UNITED STATES SECURITIES AND EXCHANGE COMMISSION
| þ | Annual Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of 1934 |
| o | Transition Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of 1934 |
Commission File Number: 1-11961
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Delaware | 76-0423828 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
| 77056 | |
(Address of principal executive offices) | (Zip Code) |
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
| SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: | ||
| Common Stock, $.01 Par Value | New York Stock Exchange | |
| Series G Preferred Stock Purchase Rights | New York Stock Exchange | |
(Title Of Class) | (Name of Exchange on which registered) | |
None
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes þ No Yes o No The number of shares of the registrant’s Common Stock, $.01 par value per share outstanding as of 18,485,250. 1 evidenced by: DEATH CARE INDUSTRY attributes (the statistics included in this report are based on public reports from financial research firms or public websites): 2 result, the industry continues to be characterized by a large number of locally-owned, independent businesses. decline. 3 OUR STRENGTHS 4 Company. After completion of the offering, we have four primary components in our capital structure: Our growth strategy is the primary way we expect to increase shareholder value, which means that we need to achieve a much higher return on invested capital during this growth cycle compared to the 90’s cycle. We will reassess our capital allocation strategy annually, but at this point we believe that our financial goals will best be achieved by continuing to improve the operating and financial performance of our existing portfolio while selectively making new acquisitions. At year-end 2005 we reorganized our funeral and cemetery divisions into four Regions, each headed by a Regional Partner. This change should engender more cooperation and synergy between our funeral and cemetery operations and support the goal of market-share and volume growth in our most significant markets. The four Regional Partners will report to Mel Payne in the role of Chief Operating Officer. 5 worship, and transportation services. Most of our funeral homes have a non-denominational chapel on the premises, which permits family visitation and religious services to take place at one location and thereby reduces our transportation costs and inconvenience to the family. 2005. 6 In addition to preneed funeral contracts, we also offer “preplanned” funeral arrangements whereby a client determines in advance substantially all of the details of a funeral service without any financial commitment or other obligation on the part of the client until the actual time of need. Preplanned funeral arrangements permit a family to avoid issues of making death care plans at the time of need and enable a funeral home to establish relationships with a client that may eventually lead to an at-need sale. 2005, respectively. advisory services. 2005. 2005. 7 2005. acquiring and operating funeral homes and cemeteries. in Nevada have elected to have the local teamsters union represent them in contract negotiations with the Company. To date, the Company has not entered into any contracts with the union. 8 9 10 11 12 Number of Number of Cemeteries State Owned Leased(1) Owned Managed California 16 3 4 0 Connecticut 6 2 0 0 Florida 5 3 6 3 Georgia 3 0 0 0 Idaho 4 1 1 0 Illinois 1 5 1 0 Indiana 2 1 1 0 Iowa 2 0 0 0 Kansas 7 0 0 0 Kentucky 10 3 1 0 Maryland 1 0 0 0 Massachusetts 6 0 0 0 Michigan 4 0 0 0 Missouri 0 1 0 0 Montana 1 0 0 0 Nevada 2 0 2 1 New Jersey 4 1 0 0 New Mexico 1 0 0 0 New York 2 1 0 0 North Carolina 1 2 1 0 Ohio 4 3 0 1 Oklahoma 1 0 1 0 Rhode Island 4 0 0 0 Tennessee 3 0 0 0 Texas 11 0 6 0 Virginia 3 1 1 0 Washington 1 1 0 0 West Virginia 1 1 0 0 Total 106 29 25 5 13 High Low 2003 First Quarter $ 4.58 $ 3.20 Second Quarter $ 4.10 $ 3.25 Third Quarter $ 3.64 $ 2.99 Fourth Quarter $ 3.75 $ 3.13 2004 First Quarter $ 5.25 $ 3.72 Second Quarter $ 5.50 $ 4.75 Third Quarter $ 5.25 $ 4.31 Fourth Quarter $ 5.10 $ 4.30 14 performance, nor necessarily comparable as a result of a change in accounting methods discussed below. 15 Year ended December 31, 2000 2001 2002 2003 2004 (in thousands, except per share and operating data) INCOME STATEMENT DATA: Revenues, net: Funeral $ 122,686 $ 120,039 $ 115,100 $ 112,588 $ 112,816 Cemetery 34,552 37,245 34,217 34,351 37,390 Total net revenues 157,238 157,284 149,317 146,939 150,206 Gross profit: Funeral 24,746 30,559 33,407 29,098 29,429 Cemetery 5,630 8,435 8,221 8,521 8,874 Total gross profit 30,376 38,994 41,628 37,619 38,303 General and administrative expenses 10,256 8,698 10,557 10,492 10,665 Special charges and other 102,250 — 871 432 495 Operating income (loss) (82,130 ) 30,296 30,200 26,695 27,143 Interest expense (20,655 ) (20,300 ) (19,715 ) (17,935 ) (17,058 ) Other income — — 865 657 940 Income (loss) before income taxes (102,785 ) 9,996 11,350 9,417 11,025 Provision (benefit) for income taxes (8,382 ) 1,999 (8,429 ) 3,519 71 Net income (loss) from continuing operations (94,404 ) 7,997 19,779 5,898 10,954 Cumulative effect of the change in accounting, net (38,993 ) — — — — Income (loss) from discontinued operations 1,400 1,005 499 727 (1,720 ) Net income (loss) (131,996 ) 9,002 20,278 6,625 9,234 Preferred stock dividends 81 37 — — — Net income (loss) available to common stockholders $ (132,077 ) $ 8,965 $ 20,278 $ 6,625 $ 9,234 Earnings (loss) per share Basic: Continuing operations $ (5.88 ) $ 0.48 $ 1.17 $ 0.34 $ 0.62 Cumulative effect of the change in accounting principle (2.43 ) — — — — Discontinued operations .08 0.06 0.03 0.04 (0.10 ) Basic earnings (loss) per share $ (8.23 ) $ 0.54 $ 1.20 $ 0.38 $ 0.52 Diluted: Continuing operations $ (5.88 ) $ 0.46 $ 1.13 $ 0.33 $ 0.60 Cumulative effect of the change in accounting principle (2.43 ) — — — — Discontinued operations .08 0.05 0.03 0.04 (0.09 ) Diluted earnings (loss) per share $ (8.23 ) $ 0.51 $ 1.16 $ 0.37 $ 0.51 Weighted average number of common and common equivalent shares outstanding: Basic 16,056 16,696 16,973 17,444 17,786 Diluted 16,056 17,492 17,433 17,808 18,260 OPERATING AND FINANCIAL DATA: Funeral homes at end of period 172 148 144 139 135 Cemeteries at end of period 38 30 30 30 30 Atneed funeral service contracts performed 27,178 24,724 24,071 23,397 22,732 Preneed funeral contracts sold 7,377 5,378 5,455 5,192 4,834 Backlog of preneed funeral contracts 86,710 67,320 59,594 59,872 60,504 Depreciation and amortization $ 18,003 $ 15,716 $ 9,565 $ 9,975 $ 10,830 BALANCE SHEET DATA: Total assets $ 541,651 $ 552,167 $ 549,948 $ 538,917 $ 565,156 Working capital (deficit) 13,892 (1,006 ) (1,598 ) (14,285 ) 4,933 Long-term debt, net of current maturities 176,662 148,508 141,207 105,355 102,714 Convertible junior subordinated debenture (1) — — — — 93,750 Redeemable convertible preferred stock (TIDES) 91,100 90,058 90,193 90,327 — Stockholders’ equity $ 77,237 $ 81,578 $ 98,091 $ 105,930 $ 116,438 16 The cemetery operating results are affected by the size and success of our sales organization 17 Consolidated Financial Statements. Beginning in 2005, we changed our method of accounting for preneed selling costs. Preneed selling costs are now expensed as incurred. 18ýþ No oýoan accelerated filera shell company as defined inby Rule 12b-2 of the Securities Exchange Act of 1934. ýþ20042005 was approximately $74.93$98.1 million based on the closing price of $5.04$6.05 per share on the New York Stock Exchange.March 15, 2005February 28, 2006 was 17,969,000.20052006 annual meeting of stockholders are incorporated in Part III of this Report.2004,2005, we operated 135133 funeral homes in 28 states and 3029 cemeteries in 12 states. For the year ended December 31, 2004, we had revenues of $150.2 million and earnings from continuing operations of $11.0 million. We primarily serve suburban markets and believe we are a market leader (first or second) in most of those markets. We provide funeral and cemetery services and products on both an “at-need” (time of death) and “preneed” (planned prior to death) basis.•Funeral Home Operations. Funeral homes are principally service businesses that provide burial and cremation services and sell related merchandise, such as caskets and urns. Given the high fixed cost structure associated with funeral home operations, we believe the following are key factors affecting our profitability:• favorable demographic trends in terms of population growth and average age, which impact death rates and number of deaths;• establishing and maintaining leading market share positions supported by strong local heritage and relationships;• effectively responding to increasing cremation trends by packaging complementary services and merchandise;• controlling salary and merchandise costs; and• exercising pricing leverage related to our at-need business to increase average revenues per contract.•Cemetery Operations. Cemeteries are primarily a sales business that provides interment rights (grave sites and mausoleums) and related merchandise, such as markers and memorials. Our cemetery operating results are impacted by the success of our sales organization because approximately 36% of our cemetery revenues during the year ended December 31, 2004 was generated from preneed sales of interment rights. We believe that changes in the level of consumer confidence (a measure of whether consumers will spend money on discretionary items) also impact the amount of such preneed sales. Cemetery revenues generated from at-need service and merchandise sales generally are subject to many of the same key profitability factors as in our funeral home business. Approximately 8% of our cemetery revenues during the year ended December 31, 2004 was attributable to investment earnings on trust funds and finance charges on installment contracts.• Funeral Home Operations.Funeral homes are principally service businesses that provide burial and cremation services and sell related merchandise, such as caskets and urns. Given the high fixed cost structure associated with funeral home operations, we believe the following are key factors affecting our profitability: • favorable demographic trends in terms of population growth and average age, which impact death rates and number of deaths; • establishing and maintaining leading market share positions supported by strong local heritage and relationships; • effectively responding to increasing cremation trends by packaging complementary services and merchandise; • controlling salary and merchandise costs; and • exercising pricing leverage related to our at-need business to increase average revenues per contract. • Cemetery Operations.Cemeteries are primarily a sales business that provides interment rights (grave sites and mausoleums) and related merchandise, such as markers and memorials. Our cemetery operating results are impacted by the success of our sales organization because approximately 37% of our cemetery revenues during the year ended December 31, 2005 was generated from preneed sales of interment rights. We believe that changes in the level of consumer confidence (a measure of whether consumers will spend money on discretionary items) also impact the amount of such preneed sales. Cemetery revenues generated from at-need service and merchandise sales generally are subject to many of the same key profitability factors as in our funeral home business. Approximately 10% of our cemetery revenues during the year ended December 31, 2005 was attributable to investment earnings on trust funds and finance charges on installment contracts. •• financial and operational standards based upon drivers of success of our best businesses;•• financial and operational standards based upon drivers of success of our best businesses; • variable compensation that rewards our managers as if they are owners; • finding, developing and retaining the best people in our industry; and • information technology designed to support local business and corporate management decisions, measure performance of our businesses against our financial and operational standards, and ensure adherence to established internal control procedures. funeral home managersnear-term goals in 2005 as if they are owners;• finding, developing and retaining the best people in our industry; and• information technology designed to support local business and corporate management decisions, measure performance of our businesses against our financial and operational standards, and ensure adherence to established internal control procedures.• increasing revenues and gross profit our funeral home businesses as a result of our new operating model; • improving our credit profile with the $130 million senior debt offering in January 2005; and • acquiring a funeral home business that met our profile. 20052006 and 20062007 include:• continuing to improve our operating and financial performance by executing our “Being the Best” funeral operating model and implementing a similar operating model in our cemetery segment;• increasing our profitability and cash flow, and continuing to improve our credit profile;• initiating a disciplined acquisition program of funeral businesses that match a profile based on our Being the Best standards.• continuing to improve our operating and financial performance by executing our “Being the Best” funeral and cemetery operating models; • increasing our profitability and cash flow; • executing a disciplined acquisition program of funeral businesses that match a profile based on our Being the Best standards. • continuous improvement and portfolio optimization driven by our Being the Best operating model; • increasing market share and profitability; • formalizing and fully implementing a disciplined acquisition program; and • raising equity proceeds to enhance our capital structure and support our growth strategy as appropriate opportunities arise. • continuous improvement and portfolio optimization driven by our Being the Best operating model;• increasing market share and profitability;• formalizing and fully implementing a disciplined acquisition program; and• raising equity proceeds to enhance our capital structure and support our growth strategy as appropriate opportunities arise.attributes:TheWe understand that the death rate for 2004 was flat2005 increased 0.2 percent compared to 2003. Despite this recent trend, the2004 and increased 0.3 percent from 2003 to 2004. The number of deaths per year in the United States is expected to increase from 2.4approximately 2.5 million in 20042005 to 2.6 million in 2010 according to the United States Bureau of the Census. In addition, the segment of the United States population over 65 years of age is expected to increase by over 13% from approximately 34.9 million in 2000 to 39.6 million in 2010.2002.2003. Cremation rates can vary significantly based upon geographic, religiousgeneratedgenerates approximately $15 billion of revenue in 2003.annually. The four largest public operators of both funeral homes and cemeteries in the United States are Service Corporation International, Alderwoods Group, (formerly known as The Loewen Group), Stewart Enterprises, and Carriage Services. We believe these four companies collectively represent approximately 20% of death care revenues in the United States. Independent businesses represent the remaining amount of industry revenue, accounting for an estimated 80% share. During most of the 1990s, there was a trend toward independent firms consolidating with public operators. However, few acquisitions have occurred since 1999 and there have been a number of independent entrants in local markets. As a22004,2005, these consolidators have been divesting selected properties and other assets, and using proceeds from such dispositions, together with free cash flow, to accelerate debt reduction.reduction and build cash blances. We expect the level of dispositions to substantially decline in the near-term and anticipate that some of the public consolidators may resume acquisition programs.fourfive years, we and the other public consolidators have been restructuring our organizations and improving our financial condition, liquidity and balance sheets by reducing debt. During the second half of 2003, we implemented several significant changes in our funeral organization and operations to improve operating and financial results by growing market share and profitability.cash flow. On January 1, 2004, we introduced our “Being the Best” standards, a more decentralized and entrepreneurial financial operating model for our funeral homes. TheOn January 1, 2006 we implemented a similar model to our cemetery business. We believe the execution of our Being the Best standards-based funeral operating model has resulted in operational improvements in our funeral segment during 2004.segment. Those operational improvements include, among other things, improved showroom presentation and merchandising, achievement of higher prices per service and improved staffing and cost management. Key elements of our overall business strategy include the following:•Decentralized Funeral Operating Model. We believe that a decentralized operating model is best suited to grow market share and improve financial performance in the funeral industry. This new operating model focuses on key drivers of a successful funeral business, organized around three primary areas — market share, people, and operational and financial metrics. Successful execution of our new operating model is highly dependent on strong local leadership, entrepreneurial empowerment and corporate support. In order to align this model with financial performance across the organization, we developed a set of customized standards for each funeral business based on the financial results and attributes of our best properties, adjusting for size and percentage of cremations. Our managing partners participate in a variable bonus plan in which they earn a fixed percentage of their business’ earnings based upon the actual standards achieved. Under this new program, we believe our managing partners have the opportunity to be compensated at close to the same level as if they owned the business.•Family Service Cemetery Operating Model. We view our cemetery operations, which traditionally have been more sales-oriented, as a different business from our funeral operations, which are more service-oriented. We are focusing our efforts in our cemetery segment on building heritage among new client families. A principal initiative has been to emphasize property sales, which strengthen the ties between our cemeteries and these clients. We are also in the process of developing a standards-based operating model for our cemeteries. We expect to implement a limited operating model in 2005 and a fully developed standards-based model in 2006.•Presentation and Packaging of Services and Merchandise. We believe packaging funeral services and merchandise offers both simplicity and convenience for our client families. Well-conceived and thoughtful packages eliminate much of the effort and discomfort experienced by client families concerning matters about which they do not have much knowledge during a— Decentralized Funeral Operating Model.We believe that a decentralized operating model is best suited to grow market share and improve financial performance in the funeral industry. This new operating model focuses on key drivers of a successful funeral business, organized around three primary areas — market share, people, and operational and financial metrics. Successful execution of our new operating model is highly dependent on strong local leadership, entrepreneurial empowerment and corporate support. In order to align this model with financial performance across the organization, we developed a set of customized standards for each funeral business based on the financial results and attributes of our best properties, adjusting for size and percentage of cremations. Our managing partners participate in a variable bonus plan in which they earn a percentage of their business’ earnings based upon the actual standards achieved. Under this new program, we believe our managing partners have the opportunity to be compensated at close to the same level as if they owned the business. very stressful and emotional time. We have entered into updated arrangements with four primary casket suppliers to support our strategy and control wholesale costs. We also anticipate that our packaging strategy will result in increased revenue per cremation service over time as more families select packages that provide services and merchandise. The percentages of funeral services conducted by us in which cremation was chosen as the manner in which to dispose of remains was 30% for the year ended December 31, 2003 and 31% for the year ended December 31, 2004. For the year ended December 31, 2004, approximately 63% of the number of our total cremation services were direct cremations (where no viewing, visitation, or merchandise is involved, although a memorial service may be held) and 37% included additional services and merchandise.Preneed Funeral Sales Program. We operate under a local, decentralized preneed sales strategy whereby each business location customizes its preneed program to its local needs. We emphasize insurance-funded contracts over trusted contracts in most markets, as insurance products allow us to earn commission income to improve our cash flow and offset a significant amount of the up-front costs associated with preneed sales. In addition, the cash flow and earnings from insurance contracts are more stable than traditional trust fund investments. In markets that depend on preneed sales for market share, we supplement the arrangements written by funeral directors with sales sourced by sales counselors and third party sellers.— Decentralized Cemetery Operating Model.We also believe that a decentralized operating model is best suited to grow market share and improve financial performance in the cemetery industry. This new operating model focuses on key drivers of a successful cemetery business, similarly organized around three primary areas — market share, people, and operational and financial metrics. A principal initiative is to emphasize property sales, which strengthen the ties between our cemeteries and these clients. Successful execution of our new operating model is highly dependent on strong local leadership, entrepreneurial empowerment and corporate support. In order to align this model with financial performance across the organization, we developed a set of standards for all of our cemeteries based on the financial results and attributes of the best of these businesses. Our managing partners participate in a variable bonus plan in which they earn a percentage of their business’ earnings based upon the actual standards achieved. Under this new program, we believe our managing partners have the opportunity to be compensated at close to the same level as if they owned the business. — Presentation and Packaging of Services and Merchandise.We believe packaging funeral services and merchandise offers both simplicity and convenience for our client families. Well-conceived and thoughtful packages eliminate much of the effort and discomfort experienced by client families concerning matters about which they do not have much knowledge during a very stressful and emotional time. We have entered into updated arrangements with four primary casket suppliers to support our strategy and control wholesale costs. We also anticipate that our packaging strategy will result in increased revenue per cremation service over time as more families select packages that provide services and merchandise. The percentages of funeral services conducted by us in which cremation was chosen as the manner in which to dispose of remains was 31% for the year ended December 31, 2004 and 33% for the year ended December 31, 2005. For the year ended December 31, 2005, approximately 63% of the number of our total cremation services were direct cremations (where no viewing, visitation, or merchandise is involved, although a memorial service may be held) and 37% included additional services and merchandise. — Preneed Funeral Sales Program.We operate under a local, decentralized preneed sales strategy whereby each business location customizes its preneed program to its local needs. We emphasize insurance-funded contracts over trusted contracts in most markets, as insurance products allow us to earn commission income to improve our cash flow and offset a significant amount of the up-front costs associated with preneed sales. In addition, the cash flow and earnings from insurance contracts are more stable than traditional trust fund investments. In markets that depend on preneed sales for market share, we supplement the arrangements written by funeral directors with sales sourced by sales counselors and third party sellers. — Systems and Support Enhancements.We periodically perform targeted reviews of our systems and support services with the objective of improving effectiveness and streamlining processes. We recently completed an upgrade of our funeral services system to improve its features and functions and implemented a cemetery system during 2005. We will continue to review and change corporate processes to improve efficiency and effectiveness. — Renewed Corporate Development Efforts.We believe that our improved capital structure, resulting in part from the $130 million offering in January 2005 of senior debt due in 2015 and which bears interest at 7.785% per annum, positions us to pursue a strategy of disciplined growth, affording us the flexibility to redeploy our cash flow toward selective acquisitions that meet our criteria. We expect to continue to improve our credit profile as we invest our cash flow into businesses that will contribute incremental revenues, earnings and cash flow. We will be applying the standards and practices established under our Being the Best operating model to qualify acquisition candidates, ensuring that they are a proper fit and can be readily integrated into our portfolio. Ideal candidates would be those that are demonstrated market leaders, have strong local management, have owners and family members whose objectives are aligned with ours, and have field-level operating margins consistent with our best performing properties. We will look to geographic areas that complement our existing markets, with a primary focus on suburban markets with growing populations of 100,000 or more, preferably in the Northeast and on the West Coast. We expect to give the most serious consideration to firms with at least 300 calls annually (or at least $1.5 million in annual revenue). •Decrease Overhead Costs. We periodically perform targeted reviews of our systems and support services with the objective of improving effectiveness and decreasing overhead costs. We recently completed an upgrade of our funeral services system to improve its features and functions and expect to implement a cemetery system in mid-2005. We will continue to review and change corporate processes to improve efficiency and effectiveness.•Renewed Corporate Development Efforts. We believe that our improved capital structure, resulting from the $130 million debt offering in January 2005, position us to pursue a strategy of disciplined growth, affording us the flexibility to redeploy our free cash flow toward selective acquisitions that meet our criteria. We expect to continue to improve our credit profile as we invest our cash flow into businesses that will contribute incremental revenues, earnings and cash flow. We will be applying the standards and practices established under our Being the Best operating model to qualify acquisition candidates, ensuring that they are a proper fit and can be readily integrated into our portfolio. Ideal candidates would be those that are demonstrated market leaders, have strong local management, have owners and family members whose objectives are aligned with ours, and have field-level operating margins consistent with our best performing properties. We will look to geographic areas that complement our existing markets, with a primary focus on suburban markets with growing populations of 100,000 or more, preferably in the Northeast and on the West Coast. We expect to give the most serious consideration to firms with at least 200 to 400 calls annually (or at least $1 million in annual revenue).