the right of any Employer to discipline or discharge the Participant at any time.

17.6

Furnishing Information. A Participant or his or her Beneficiary will cooperate with the Committee by furnishing any and all information requested by the Committee and take such other actions as may be requested in order to facilitate the administration of the Plan and the payments of benefits hereunder, including but not limited to taking such physical examinations as the Committee may deem necessary.

17.7

Terms. Whenever any words are used herein in the masculine, they shall be construed as though they were in the feminine in all cases where they would so apply; and whenever any words are used herein in the singular or in the plural, they shall be construed as though they were used in the plural or the singular, as the case may be, in all cases where they would so apply.

17.8

Captions. The captions of the articles, sections and paragraphs of this Plan are for convenience only and shall not control or affect the meaning or construction of any of its provisions.

17.9

Governing Law. Subject to ERISA, the provisions of this Plan shall be construed and interpreted according to the internal laws of the State of Texas without regard to its conflicts of laws principles.

17.10

Notice. Any notice or filing required or permitted to be given to the Committee under this Plan shall be sufficient if in writing and hand-delivered, or sent by registered or certified mail, to the address below:


		Service Corporation International Attn: Vice President, Human Resources 1929 Allen Parkway Houston, Texas 77019

		Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification.

		Any notice or filing required or permitted to be given to a Participant under this Plan shall be sufficient if in writing and hand-delivered, or sent by mail, to the last known address of the Participant.

17.11		Successors. The provisions of this Plan shall bind and inure to the benefit of the Participant’s Employer and its successors and assigns and the Participant and the Participant’s designated Beneficiaries.

17.12		Spouse’s Interest. The interest in the benefits hereunder of a spouse of a Participant who has predeceased the Participant shall automatically pass to the Participant and shall not be transferable by such spouse in any manner, including but not limited to such spouse’s will, nor shall such interest pass under the laws of intestate succession.

17.13

Validity. In case any provision of this Plan shall be illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but this Plan shall be construed and enforced as if such illegal or invalid provision had never been inserted herein.

17.14

Incompetent. If the Committee determines in its discretion that a benefit under this Plan is to be paid to a minor, a person declared incompetent or to a person incapable of handling the disposition of that person’s property, the Committee may direct payment of such benefit to the guardian, legal representative or person having the care and custody of such minor, incompetent or incapable person. The Committee may require proof of minority, incompetence, incapacity or guardianship, as it may deem appropriate prior to distribution of the benefit. Any payment of a benefit shall be a payment for the account of the Participant and the Participant’s Beneficiary, as the case may be, and shall be a complete discharge of any liability under the Plan for such payment amount.

17.15

Domestic Relations Orders. If necessary to comply with a domestic relations order, as defined in Code Section 414(p)(1)(B), pursuant to which a court has determined that a spouse or former spouse of a Participant has an interest in the Participant’s benefits under the Plan, the Committee shall have the right to immediately distribute the spouse’s or former spouse’s interest in the Participant’s benefits under the Plan to such spouse or former spouse.

17.16

Distribution in the Event of Income Inclusion Under Code Section 409A. If any portion of a Participant’s Account Balance under this Plan is required to be included in income by the Participant prior to receipt due to a failure of this Plan to comply with the requirements of Code Section 409A and related Treasury Regulations, the Committee may determine that such Participant shall receive a distribution from the Plan in an amount equal to the lesser of (i) the portion of his or her Account Balance required to be included in income as a result of the failure of the Plan to comply with the requirements of Code Section 409A and related Treasury Regulations, or (ii) the unpaid vested Account Balance.