•Improve Credit Profile Through Cash Flow and Debt Reduction. During 2004 we continued our focus on generating cash from our operations, managing capital expenditures and paying down debt to improve our credit profile. The goal was to reaccess the markets to refinance the long term debt, $76.9 million of which was scheduled to mature in 2006. Cash from operating activities totaled $24.2 million and capital expenditure totaled $5.7 million, the net of which ($18.5 million) along with proceeds from sales of assets and other items, allowed us to reduce long-term debt by $25 million in 2004.•Accessing Capital Markets. In January 2005 we met our goal of reaccesssing the capital markets by completing an offering of $130 million in senior debt due in 2015 and bears interest of 7.785% per annum. We used the net proceeds to pay off our senior debt. This transaction extended the maturity of our senior debt and provides us more financial flexibility.theour capital structure we have had in place since mid-1999 has providedprovides us with financial flexibility, which allowedallows us to focus our efforts on improving operations and our credit profile. Followinggrowing the successful execution of our debt reduction initiatives using free cash flow primarily to pay down debt, we used the net proceeds from our debt offering in January 2005 to pay off our existing senior debt, which further improves our capital structure and financial flexibility.4• the $130 million senior notes issued in January 2005 which have a 2015 maturity;• a revolving credit facility, described under the heading “Liquidity and Capital Resources” in Item 7;• our convertible junior subordinated debenture payable to our affiliate trust, which has the ability to defer payments of interest, and a 2029 maturity; and• our common stock.• the $130 million senior notes issued in January 2005 which have a 2015 maturity; • a revolving credit facility, described under the heading “Liquidity and Capital Resources” in Item 7; • our convertible junior subordinated debenture payable to our affiliate trust, which has the ability to defer payments of interest, and a 2029 maturity (our TIDES); and • our common stock. Flow and Debt Reduction.Flow.Since 2000, we have demonstrated the ability to generate stable cash flow. Prior to 2005, our primary use of cash flow andwas to repay debt with cash flow from operations and asset sales.debt. We have also demonstrated an ability to manage capital expenditures to a consistent level. We have reduced senior debt and contingent obligations from previous acquisitions by $86.9 million, or 44%, from $197.2 million at December 31, 2000 to $110.3 million at December 31, 2004. FreeAdjusted cash flow (cash flow from operations less special charges and capital expenditures) for 20042005 totaled $18.5 million, including the $7.0 million benefit from deferring interest payments on the subordinated debenture$9.7 million. We intend to affiliate. We remain committed to using freeuse cash flow to continue to improve our credit profile and to fund a selective growth strategy.20042005 will continue to yield positive improvement in our financial results. Funeral Information Systems.We have implemented sophisticated information systems to support local business decisions and to monitor performance of our businesses compared to financial and performance standards. All of our funeral homes and cemeteries are connected to our corporate headquarters, which allows us to monitor and assess critical operating and financial data in order to analyze the performance of individual locations on a timely basis. Furthermore, our information system infrastructure provides senior management with a critical tool for monitoring and adhering to our established internal controls, which is critical given our decentralized model and the sensitive nature of our business operations. senior management team, headed by Company founder Mel Payne, for the last 13 years, is characterized by a dynamic culture that reacts quickly and proactively to address changing market conditions and emerging trends. We believe this culture has been critical to our successful recent efforts and will provide an important advantage as the death care industry evolves. We are committed to continue operating an efficient corporate organization and strengthening our corporate and local business leadership. We believe that our Being the Best operating model will ensure this commitment at all levels of the organization.2004,2005, we operated 135133 funeral homes including two funeral homes held for sale, in 28 states. Funeral home revenues currently account for approximately 75% of our total revenues. The funeral home operations are managed by a team of experienced death care industry professionals and selected region-level individuals with substantial management experience in service industries. See Note 1720 to the consolidated financial statementsConsolidated Financial Statements for the year ended December 31, 2004,2005, for segment data related to funeral home operations.5• favorable demographic trends in terms of population growth and average age, which impact death rates and number of deaths;• leading market share positions supported by strong local heritage and relationships;• effectively responding to increasing cremation trends by packaging complementary services and merchandise;• controlling salary and merchandise costs; and• exercising pricing leverage related to our at-need business to increase average revenues per contract.— favorable demographic trends in terms of population growth and average age, which impact death rates and number of deaths; — leading market share positions supported by strong local heritage and relationships; — effectively responding to increasing cremation trends by packaging complementary services and merchandise; — controlling salary and merchandise costs; and — exercising pricing leverage related to our at-need business to increase average revenues per contract. 2004,2005, we operated 3029 cemeteries including one cemetery held for sale, in 12 states. The cemetery operations are managed by a team of experienced death care industry and sales professionals. Cemetery revenues currently account for approximately 25% of our total revenues. See Note 1720 to the consolidated financial statementsConsolidated Financial Statements for the year ended December 31, 2004,2005, for segment data related to cemetery operations.Cemeteries are primarily a sales business.36%37% of our cemetery revenues was generated from preneed sales of interment rights during the year ended December 31, 2004.2005. An additional 17%19% of our 20042005 cemetery revenues was from deliveries of merchandise and services previously sold on preneed contracts. We believe that changes in the level of consumer confidence (a measure of whether consumers will spend money on discretionary items) also impact the amount of such preneed sales. Cemetery revenues generated from at-need services and merchandise sales generally are subject to many of the same key profitability factors as in our funeral home business. Approximately 8%10% of our cemetery revenues was attributable to investment earnings on trust funds and finance charges on installment contracts during the year ended December 31, 2004.services, in accordance with prices prevailing at the time the contract is originated, rather than when the products and services are delivered.services. Preneed contracts permit families to eliminate issues of making death care plans at the time of need and allow input from other family members before the death occurs.ThePrior to 2005, the direct marketing commissions and costs incurred from the sale of preneed funeral contracts arewere deferred and amortized on an actuarial method to match the expected maturity of the preneed contracts.6We alwaysIn substantially all cases, we receive an initial downpaymentdown payment at the time the contract is signed in substantially all cases.signed. The interest rates generally range between 12% and 14%. Preneed sales of cemetery interment rights are generally recorded as revenue when 10% of the contract amount related to the interment right has been collected. Merchandise and services preneed contracts are also paidmay similarly be sold on an installment basis, but over a shorter term. Revenuerevenue is recorded when delivery has occurred. Costs related to generating the preneed contracts and delivery of the products and services are recognized concurrently with the related revenue. Allowances for customer cancellations and refunds are accruedrecorded at the date that the salecontract is recognized as revenueexecuted and periodically evaluated thereafter based upon historical experience.5,1924,936 and 4,8344,877 preneed funeral contracts during the years ended December 31, 20032004 and 20042005,respectively. At December 31, 2004,2005, we had a backlog of 60,50458,531 preneed funeral contracts to be delivered in the future. Approximately 20% of the funeral revenues recognized during each of the last three years and during the twelve months ended December 31, 20042005 originated through preneed contracts. Cemetery revenues that originated from preneed contracts represented approximately 50% and 55% of Carriage’s net cemetery revenues for both 20032004 and 2004.2004,2005, we employed a staff of 196220 advance-planning and family service representatives for the sale of preneed products and services.to consult with us onfor investment policiesmanagement and evaluate investment results.All preneed funeral sales are deferred until the service is performed. The trust fund income earned and any increase in insurance benefits are also deferred until the service is performed, in order to offset possible inflation in cost when providing the service in the future. The related assetstrust funds and deferred revenue are reflected on Carriage’s balance sheet. In most states, we are not permitted to withdraw principal or investment income from such trusts until the funeral service is performed. Some states, however, allow for the retention of a percentage (generally 10%) of the receipts to offset any administrative and selling expenses, which we defer until the service is provided. The aggregate balance of our preneed funeral contracts held in trust, insurance contracts and receivables from customers was approximately $231$272.3 million as of December 31, 2004.$53.1$54.8 million as of December 31, 2004.$31.2$32.4 million at December 31, 2004.2005.46, 7 and 8 to the consolidated financial statementsConsolidated Financial Statements for the year ended December 31, 2004.(formerly known as The Loewen Group), Stewart Enterprises, Keystone North America and StoneMor Partners. In addition, a number of smaller, non-public companies have been active in72004,2005, which was not qualified in any manner. In addition, in accordance with the rules, attached as Exhibits 31.1 and 31.2 are our CEO and CFO certifications as required by Section 302 of the Sarbanes-Oxley Act of 2002.2004,2005, we and our subsidiaries employed 1,8141,781 employees, of whom 873935 were full-time and 941846 part-time. All of our funeral directors and embalmers possess licenses required by applicable regulatory agencies. We believe that our relationship with our employees is good. NoneApproximately ten of our employees or our subsidiaries’ employees is a member of a collective bargaining unit. www.carriageservices.com.www.carriageservices.com. Available on this website under “Investor Relations-Investor Relations Menu – SEC Filings,” free of charge, are Carriage’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, insider reports on Forms 3, 4 and 5 filed on behalf of directors and officers and amendments to those reports as soon as8— incur additional debt; — pay dividends or make distributions or redeem or repurchase stock; — make investments; — grant liens; — make capital expenditures; — enter into transactions with affiliates; — enter into sale-leaseback transactions; — sell assets; and — acquire the assets of, or merge or consolidate with, other companies. 2004,2005, we operated 135133 funeral homes in 28 states and 3029 cemeteries in 2812 states. Carriage owns the real estate and buildings for 79%80% of our funeral homes and leases facilities for the remaining 21%20%. Carriage owns 2524 cemeteries and operates five cemeteries under long-term contracts with municipalities and non-profit organizations at December 31, 2004. Eleven2005. Ten funeral homes are operated in combination with cemeteries.cemeteries as these locations are physically located on the same property or very close proximity and under same management . The 3029 cemeteries operated by Carriage have an inventory of unsold developed lots totaling approximately 118,000115,000 and 115,000106,000 at December 31, 20032004 and 2004,2005, respectively. In addition, approximately 619609 acres are available for future development. We anticipate having a sufficient inventory of lots to maintain our property sales for the foreseeable future. The specialized nature of our business requires that our facilities be well-maintained. Management believes this standard is met.2004,2005, regarding Carriage’s properties used by the funeral homes segment and by the cemeteries segment identified by state:
Funeral Homes Number of Funeral Homes Number of Cemeteries State Owned Leased(1) Owned Managed California 16 3 3 0 Connecticut 6 2 0 0 Florida 6 3 6 3 Georgia 3 0 0 0 Idaho 4 1 1 0 Illinois 1 4 1 0 Indiana 2 0 1 0 Iowa 2 0 0 0 Kansas 7 0 0 0 Kentucky 10 3 1 0 Maryland 1 0 0 0 Massachusetts 6 0 0 0 Michigan 4 0 0 0 Missouri 0 1 0 0 Montana 1 0 0 0 Nevada 2 0 2 1 New Jersey 4 1 0 0 New Mexico 1 0 0 0 New York 1 1 0 0 North Carolina 1 2 1 0 Ohio 4 3 0 1 Oklahoma 1 0 1 0 Rhode Island 4 0 0 0 Tennessee 3 0 0 0 Texas 11 0 6 0 Virginia 3 1 1 0 Washington 1 1 0 0 West Virginia 1 1 0 0 Total 106 27 24 5 (1)The leases, with respect to these funeral homes, have remaining terms ranging from one to fifteen years, and, generally, we have the right to renew past the initial terms and a right of first refusal on any proposed sale of the property where these funeral homes are located.(1) The leases, with respect to these funeral homes, have remaining terms ranging from one to fifteen years, and, generally, we have the right to renew past the initial terms and a right of first refusal on any proposed sale of the property where these funeral homes are located. 32,50037,000 square feet of leased office space in Houston, Texas. At December 31, 2004,2005, we operated 575560 vehicles, of which 570557 are owned and 53 are leased.9coveragescoverage and coverage limits consistent with our assessment of risks in our business and of an acceptable level of financial exposure. Although there can be no assurance that such insurance will be sufficient to mitigate all damages, claims or contingencies, we believe that our insurance provides reasonable coverage for known asserted or unasserted claims. In the event the Company sustained a loss from a claim and the insurance carrier disputed coverage or coverage limits, the Company may record a charge in a different period than the recovery, if any, from the insurance carrier. 2005 High Low First Quarter $ 5.71 $ 4.77 Second Quarter $ 6.30 $ 5.20 Third Quarter $ 6.75 $ 6.00 Fourth Quarter $ 6.41 $ 4.76 2004 First Quarter $ 4.58 $ 3.20 Second Quarter $ 4.10 $ 3.25 Third Quarter $ 3.64 $ 2.99 Fourth Quarter $ 3.75 $ 3.13 March 15, 2005,February 28, 2006, there were 17,969,00018,485,250 shares of Carriage’s Common Stock outstanding. The Common Stock shares outstanding are held by approximately 290300 stockholders of record. Each share is entitled to one vote on matters requiring the vote of stockholders. We believe there are approximately 5,000 beneficial owners of the Common Stock.Carriage hascompensation or equity compensationcommon stock based on the fair market value of our common stock based on the closing price published by the New York Stock Exchange on the date the fees are earned. On January 12, 2005, CarriageWe issued 10,28813,709 shares of its common stock to three of itsthe directors who elected to receive their fourth quarter 20042005 fees in equity compensation.common stock. No underwriter was used in connection with this issuance. CarriageWe relied on the Section 4(2) exemption from the registration requirements of the Securities Act of 1993, as amended.10consolidated financial statementsConsolidated Financial Statements of Carriage as of and for each of the years ended December 31, 2000, 2001, 2002, 2003, 2004, and 2004.2005. These historical results are not necessarilyneither indicative of our future performance.yearsyear ended December 31, 2000 and 2001 is derived from our consolidated financial statementsConsolidated Financial Statements audited by Arthur Andersen LLP, independent public accountants, which has ceased operations. The historical financial data included in the table below as of and for the years ended December 31, 2002, 2003, 2004 and 20042005 is derived from our consolidated financial statementsConsolidated Financial Statements audited by KPMG LLP, independent registered public accounting firm.“Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin (ARB) No. 51”51,as of March 31, 2004. The adoption of FIN 46R resulted in the consolidation of funeral and cemetery merchandise and service, and perpetual care trusts in our consolidated balance sheet at fair value. We do not consolidate certain funeral trusts for which we do not absorb a majority of their expected losses and, therefore, are not considered a primary beneficiary of these funeral trusts under FIN 46R. The adoption of FIN 46R also resulted in the deconsolidation of Carriage Services Capital Trust, the issuer of TIDES preferred securities. Instead, we now report as a liability the junior subordinated debenture payable to the Trust. Amounts and balances prior to March 31, 2004 have not been restated to reflect the adoption of FIN 46R. The adoption of FIN 46R has not impacted our consolidated statements of operations or cash flows. Certain financial information has been restated from information presented in the Company’s Form 10-K for the year ended December 31, 2003. See notes 2 and 4 of Notes to Consolidated Financial Statements.consolidated financial statementsConsolidated Financial Statements and notes thereto included elsewhere in this report.(1) When the TIDES were issued in 1999, we reported the securities as a component of temporary equity because they have predominantly equity-like characteristics which are not normally found in debt securities (including traditional subordinated debt). In 2004, we changed that classification to report the securities as subordinated debt in order to comply with a new accounting standard. The securities continue to be treated as equity for purposes of the financial covenants under our existing senior notes and our existing credit facility.11 Year ended December 31, 2001 2002 2003 2004 2005 (in thousands, except per share and operating data) INCOME STATEMENT DATA: Revenues, net: Funeral $ 119,543 $ 114,631 $ 112,209 $ 112,504 $ 116,072 Cemetery 37,245 34,217 34,351 37,390 38,962 Total net revenues 156,788 148,848 146,560 149,894 155,034 Gross profit: Funeral 30,423 33,250 29,084 29,452 30,410 Cemetery 8,435 8,222 8,521 8,874 6,855 Total gross profit 38,858 41,472 37,605 38,326 37,265 General and administrative expenses 8,698 10,557 10,492 10,665 12,383 Other charges (income) — 871 432 495 (822 ) Operating income 30,160 30,044 26,681 27,166 25,704 Interest expense (20,266 ) (19,679 ) (17,900 ) (17,027 ) (18,711 ) Additional interest and other costs of senior debt refinancing — — — — (6,933 ) Other income (expense) — 865 657 940 (73 ) Income (loss) before income taxes 9,894 11,230 9,438 11,079 (13 ) (Provision) benefit for income taxes (1,979 ) 8,475 (3,539 ) (91 ) (32 ) Net income (loss) from continuing operations 7,915 19,705 5,899 10,988 (45 ) Income (loss) from discontinued operations 1,087 573 726 (1,754 ) 936 Cumulative effect of the change in accounting, net of taxes — — — — (22,756 ) Net income (loss) 9,002 20,278 6,625 9,234 (21,865 ) Preferred stock dividends 37 — — — — Net income (loss) available to common stockholders $ 8,965 $ 20,278 $ 6,625 $ 9,234 $ (21,865 ) Earnings (loss) per share Basic: Continuing operations $ 0.47 $ 1.17 $ 0.34 $ 0.62 $ — Discontinued operations 0.07 0.03 0.04 (0.10 ) 0.05 Cumulative effect of the change in accounting principle — — — — (1.24 ) Basic earnings (loss) per share $ 0.54 $ 1.20 $ 0.38 $ 0.52 $ (1.19 ) Diluted: Continuing operations $ 0.45 $ 1.13 $ 0.33 $ 0.60 $ — Discontinued operations 0.06 0.03 0.04 (0.09 ) 0.05 Cumulative effect of the change in accounting principle — — — — (1.24 ) Diluted earnings (loss) per share $ 0.51 $ 1.16 $ 0.37 $ 0.51 $ (1.19 ) Weighted average number of common and common equivalent shares outstanding: Basic 16,696 16,973 17,444 17,786 18,334 Diluted 17,492 17,433 17,808 18,260 18,334 OPERATING AND FINANCIAL DATA: Funeral homes at end of period 148 144 139 135 133 Cemeteries at end of period 30 30 30 30 29 Funeral services performed 24,818 23,990 23,323 22,673 22,792 Preneed funeral contracts sold 3,857 5,456 5,174 4,936 4,877 Backlog of preneed funeral contracts 67,099 59,412 59,696 60,309 58,531 Depreciation and amortization $ 15,679 $ 9,526 $ 9,934 $ 10,790 $ 9,224 BALANCE SHEET DATA: Total assets $ 552,167 $ 549,948 $ 538,917 $ 565,156 $ 570,640 Working capital (deficit) (1,006 ) (1,598 ) (14,285 ) 4,933 26,915 Long-term debt, net of current maturities 148,508 141,207 105,355 102,714 134,572 Convertible junior subordinated debenture (1) — — — 93,750 93,750 Redeemable convertible preferred stock (TIDES) (1) 90,058 90,193 90,327 — — Stockholders’ equity $ 81,578 $ 98,091 $ 105,930 $ 116,438 $ 96,374 (1) When the TIDES were issued in 1999, we reported the securities as a component of temporary equity because they have predominantly equity-like characteristics which are not normally found in debt securities (including traditional subordinated debt). In 2004, we changed that classification to report the securities as subordinated debt in order to comply with a new accounting standard. real estateinterment rights (grave sites and mausoleums) and related merchandise such as markers and memorials. As of December 31, 2005, we operated 133 funeral homes in 28 states and 29 cemeteries in 12 states within the United States. Substantially all administrative activities are conducted in our home office in Houston, Texas.include theinclude: demographic trends in terms of population growth and average age, which impact death rates and number of deaths in the markets we serve; whether we gain or losedeaths; establishing and maintaining leading market share relativepositions supported by strong local heritage and relationships; effectively responding to our competitors in the markets we operate; the price that we sell ourincreasing cremation trends by packaging complementary services and merchandise; controlling salary and the cost of providing services, primarily the salariesmerchandise costs; and benefits expenseexercising pricing leverage related to our professional and support staff, and the cost of merchandise.at-need business to increase average revenues per contract. In simple terms, volume and price are the two variables that affect funeral revenues. The average revenue per contract is influenced by the mix of traditional and cremation services because our average cremation service revenue is approximately 37%36% of the average revenue earned from a traditional funeral service during the year ended December 31, 2004.burial service. Funeral homes have a highrelatively fixed cost structure. Thus small changes in revenues, up or down, maynormally cause disproportionatesignificant changes to our profitability.During the second half of 2003, wechangeslong-term initiatives in our funeral operations at the beginning of 2004 designed to improve operating and financial results by growing market share and increasing profitability. We introduced a more decentralized, entrepreneurial and local operating model. At the same time, we introducedmodel that included operating and financial standards developed from our best funeral operations.operations, along with an incentive compensation plan to reward business managers for successfully meeting or exceeding the standards. The new operating model and standards, which we refer to as “Being the Best,” focus on the key drivers of a successful funeral operation, organized around three primary areas –— market share, people and operating and financial metrics. A portion The model and standards are the measures by which we judge the success of local management’s compensation is variable based on their success as measured against these standards. We first began operating under this model in 2004. We have experienced benefits from the new model during the last half of 2004. For example, better merchandising, the implementation of packages in certain locations and updates to our pricing resulted in a strong increase in the average revenue per service. We also believe that we have made better decisions in hiring new staff, training existing staff and managing the workload which resulted in lower salaries and benefits costs. We expect that by focusing on the key drivers, we will increase market share and improve profitability over time.12as currentlybecause approximately 36%55% of our cemetery revenues for the year ended December 31, 2005 relate to preneed sales of interment rights.grave sites and mausoleums and related merchandise and services before the time of need. We believe that changes in the level of consumer confidence (a measure of whether consumers will spend for discretionary items) also affectsaffect the amount of preneed sales.cemetery revenues. Approximately 8%10% of our cemetery revenues for the year ended December 31, 2005 are currently attributable to investment earnings on trust funds and finance charges on installment contracts. Changes in the capital markets and interest rates affect this component of our cemetery revenues.From 1996 We are implementing operating and financial standards in our cemetery operations in 2006 similar to 2000,the funeral operations discussed above. The standards are organized around market share, people and operational and financial metrics to improve the long-term success of the cemeteries.last four years ended December 31, 2004 focused on increasing operating cash flow and improving our financial condition by reducing debt to lower our interest expense and improve our credit profile. We have not been actively seeking businesses to acquire since 1999;acquire; instead we have been focused on selling underperforming businesses and reducing our debt. From September 2000, when we initiated a process to identify underperforming businesses, to December 31, 2004, weWe have sold 3638 funeral homes and 1213 cemeteries along with 2022 parcels of excess real estate. We used the proceeds of approximately $26 million from those sales to reduce our debt. We have reduced our debt and contingent obligations by approximately $87 million during the period January 1, 2001 through December 31, 2004. During January 2005, we refinanced our senior debt by issuing $130 million of Senior Notes due in 2015. This refinancing represented a milestone. The refinancing was the culmination of the effort to reaccess the capital markets and to extend the maturities of our senior debt and to gain the flexibility to reinvest our free cash flow in our core business. We can nowplan to use the net cash proceeds from the offering and our free cash flow to grow our Company through selective acquisitions. We also intendended the year with approximately $25 million in cash and short-term investments, primarily from the proceeds of the Senior Notes and positive cash flow. During September 2005, we acquired a funeral business consisting of two chapels in northern Florida, the first acquisition since 2002.amend our existing bank credit facility, which initially will not be drawn on. We expect$1.24 per diluted share. See the amended credit facilityfollowing section, Accounting Method Change, and Note 3 to be secured and contain more favorable covenants.the Consolidated Financial Statements.
consolidated financial statementsConsolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an on-going basis, we evaluate estimates and judgments, including thoseconsolidated financial statementsConsolidated Financial Statements presented herewith, which have been prepared in accordance with accounting principles generally accepted in the United States. Our significant accounting policies are summarized in Note 1 to the consolidated financial statements.Consolidated Financial Statements. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.salecontract is recognized as revenue based on our historical experience.executed. In addition, we monitor changes in delinquency rates and provide additional bad debt and cancellation reserves when warranted. When preneed funeral services and merchandise are funded through third-party insurance policies, we earn a commission on the sale of the policies. Insurance commissions are recognized as revenues when the commission is no longer subject to refund, which is usually one year after the policy is issued.13Deferred Obtaining CostsDeferred obtaining Preneed selling costs consist of sales commissions and other direct related costs of originating preneed sales contracts. ThesePrior to 2005, these costs arewere deferred and amortized into funeral and cemetery costs and expenses over the period we expect to perform the services or deliver the merchandise covered by the preneed contracts. The periods over which the costs arewere recognized arewere based on actuarial statistics for the actual contracts we hold, provided by a third-party administrator. we discontinued amortizing goodwill as of January 1, 2002, and instead we review the carrying value of goodwill at least annually on reporting units (aggregated geographically) to determine if facts and circumstances exist which would suggest that this intangible asset might be carried in excess of fair value. Fair value is determined by discounting the estimated future cash flows of the businesses in each reporting unit at the Company’s weighted average cost of capital less debt allocable to the reporting unit and by reference to recent sales transactions of similar businesses. The calculation of fair value can vary dramatically with changes in estimates of the number of future services performed, inflation in costs, and the Company’s cost of capital, which is impacted by long-term interest rates. If impairment is indicated, then an adjustment will be made to reduce the carrying amount of goodwill to fair value.No. 109, “Accounting for Income Taxes”, (Note 12).Taxes.” The Company records a valuation allowance to reflect the estimated amount of deferred tax assets for which realization is uncertain. Management reviews the valuation allowance at the end of each quarter and makes adjustments if it is determined that it is more likely than not that the tax benefits will be realized.
Had the Company accounted for stock options and shares pursuant to its employee stock benefit plans under SFAS No. 123 for the years ended December 31, 2004 and 2005, net income for those periods would have been lower by approximately $0.01 for each period.
$0.2 million.
In March 2004, the FASB reached consensus on the guidance provided by Emerging Issues Task Force Issue 03-1 (EITF 03-1), “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.” The guidance is applicable to debt and equity securities that are within the scope of FASB Statement of Financial Accounting Standard (SFAS) No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” EITF 03-1 specifies that an impairment would be considered
14
other-than-temporary unless (a) the investor has the ability and intent to hold an investment for a reasonable period of time sufficient for the recovery of the fair value up to (or beyond) the cost of the investment and (b) evidence indicating the cost of the investment is recoverable within a reasonable period of time outweighs evidence of the contrary. EITF 03-1 was scheduled to be effective for reporting periods ending after June 15, 2004. The measurement and recognition provisions relating to debt and equity securities have been delayed until the FASB issues additional guidance. The disclosure requirements continue to be effective in annual financial statements for fiscal years ending after June 15, 2004. We adopted the disclosure provisions during the period ended June 30, 2004. The adoption of the measurement and recognition provisions will not have a material impact on the consolidated financial statements, result of operations or liquidity of the Company.
Impairment of Long-Lived Assets
presented.
The effect of SFAS No. 142 on the Company, which was adopted as of the beginning of 2002, included eliminating the amortization of goodwill, the identifying reporting units for the purpose of assessing potential future impairments of goodwillPreneed Funeral and the testing for impairments of goodwill on an annual basis. The Company performs an annual review of goodwill by comparing the fair value of the Company’s reporting units (funeral home businesses by region) to the carrying value of the reporting units. No impairment was indicated for 2004.
Consolidation of Variable Interest EntitiesCemetery Trust Funds
19
revenues.
15
For cemetery perpetual care trusts, the Company recognizes investment earnings in cemetery revenues when such earnings are realized and distributable. Such earnings are intended to defray cemetery maintenance costs incurred by the Company.
20
|
| Year Ended December 31, |
| ||||
|
| 2002 |
| 2003 |
| 2004 |
|
Total revenues, net |
| 100.0 | % | 100.0 | % | 100.0 | % |
Total gross profit |
| 27.9 |
| 25.6 |
| 25.5 |
|
General and administrative expenses |
| 7.1 |
| 7.1 |
| 7.1 |
|
Operating income |
| 20.2 |
| 18.2 |
| 18.1 |
|
Interest expense |
| 13.2 |
| 12.2 |
| 11.4 |
|
| Year Ended December 31, | ||||||||||||
| 2003 | 2004 | 2005 | ||||||||||
| Total revenues | 100.0 | % | 100.0 | % | 100.0 | % | ||||||
| Total gross profit | 25.7 | 25.6 | 24.0 | |||||||||
| General and administrative expenses | 7.2 | 7.1 | 8.0 | |||||||||
| Operating income | 18.2 | 18.1 | 16.6 | |||||||||
| Interest expense | 12.2 | 11.4 | 12.1 | |||||||||
|
| Year Ended December 31, |
| ||||
|
| 2002 |
| 2003 |
| 2004 |
|
Funeral homes at beginning of period |
| 148 |
| 144 |
| 139 |
|
Acquisitions |
| 2 |
| — |
| — |
|
Divestitures, mergers or closures of existing funeral homes |
| 6 |
| 5 |
| 4 |
|
Funeral homes at end of period |
| 144 |
| 139 |
| 135 |
|
|
|
|
|
|
|
|
|
Cemeteries at beginning of period |
| 30 |
| 30 |
| 30 |
|
Acquisitions |
| — |
| — |
| — |
|
Divestitures |
| — |
| — |
| — |
|
Cemeteries at end of period |
| 30 |
| 30 |
| 30 |
|
| Year Ended December 31, | ||||||||||||
| 2003 | 2004 | 2005 | ||||||||||
| Funeral homes at beginning of period | 144 | 139 | 135 | |||||||||
| Acquisitions | — | — | 2 | |||||||||
| Divestitures, mergers or closures of existing funeral homes | 5 | 4 | 4 | |||||||||
| Funeral homes at end of period | 139 | 135 | 133 | |||||||||
| Cemeteries at beginning of period | 30 | 30 | 30 | |||||||||
| Acquisitions | — | — | — | |||||||||
| Divestitures | — | — | 1 | |||||||||
| Cemeteries at end of period | 30 | 30 | 29 | |||||||||
| Year Ended | ||||||||||||||||
| December 31, | Change | |||||||||||||||
| 2004 | 2005 | Amount | Percent | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
| Total same-store revenue | $ | 110,903 | $ | 113,342 | $ | 2,439 | 2.2 | % | ||||||||
| Acquired and closed | 282 | 435 | 153 | 54.3 | % | |||||||||||
| Preneed insurance commissions revenue | 1,319 | 2,295 | 976 | 74.0 | % | |||||||||||
| Revenues from continuing operations | $ | 112,504 | $ | 116,072 | $ | 3,568 | 3.2 | % | ||||||||
| Revenues from discontinued operations | $ | 1,972 | $ | 279 | $ | (1,693 | ) | (85.9 | )% | |||||||
| Total same-store gross profit | $ | 28,213 | $ | 28,190 | $ | (23 | ) | (0.1 | )% | |||||||
| Acquired and closed | (80 | ) | (75 | ) | 5 | 6.3 | % | |||||||||
| Preneed insurance commissions revenue | 1,319 | 2,295 | 976 | 74.0 | % | |||||||||||
| Gross profit from continuing operations | $ | 29,452 | $ | 30,410 | $ | 958 | 3.3 | % | ||||||||
| Gross profit from discontinued operations | $ | 208 | $ | (29 | ) | $ | (237 | ) | (113.9 | )% | ||||||
21
| Year Ended | ||||||||||||||||
| December 31, | Change | |||||||||||||||
| 2004 | 2005 | Amount | Percent | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
| Revenues from continuing operations | $ | 37,390 | $ | 38,962 | $ | 1,572 | 4.2 | % | ||||||||
| Revenues from discontinued operations | $ | 640 | $ | 443 | $ | (197 | ) | (30.8 | )% | |||||||
| Gross profit from continuing operations | $ | 8,874 | $ | 6,855 | $ | (2,019 | ) | (22.8 | )% | |||||||
| Gross profit from discontinued operations | $ | 149 | $ | 133 | $ | (16 | ) | (10.7 | )% | |||||||
22
16
Funeral Home Segment.The following table sets forth certain information regarding the net revenues and gross profit of the Company from the funeral home operations for the year ended December 31, 2004 compared to the year ended December 31, 2003. For purposes of our discussion, the revenue and gross profit of our businesses identified to be sold are included in the same-store classification up to the quarter prior to their sale.
| Year Ended | ||||||||||||||||||||||||||||
|
| Year Ended |
| Change |
| December 31, | Change | |||||||||||||||||||||
|
| 2003 |
| 2004 |
| Amount |
| Percent |
| 2003 | 2004 | Amount | Percent | |||||||||||||||
|
| (dollars in thousands) |
| (dollars in thousands) | ||||||||||||||||||||||||
Total same-store revenue |
| $ | 111,737 |
| $ | 112,304 |
| $ | 567 |
| 0.5 | % | $ | 111,737 | $ | 112,304 | $ | 567 | 0.5 | % | ||||||||
Less businesses held for sale |
| (757 | ) | (807 | ) | 50 |
|
| * | (757 | ) | (807 | ) | (50 | ) | * | ||||||||||||
Preneed insurance commissions revenue |
| 1,608 |
| 1,319 |
| (289 | ) | (18.0 | )% | 1,608 | 1,319 | (289 | ) | (18.0 | )% | |||||||||||||
Revenues from continuing operations |
| $ | 112,588 |
| $ | 112,816 |
| $ | 228 |
| 0.2 | % | $ | 112,588 | $ | 112,816 | $ | 228 | 0.2 | % | ||||||||
Revenues from discontinued operations |
| $ | 3,148 |
| $ | 1,660 |
| $ | (1,488 | ) | (47.3 | )% | $ | 3,148 | $ | 1,660 | $ | (1,488 | ) | (47.3 | )% | |||||||
Total same-store gross profit |
| $ | 27,602 |
| $ | 28,212 |
| $ | 610 |
| 2.2 | % | $ | 27,602 | $ | 28,212 | $ | 610 | 2.2 | % | ||||||||
Less businesses held for sale |
| (112 | ) | (102 | ) | (10 | ) |
| * | (112 | ) | (102 | ) | 10 | * | |||||||||||||
Preneed insurance commissions revenue |
| 1,608 |
| 1,319 |
| (289 | ) | (18.0 | )% | 1,608 | 1,319 | (289 | ) | (18.0 | )% | |||||||||||||
Gross profit from continuing operations |
| $ | 29,098 |
| $ | 29,429 |
| $ | 331 |
| 1.1 | % | $ | 29,098 | $ | 29,429 | $ | 331 | 1.1 | % | ||||||||
Gross profit from discontinued operations |
| $ | 412 |
| $ | 263 |
| $ | (149 | ) | (36.2 | )% | $ | 412 | $ | 263 | $ | (149 | ) | (36.2 | )% | |||||||
* not meaningful
| * | not meaningful |
23
|
| Year Ended |
| Change |
| |||||||
|
| 2003 |
| 2004 |
| Amount |
| Percent |
| |||
|
| (dollars in thousands) |
| |||||||||
Total same-store revenue |
| $ | 35,086 |
| $ | 38,030 |
| $ | 2,944 |
| 8.4 | % |
Less businesses held for sale |
| (735 | ) | (640 | ) | 95 |
|
| * | |||
Revenues from continuing operations |
| $ | 34,351 |
| $ | 37,390 |
| $ | 3,039 |
| 8.8 | % |
Revenues from discontinued operations |
| $ | 735 |
| $ | 640 |
| $ | (95 | ) | (12.9 | )% |
Total same-store gross profit |
| $ | 8,791 |
| $ | 9,023 |
| $ | 232 |
| 2.6 | % |
Less businesses held for sale |
| (270 | ) | (149 | ) | 121 |
|
| * | |||
Gross profit from continuing operations |
| $ | 8,521 |
| $ | 8,874 |
| $ | 353 |
| 4.1 | % |
Gross profit from discontinued operations |
| $ | 270 |
| $ | 149 |
| $ | (121 | ) | (44.8 | )% |
* not meaningful
| Year Ended | ||||||||||||||||
| December 31, | Change | |||||||||||||||
| 2003 | 2004 | Amount | Percent | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
| Total same-store revenue | $ | 35,086 | $ | 38,030 | $ | 2,944 | 8.4 | % | ||||||||
| Less businesses held for sale | (735 | ) | (640 | ) | 95 | * | ||||||||||
| Revenues from continuing operations | $ | 34,351 | $ | 37,390 | $ | 3,039 | 8.8 | % | ||||||||
| Revenues from discontinued operations | $ | 735 | $ | 640 | $ | (95 | ) | (12.9 | )% | |||||||
| Total same-store gross profit | $ | 8,791 | $ | 9,023 | $ | 232 | 2.6 | % | ||||||||
| Less businesses held for sale | (270 | ) | (149 | ) | 121 | * | ||||||||||
| Gross profit from continuing operations | $ | 8,521 | $ | 8,874 | $ | 353 | 4.1 | % | ||||||||
| Gross profit from discontinued operations | $ | 270 | $ | 149 | $ | (121 | ) | (44.8 | )% | |||||||
| * | not meaningful |
sale at the end of 2004.
17
interment sales increased $2.6 million. Though the number of interments sold on a preneed basis remained the same, the average price per space increased 15.1%. Continuing gross margin decreased from 24.8% for the year ended December 31, 2003 to 23.7% for the year ended December 31, 2004 due to higher sales discounts, bad debts and facilities and grounds costs. Higher sales discounts on property negatively impacted revenues and gross profit by $0.8 million year-over-year. Bad debts were $1.0 million higher than the prior year and facilities and grounds expenses increased $0.3 million, primarily due to higher property taxes, insurance and utilities.
debenture.
Funeral Home Segment. The following sets forth certain information regarding Carriage’s net revenues and gross profit from our funeral home operations during the years ended December 31, 2002 and 2003:
|
| Year Ended |
| Change |
| |||||||
|
| 2002 |
| 2003 |
| Amount |
| Percent |
| |||
|
| (dollars in thousands) |
| |||||||||
Total same-store revenue |
| $ | 114,496 |
| $ | 112,593 |
| $ | (1,903 | ) | (1.7 | )% |
Acquired |
| 478 |
| 700 |
| 222 |
|
| * | |||
Less businesses held for sale |
| (1,412 | ) | (2,313 | ) | (901 | ) |
| * | |||
Preneed insurance commissions revenue |
| 1,538 |
| 1,608 |
| 70 |
| 4.6 | % | |||
Revenues from continuing operations |
| $ | 115,100 |
| $ | 112,588 |
| $ | (2,512 | ) | 2.2 | % |
Revenues from discontinued operations |
| $ | 4,199 |
| $ | 3,148 |
| $ | (1,051 | ) |
| * |
Total same-store gross profit |
| $ | 32,307 |
| $ | 27,727 |
| $ | (4,580 | ) | (14.2 | )% |
Acquired |
| 145 |
| 183 |
| 38 |
|
| * | |||
Less businesses held for sale |
| (583 | ) | (420 | ) | 163 |
|
| * | |||
Preneed insurance commissions revenue |
| 1,538 |
| 1,608 |
| 70 |
| 4.6 | % | |||
Gross profit from continuing operations |
| $ | 33,407 |
| $ | 29,098 |
| $ | (4,309 | ) | 12.9 | % |
Gross profit from discontinued operations |
| $ | 932 |
| $ | 412 |
| $ | (520 | ) |
| * |
* not meaningful
18
Funeral same-store revenues for the year ended December 31, 2003 were 1.7% less when compared to the year ended December 31, 2002, as we experienced a decrease of 2.3% in the number of funeral service contracts from 24,293 to 23,740 and an increase of 0.6% in the average revenue per contract from $4,713 to $4,743 for those existing operations. The decline in the number of funeral service contracts of 2.3% was due in part to the decline in the number of deaths of 1.4% in 2003 compared to 2002 based on statistics published by the CDC, as adjusted for non-reporting cities. We also believe that we lost market share in certain areas based on our analysis of obituary reports for those markets. Approximately 30% of the funeral services were cremation services compared to 28% in 2002. The average revenue per cremation services increased 0.7% compared to 2002. The change in mix from traditional to cremation services resulted in a decline of $1.7 million in revenue for 2003 compared to 2002. Of the funeral services performed during 2002 and 2003, approximately 18.5% and 19.5%, respectively, were prearranged.
Though total funeral revenues including discontinued operations declined by $3.5 million, funeral costs and expenses actually increased by $1.3 million, resulting in a decline in gross profit including discontinued operations of $4.8 million. From an operational perspective, the funeral business is a relatively fixed cost business. If variable costs had remained constant as a percentage of net revenues, the $3.5 million reduction in revenue would have been associated with a reduction in cost of approximately $0.7 million to $1.0 million. The negative cost and expense variance was due primarily to increases in merchandise costs, bad debts and property casualty and general liability insurance. Merchandise costs were approximately $0.8 million higher as vendors increased their prices to Carriage at the beginning of 2003 at a rate higher than the Company was able to increase its prices to the public. Bad debts were $0.8 million higher than 2002 because the Company realized some significant recoveries during 2003 from a centralized collection process installed in 2002. Property casualty and general liability insurance costs increased $0.7 million due to higher premium costs and claims.