17.17

Deduction Limitation on Benefit Payments. If an Employer reasonably anticipates that the Employer’s deduction with respect to any distribution from this Plan would be limited or eliminated by application of Code Section 162(m), then to the extent permitted by Treas. Reg. §1.409A-2(b)(7)(i), payment shall be delayed as deemed necessary to ensure that the entire amount of any distribution from this Plan is deductible. Any amounts for which distribution is delayed pursuant to this Section shall continue to be credited/debited with additional amounts in accordance with Section 3.7. The delayed amounts (and any amounts credited thereon) shall be distributed to the Participant (or his or her Beneficiary in the event of the Participant’s death) at the earliest date the Employer reasonably anticipates that the deduction of the payment of the amount will not be limited or eliminated by application of Code Section 162(m). In the event that such date is determined to be after a Participant’s Separation from Service and the Participant to whom the payment relates is determined to be a Specified Employee, then to the extent deemed necessary to comply with Treas. Reg. §1.409A-3(i)(2), the delayed payment shall not be made before the end of the six-month period following such Participant’s Separation from Service.

IN WITNESS WHEREOF, the Company has signed this Plan document as of 25^th June, 2009.


		SERVICE CORPORATION INTERNATIONAL, a Texas corporation

		By:		/s/ Jane D. Jones Jane D. Jones

		Title:

				Vice President, Human Resources

EX-12.1 3 h67613exv12w1.htm EX-12.1 exv12w1

Exhibit 12.1

SERVICE CORPORATION INTERNATIONAL
RATIO OF EARNINGS TO FIXED CHARGES
(In thousands, except ratio amounts)


	Three months ended				Six months ended
	June 30,				June 30,
	2009		2008		2009		2008
Earnings:
Income from continuing operations before income taxes	$	39,902	$	52,169	$	94,563	$	118,642
Add: Fixed charges (from below)		33,989		35,108		67,457		71,172

	$	73,891	$	87,277	$	162,020	$	189,814

Fixed charges:
Interest expense:
Corporate	$	31,590	$	32,444	$	62,362	$	65,517
Amortization of deferred financing costs		796		867		1,694		1,863
Implicit interest in rental expense		1,603		1,797		3,401		3,792

Fixed charges	$	33,989	$	35,108	$	67,457	$	71,172

Ratio (earnings divided by fixed charges)		2.17		2.49		2.40		2.67

EX-31.1 4 h67613exv31w1.htm EX-31.1 exv31w1

Exhibit 31.1

Service Corporation International
a Texas corporation
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Section 302 Certification

I, Thomas L. Ryan, certify that:

1.		I have reviewed this quarterly report on Form 10-Q of Service Corporation International, a Texas corporation (the “registrant”);

2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

	a)		designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b)		designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	c)		evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d)		disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

	a)		all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

	b)		any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date: August 6, 2009	/s/ Thomas L. Ryan
	Thomas L. Ryan
	President and Chief Executive Officer

EX-31.2 5 h67613exv31w2.htm EX-31.2 exv31w2

Exhibit 31.2

Service Corporation International
a Texas corporation
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
Section 302 Certification

I, Eric D. Tanzberger, certify that:

1.		I have reviewed this quarterly report on Form 10-Q of Service Corporation International, a Texas corporation (the “registrant”);

2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

	a)		designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b)		designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	c)		evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d)		disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

	a)		all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

	b)		any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date: August 6, 2009	/s/ Eric D. Tanzberger
	Eric D. Tanzberger
	Senior Vice President Chief Financial Officer and Treasurer (Principal Financial Officer)

EX-32.1 6 h67613exv32w1.htm EX-32.1 exv32w1

Exhibit 32.1

Certification of Chief Executive Officer

I, Thomas L. Ryan, of Service Corporation International, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

	(1)		the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009 (the “Periodic Report”) which this statement accompanies fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

	(2)		the information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of Service Corporation International.



Dated: August 6, 2009	/s/ Thomas L. Ryan
	Thomas L. Ryan
	President and Chief Executive Officer

EX-32.2 7 h67613exv32w2.htm EX-32.2 exv32w2

Exhibit 32.2

Certification of Principal Financial Officer

I, Eric D. Tanzberger, of Service Corporation International, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

	(1)		the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009 (the “Periodic Report”) which this statement accompanies fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

	(2)		the information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of Service Corporation International.



Dated: August 6, 2009	/s/ Eric D. Tanzberger
	Eric D. Tanzberger
	Senior Vice President Chief Financial Officer and Treasurer (Principal Financial Officer)

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