Cemetery Segment. The following sets forth certain information regarding Carriage’s net revenues and gross profit from cemetery operations for the years ended December 31, 2002 and 2003:
|
| Year Ended |
| Change |
| |||||||
|
| 2002 |
| 2003 |
| Amount |
| Percent |
| |||
|
| (dollars in thousands) |
| |||||||||
Total same-store revenues |
| $ | 34,877 |
| $ | 35,086 |
| $ | 209 |
| 0.6 | % |
Less businesses held for sale |
| (660 | ) | (735 | ) | (75 | ) |
| * | |||
Revenues from continuing operations |
| $ | 34,217 |
| $ | 34,351 |
| $ | 134 |
| 0.4 | % |
Revenues from discontinued operations |
| $ | 660 |
| $ | 735 |
| $ | 75 |
| 11.4 | % |
Total same-store gross profit |
| $ | 8,456 |
| $ | 8,791 |
| $ | 335 |
| 4.0 | % |
Less businesses held for sale |
| (235 | ) | (270 | ) | (35 | ) |
| * | |||
Gross profit from continuing operations |
| $ | 8,221 |
| $ | 8,521 |
| $ | 300 |
| 3.6 | % |
Gross profit from discontinued operations |
| $ | 235 |
| $ | 270 |
| $ | 35 |
| 14.9 | % |
* not meaningful
No cemetery businesses were acquired or sold during the two years; one cemetery is held for sale.
The higher cemetery net revenues resulted in part from a $0.4 million increase in at need revenues as a result of an increase in the average value per contract of 5.8% from $942 to $997, though the volume of at-need contracts declined 2.5% from 14,681 to 14,311. We also experienced an increase in preneed property sales of $0.7 million, primarily the result of a 10.2% increase in the number of preneed contracts written from 7,729 to 8,521. The average preneed contract value declined 7.6% from $2,196 to $2,029. These increases were offset in part by $0.4 million less trust income and $0.4 million less in deliveries of previously prearranged merchandise and services. Cemetery gross profit increased on a year-over-year basis primarily due to $0.4 million less bad debt expense in 2003.
Other. General and administrative expenses for the year ended December 31, 2003 decreased slightly from 2002. Lower ($0.6 million) lease expense from the buyout of a computer lease obligation in early 2003 was mitigated in part by higher ($0.3 million) depreciation expense. Higher overall salaries and wages in 2003 offset the $0.5 million officer termination cost in 2002. Higher legal fees and franchise taxes in 2003 totaling $0.6 million compared to $0.5 million incurred for professional fees related to a change in tax accounting methods.
19
Interest expense for the year ended December 31, 2003 declined $1.8 million compared to the year ended 2002 primarily because outstanding debt declined period over period. Cash flow from operations and proceeds from the sales of business assets have provided the source of funds to reduce the debt outstanding during 2002 and 2003. During 2003, total outstanding debt was reduced by $13.6 million. Reductions in interest rates during 2002 and 2003 and the expiration of a floating for fixed interest rate swap in May 2003 also contributed (to a lesser degree) in reducing interest expense.
Income Taxes. The Company recorded income taxes at the effective rate of 38.5% (excluding the affect of the change in valuation allowance) for the years ended December 31, 2002 and 2003, respectively. See Note 12 to the consolidated financial statements. The slightly lower tax rate in 2003, compared to 2002, is based on the utilization of certain state loss carryforwards. Because of the ability to use the net operating loss to offset taxable income and the timing of when revenue and expenses are recognized for tax purposes, we did not pay Federal income taxes in 2002 and 2003.
24
The outstanding principal of our senior debt at December 31, 2004 totaled $110.3 million and consisted of $70.5 million in aggregate principal amount under our existing senior notes, $25.6 million outstanding under our existing unsecured credit facility, and $14.2 million in acquisition indebtedness and capital lease obligations. Additionally, $1.1 million in letters of credit have been issued under the existing unsecured credit facility and were outstanding at December 31, 2004.
Our existing unsecured credit facility, as amended, provides for borrowings up to $45 million and matures in March 2006. Interest is payable at either prime rate plus 1.25% or a rate indexed to LIBOR at the Company’s option. Currently, the LIBOR option is set at LIBOR plus 275 basis points. The Company’s credit facility was amended subsequent to year end to permit the issuance of Senior Notes. In addition, the Company entered into a letter of commitment with Bank of America, its lead lender, for a $35 million Senior Secured Credit Facility. The Senior Secured Credit Facility would mature five years from the closing date, would be secured by the Company’s assets (including certain funeral home real property) and would include financial covenants and limitations on stock redemptions, dividends and acquisitions. The commitment is subject to certain conditions precedent to closing and completion of definitive documentation.
end.
20
The following table sets forthrefinancing improved the consolidated capitalization as of December 31, 2004 on an actual basis and on an as adjusted basis to give effect to the $130Company’s liquidity because debt totaling approximately $96 million offering of 7.875% Senior Notes due in 20152006 and the transactions paying off2008 was replaced by debt maturing in ten years.
|
| As of |
| ||||
|
| Actual |
| As Adjusted |
| ||
|
| (in millions) |
| ||||
Senior Debt: |
|
|
|
|
| ||
Existing Unsecured Credit Facility |
| $ | 25.6 |
| $ | — |
|
Existing Senior Notes |
| 70.5 |
| — |
| ||
New Senior Notes |
| — |
| 130.0 |
| ||
Acquisition Debt |
| 8.7 |
| 8.7 |
| ||
Capital Leases |
| 5.5 |
| 5.5 |
| ||
Total Senior Debt |
| $ | 110.3 |
| $ | 144.2 |
|
Subordinated Debt: |
|
|
|
|
| ||
Subordinated Debt to Affiliate |
| $ | 93.8 |
| $ | 93.8 |
|
Deferred Interest |
| 10.9 |
| — |
| ||
Total Subordinated Debt |
| $ | 104.7 |
| $ | 93.8 |
|
Total Debt |
| $ | 215.0 |
| $ | 238.0 |
|
Total Stockholders’ Equity |
| 116.4 |
| 112.2 |
| ||
Total Capitalization |
| $ | 331.4 |
| $ | 350.2 |
|
The net proceedsconsisted of this offering, which$130.0 million in Senior Notes, a $35 million revolving line of credit, and $11.4 million in acquisition indebtedness and capital lease obligations. Additionally, $0.7 million in letters of credit were approximately $125.5issued under the credit facility and were outstanding at December 31, 2005.
Subsequent to the above-described refinancing transactions, we will enjoy the extended maturity of our debt, a more flexible covenant package and the continuing right to defer distributions payable in respect of the TIDES for up to five years. Notwithstanding our ability to defer payment of distributions in respect of the TIDES, we resumed cash payments of interest on the TIDES on March 1, 2005, which aggregate approximately $6.5no borrowings are anticipated during 2006. $34.3 million on an annual basis. While we will have the abilityis available to borrow additional amounts under our amended senior secured credit facility, our intention is to fund anticipated capital expenditures, acquisitions, if any, and other operating requirements from existing cash balances and cash flow from operations.
at December 31, 2005.
21
Contractual Obligations
| Payments By Period | ||||||||||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||
| Note | After | |||||||||||||||||||||||||||||||
| Reference | Total | 2006 | 2007 | 2008 | 2009 | 2010 | 5 Years | |||||||||||||||||||||||||
| Long-term debt | 11 | $ | 136.6 | 2.1 | 1.5 | 2.0 | 0.4 | 0.1 | 130.5 | |||||||||||||||||||||||
| Capital lease obligations | 14 | 15.9 | 0.6 | 0.6 | 0.6 | 0.7 | 0.7 | 12.7 | ||||||||||||||||||||||||
Convertible junior subordinated debenture (a) | 12 | 93.8 | — | — | — | — | — | 93.8 | ||||||||||||||||||||||||
| Total contractual obligations | $ | 246.3 | 2.7 | 2.1 | 2.6 | 1.1 | 0.8 | 237.0 | ||||||||||||||||||||||||
| (a) | Matures in 2029 |
25
|
|
|
|
|
| Payments By Period |
| |||||||||||
|
| Note |
| Total |
| 2005 |
| 2006 |
| 2007 |
| 2008 |
| 2009 |
| After |
| |
Long-term debt |
| 8 |
| $ | 110.3 |
| 2.2 |
| 76.9 |
| 1.5 |
| 23.4 |
| 0.6 |
| 5.7 |
|
Capital lease obligations |
| 11 |
| 11.3 |
| 0.5 |
| 0.4 |
| 0.4 |
| 0.5 |
| 0.5 |
| 9.0 |
| |
Convertible junior subordinated debenture (a) |
| 9 |
| 93.8 |
| — |
| — |
| — |
| — |
| — |
| 93.8 |
| |
Deferred interest on convertible junior subordinated debenture |
| 9 |
| 10.9 |
| 10.9 |
| — |
| — |
| — |
| — |
| — |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total contractual obligations |
|
|
| $ | 226.3 |
| 13.6 |
| 77.3 |
| 1.9 |
| 23.9 |
| 1.1 |
| 108.5 |
|
(a) Matures in 2029
|
|
|
|
|
| Payments By Period |
| |||||||||||
|
| Note |
| Total |
| 2005 |
| 2006 |
| 2007 |
| 2008 |
| 2009 |
| After |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Operating leases |
| 11 |
| 8.0 |
| 2.3 |
| 1.7 |
| 1.4 |
| 1.2 |
| 0.7 |
| 0.7 |
| |
Interest on refinanced long-term debt(a) |
| 19 |
| 107.4 |
| 5.2 |
| 10.2 |
| 10.2 |
| 10.2 |
| 10.2 |
| 61.4 |
| |
Noncompete agreements |
| 11 |
| 5.8 |
| 1.3 |
| 1.1 |
| 0.8 |
| 0.7 |
| 0.5 |
| 1.4 |
| |
Consulting agreements |
| 11 |
| 1.0 |
| 0.4 |
| 0.2 |
| 0.2 |
| 0.1 |
| 0.1 |
| — |
| |
Software agreements |
| 11 |
| 0.5 |
| 0.5 |
| — |
| — |
| — |
| — |
| — |
| |
Executive Management agreements |
| 11 |
| 2.6 |
| 1.0 |
| 0.9 |
| 0.2 |
| 0.2 |
| 0.3 |
| — |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total contractual cash obligations |
|
|
| $ | 125.3 |
| 10.7 |
| 14.1 |
| 12.8 |
| 12.4 |
| 11.8 |
| 63.5 |
|
| Payments By Period | ||||||||||||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||||||
| Note | After | |||||||||||||||||||||||||||||||
| Reference | Total | 2006 | 2007 | 2008 | 2009 | 2010 | 5 Years | |||||||||||||||||||||||||
| Operating leases | 14 | 12.7 | 2.0 | 2.1 | 1.9 | 1.3 | 1.0 | 4.4 | ||||||||||||||||||||||||
| Interest payments on long-term debt | 11 | 246.8 | 17.8 | 17.6 | 17.4 | 17.4 | 17.2 | 159.4 | ||||||||||||||||||||||||
| Noncompete agreements | 14 | 2.6 | 1.0 | 0.7 | 0.5 | 0.2 | 0.1 | 0.1 | ||||||||||||||||||||||||
| Consulting agreements | 14 | 0.9 | 0.4 | 0.2 | 0.2 | 0.1 | — | — | ||||||||||||||||||||||||
| Executive Management agreements | 14 | 3.2 | 1.3 | 0.7 | 0.5 | 0.5 | 0.2 | — | ||||||||||||||||||||||||
| Total contractual cash obligations | $ | 266.2 | 22.5 | 21.3 | 20.5 | 19.5 | 18.5 | 163.9 | ||||||||||||||||||||||||
(a) Calculated on the $130 million of Senior Notes after January 2005
As an incentive, the Company entered into arrangements with two former owners, both of which have served as directors during the past three years, to pay them each 10% of the amount by which the annual field level cash flow exceeds predetermined targets on certain businesses in their respective geographic region through 2007, with a final payment equal to a multiple of six times the average of the last three years payments. The business purpose of the arrangements was to incentivise the individuals to provide Carriage with high quality acquisition targets and to have input in the competitive strategies of those businesses post-acquisition so that cash flows grow over time. The terms were determined by reference to similar arrangements within the death care industry. The incentives earned by the two individuals totaled approximately $120,000, $60,000 and $110,000 for the years 2002, 2003 and 2004, respectively.
In connection with the 1997 acquisitions of certain funeral homes, a portion of the purchase price of each of those funeral homes was to be payable to one of the former owners referred to in the preceding paragraph based on a formula related to the annual field level cash flows subsequent to the year of acquisition. The business purpose was to determine the final purchase prices of the acquisitions since they were expected to show strong growth in cash flow. The terms were negotiated with the sellers, one of which later was appointed as a director of Carriage. The contingent purchase price payments paid to the director totaled $572,243 during 2002.
During 2003, the Company was reimbursed for the cost of personnel and office expenses totaling approximately $87,000 from an entity in which the Company owned a minority interest and one of the entity’s directors is our Chief Executive Officer. The Company sold its interest in the entity and our CEO resigned as director of the entity during 2004.
22
The Company’s business can be affected by seasonal fluctuations in the death rate. Generally, the rate is higher during the winter months because the incidences of death from influenza and pneumonia are higher during this period than other periods of the year.
RISKS RELATED TO OUR COMPANY
Marketing and sales activities by existing and new competitors could cause us to lose market share and lead to lower revenues and margins.
We face competition in all of our markets. Most of our competitors are independently owned, and some are relatively recent market entrants. Certain of the recent entrants are individuals who were formerly employed by us or by our competitors and have relationships and name recognition within our markets. As a group, independent competitors tend to be aggressive in distinguishing themselves by their independent ownership, and they promote their independence through advertising, direct mailings and personal contact. Increasing pressures from new market entrants and continued advertising and marketing by competitors in local markets could cause us to lose market share and revenues. In addition, competitors may change the types or mix of products or services offered. These changes may attract customers, causing us to lose market share and revenue as well as to incur costs in response to competition to vary the types or mix of products or services offered by us.
Price competition could also reduce our market share or cause us to reduce prices to retain or recapture market share, either of which could reduce revenues and margins.
We have historically experienced price competition primarily from independent funeral home and cemetery operators, and from monument dealers, casket retailers, low-cost funeral providers and other non-traditional providers of services or products. New market entrants tend to attempt to build market share by offering lower cost alternatives. In the past, this price competition has resulted in our losing market share in some markets. In other markets, we have had to reduce prices thereby reducing profit margins in order to retain or recapture market share. Increased price competition in the future could further reduce revenues, profit margins and our backlog.
Improved performance in our funeral segment is highly dependent upon successful execution of our standards-based Being the Best operating model.
At the beginning of 2004, we implemented our new standards-based Being the Best operating model to improve and better measure performance in our funeral operations. We developed standards according to nine criteria, each with a different weighting, designed around market share, people, and operational and financial metrics. We also incentivise our location managing partners by giving them the opportunity to earn a fixed percentage of the field-level earnings before interest taxes, depreciation and amortization based upon the number and weighting of the standards achieved. Our expectation is that, over time, the Being the Best operating model will result in our maintaining or improving field-level margins, market share, customer satisfaction and overall financial performance, but there is no assurance that these goals will be met.
Our ability to generate preneed sales depends on a number of factors, including sales incentives and local and general economic conditions.
Declines in preneed sales would reduce our backlog and revenue and could reduce our future market share. On the other hand, a significant increase in preneed sales can have a negative impact on cash flow as a result of commissions and other costs incurred without corresponding revenues.
23
As we have localized our preneed sales strategies, we are continuing to refine the mix of service and product offerings in both our funeral and cemetery segments, including changes in our sales commission and incentive structure. These changes could cause us to experience declines in preneed sales in the short-run. In addition, economic conditions at the local or national level could cause declines in preneed sales either as a result of less discretionary income or lower consumer confidence. Declines in preneed cemetery property sales would reduce current revenue, and declines in other preneed sales would reduce our backlog and future revenue and could reduce future market share.
Preneed sales of cemetery property and funeral and cemetery merchandise and services are generally cash flow negative initially, primarily due to the commissions paid on the sale, the portion of the sales proceeds required to be placed into trust or escrow and the terms of the particular contract such as the size of the down payment required and the length of the contract. As a result, preneed sales reduce cash flow available for other activities, and, to the extent preneed activities are increased, cash flow will be further reduced.
Earnings from and principal of trust funds and insurance contracts could be reduced by changes in financial markets.
Earnings and investment gains and losses on trust funds and insurance contracts are affected by financial market conditions that are largely outside our control. Earnings are also affected by the mix of fixed-income and equity securities that we choose to maintain in the funds, and we may not choose the optimal mix for any particular market condition. Declines in earnings from perpetual care trust funds would cause a decline in current revenues, while declines in earnings from other trust funds and insurance contracts could cause a decline in future cash flows and revenues.
Unrealized gains and losses in the funeral trust funds and cemetery merchandise trust funds have no immediate impact on our revenues, margins, earnings or cash flow, unless the fair market value of the funds were to decline below the estimated costs to deliver the underlying products and services. If that were to occur, we would record a charge to earnings to record the expected loss currently. Over time, gains and losses realized in the funds are allocated to underlying preneed contracts and affect the amount of the trust fund earnings to be recognized when we deliver the underlying product or service. Depending on conditions in the financial markets, the funds may eventually realize losses, and our revenues, margins, earnings and cash flow would be negatively affected by the reduced revenue when we deliver the underlying products and services.
Our ability to execute our growth strategy is highly dependent upon our ability to successfully identify suitable acquisition candidates and negotiate transactions on favorable terms.
There has been little acquisition activity by us or the other public companies in the death care industry over the preceding four years, and there is no assurance that we will be able to identify candidates that meet our criteria or that we will be able to reach terms with identified candidates for transactions that are acceptable to us. We intend to apply standards established under our Being the Best operating model in qualifying acquisition candidates, and there is no assurance that we will be successful in doing so or that we will find attractive candidates that satisfy these standards.
Increased costs may have a negative impact on our earnings and cash flows.
Cost increases may impair our ability to achieve revenue growth that exceeds our cost increases. Our 2005 plan assumes that we will be successful in increasing revenues at a rate that is greater than the growth in the cost of sales. We can give no assurance that we will be successful in achieving such increases.
Increases in interest rates would increase interest costs on our variable-rate indebtedness and could have a material adverse effect on our net income.
As of December 31, 2004, $25.6 million of our indebtedness was subject to variable interest rates, all under our existing credit facility. We intend to amend our credit facility, which will also likely be at variable rates, although initially there is no outstanding balance following the repayment of borrowings from the proceeds of the $130 million Senior Notes offering. Our current Senior Notes are fixed-rate debt instruments, as is the subordinated debt to affiliate debentures. Nevertheless, if we borrow under our proposed amended credit facility, we will become subject to greater exposure to increases in interest rates, and increases in our interest costs could decrease our net income.
Covenant restrictions under our debt instruments may limit our flexibility in operating our business.
The terms of our credit facility, including the amendment we intend to obtain, and the indenture governing the Senior Notes will limit our ability and the ability of our subsidiaries to, among other things:
• incur additional debt;
24
• pay dividends or make distributions or redeem or repurchase stock;
• make investments;
• grant liens;
• make capital expenditures;
• enter into transactions with affiliates;
• enter into sale-leaseback transactions;
• sell assets; and
•acquire the assets of, or merge or consolidate with, other companies.
Our credit facility also requires us to maintain certain financial ratios. Complying with these restrictive covenants and financial ratios, as well as those that may be contained in any future debt agreements, may impair our ability to finance our future operations or capital needs or to take advantage of other favorable business opportunities. They may also limit our ability to pay interest or principal on the notes. Our ability to comply with these restrictive covenants and financial ratios will depend on our future performance, which may be affected by events beyond our control. Our failure to comply with any of these covenants or restrictions when they apply will result in a default under the particular debt instrument, which could permit acceleration of the debt under that instrument and, in some cases, the acceleration of debt under other instruments that contain cross-default or cross-acceleration provisions. In the event of an event of default, or in the event of a cross-default or cross-acceleration, we may not have sufficient funds available to make the required payments under our debt instruments. If we are unable to repay amounts owed under the terms of our amended senior secured credit facility, the lenders thereunder may be entitled to sell most or substantially all of our assets and the assets of many of our subsidiaries to satisfy our obligations under those agreements. In such event, we may not be able to fully repay the notes, if at all.
RISKS RELATED TO THE DEATH CARE INDUSTRY
Declines in the number of deaths in our markets can cause a decrease in revenues. Changes in the number of deaths are not predictable from market to market or over the short term.
Declines in the number of deaths could cause at-need sales of funeral and cemetery services, property and merchandise to decline, which could decrease revenues. Although the United States Bureau of the Census estimates that the number of deaths in the United States will increase through 2010, longer lifespans could reduce the rate of deaths. In addition, changes in the number of deaths can vary among local markets and from quarter to quarter, and variations in the number of deaths in our markets or from quarter to quarter are not predictable. These variations may cause our revenues to fluctuate and our results of operations to lack predictability.
The increasing number of cremations in the United States could cause revenues to decline because we could lose market share to firms specializing in cremations. In addition, direct cremations produce no revenues for cemetery operations and lower funeral revenues.
Our traditional cemetery and funeral service operations face competition from the increasing number of cremations in the United States. Industry studies indicate that the percentage of cremations has steadily increased and that cremations will represent approximately 35% of the U.S. burial market by the year 2010, compared to approximately 28% in 2002. The trend toward cremation could cause cemeteries and traditional funeral homes to lose market share and revenues to firms specializing in cremations. In addition, direct cremations (with no funeral service, casket, urn, mausoleum niche, columbarium niche or burial) produce no revenues for cemetery operations and lower revenues than traditional funerals and, when delivered at a traditional funeral home, produce lower profit margins as well.
If we are not able to respond effectively to changing consumer preferences, our market share, revenues and profitability could decrease.
Future market share, revenues and profits will depend in part on our ability to anticipate, identify and respond to changing consumer preferences. During the last four years, we have implemented new product and service strategies based on results of customer surveys that we conduct on a continuous basis. However, we may not correctly anticipate or identify trends in consumer preferences, or we may identify them later than our competitors do. In addition, any strategies we may implement to address these
25
trends may prove incorrect or ineffective.
Because the funeral and cemetery businesses are high fixed-cost businesses, changes in revenue can have a disproportionately large effect on cash flow and profits.
Companies in the funeral home and cemetery business must incur many of the costs of operating and maintaining facilities, land and equipment regardless of the level of sales in any given period. For example, we must pay salaries, utilities, property taxes and maintenance costs on funeral homes and maintain the grounds of cemeteries regardless of the number of funeral services or interments performed. Because we cannot decrease these costs significantly or rapidly when we experience declines in sales, declines in sales can cause margins, profits and cash flow to decline at a greater rate than the decline in revenues.
Changes or increases in, or failure to comply with, regulations applicable to our business could increase costs or decrease cash flows.
The death care industry is subject to extensive regulation and licensing requirements under federal, state and local laws. For example, the funeral home industry is regulated by the Federal Trade Commission, which requires funeral homes to take actions designed to protect consumers. State laws impose licensing requirements and regulate preneed sales. Embalming and cremation facilities are subject to stringent environmental and health regulations. Compliance with these regulations is burdensome, and we are always at risk of not complying with the regulations or facing costly and burdensome investigations from regulatory authorities.
In addition, from time to time, governments and agencies propose to amend or add regulations, which could increase costs or decrease cash flows. For example, federal, state, local and other regulatory agencies have considered and may enact additional legislation or regulations that could affect the death care industry. Several states and regulatory agencies have considered or are considering regulations that could require more liberal refund and cancellation policies for preneed sales of products and services, limit or eliminate our ability to use surety bonding, increase trust requirements and prohibit the common ownership of funeral homes and cemeteries in the same market. If adopted by the regulatory authorities of the jurisdictions in which we operate, these and other possible proposals could have a material adverse effect on us, our financial condition, our results of operations and our future prospects. For additional information regarding the regulation of the death care industry, see “Business — Regulation”.
Our
26
The convertible junior subordinated debenture payable to Carriage Services Capital Trust pay interest at the fixed rate of 7% and are carried on the Company’s balance sheet at a cost of approximately $93.8 million. We estimate a value of $53 million and $84 million at December 31, 2003 and 2004, respectively, based on available broker quotes of the corresponding preferred securities issued by the Trust. While corresponding preferred securities are very thinly traded, increases in market interest rates may cause the value of these instruments to decrease but such changes will not affect the Company’s interest costs.
27
26
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| Page | ||
| CONSOLIDATED FINANCIAL STATEMENTS: | ||
Management’s Report on Internal Control over Financial Reporting | 29 | |
| Attestation of Independent Registered Public Accounting Firm | 30 | |
| Report of Independent Registered Public Accounting Firm | 31 | |
Consolidated Balance Sheets as of December 31, | 32 | |
Consolidated Statements of Operations for the Years Ended December 31, | 33 | |
| 2005 | 34 | |
| 2005 | 35 | |
Consolidated Statements of Cash Flows for the Years Ended December 31, | 36 | |
| 37 |
28
27
/s/ Melvin C. Payne | ||
| Melvin C. Payne | ||
| Chairman of the Board, President and Chief Executive Officer | ||
/s/ Joseph Saporito | ||
| Joseph Saporito | ||
| Executive Vice President and Chief Financial Officer | ||
| March 10, 2006 |
29
30
As discussed
| |
| |
| |
28
CARRIAGE SERVICES, INC.INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
|
| December 31, |
| ||||
|
| 2003 |
| 2004 |
| ||
ASSETS |
|
|
|
|
| ||
Current assets: |
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 2,024 |
| $ | 1,948 |
|
Accounts receivable- |
|
|
|
|
| ||
Trade, net of allowance for doubtful accounts of $1,807 in 2003 and $940 in 2004 |
| 15,376 |
| 12,941 |
| ||
Assets held for sale |
| 7,272 |
| 4,021 |
| ||
Inventories and other current assets |
| 11,434 |
| 12,815 |
| ||
Total current assets |
| 36,106 |
| 31,725 |
| ||
Preneed receivables and trust investments; |
|
|
|
|
| ||
Cemetery |
| — |
| 65,855 |
| ||
Funeral |
| — |
| 49,494 |
| ||
Receivables from preneed funeral contracts |
| 73,701 |
| 18,074 |
| ||
Preneed cemetery merchandise and service trust funds |
| 46,506 |
| — |
| ||
Property, plant and equipment, net of accumulated depreciation of $34,587 in 2003 and $40,531 in 2004 |
| 107,257 |
| 104,893 |
| ||
Cemetery property |
| 63,658 |
| 62,649 |
| ||
Goodwill |
| 159,672 |
| 156,983 |
| ||
Deferred obtaining costs |
| 32,524 |
| 35,701 |
| ||
Deferred charges and other non-current assets |
| 19,493 |
| 8,581 |
| ||
Cemetery perpetual care trust investments |
| — |
| 31,201 |
| ||
Total assets |
| $ | 538,917 |
| $ | 565,156 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
| ||
Accounts payable and accrued liabilities |
| $ | 22,703 |
| $ | 22,039 |
|
Liabilities associated with assets held for sale |
| 3,288 |
| 2,598 |
| ||
Current portion of long-term debt and obligations under capital leases |
| 24,400 |
| 2,155 |
| ||
Total current liabilities |
| 50,391 |
| 26,792 |
| ||
|
|
|
|
|
| ||
Senior long-term debt, net of current portion |
| 105,355 |
| 102,714 |
| ||
Convertible junior subordinated debenture due in 2029 to an affiliated trust |
| — |
| 93,750 |
| ||
Obligations under capital leases, net of current portion |
| 5,504 |
| 5,424 |
| ||
Distributions payable on convertible preferred securities |
| 3,876 |
| — |
| ||
Deferred interest on convertible junior subordinated debentures |
| — |
| 10,891 |
| ||
Deferred cemetery revenue |
| 96,796 |
| 46,787 |
| ||
Deferred preneed funeral contracts revenue |
| 80,738 |
| 30,973 |
| ||
Non-controlling interests in funeral and cemetery trust investments |
| — |
| 98,652 |
| ||
Total liabilities |
| 342,660 |
| 415,983 |
| ||
Commitments and contingencies |
|
|
|
|
| ||
Non-controlling interests in perpetual care trust investments |
| — |
| 32,212 |
| ||
Non-controlling interests in perpetual care trust investments associated with assets held for sale |
| — |
| 523 |
| ||
Company-obligated mandatorily redeemable convertible preferred securities of Carriage Services Capital Trust |
| 90,327 |
| — |
| ||
Stockholders’ equity: |
|
|
|
|
| ||
Common Stock, $.01 par value; 80,000,000 shares authorized; 17,545,000 and 17,910,000 issued and outstanding in 2003 and 2004, respectively |
| 175 |
| 179 |
| ||
Additional paid-in capital |
| 186,679 |
| 188,029 |
| ||
Accumulated deficit |
| (80,290 | ) | (71,056 | ) | ||
Deferred compensation |
| (634 | ) | (714 | ) | ||
Total stockholders’ equity |
| 105,930 |
| 116,438 |
| ||
Total liabilities and stockholders’ equity |
| $ | 538,917 |
| $ | 565,156 |
|
| December 31, | ||||||||
| 2004 | 2005 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 1,948 | $ | 7,949 | ||||
| Short term investments | — | 16,908 | ||||||
| Accounts receivable- | ||||||||
| Trade, net of allowance for doubtful accounts of $940 in 2004 and $937 in 2005 | 12,941 | 13,412 | ||||||
| Assets held for sale | 4,021 | — | ||||||
| Inventories and other current assets | 12,815 | 12,883 | ||||||
| Total current assets | 31,725 | 51,152 | ||||||
| Preneed receivables and trust investments: | ||||||||
| Cemetery | 65,855 | 67,995 | ||||||
| Funeral | 49,494 | 50,420 | ||||||
| Receivables from preneed funeral contracts | 18,074 | 17,411 | ||||||
| Property, plant and equipment, net of accumulated depreciation of $40,831 in 2004 and $45,694 in 2005 | 104,893 | 105,435 | ||||||
| Cemetery property | 62,649 | 62,905 | ||||||
| Goodwill | 156,983 | 157,358 | ||||||
| Deferred obtaining costs | 35,701 | — | ||||||
| Deferred charges and other non-current assets | 8,581 | 25,608 | ||||||
| Cemetery perpetual care trust investments | 31,201 | 32,356 | ||||||
| Total assets | $ | 565,156 | $ | 570,640 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | 22,039 | $ | 22,163 | ||||
| Liabilities associated with assets held for sale | 2,598 | — | ||||||
| Current portion of long-term debt and obligations under capital leases | 2,155 | 2,074 | ||||||
| Total current liabilities | 26,792 | 24,237 | ||||||
| Senior long-term debt, net of current portion | 102,714 | 134,572 | ||||||
| Convertible junior subordinated debenture due in 2029 to an affiliated trust | 93,750 | 93,750 | ||||||
| Obligations under capital leases, net of current portion | 5,424 | 4,775 | ||||||
| Deferred interest on convertible junior subordinated debentures | 10,891 | — | ||||||
| Deferred cemetery revenue | 46,787 | 51,928 | ||||||
| Deferred preneed funeral contracts revenue | 30,973 | 29,446 | ||||||
| Non-controlling interests in funeral and cemetery trust investments | 98,652 | 102,446 | ||||||
| Total liabilities | 415,983 | 441,154 | ||||||
| Commitments and contingencies | ||||||||
| Non-controlling interests in perpetual care trust investments | 32,212 | 33,112 | ||||||
| Non-controlling interests in perpetual care trust investments associated with assets held for sale | 523 | — | ||||||
| Stockholders’ equity: | ||||||||
| Common Stock, $.01 par value; 80,000,000 shares authorized; 17,910,000 and 18,458,000 issued and outstanding in 2004 and 2005, respectively | 179 | 185 | ||||||
| Additional paid-in capital | 188,029 | 190,502 | ||||||
| Accumulated deficit | (71,056 | ) | (92,921 | ) | ||||
| Deferred compensation | (714 | ) | (1,392 | ) | ||||
| Total stockholders’ equity | 116,438 | 96,374 | ||||||
| Total liabilities and stockholders’ equity | $ | 565,156 | $ | 570,640 | ||||
32
29
the Company held. On June 30, 2005, the Company changed its method for accounting for deferred obtaining costs, effective January 1, 2005. See Note 3 for more detailed discussion of the Company’s accounting change.
Carriage entered into interest rate swap agreements to reduce the impact of changes in interest rates on our floating rate debt. The swap agreements were agreements to exchange floating rates for fixed interest payments periodically over the life of the agreements without the exchange of the underlying notional amounts. The differential paid or received was recognized as an adjustment to interest expense. The Company does not hold or issue financial instruments for trading purposes. The swaps terminated in May 2003.
Goodwill and Other Intangible Assets
The effect of SFAS No. 142 on the Company which was adopted as of the beginning of 2002, included the elimination ofeliminated the amortization of goodwill at the identificationbeginning of 2002. On an annual basis, the Company assesses and tests the potential impairment of goodwill based on reporting units (aggregated geographically) foridentified within the purposefuneral segment that are aggregated geographically.
38
35
Inventory
Inventorycemetery monuments and markers, and is recorded at the lower of its cost basis (determined by the specific identification method) or net realizable value.
| |||
| Years | |||
| Buildings and improvements | 15 to 40 | ||
Furniture and fixtures | 7 to 10 | ||
Machinery and equipment | 5 to 10 | ||
Automobiles | 5 to 7 | ||
| Property, plant and equipment was comprised of the following at December 31, 2004 and 2005: |
Property, plant
| 2004 | 2005 | |||||||
| (in thousands) | ||||||||
| Property, plant and equipment, at cost: | ||||||||
| Land | $ | 25,783 | $ | 26,311 | ||||
| Buildings and improvements | 81,379 | 82,329 | ||||||
| Furniture, equipment and automobiles | 38,955 | 42,489 | ||||||
| 146,117 | 151,129 | |||||||
| Less: accumulated depreciation | (40,831 | ) | (45,694 | ) | ||||
| $ | 105,286 | $ | 105,435 | |||||
| Less: Property, plant and equipment included in assets held for sale | 393 | — | ||||||
| $ | 104,893 | $ | 105,435 | |||||
|
| 2003 |
| 2004 |
| ||
|
| (in thousands) |
| ||||
Property, plant and equipment, at cost: |
|
|
|
|
| ||
Land |
| $ | 26,734 |
| $ | 25,783 |
|
Buildings and improvements |
| 83,397 |
| 81,379 |
| ||
Furniture, equipment and automobiles |
| 36,504 |
| 38,955 |
| ||
|
| 146,635 |
| 146,117 |
| ||
Less: accumulated depreciation |
| (35,671 | ) | (40,831 | ) | ||
|
| $ | 110,964 |
| $ | 105,286 |
|
Less: Property, plant and equipment included in assets held for sale |
| 3,707 |
| 393 |
| ||
|
| $ | 107,257 |
| $ | 104,893 |
|
During 2002, 2003 and 2004,2005, the Company recorded $6,401,000, $6,810,000, $6,973,000 and $6,973,000,$6,922,000, respectively, in depreciation expense in income from continuing operations.
39
36
Operations and has adopted the disclosure-only provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” and SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure.”
|
| Year ended December 31, |
| |||||||
|
| 2002 |
| 2003 |
| 2004 |
| |||
|
| (in thousands, except per share data) |
| |||||||
Net income available to common stockholders: |
|
|
|
|
|
|
| |||
As reported |
| $ | 20,278 |
| $ | 6,625 |
| $ | 9,234 |
|
Pro forma |
| 19,544 |
| 6,134 |
| 8,794 |
| |||
|
|
|
|
|
|
|
| |||
Net income per share available to common stockholders: |
|
|
|
|
|
|
| |||
Basic |
|
|
|
|
|
|
| |||
As reported |
| 1.20 |
| 0.38 |
| 0.52 |
| |||
Pro forma |
| 1.15 |
| 0.35 |
| 0.49 |
| |||
Diluted |
|
|
|
|
|
|
| |||
As reported |
| 1.16 |
| 0.37 |
| 0.51 |
| |||
Pro forma |
| 1.12 |
| 0.34 |
| 0.48 |
| |||
in 2006 within a range of $0.1 million to $0.2 million.
| Year ended December 31, | ||||||||||||||||
| 2003 | 2004 | 2005 | ||||||||||||||
| (in thousands, except per share data) | ||||||||||||||||
| Net income (loss) available to common stockholders: | ||||||||||||||||
| As reported | $ | 6,625 | $ | 9,234 | $ | (21,865 | ) | |||||||||
| Pro forma | 6,134 | 8,794 | (22,059 | ) | ||||||||||||
| Net income (loss) per share available to common stockholders: | ||||||||||||||||
| Basic | ||||||||||||||||
| As reported | 0.38 | 0.52 | (1.19 | ) | ||||||||||||
| Pro forma | 0.35 | 0.49 | (1.20 | ) | ||||||||||||
| Diluted | ||||||||||||||||
| As reported | 0.37 | 0.51 | (1.19 | ) | ||||||||||||
| Pro forma | 0.34 | 0.48 | (1.20 | ) | ||||||||||||
options.
40
41
37
of future performance, as there can be no assurance the margins, operating income and net earnings as a percentage of revenues will be sustained consistently from year to year.
Impairment
Except as notedaccounting for Goodwill and deferred obtaining costs, the Company reviews its long-lived assets for impairment when changes in circumstances indicate that the carrying amount of the net asset may not be recoverable in accordance with Statement of Financial Accounting Standards (SFAS) No. 144, “Accountingwhich are preneed selling costs, incurred for the Impairment or Disposalorigination of Long-Lived Assets” (SFAS 144). SFAS 144 requires that long-lived assets to be heldprearranged funeral and used be reported at the lower of carrying amount or fair value. Assets to be disposed ofcemetery service and assets not expected to provide any future service potential to the Company are recorded at the lower of carrying amount or fair value less estimated cost to sell. The revenues and expenses, as well as gains, losses and impairments, from those assets are reported in the discontinued operations section of the Consolidated Statement of Operations for all periods presented.
Goodwill
The adoption of SFAS No. 141 by the Company had no effect on its consolidated financial statements. The effect of SFAS No. 142 on the Company, which was adopted as of the beginning of 2002, included the elimination of the amortization of goodwill, the identification of reporting units for the purpose of assessing potential future impairments of goodwill and the testing for impairments of goodwill on an annual basis. The Company performed an annual review of goodwill by comparing the fair value of the Company’s reporting units (funeral home businesses by region) to the carrying value of the reporting units and no impairment was indicated.
Consolidation of Variable Interest Entities
The Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 46, as revised, (FIN 46R), “Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin (ARB) No. 51.” This interpretation clarifies the circumstances in which certain entities that do not have equity investors with a controlling financial interest must be consolidated by its sponsor. The Company implemented FIN 46R as of March 31, 2004, which resulted, for financial reporting purposes, in the consolidation of the Company’s preneed and perpetual care trust funds. The investments of such trust funds have been reported at market value and the Company’s future obligations to deliver merchandise and services have been reported at estimated settlement amounts.sales contracts. The Company has also recognizedapplied this change in accounting method effective January 1, 2005. Therefore, the non-controlling financial interestsCompany’s results of third partiesoperations for the year ended December 31, 2005 are reported on the basis of the changed method. Prior to this change, commissions and other costs that were related to the origination of prearranged funeral and cemetery service and merchandise sales were deferred and amortized with the objective of recognizing the selling costs in the trust funds. There was nosame period that the related revenue is recognized. Under the prior accounting method, the commissions and other direct selling costs, which are current obligations that are paid and use operating cash flow, are
42
38
Although FIN 46R requires consolidation of preneed and perpetual care trusts, it does not change the legal relationships among the trusts, the Company and its customers. In the case of preneed trusts, the customers are the legal beneficiaries. In the case of perpetual care trusts, the Company does not have a right to access the corpusmethod in the perpetual care trusts. For these reasons,amount of $35.8 million pretax or $22.8 million after tax (net of income tax benefit of $13.0 million), or $1.24 per diluted share, which represents the Company has recognized non-controlling interests in our financial statements to reflect third party interests in these consolidated trust funds.
Both the preneed trusts and the cemetery perpetual care trusts hold investments in marketable securities which have been classified as available-for-sale. The investments are reported at fair value, with unrealized gains and losses allocated to Non-controlling interests in trust investments cumulative balance of deferred obtaining costs in the Company’s consolidated balance sheet. Unrealized gainsThe table below presents the Company’s income from continuing operations before the cumulative effect of the change in accounting method, net income (loss), diluted earnings per share from continuing operations before the cumulative effect of the change in accounting method and losses attributable todiluted net earnings (loss) per share for the year ended December 31, 2005 had the Company but that have not been earned throughmade this accounting change (in thousands, except per share amounts).
| Year Ended | ||||||||||||
| December 31, 2005 | ||||||||||||
| Effect of | Results under | |||||||||||
| As Reported | Change | Prior Method | ||||||||||
| Income (loss) from continuing operations before cumulative effect of change in accounting method | $ | (45 | ) | $ | 952 | $ | 907 | |||||
| Net income (loss) | (21,865 | ) | 23,601 | 1,736 | ||||||||
| Diluted earnings per common share from continuing operations before cumulative effect of change in accounting method | — | 0.05 | 0.05 | |||||||||
| Diluted earnings (loss) per common share | (1.19 | ) | 1.29 | 0.10 | ||||||||
Also beginning Marchpro forma amounts for the year ended December 31, 2004 and 2003 as if the Company recognizes realized income, gains and losses of the preneed trusts and cemetery perpetual care trusts. The Company recognizes a corresponding expense equal to the realized earnings of these trusts attributable to the non-controlling interest holders. When such earnings attributable to the Company have notaccounting change had been earned through the performance of services or delivery of merchandise, the Company will record such earnings as deferred revenue.in effect during those periods (in thousands, except per share amounts).
| �� | Year Ended | |||||||||||
| December 31, 2004 | ||||||||||||
| As | ||||||||||||
| Previously | Effect of | |||||||||||
| Reported | Change | Proforma | ||||||||||
| Gross profit: | ||||||||||||
| Funeral | $ | 29,452 | $ | (985 | ) | $ | 28,467 | |||||
| Cemetery | 8,874 | (2,090 | ) | 6,784 | ||||||||
| $ | 38,326 | $ | (3,075 | ) | $ | 35,251 | ||||||
| Income from continuing operations | $ | 10,988 | $ | (1,922 | ) | $ | 9,066 | |||||
| Net income | 9,234 | (1,686 | ) | 7,548 | ||||||||
| Diluted earnings per common share from continuing operations | 0.60 | (0.10 | ) | 0.50 | ||||||||
| Diluted earnings per common share | 0.51 | (0.10 | ) | 0.41 | ||||||||
| Year Ended | ||||||||||||
| December 31, 2003 | ||||||||||||
| As | ||||||||||||
| Previously | Effect of | |||||||||||
| Reported | Change | Proforma | ||||||||||
| Gross profit: | ||||||||||||
| Funeral | $ | 29,084 | $ | (529 | ) | $ | 28,555 | |||||
| Cemetery | 8,521 | (1,804 | ) | 6,717 | ||||||||
| $ | 37,605 | $ | (2,333 | ) | $ | 35,272 | ||||||
| Income from continuing operations | $ | 5,899 | $ | (1,457 | ) | $ | 4,442 | |||||
| Net income | 6,625 | (1,624 | ) | 5,001 | ||||||||
| Diluted earnings per common share from continuing operations | 0.33 | (0.08 | ) | 0.25 | ||||||||
| Diluted earnings per common share | 0.37 | (0.09 | ) | 0.28 | ||||||||
43
For preneed trusts, the Company recognizes as revenues amounts attributed to the non-controlling interest holders and the Company, including accumulated realized earnings, when the contracted services have been performed and merchandise delivered. For cemetery perpetual care trusts, the Company recognizes investment earnings in cemetery revenues when such earnings are realized and distributable. Such earnings are intended to defray cemetery maintenance costs incurred by the Company.
Also, the Company was required to deconsolidate Carriage Services Capital Trust (the “Trust”), a trust established in 1999 to issue redeemable convertible preferred securities. The Company’s obligation to the Trust consists of convertible junior subordinated debentures. The preferred securities of the Trust were previously classified as temporary equity in the consolidated balance sheet. As a result of deconsolidating the Trust, the Company now reports its obligation to the Trust, the convertible junior subordinated debentures, as a long-term liability.
During 2005, the Company sold one cemetery business and two funeral home businesses. These transactions generated net cash proceeds of $1.6 million and a gain of approximately $1.3 million.
39
| December 31, | ||||
| 2004 | ||||
| Assets: | ||||
| Current assets | $ | 200 | ||
| Property, plant and equipment, net | 393 | |||
| Preneed receivables and trust investments | 2,378 | |||
| Cemetery property, net | 462 | |||
| Cemetery perpetual care trust investments | 455 | |||
| Deferred obtaining costs | 133 | |||
| Total | $ | 4,021 | ||
| Liabilities: | ||||
| Current liabilities | 32 | |||
| Deferred cemetery revenue | 515 | |||
| Non-controlling interests in funeral and cemetery trust investments | 2,051 | |||
| Total | $ | 2,598 | ||
| Noncontrolling interests in perpetual care trust investments with assets held for sale | $ | 523 | ||
|
| December 31, |
| December 31, |
| ||
Assets: |
|
|
|
|
| ||
Current assets |
| $ | 289 |
| $ | 200 |
|
Property, plant and equipment, net |
| 3,707 |
| 393 |
| ||
Preneed receivables and trust investments |
| — |
| 2,378 |
| ||
Preneed funeral contracts |
| 5 |
| — |
| ||
Preneed cemetery merchandise and service trust funds |
| 1,731 |
| — |
| ||
Cemetery property, net |
| 466 |
| 462 |
| ||
Cemetery perpetual care trust investments |
| — |
| 455 |
| ||
Deferred obtaining costs |
| 615 |
| 133 |
| ||
Deferred charges and other assets |
| 459 |
| — |
| ||
Total |
| $ | 7,272 |
| $ | 4,021 |
|
|
|
|
|
|
| ||
Liabilities: |
|
|
|
|
| ||
Current liabilities |
| 208 |
| 32 |
| ||
Senior long-term debt, net of current portion |
| 220 |
| — |
| ||
Deferred cemetery revenue |
| 2,312 |
| 515 |
| ||
Deferred preneed funeral contracts revenue |
| 548 |
| — |
| ||
Non-controlling interests in funeral and cemetery trust investments |
| — |
| 2,051 |
| ||
Total |
| $ | 3,288 |
| $ | 2,598 |
|
|
|
|
|
|
| ||
Noncontrolling interests in perpetual care trust investments with assets held for sale |
| $ | — |
| $ | 523 |
|
The operating results of the five funeral home businesses and one cemetery businesssold, held for sale or closed, as well as the impairment charges and gains on disposal are presented in the discontinued operations section, along with the income tax effect, in the consolidated statements of operations on a comparative basis. Likewise, the operating results and gains or losses from businesses sold or closed in the prior year have been similarly reported for comparability. Revenues and operating income for the businesses presented in the discontinued operations section are as follows (in thousands):
44
|
| For the years ended December 31, |
| |||||||
|
| 2002 |
| 2003 |
| 2004 |
| |||
|
|
|
|
|
|
|
| |||
Revenues, net |
| $ | 4,859 |
| $ | 3,884 |
| $ | 2,300 |
|
|
|
|
|
|
|
|
| |||
Operating income |
| $ | 1,167 |
| $ | 682 |
| $ | 412 |
|
In
| For the years ended December 31, | ||||||||||||
| 2003 | 2004 | 2005 | ||||||||||
| Revenues, net | $ | 4,263 | $ | 2,612 | $ | 722 | ||||||
| Operating income | $ | 662 | $ | 357 | $ | 104 | ||||||
40
4.6. PRENEED RECEIVABLES AND TRUST INVESTMENTS
|
| December 31, |
| |
Trust assets |
| $ | 53,095 |
|
Receivables from customers, net |
| 15,915 |
| |
Unearned finance charges |
| (3,155 | ) | |
Preneed cemetery receivables and trust investments |
| $ | 65,855 |
|
| December 31, | December 31, | |||||||
| 2004 | 2005 | |||||||
| Trust assets | $ | 53,095 | $ | 54,768 | ||||
| Receivables from customers | 16,299 | 17,304 | ||||||
| Unearned finance charges | (3,155 | ) | (3,143 | ) | ||||
| Allowance for doubtful accounts | (384 | ) | (934 | ) | ||||
| Preneed cemetery receivables and trust investments | $ | 65,855 | $ | 67,995 | ||||
45
|
| Cost |
| Unrealized |
| Unrealized |
| Market |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Cash, money market and other short-term investments |
| $ | 5,025 |
| $ | — |
| $ | — |
| $ | 5,025 |
|
Fixed income securities: |
|
|
|
|
|
|
|
|
| ||||
U.S. Treasury |
| 156 |
| — |
| (4 | ) | 152 |
| ||||
U.S. Agency obligations |
| 3,311 |
| 17 |
| (19 | ) | 3,309 |
| ||||
State obligations |
| 15,695 |
| 339 |
| (39 | ) | 15,995 |
| ||||
Corporate |
| 3,177 |
| 92 |
| (15 | ) | 3,254 |
| ||||
Equity securities: |
|
|
|
|
|
|
|
|
| ||||
Common stock |
| 10,580 |
| 1,980 |
| (63 | ) | 12,497 |
| ||||
Mutual funds: |
|
|
|
|
|
|
|
|
| ||||
Equity |
| 8,360 |
| 646 |
| (7 | ) | 8,999 |
| ||||
Fixed income |
| 3,572 |
| 71 |
| (37 | ) | 3,606 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Trust investments |
| $ | 49,876 |
| $ | 3,145 |
| $ | (184 | ) | $ | 52,837 |
|
|
|
|
|
|
|
|
|
|
| ||||
Accrued investment income |
| $ | 258 |
|
|
|
|
| 258 |
| |||
|
|
|
|
|
|
|
|
|
| ||||
Trust assets |
|
|
|
|
|
|
| $ | 53,095 |
| |||
|
|
|
|
|
|
|
|
|
| ||||
Market value as a percentage of cost |
|
|
|
|
|
|
| 106.5 | % | ||||
| Unrealized | Unrealized | |||||||||||||||
| Cost | Gains | Losses | Market | |||||||||||||
| Cash, money market and other short-term investments | $ | 6,291 | $ | — | $ | — | $ | 6,291 | ||||||||
| Fixed income securities: | ||||||||||||||||
| U.S. Treasury | — | — | — | — | ||||||||||||
| U.S. Agency obligations | 5,502 | 2 | (81 | ) | 5,423 | |||||||||||
| State obligations | 11,507 | 177 | (223 | ) | 11,461 | |||||||||||
| Corporate | 3,745 | 48 | (36 | ) | 3,757 | |||||||||||
| Other | 7 | — | — | 7 | ||||||||||||
| Common Stock | 12,830 | 1,413 | (230 | ) | 14,013 | |||||||||||
| Mutual funds: | ||||||||||||||||
| Equity | 5,195 | 306 | (52 | ) | 5,449 | |||||||||||
| Fixed income | 6,676 | 49 | (43 | ) | 6,682 | |||||||||||
| Other investments | 1,349 | 90 | (4 | ) | 1,435 | |||||||||||
| Trust investments | $ | 53,102 | $ | 2,085 | $ | (669 | ) | $ | 54,518 | |||||||
| Accrued investment income | $ | 250 | 250 | |||||||||||||
| Trust assets | $ | 54,768 | ||||||||||||||
| Market value as a percentage of cost | 103.1 | % | ||||||||||||||
| Due in one year or less | $ | 1,452 | ||
| Due in one to five years | 11,758 | |||
| Due in five to ten years | 7,370 | |||
| Thereafter | 68 | |||
| $ | 20,648 | |||
46
Due in one year or less |
| $ | 1,112 |
|
Due in one to five years |
| 7,474 |
| |
Due in five to ten years |
| 14,036 |
| |
Thereafter |
| 88 |
| |
|
| $ | 22,710 |
|
41
| Unrealized | Unrealized | |||||||||||||||
| Cost | Gains | Losses | Market | |||||||||||||
| Cash, money market and other short-term investments | $ | 5,025 | $ | — | $ | — | $ | 5,025 | ||||||||
| Fixed income securities: | ||||||||||||||||
| U.S. Treasury | 156 | — | (4 | ) | 152 | |||||||||||
| U.S. Agency obligations | 3,311 | 17 | (19 | ) | 3,309 | |||||||||||
| State obligations | 15,695 | 339 | (39 | ) | 15,995 | |||||||||||
| Corporate | 3,177 | 92 | (15 | ) | 3,254 | |||||||||||
| Common stock | 10,580 | 1,980 | (63 | ) | 12,497 | |||||||||||
| Mutual funds: | ||||||||||||||||
| Equity | 8,360 | 646 | (7 | ) | 8,999 | |||||||||||
| Fixed income | 3,572 | 71 | (37 | ) | 3,606 | |||||||||||
| Trust investments | $ | 49,876 | $ | 3,145 | $ | (184 | ) | $ | 52,837 | |||||||
| Accrued investment income | $ | 258 | 258 | |||||||||||||
| Trust assets | $ | 53,095 | ||||||||||||||
| Market value as a percentage of cost | 106.5 | % | ||||||||||||||
| December 31, | December 31, | |||||||
| 2004 | 2005 | |||||||
| Trust assets | $ | 45,557 | $ | 47,678 | ||||
| Receivables from customers | 9,824 | 8,709 | ||||||
| Allowance for contract cancellations | (5,887 | ) | (5,967 | ) | ||||
| Preneed funeral receivables and trust investments | $ | 49,494 | $ | 50,420 | ||||
47
|
| December 31, |
| |
|
|
|
| |
Trust assets |
| $ | 45,557 |
|
Receivables from customers |
| 9,824 |
| |
Allowance for contract cancellations |
| (5,887 | ) | |
|
|
|
| |
Preneed funeral receivables and trust investments |
| $ | 49,494 |
|
|
| Cost |
| Unrealized |
| Unrealized |
| Market |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Cash, money market and other short-term investments |
| $ | 12,885 |
| $ | — |
| $ | — |
| $ | 12,885 |
|
Fixed income securities: |
|
|
|
|
|
|
|
|
| ||||
U.S. Treasury |
| 2,463 |
| 9 |
| (19 | ) | 2,453 |
| ||||
U.S. Agency obligations |
| 199 |
| — |
| (3 | ) | 196 |
| ||||
State obligations |
| 1,953 |
| 105 |
| — |
| 2,058 |
| ||||
Corporate |
| 1,601 |
| 60 |
| (8 | ) | 1,653 |
| ||||
Equity securities: |
|
|
|
|
|
|
|
|
| ||||
Common stock |
| 2,258 |
| 635 |
| (74 | ) | 2,819 |
| ||||
Mutual funds: |
|
|
|
|
|
|
|
|
| ||||
Equity |
| 6,486 |
| 648 |
| (101 | ) | 7,033 |
| ||||
Fixed income |
| 16,579 |
| 44 |
| (163 | ) | 16,460 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Trust investments |
| $ | 44,424 |
| $ | 1,501 |
| $ | (368 | ) | $ | 45,557 |
|
|
|
|
|
|
|
|
|
|
| ||||
Market value as a percentage of cost |
|
|
|
|
|
|
| 102.6 | % | ||||
2005.
| Unrealized | Unrealized | |||||||||||||||
| Cost | Gains | Losses | Market | |||||||||||||
| Cash, money market and other short-term investments | $ | 19,216 | $ | — | $ | — | $ | 19,216 | ||||||||
| Fixed income securities: | ||||||||||||||||
| U.S. Treasury | 434 | — | (12 | ) | 422 | |||||||||||
| U.S. Agency obligations | 1,819 | 63 | (1 | ) | 1,881 | |||||||||||
| State obligations | 1,289 | 16 | (14 | ) | 1,291 | |||||||||||
| Corporate | — | — | — | — | ||||||||||||
| Obligations and guarantees of U.S. government agencies | 1,067 | 2 | (25 | ) | 1,044 | |||||||||||
| Common Stock | 2,592 | 364 | (48 | ) | 2,908 | |||||||||||
| Mutual funds: | ||||||||||||||||
| Equity | 5,412 | 758 | — | 6,171 | ||||||||||||
| Fixed income | 15,032 | 58 | (344 | ) | 14,745 | |||||||||||
| Trust investments | $ | 46,861 | $ | 1,261 | $ | (444 | ) | $ | 47,678 | |||||||
| Market value as a percentage of cost | 101.7 | % | ||||||||||||||
| Due in one year or less | $ | 311 | ||
| Due in one to five years | 2,054 | |||
| Due in five to ten years | 2,184 | |||
| Thereafter | 89 | |||
| $ | 4,638 | |||
48
Due in one year or less |
| $ | 398 |
|
Due in one to five years |
| 2,921 |
| |
Due in five to ten years |
| 2,308 |
| |
Thereafter |
| 733 |
| |
|
| $ | 6,360 |
|
| Unrealized | Unrealized | |||||||||||||||
| Cost | Gains | Losses | Market | |||||||||||||
| Cash, money market and other short-term investments | $ | 12,885 | $ | — | $ | — | $ | 12,885 | ||||||||
| Fixed income securities: | ||||||||||||||||
| U.S. Treasury | 2,463 | 9 | (19 | ) | 2,453 | |||||||||||
| U.S. Agency obligations | 199 | — | (3 | ) | 196 | |||||||||||
| State obligations | 1,953 | 105 | — | 2,058 | ||||||||||||
| Corporate | 1,601 | 60 | (8 | ) | 1,653 | |||||||||||
| Common stock | 2,258 | 635 | (74 | ) | 2,819 | |||||||||||
| Mutual funds: | ||||||||||||||||
| Equity | 6,486 | 648 | (101 | ) | 7,033 | |||||||||||
| Fixed income | 16,579 | 44 | (163 | ) | 16,460 | |||||||||||
| Trust investments | $ | 44,424 | $ | 1,501 | $ | (368 | ) | $ | 45,557 | |||||||
| Market value as a percentage of cost | 102.6 | % | ||||||||||||||
42
the trust, in which case a loss provision would be recorded. No loss amounts have been required to be recognized for the periods presented in the consolidated financial statements.
Consolidated Financial Statements.
The Company is required by state law to pay a portion of the proceeds from the sale of cemetery property interment rights into perpetual care trust funds. As a result of the implementation of FIN 46R, the Company has consolidated the perpetual care trust funds with a corresponding amount as Non-controlling interests in perpetual care trusts. Realized and distributable earnings from these perpetual care trust investments are recognized in current cemetery revenues and are used to defray cemetery maintenance costs which are expensed as incurred. The cost and market values associated with the trust investments held in perpetual care trust funds at December 31, 2004 are detailed below (in thousands). The cost basis of the cemetery perpetual care trust investments below reflects an other than temporary decline in the trust assets of $0.1 million at December 31, 2004. The Company believes the unrealized losses related to the trust investments are temporary in nature. Net unrealized gains increased $0.5 million from March 31, 2004, the date of adoption, through December 31, 2004.
|
| Cost |
| Unrealized |
| Unrealized |
| Market |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Cash, money market and other short-term investments |
| $ | 4,239 |
| $ | — |
| $ | — |
| $ | 4,239 |
|
Fixed income securities: |
|
|
|
|
|
|
|
|
| ||||
U.S. Treasury |
| 1,722 |
| 21 |
| (4 | ) | 1,739 |
| ||||
U.S. Agency obligation |
| 4,511 |
| 25 |
| (6 | ) | 4,530 |
| ||||
State obligations |
| 4,007 |
| — |
| — |
| 4,007 |
| ||||
Corporate |
| 2,940 |
| 179 |
| (12 | ) | 3,107 |
| ||||
Equity securities: |
|
|
|
|
|
|
|
|
| ||||
Common stock |
| 7,488 |
| 983 |
| (56 | ) | 8,415 |
| ||||
Mutual funds: |
|
|
|
|
|
|
|
|
| ||||
Equity |
| 1,621 |
| 140 |
| (4 | ) | 1,757 |
| ||||
Fixed income |
| 3,221 |
| 38 |
| (36 | ) | 3,223 |
| ||||
Other assets |
| 167 |
| — |
| (117 | ) | 50 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Trust investments |
| $ | 29,916 |
| $ | 1,386 |
| $ | (235 | ) | $ | 31,067 |
|
|
|
|
|
|
|
|
|
|
| ||||
Accrued investment income |
| $ | 134 |
|
|
|
|
| 134 |
| |||
|
|
|
|
|
|
|
|
|
| ||||
Trust assets |
|
|
|
|
|
|
| $ | 31,201 |
| |||
|
|
|
|
|
|
|
|
|
| ||||
Market value as a percentage of cost |
|
|
|
|
|
|
| 104.3 | % | ||||
The estimated maturities of the fixed income securities included above are as follows:
Due in one year or less |
| $ | 2,022 |
| |
Due in one to five years |
| 6,620 |
| ||
Due in five to ten years |
| 4,606 |
| ||
Thereafter |
| 135 |
| ||
|
| $ | 13,383 |
| |
Receivables from Preneed Funeral Contracts
43
The components of the receivables from preneed funeral contracts in the consolidated balance sheet at December 31, 2004 and 2005 are as follows (in thousands):
| December 31, | December 31, | |||||||
| 2004 | 2005 | |||||||
| Amount due from preneed funeral trust funds | $ | 18,430 | $ | 18,071 | ||||
| Receivables from customers | 1,695 | 1,313 | ||||||
| Less: allowance for cancellation | (2,051 | ) | (1,973 | ) | ||||
| $ | 18,074 | $ | 17,411 | |||||
49
Amount due from preneed funeral trust funds |
| $ | 18,430 |
|
Receivables from customers |
| 1,695 |
| |
Less: allowance for cancellation |
| (2,051 | ) | |
|
| $ | 18,074 |
|
|
| Historical |
| Fair Value |
| ||
|
| (in thousands) |
| ||||
As of December 31, 2004: |
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 3,172 |
| $ | 3,172 |
|
Fixed income investments contract |
| 11,021 |
| 10,798 |
| ||
Mutual funds and stocks |
| 3,973 |
| 4,278 |
| ||
Annuities | �� | 264 |
| 264 |
| ||
Total |
| $ | 18,430 |
| $ | 18,512 |
|
| Historical | ||||||||
| Cost Basis | Fair Value | |||||||
| (in thousands) | ||||||||
| As of December 31, 2005: | ||||||||
| Cash and cash equivalents | $ | 3,183 | $ | 3,183 | ||||
| Fixed income investments contract | 11,897 | 11,335 | ||||||
| Mutual funds and stocks | 210 | 210 | ||||||
| Annuities | 2,781 | 3,034 | ||||||
| Total | $ | 18,071 | $ | 17,762 | ||||
| Historical | ||||||||
| Cost Basis | Fair Value | |||||||
| (in thousands) | ||||||||
| As of December 31, 2004: | ||||||||
| Cash and cash equivalents | $ | 3,172 | $ | 3,172 | ||||
| Fixed income investments contract | 11,021 | 10,798 | ||||||
| Mutual funds and stocks | 3,973 | 4,278 | ||||||
| Annuities | 264 | 264 | ||||||
| Total | $ | 18,430 | $ | 18,512 | ||||
The components of the receivables from preneed funeral contracts in the consolidated balance sheet at December 31, 2003 were as follows (in thousands):
Amount due from preneed funeral trust funds |
| $ | 87,580 |
|
Receivables from customers |
| 15,364 |
| |
Less: allowance for cancellation |
| (29,243 | ) | |
|
| $ | 73,701 |
|
The following summary reflects the composition of the assets held in trust at December 31, 2003 to satisfy Carriage’s future obligations under preneed funeral arrangements. The cost basis includes reinvested interest and dividends that have been earned on the trust assets. Fair value includes unrealized gains and losses on trust assets.
|
| Historical |
| Fair Value |
| ||
|
| (in thousands) |
| ||||
Trust fund investments: |
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 16,169 |
| $ | 16,169 |
|
Fixed income investments contract |
| 31,028 |
| 31,836 |
| ||
Mutual funds and stocks |
| 19,925 |
| 19,777 |
| ||
Annuities |
| 20,458 |
| 20,458 |
| ||
Total |
| $ | 87,580 |
| $ | 88,240 |
|
44
Cemetery Merchandise and Service Trust Funds
The cemetery merchandise and service trust funds were invested in the following at December 31, 2003:
|
| Historical |
| Fair Value |
| ||
|
| (in thousands) |
| ||||
Trust fund investments: |
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 6,140 |
| $ | 6,140 |
|
Fixed income investments contract |
| 17,901 |
| 18,679 |
| ||
Mutual funds and stocks |
| 24,196 |
| 24,604 |
| ||
Total |
| $ | 48,237 |
| $ | 49,423 |
|
Trust Investment Security Transactions
Investment
Investment income |
| $ | 3,121 |
|
Realized gains |
| 1,897 |
| |
Realized losses |
| (904 | ) | |
Expenses |
| (676 | ) | |
Increase in non-controlling interests in trust investments |
| (3,438 | ) | |
|
| $ | — |
|
| December 31, | December 31, | |||||||
| 2004 | 2005 | |||||||
| Investment income | $ | 2,002 | $ | 4,165 | ||||
| Realized gains | 1,115 | 3,938 | ||||||
| Realized losses | (539 | ) | (305 | ) | ||||
| Expenses | (495 | ) | (8 | ) | ||||
| Increase in non-controlling interests in cemetery and funeral trust investments | (2,083 | ) | (7,790 | ) | ||||
| $ | — | $ | — | |||||
50
| Unrealized | Unrealized | |||||||||||||||
| Cost | Gains | Losses | Market | |||||||||||||
| Cash, money market and other short-term investments | $ | 2,767 | $ | — | $ | — | $ | 2,767 | ||||||||
| Fixed income securities: | ||||||||||||||||
| U.S. Treasury | 596 | 7 | (8 | ) | 595 | |||||||||||
| U.S. Agency obligation | 6,610 | 8 | (85 | ) | 6,533 | |||||||||||
| State obligations | 58 | — | — | 58 | ||||||||||||
| Corporate | 2,589 | 63 | (23 | ) | 2,629 | |||||||||||
| Other | 1,509 | 3 | (13 | ) | 1,499 | |||||||||||
| Common Stock | 9,970 | 1,222 | (195 | ) | 10,997 | |||||||||||
| Mutual funds: | ||||||||||||||||
| Equity | 2,926 | 140 | (32 | ) | 3,034 | |||||||||||
| Fixed income | 3,146 | 99 | (21 | ) | 3,242 | |||||||||||
| Other assets | 886 | 63 | (98 | ) | 851 | |||||||||||
| Trust investments | $ | 31,075 | $ | 1,605 | $ | (475 | ) | $ | 32,205 | |||||||
| Accrued investment income | $ | 151 | 151 | |||||||||||||
| Trust assets | $ | 32,356 | ||||||||||||||
| Market value as a percentage of cost | 104.1 | % | ||||||||||||||
| Due in one year or less | $ | 1,942 | ||
| Due in one to five years | 7,469 | |||
| Due in five to ten years | 1,795 | |||
| Thereafter | 108 | |||
| $ | 11,314 | |||
51
| Unrealized | Unrealized | |||||||||||||||
| Cost | Gains | Losses | Market | |||||||||||||
| Cash, money market and other short-term investments | $ | 4,239 | $ | — | $ | — | $ | 4,239 | ||||||||
| Fixed income securities: | ||||||||||||||||
| U.S. Treasury | 1,722 | 21 | (4 | ) | 1,739 | |||||||||||
| U.S. Agency obligation | 4,511 | 25 | (6 | ) | 4,530 | |||||||||||
| State obligations | 4,007 | — | — | 4,007 | ||||||||||||
| Corporate | 2,940 | 179 | (12 | ) | 3,107 | |||||||||||
| Common stock | 7,488 | 983 | (56 | ) | 8,415 | |||||||||||
| Mutual funds: | ||||||||||||||||
| Equity | 1,621 | 140 | (4 | ) | 1,757 | |||||||||||
| Fixed income | 3,221 | 38 | (36 | ) | 3,223 | |||||||||||
| Other assets | 167 | — | (117 | ) | 50 | |||||||||||
| Trust investments | $ | 29,916 | $ | 1,386 | $ | (235 | ) | $ | 31,067 | |||||||
| Accrued investment income | $ | 134 | 134 | |||||||||||||
| Trust assets | $ | 31,201 | ||||||||||||||
| Market value as a percentage of cost | 104.3 | % | ||||||||||||||
52
| December 31, | December 31, | |||||||
| 2004 | 2005 | |||||||
| Trust assets, at market value | $ | 31,201 | $ | 32,356 | ||||
| Pending withdrawals of income | (436 | ) | (719 | ) | ||||
| Debt due to a perpetual care trust | 1,117 | 1,092 | ||||||
| Pending deposits | 330 | 383 | ||||||
| Non-controlling interests | $ | 32,212 | $ | 33,112 | ||||
| Non-controlling interests in assets held for sale | $ | 523 | $ | — | ||||
|
| December 31, |
| |
|
|
|
| |
Total assets as previously reported |
| $ | 699,611 |
|
Elimination of preneed contracts secured by insurance |
| (160,694 | ) | |
Total assets as revised |
| $ | 538,917 |
|
|
|
|
| |
Total liabilities as previously reported |
| $ | 503,354 |
|
Elimination of deferred revenue |
| (160,694 | ) | |
Total liabilities as revised |
| $ | 342,660 |
|
45
| December 31, | December 31, | |||||||
| 2004 | 2005 | |||||||
| Investment income | $ | 1,118 | $ | 2,480 | ||||
| Realized gains | 781 | 1,688 | ||||||
| Realized losses | (365 | ) | (140 | ) | ||||
| Expenses | (180 | ) | (591 | ) | ||||
| Increase in non-controlling interests in perpetual care trust investments | (1,354 | ) | (3,437 | ) | ||||
| $ | — | $ | — | |||||
6. NON-CONTROLLING INTERESTS IN FUNERAL AND CEMETERY TRUSTS AND IN PERPETUAL CARE TRUSTS
The componentsDeferred revenue consists of the following:
| December 31, | December 31, | |||||||
| 2004 | 2005 | |||||||
| Deferred cemetery revenue | $ | 46,787 | $ | 51,928 | ||||
| Deferred preneed funeral contracts revenue | 30,973 | 29,446 | ||||||
| Non-controlling interests in funeral and cemetery trust investments | 98,652 | 102,446 | ||||||
| $ | 176,412 | $ | 183,820 | |||||
| December 31, 2005 | ||||||||||||
| Preneed | Preneed | Total | ||||||||||
| Funeral | Cemetery | Preneed | ||||||||||
| Trust assets, at market value | $ | 47,678 | $ | 54,768 | $ | 102,446 | ||||||
| Non-controlling interests | $ | 47,678 | $ | 54,768 | $ | 102,446 | ||||||
53
|
| Non-controlling Interests |
| ||||||||||
|
| Preneed Funeral |
| Preneed Cemetery |
| Total |
| Cemetery Perpetual |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Trust assets, at market value |
| $ | 45,557 |
| $ | 53,095 |
| $ | 98,652 |
| $ | 31,201 |
|
Pending withdrawals of income |
| — |
| — |
| — |
| (436 | ) | ||||
Debt due to a perpetual care trust |
| — |
| — |
| — |
| 1,117 |
| ||||
Pending deposits |
| — |
| — |
| — |
| 330 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Non-controlling interests |
| $ | 45,557 |
| $ | 53,095 |
| $ | 98,652 |
| $ | 32,212 |
|
|
|
|
|
|
|
|
|
|
| ||||
Non-controlling interest in assets held for sale |
| $ | — |
| $ | 2,051 |
| $ | 2,051 |
| $ | 523 |
|
| December 31, 2004 | ||||||||||||
| Preneed | Preneed | Total | ||||||||||
| Funeral | Cemetery | Preneed | ||||||||||
| Trust assets, at market value | $ | 45,557 | $ | 53,095 | $ | 98,652 | ||||||
| Non-controlling interests | $ | 45,557 | $ | 53,095 | $ | 98,652 | ||||||
| Non-controlling interests in assets held for sale | $ | — | $ | 2,051 | $ | 2,051 | ||||||
|
| 2003 |
| 2004 |
| ||
|
| (in thousands) |
| ||||
Agreements not to compete, net of accumulated amortization of $3,280 and $3,659, respectively |
| $ | 1,294 |
| $ | 1,080 |
|
Non-current cemetery accounts receivable |
| 13,983 |
| — |
| ||
Deferred tax asset |
| 1,459 |
| 1,733 |
| ||
Other |
| 3,216 |
| 5,768 |
| ||
|
| $ | 19,952 |
| $ | 8,581 |
|
Less: Deferred charges on assets held for sale |
| 459 |
| — |
| ||
|
| $ | 19,493 |
| $ | 8,581 |
|
| 2004 | 2005 | |||||||
| (in thousands) | ||||||||
| Agreements not to complete, net of accumulated amortization of $3,659 and $3,944, respectively | $ | 1,080 | $ | 831 | ||||
| Deferred loan costs, net of accumulated amortization of $2,676 and $3,009, respectively | 1,229 | 4,592 | ||||||
| Deferred tax asset | 1,733 | 15,894 | ||||||
| Other | 4,539 | 4,291 | ||||||
| $ | 8,581 | $ | 25,608 | |||||
|
| 2003 |
| 2004 |
| ||
|
| (in thousands) |
| ||||
Credit Facility, unsecured floating rate $40 million line at December 31, 2003 and $45 million line at December 31, 2004. Interest is due on a quarterly basis for prime rate indexed borrowings and on the maturity dates for the LIBOR indexed borrowings (weighted average interest rate was 5.36% at December 31, 2004), matures in March, 2006 |
| $ | 21,100 |
| $ | 25,600 |
|
Senior Notes |
| 96,337 |
| 70,479 |
| ||
Acquisition debt |
| 8,130 |
| 6,066 |
| ||
Other |
| 4,372 |
| 2,657 |
| ||
Less: current portion |
| (24,364 | ) | (2,088 | ) | ||
|
| $ | 105,575 |
| $ | 102,714 |
|
46
| 2004 | 2005 | |||||||
| (in thousands) | ||||||||
| Credit Facility, unsecured floating rate $45 million line at December 31, 2004 and secured floating rate $35 million line at December 31, 2005. Interest is due on a quarterly basis and on the maturity date at prime or LIBOR options (weighted average interest rate was 8.25% at December 31, 2005), matures in April, 2010 | $ | 25,600 | $ | — | ||||
| Senior Notes | 70,479 | 130,000 | ||||||
| Acquisition debt | 6,066 | 4,305 | ||||||
| Other | 2,657 | 2,293 | ||||||
| Less: current portion | (2,088 | ) | (2,026 | ) | ||||
| $ | 102,714 | $ | 134,572 | |||||
In August 2003, Carriage replaced its $75 At December 31, 2004, Carriage’s senior debt included a $45 million unsecured revolving bank credit facility withthat was scheduled to mature in March 2006 and $70.5 million of Senior Notes to insurance companies due in 2006 and 2008. In January 2005, the Company issued $130 million of 7.875 percent Senior Notes at par, due in 2015. The proceeds from these notes were used to refinance substantially all senior debt, bring current the cumulative deferred distributions on the convertible junior subordinated debenture and the TIDES, and for general corporate purposes. In March 2005, the Company paid the cumulative deferred distributions on the TIDES totaling $10.9 million. During April 2005, the Company entered into a new $40$35 million unsecured senior secured
54
Carriage recorded a pretax charge to write off $0.2 million or $0.01 per diluted share of unamortized loan costs during the second quarter of 2005. These charges are included in the amountConsolidated Statement of $147,000 in the third quarterOperations as additional interest and other costs of 2003 in connection with replacing the previous credit facility. The change represents the unamortized loan origination costs related to the replaced credit facility.
On July 30, 2004, the Company paid the outstanding principal and interest on its Series A Senior Notes, which had an outstanding principal balance of $22.0 million. The Series B and C Senior Notes mature in tranches of $49.2 million in 2006 and $21.3 million in 2008 and bear interest at the fixed rates of 7.96% and 8.06%, respectively. The Senior Notes contain restrictive covenants similar to the credit facility (described above) and additionally require that a significant portion of any proceeds from the sales of assets be offered to the noteholders as prepayment of the amounts outstanding. During 2003 and 2004, prepayments were made in the amounts of $3.0 million and $2.7 million, respectively, related to proceeds from the sale of assets.
senior debt refinancing for 2005.
2005.
In January 2005, the Company issued $130 million of ten-year Senior Notes to refinance all of the senior debt and to bring current the deferred distributions on the convertible junior subordinated debenture and the TIDES securities (Note 19).
9. CONVERTIBLE JUNIOR SUBORDINATED DEBENTURE PAYABLE TO AFFILIATE AND COMPANY OBLIGATED MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED SECURITIES OF CARRIAGE SERVICES CAPITAL TRUST
| 12. | CONVERTIBLE JUNIOR SUBORDINATED DEBENTURE PAYABLE TO AFFILIATE AND COMPANY OBLIGATED MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED SECURITIES OF CARRIAGE SERVICES CAPITAL TRUST |
47
10.13. OTHER INCOME (LOSS)
55
|
| Future Minimum Lease |
| ||||
|
| Operating |
| Capital |
| ||
|
| (in thousands) |
| ||||
Years ended December 31, |
|
|
|
|
| ||
2005 |
| $ | 2,306 |
| $ | 450 |
|
2006 |
| 1,681 |
| 439 |
| ||
2007 |
| 1,451 |
| 439 |
| ||
2008 |
| 1,221 |
| 447 |
| ||
2009 |
| 657 |
| 459 |
| ||
Thereafter |
| 710 |
| 9,090 |
| ||
|
|
|
|
|
| ||
Total future minimum lease payments |
| $ | 8,026 |
| 11,322 |
| |
Less: amount representing interest |
|
|
| (5,830 | ) | ||
Less: current portion of obligations under capital leases |
|
|
| (67 | ) | ||
Long-term obligations under capital leases |
|
|
| $ | 5,424 |
| |
| Future Minimum Lease | ||||||||
| Payments | ||||||||
| Operating | Capital | |||||||
| Leases | Leases | |||||||
| (in thousands) | ||||||||
| Years ending December 31, | ||||||||
| 2006 | $ | 2,001 | $ | 599 | ||||
| 2007 | 2,126 | 625 | ||||||
| 2008 | 1,858 | 648 | ||||||
| 2009 | 1,309 | 674 | ||||||
| 2010 | 958 | 701 | ||||||
| Thereafter | 4,451 | 12,683 | ||||||
| Total future minimum lease payments | $ | 12,703 | $ | 15,930 | ||||
| Less: amount representing interest | (11,107 | ) | ||||||
| Less: current portion of obligations under capital leases | (48 | ) | ||||||
| Long-term obligations under capital leases | $ | 4,775 | ||||||
48
Other Commitments
56
Litigation
We carry
|
| 2002 |
| 2003 |
| 2004 |
| ||||
|
| (in thousands) |
| ||||||||
Current: |
|
|
|
|
|
|
| ||||
U. S. Federal |
| $ | (1,410 | ) | $ | — |
| $ | — |
| |
State |
| 297 |
| 145 |
| 141 |
| ||||
Total current provision (benefit) |
| (1,113 | ) | 145 |
| 141 |
| ||||
Deferred: |
|
|
|
|
|
|
| ||||
U. S. Federal |
| (6,987 | ) | 3,174 |
| (165 | ) | ||||
State |
| (329 | ) | 200 |
| 95 |
| ||||
Total deferred provision (benefit) |
| (7,316 | ) | 3,374 |
| (70 | ) | ||||
Total income tax provision (benefit) |
| $ | (8,429 | ) | $ | 3,519 |
| $ | 71 |
| |
| 2003(1) | 2004(1) | 2005(1) | ||||||||||
| (in thousands) | ||||||||||||
| Current: | ||||||||||||
| U. S. Federal | $ | — | $ | — | $ | — | ||||||
| State | 145 | 141 | 241 | |||||||||
| Total current provision (benefit) | 145 | 141 | 241 | |||||||||
| Deferred: | ||||||||||||
| U. S. Federal | 3,192 | (146 | ) | 186 | ||||||||
| State | 202 | 96 | (395 | ) | ||||||||
| Total deferred provision (benefit) | 3,394 | (50 | ) | (209 | ) | |||||||
| Total income tax provision | $ | 3,539 | $ | 91 | $ | 32 | ||||||
(1) Excludes income tax (provision) benefits from discontinued operations of $(435), $519 and $(469) for 2003, 2004 and 2005, respectively. | ||
| 2003 | 2004 | 2005 | ||||||||||||||||||||||
| Amount | Percent | Amount | Percent | Amount | Percent | |||||||||||||||||||
| Federal statutory rate | $ | 3,302 | 35.0 | % | $ | 3,767 | 34.0 | % | $ | (5 | ) | 34.0 | % | |||||||||||
| Effect of state income taxes, net of federal benefit | 236 | 2.5 | 277 | 2.5 | — | 2.5 | ||||||||||||||||||
| Effect of non-deductible expenses and other, net | 101 | 1.0 | 110 | 1.1 | 178 | * | ||||||||||||||||||
| Change in valuation allowance | (100 | ) | (1.1 | ) | (4,063 | ) | (37.0 | ) | (141 | ) | * | |||||||||||||
| $ | 3,539 | 37.4 | % | $ | 91 | 0.6 | % | $ | 32 | (227.4 | )% | |||||||||||||
| * | - not meaningful |
57
|
| 2002 |
| 2003 |
| 2004 |
|
Federal statutory rate |
| 35.0 | % | 35.0 | % | 34.0 | % |
Effect of state income taxes, net of federal benefit |
| 2.0 |
| 2.5 |
| 2.5 |
|
Effect of non-deductible expenses and other, net |
| 1.5 |
| 1.0 |
| 1.1 |
|
Change in valuation allowance |
| (112.8 | ) | (1.1 | ) | (37.0 | ) |
|
| (74.3 | )% | 37.4 | % | 0.6 | % |
49
|
| 2003 |
| 2004 |
| ||
|
| (in thousands) |
| ||||
Deferred tax assets (liabilities): |
|
|
|
|
| ||
Net operating loss carryforwards |
| $ | 4,852 |
| $ | 5,527 |
|
Accrued liabilities and other |
| 2,264 |
| 2,681 |
| ||
Amortization of non-compete agreements |
| 2,027 |
| 1,923 |
| ||
Amortization and depreciation |
| (8,784 | ) | (11,372 | ) | ||
Preneed revenue and costs, net |
| 8,680 |
| 6,908 |
| ||
|
| 9,039 |
| 5,667 |
| ||
Valuation allowance |
| (5,316 | ) | (1,253 | ) | ||
Total net deferred tax assets |
| $ | 3,723 |
| $ | 4,414 |
|
|
|
|
|
|
| ||
Current deferred tax asset |
| $ | 2,264 |
| $ | 2,681 |
|
Non-current deferred tax asset |
| 1,459 |
| 1,733 |
| ||
Total net deferred tax assets |
| $ | 3,723 |
| $ | 4,414 |
|
| 2004 | 2005 | |||||||
| (in thousands) | ||||||||
| Deferred tax assets (liabilities): | ||||||||
| Net operating loss carryforwards | $ | 5,527 | $ | 7,501 | ||||
| Accrued liabilities and other | 2,681 | 1,525 | ||||||
| Amortization of non-compete agreements | 1,923 | 1,579 | ||||||
| Amortization and depreciation | (11,372 | ) | (12,729 | ) | ||||
| Preneed revenue and costs, net | 6,908 | 20,618 | ||||||
| 5,667 | 18,494 | |||||||
| Valuation allowance | (1,253 | ) | (1,075 | ) | ||||
| Total net deferred tax assets | $ | 4,414 | $ | 17,419 | ||||
| Current deferred tax asset | $ | 2,681 | $ | 1,525 | ||||
| Non-current deferred tax asset | 1,733 | 15,894 | ||||||
| Total net deferred tax assets | $ | 4,414 | $ | 17,419 | ||||
When the Company incurred restructuring costs and write-downs in late 2000 and implemented a plan to dispose of under performing businesses, there could be no assurance enough future taxable income would be generated to utilize the tax benefits created by the tax losses on asset sales. To acknowledge this uncertainty, the Company recorded2005.
share) and $0.2 million (equal to $0.01 per diluted share) during 2004 and 2005, respectively.
58
50
|
| Reserved |
| Outstanding |
| Available to |
|
|
|
|
|
|
|
|
|
1995 Plan |
| 1,450 |
| 687 |
| 111 |
|
1996 Plan |
| 1,300 |
| 760 |
| 307 |
|
Directors’ Plan |
| 350 |
| 255 |
| 45 |
|
Consultants’ Plan |
| 100 |
| 8 |
| 92 |
|
Total |
| 3,200 |
| 1,710 |
| 555 |
|
| Reserved | Outstanding | Available to Issue | ||||||||||
| 1995 Plan | — | 452 | — | |||||||||
| 1996 Plan | 1,300 | 695 | 335 | |||||||||
| Directors’ Plan | 425 | 211 | 96 | |||||||||
| Consultants’ Plan | 15 | 7 | 8 | |||||||||
| Total | 1,740 | 1,365 | 439 | |||||||||
|
| Year ended December 31, |
| ||||||||||||||||
|
| 2002 |
| 2003 |
| 2004 |
| ||||||||||||
|
| Shares |
| Wtd. Avg. |
| Shares |
| Wtd. Avg. |
| Shares |
| Wtd. Avg. |
| ||||||
Outstanding at beginning of period |
| 1,709 |
| $ | 3.35 |
| 1,782 |
| $ | 3.65 |
| 1,772 |
| $ | 3.70 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Granted |
| 375 |
| 4.68 |
| 144 |
| 3.73 |
| 110 |
| 4.74 |
| ||||||
Exercised |
| (167 | ) | 1.92 |
| (101 | ) | 1.90 |
| (134 | ) | 2.46 |
| ||||||
Canceled |
| (135 | ) | 4.97 |
| (53 | ) | 5.65 |
| (38 | ) | 8.27 |
| ||||||
Outstanding at end of year |
| 1,782 |
| 3.65 |
| 1,772 |
| 3.70 |
| 1,710 |
| 3.64 |
| ||||||
Exercisable at end of year |
| 1,352 |
| 3.47 |
| 1,421 |
| 3.62 |
| 1,455 |
| 3.50 |
| ||||||
Weighted average fair value of options granted |
| $ | 2.40 |
|
|
| $ | 1.67 |
|
|
| $ | 2.21 |
|
|
| |||
| Year ended December 31, | ||||||||||||||||||||||||
| 2003 | 2004 | 2005 | ||||||||||||||||||||||
| Shares | Wtd. Avg. | Shares | Wtd. Avg. | Shares | Wtd. Avg. | |||||||||||||||||||
| (000) | Ex Price | (000) | Ex Price | (000) | Ex Price | |||||||||||||||||||
| Outstanding at beginning of period | 1,787 | $ | 3.63 | 1,679 | $ | 3.57 | 1,616 | $ | 3.64 | |||||||||||||||
| Granted | 144 | 3.73 | 110 | 4.74 | 24 | 6.02 | ||||||||||||||||||
| Exercised | (101 | ) | 1.90 | (134 | ) | 2.46 | (178 | ) | 2.99 | |||||||||||||||
| Canceled or expired | (151 | ) | 5.63 | (39 | ) | 8.27 | (97 | ) | 8.93 | |||||||||||||||
| Outstanding at end of year | 1,679 | 3.57 | 1,616 | 3.64 | 1,365 | 3.39 | ||||||||||||||||||
| Exercisable at end of year | 1,365 | 3.47 | 1,385 | 3.51 | 1,253 | 3.30 | ||||||||||||||||||
| Weighted average fair value of options granted | $ | 1.67 | $ | 2.21 | $ | 3.22 | ||||||||||||||||||
| Options Outstanding | Options Exercisable | |||||||||||||||||||
| Actual | ||||||||||||||||||||
| Range of | Number | Weighted-Average | Number | |||||||||||||||||
| Exercise Prices | Outstanding | Remaining | Weighted-Average | Exercisable | Weighted-Average | |||||||||||||||
| 150% increment | at 12/31/05 | Contractual Life | Exercise Price | at 12/31/05 | Exercise Price | |||||||||||||||
| $ 1.19- 1.56 | 656 | 5.0 | $ | 1.48 | 656 | $ | 1.48 | |||||||||||||
| $ 2.06- 3.09 | 180 | 4.5 | $ | 2.89 | 179 | $ | 2.88 | |||||||||||||
| $ 3.12- 4.66 | 177 | 7.4 | $ | 4.14 | 95 | $ | 4.04 | |||||||||||||
| $ 4.77- 6.19 | 293 | 6.4 | $ | 5.03 | 264 | $ | 5.04 | |||||||||||||
| $ 7.56- 11.00 | 1 | 0.5 | $ | 10.65 | 1 | $ | 10.65 | |||||||||||||
| $13.25- 19.88 | 52 | 2.7 | $ | 15.13 | 52 | $ | 15.13 | |||||||||||||
| $21.00- 27.50 | 6 | 1.4 | $ | 21.18 | 6 | $ | 21.18 | |||||||||||||
| $ 1.19- 27.50 | 1,365 | 5.4 | $ | 3.39 | 1,253 | $ | 3.30 | |||||||||||||
59
|
| Options Outstanding |
| Options Exercisable |
| |||||||||||
Actual |
| Number |
| Weighted- |
| Weighted-Average |
| Number |
| Weighted-Average |
| |||||
$ | 1.19- | 1.56 |
|
| 745 |
| 6.0 |
| $ | 1.20 |
| 745 |
| $ | 1.20 |
|
$ | 2.06- | 3.09 |
|
| 238 |
| 5.6 |
| $ | 2.89 |
| 231 |
| $ | 2.88 |
|
$ | 3.12- | 4.56 |
|
| 280 |
| 8.2 |
| $ | 4.11 |
| 109 |
| $ | 3.97 |
|
$ | 4.77- | 6.19 |
|
| 324 |
| 7.2 |
| $ | 4.93 |
| 247 |
| $ | 4.91 |
|
$ | 7.56- | 11.00 |
|
| 10 |
| 2.4 |
| $ | 8.70 |
| 10 |
| $ | 8.70 |
|
$ | 13.25- | 19.88 |
|
| 100 |
| 3.7 |
| $ | 15.34 |
| 100 |
| $ | 15.34 |
|
$ | 21.00- | 27.50 |
|
| 13 |
| 2.5 |
| $ | 21.53 |
| 13 |
| $ | 21.53 |
|
$ | 1.19- | 27.50 |
|
| 1,710 |
| 6.3 |
| $ | 3.64 |
| 1,455 |
| $ | 3.50 |
|
51
During 2005, employees purchased a total of 86,354 shares at a weighted average price of $4.20 per share.
The Company issued a total of 227,000, 100,000 and 268,000 shares during 2003, 2004 and 2005 with a value of $901,000, $466,000 and $1,337,000, respectively.
In connection with The final payment will be determined at the 1997 acquisitionconclusion of two funeral homes, a portion of the purchase price of each of those funeral homes was2006 and is currently estimated to be payable to one of the former owners referred to in the preceding paragraph based on a formula related to the annual field level cash flows subsequent to the yearrange of acquisition. The business purpose was to determine the final purchase prices of the acquisitions since they were expected to show strong growth in cash flow. The terms were negotiated with the sellers, one of whom later was appointed as a director of Carriage. The contingent purchase price payment paid to the director totaled $572,243 during 2002.
$1.0 million and $1.3 million.
60
52
|
| 2002 |
| 2003 |
| 2004 |
| |||
|
| (in thousands, except per share data) |
| |||||||
Numerator: |
|
|
|
|
|
|
| |||
Net income from continuing operations available to common stockholders |
| $ | 19,779 |
| $ | 5,898 |
| $ | 10,954 |
|
Net income (loss) from discontinued operations |
| 499 |
| 727 |
| (1,720 | ) | |||
Numerator for earnings per share — net income available to common stockholders |
| $ | 20,278 |
| $ | 6,625 |
| $ | 9,234 |
|
Denominator: |
|
|
|
|
|
|
| |||
Denominator for basic earnings per share — weighted average shares |
| 16,973 |
| 17,444 |
| 17,786 |
| |||
Effect of dilutive securities: |
|
|
|
|
|
|
| |||
Stock options |
| 460 |
| 364 |
| 474 |
| |||
Denominator for diluted earnings per share — adjusted weighted average shares and assumed conversions |
| 17,433 |
| 17,808 |
| 18,260 |
| |||
Basic earnings per share: |
|
|
|
|
|
|
| |||
Continuing operations |
| $ | 1.17 |
| $ | 0.34 |
| $ | 0.62 |
|
Discontinued operations |
| 0.03 |
| 0.04 |
| (0.10 | ) | |||
Net income |
| $ | 1.20 |
| $ | 0.38 |
| $ | 0.52 |
|
Diluted earnings per share: |
|
|
|
|
|
|
| |||
Continuing operations |
| $ | 1.13 |
| $ | 0.33 |
| $ | 0.60 |
|
Discontinued operations |
| 0.03 |
| 0.04 |
| (0.09 | ) | |||
Net income |
| $ | 1.16 |
| $ | 0.37 |
| $ | 0.51 |
|
2005:
| 2003 | 2004 | 2005 | ||||||||||
| (in thousands, except per share data) | ||||||||||||
| Numerator: | ||||||||||||
| Net income (loss) from continuing operations available to common stockholders | $ | 5,899 | $ | 10,988 | $ | (45 | ) | |||||
| Net income (loss) from discontinued operations | 726 | (1,754 | ) | 936 | ||||||||
| Cumulative effect of change in accounting method | — | — | (22,756 | ) | ||||||||
| Numerator for earnings per share — net income available to common stockholders | $ | 6,625 | $ | 9,234 | $ | (21,865 | ) | |||||
| Denominator: | ||||||||||||
| Denominator for basic earnings per share — weighted average shares | 17,444 | 17,786 | 18,334 | |||||||||
| Effect of dilutive securities: | ||||||||||||
| Stock options | 364 | 474 | — | |||||||||
| Denominator for diluted earnings per share — adjusted weighted average shares and assumed conversions | 17,808 | 18,260 | 18,334 | |||||||||
| Basic earnings per share: | ||||||||||||
| Continuing operations | $ | 0.34 | $ | 0.62 | $ | — | ||||||
| Discontinued operations | 0.04 | (0.10 | ) | 0.05 | ||||||||
| Cumulative effect of the change in accounting method | — | — | (1.24 | ) | ||||||||
| Net income | $ | 0.38 | $ | 0.52 | $ | (1.19 | ) | |||||
| Diluted earnings per share: | ||||||||||||
| Continuing operations | $ | 0.33 | $ | 0.60 | $ | — | ||||||
| Discontinued operations | 0.04 | (0.09 | ) | 0.05 | ||||||||
| Cumulative effect of the change in accounting method | — | — | (1.24 | ) | ||||||||
| Net income | $ | 0.37 | $ | 0.51 | $ | (1.19 | ) | |||||
61
53
| Funeral | Cemetery | Corporate | Consolidated | |||||||||||||
| (in thousands, except number of operating locations) | ||||||||||||||||
| External revenues from continuing operations: | ||||||||||||||||
| 2005 | $ | 116,072 | $ | 38,962 | $ | — | $ | 155,034 | ||||||||
| 2004 | 112,504 | 37,390 | — | 149,894 | ||||||||||||
| 2003 | 112,209 | 34,351 | — | 146,560 | ||||||||||||
| Net income (loss) from continuing operations: | ||||||||||||||||
| 2005 | $ | 2,617 | $ | 33,314 | $ | (35,976 | ) | $ | (45 | ) | ||||||
| 2004 | 17,719 | 5,582 | (12,313 | ) | 10,988 | |||||||||||
| 2003 | 20,575 | 5,370 | (20,046 | ) | 5,899 | |||||||||||
| Total assets: | ||||||||||||||||
| 2005 | $ | 322,497 | $ | 189,684 | $ | 58,459 | $ | 570,640 | ||||||||
| 2004 | 344,940 | 205,230 | 14,986 | 565,156 | ||||||||||||
| 2003 | 361,206 | 167,747 | 9,964 | 538,917 | ||||||||||||
| Depreciation and amortization: | ||||||||||||||||
| 2005 | $ | 5,150 | $ | 2,801 | $ | 1,273 | $ | 9,224 | ||||||||
| 2004 | 6,331 | 3,199 | 1,260 | 10,790 | ||||||||||||
| 2003 | 5,968 | 2,851 | 1,115 | 9,934 | ||||||||||||
| Capital expenditures: | ||||||||||||||||
| 2005 | $ | 2,980 | $ | 2,846 | $ | 2,386 | $ | 8,212 | ||||||||
| 2004 | 3,477 | 1,140 | 1,142 | 5,759 | ||||||||||||
| 2003 | 3,900 | 1,075 | 1,155 | 6,130 | ||||||||||||
| Number of operating locations at year end: | ||||||||||||||||
| 2005 | 133 | 29 | — | 162 | ||||||||||||
| 2004 | 135 | 30 | — | 165 | ||||||||||||
| 2003 | 139 | 30 | — | 169 | ||||||||||||
| Interest expense and financing costs: | ||||||||||||||||
| 2005 | $ | 769 | $ | 196 | $ | 17,746 | $ | 18,711 | ||||||||
| 2004 | 909 | 205 | 15,913 | 17,027 | ||||||||||||
| 2003 | 1,071 | 215 | 16,614 | 17,900 | ||||||||||||
| Income tax expense (benefit) from continuing operations: | ||||||||||||||||
| 2005 | $ | 27,024 | $ | (26,655 | ) | $ | (337 | ) | $ | 32 | ||||||
| 2004 | 11,077 | 3,087 | (14,073 | ) | 91 | |||||||||||
| 2003 | 8,095 | 2,936 | (7,492 | ) | 3,539 | |||||||||||
62
|
| Funeral |
| Cemetery |
| Corporate |
| Consolidated |
| |||||||||
|
| (in thousands, except number of operating locations) |
| |||||||||||||||
External revenues from continuing operations: |
|
|
|
|
|
|
|
|
| |||||||||
2004 |
| $ | 112,816 |
| $ | 37,390 |
| $ | — |
| $ | 150,206 |
| |||||
2003 |
| 112,588 |
| 34,351 |
| — |
| 146,939 |
| |||||||||
2002 |
| 115,100 |
| 34,217 |
| — |
| 149,317 |
| |||||||||
Net income from continuing operations: |
|
|
|
|
|
|
|
|
| |||||||||
2004 |
| $ | 17,685 |
| $ | 5,582 |
| $ | (12,313 | ) | $ | 10,954 |
| |||||
2003 |
| 20,574 |
| 5,370 |
| (20,046 | ) | 5,898 |
| |||||||||
2002 |
| 23,228 |
| 5,685 |
| (9,134 | ) | 19,779 |
| |||||||||
Total assets: |
|
|
|
|
|
|
|
|
| |||||||||
2004 |
| $ | 344,940 |
| $ | 205,230 |
| $ | 14,986 |
| $ | 565,156 |
| |||||
2003 |
| 361,206 |
| 167,747 |
| 9,964 |
| 538,917 |
| |||||||||
2002 |
| 371,839 |
| 163,750 |
| 14,359 |
| 549,948 |
| |||||||||
Depreciation and amortization: |
|
|
|
|
|
|
|
|
| |||||||||
2004 |
| $ | 6,372 |
| $ | 3,198 |
| $ | 1,260 |
| $ | 10,830 |
| |||||
2003 |
| 6,010 |
| 2,851 |
| 1,114 |
| 9,975 |
| |||||||||
2002 |
| 5,940 |
| 2,848 |
| 777 |
| 9,565 |
| |||||||||
Capital expenditures: |
|
|
|
|
|
|
|
|
| |||||||||
2004 |
| $ | 3,450 |
| $ | 1,154 |
| $ | 1,142 |
| $ | 5,746 |
| |||||
2003 |
| 3,983 |
| 1,066 |
| 1,155 |
| 6,204 |
| |||||||||
2002 |
| 4,446 |
| 805 |
| 780 |
| 6,031 |
| |||||||||
Number of operating locations at year end: |
|
|
|
|
|
|
|
|
| |||||||||
2004 |
| 135 |
| 30 |
| — |
| 165 |
| |||||||||
2003 |
| 139 |
| 30 |
| — |
| 169 |
| |||||||||
2002 |
| 144 |
| 30 |
| — |
| 174 |
| |||||||||
Interest expense and financing costs: |
|
|
|
|
|
|
|
|
| |||||||||
2004 |
| $ | 940 |
| $ | 205 |
| $ | 15,913 |
| $ | 17,058 |
| |||||
2003 |
| 1,106 |
| 215 |
| 16,614 |
| 17,935 |
| |||||||||
2002 |
| 1,239 |
| 243 |
| 18,233 |
| 19,715 |
| |||||||||
Income tax expense (benefit) from continuing operations: |
|
|
|
|
|
|
|
|
| |||||||||
2004 |
| $ | 11,057 |
| $ | 3,087 |
| $ | (14,073 | ) | $ | 71 |
| |||||
2003 |
| 8,075 |
| 2,936 |
| (7,492 | ) | 3,519 |
| |||||||||
2002 |
| 9,025 |
| 2,293 |
| (19,747 | ) | (8,429 | ) | |||||||||
54
| For the year ended | ||||||||||||
| 2003 | 2004 | 2005 | ||||||||||
| Revenues | ||||||||||||
| Goods: | ||||||||||||
| Funeral | $ | 49,513 | $ | 49,393 | $ | 50,746 | ||||||
| Cemetery | $ | 23,597 | $ | 26,916 | $ | 27,394 | ||||||
| Total goods sold | $ | 73,110 | $ | 76,309 | $ | 78,140 | ||||||
| Services: | ||||||||||||
| Funeral | $ | 62,696 | $ | 63,111 | $ | 65,326 | ||||||
| Cemetery | $ | 10,754 | $ | 10,474 | $ | 11,568 | ||||||
| Total services provided | $ | 73,450 | $ | 73,585 | $ | 76,894 | ||||||
| Total Revenues | $ | 146,560 | $ | 149,894 | $ | 155,034 | ||||||
| Cost of revenues | ||||||||||||
| Goods: | ||||||||||||
| Funeral | $ | 46,375 | $ | 46,020 | $ | 47,584 | ||||||
| Cemetery | $ | 17,571 | $ | 20,165 | $ | 21,770 | ||||||
| Total cost of goods sold | $ | 63,946 | $ | 66,185 | $ | 69,354 | ||||||
| Services: | �� | |||||||||||
| Funeral | $ | 36,750 | $ | 37,032 | $ | 38,078 | ||||||
| Cemetery | $ | 8,259 | $ | 8,351 | $ | 10,337 | ||||||
| Total cost of services provided | $ | 45,009 | $ | 45,383 | $ | 48,415 | ||||||
| Total cost of revenues | $ | 108,955 | $ | 111,568 | $ | 117,769 | ||||||
63
| First | Second | Third | Fourth | |||||||||||||
| Quarter | Quarter | Quarter | Quarter | |||||||||||||
2005 | ||||||||||||||||
| Revenue from continuing operations | $ | 41,933 | $ | 38,024 | $ | 36,426 | $ | 38,651 | ||||||||
| Gross profit from continuing operations | 12,230 | 8,737 | 7,940 | 8,358 | ||||||||||||
| Income (loss) from continuing operations | $ | (1,137 | ) | $ | 210 | $ | 167 | $ | 715 | |||||||
| Income from discontinued operations | 333 | 22 | 503 | 78 | ||||||||||||
| Cumulative effect of change in accounting method | (22,756 | ) | — | — | — | |||||||||||
| Net income (loss) | $ | (23,560 | ) | $ | 232 | $ | 670 | $ | 793 | |||||||
| Basic earnings per common share: | ||||||||||||||||
| Income (loss) from continuing operations | $ | (0.06 | ) | $ | 0.01 | $ | 0.01 | $ | 0.04 | |||||||
| Income from discontinued operations | 0.01 | — | 0.03 | — | ||||||||||||
| Cumulative effect of change in accounting method | (1.26 | ) | — | — | — | |||||||||||
| Net income (loss) per basic share | $ | (1.31 | ) | $ | 0.01 | $ | 0.04 | $ | 0.04 | |||||||
| Diluted earnings per common share: | ||||||||||||||||
| Income (loss) from continuing operations | $ | (0.06 | ) | $ | 0.01 | $ | 0.01 | $ | 0.04 | |||||||
| Income from discontinued operations | 0.02 | — | 0.03 | — | ||||||||||||
| Cumulative effect of change in accounting method | (1.26 | ) | — | — | — | |||||||||||
| Net income (loss) per diluted share | $ | (1.30 | ) | $ | 0.01 | $ | 0.04 | $ | 0.04 | |||||||
2004 | ||||||||||||||||
| Revenue from continuing operations | $ | 40,304 | $ | 37,336 | $ | 35,746 | $ | 36,508 | ||||||||
| Gross profit from continuing operations | 11,793 | 8,698 | 8,111 | 9,724 | ||||||||||||
| Income from continuing operations | $ | 2,960 | $ | 1,661 | $ | 483 | $ | 5,884 | ||||||||
| Income (loss) from discontinued operations | 92 | (2,119 | ) | 674 | (401 | ) | ||||||||||
| Net income (loss) | $ | 3,052 | $ | (458 | ) | $ | 1,157 | $ | 5,483 | |||||||
| Basic earnings per common share: | ||||||||||||||||
| Income from continuing operations | $ | 0.17 | $ | 0.09 | $ | 0.03 | $ | 0.33 | ||||||||
| Income (loss) from discontinued operations | — | (0.12 | ) | 0.04 | (0.02 | ) | ||||||||||
| Net income (loss) per basic share | $ | 0.17 | $ | (0.03 | ) | $ | 0.07 | $ | 0.31 | |||||||
| Diluted earnings per common share: | ||||||||||||||||
| Income from continuing operations | $ | 0.16 | $ | 0.09 | $ | 0.03 | $ | 0.32 | ||||||||
| Income (loss) from discontinued operations | 0.01 | (0.12 | ) | 0.04 | (0.02 | ) | ||||||||||
| Net income (loss) per diluted share | $ | 0.17 | $ | (0.03 | ) | $ | 0.07 | $ | 0.30 | |||||||
| (a) | Earnings per share are computed independently for each of the quarters presented. Therefore, the sum of the quarterly per share amounts does not equal the total computed for the year due to rounding and stock transactions which occurred during the periods presented. |
64
|
| First |
| Second |
| Third |
| Fourth |
| ||||
2004 |
|
|
|
|
|
|
|
|
| ||||
Net revenue from continuing operations |
| $ | 40,388 |
| $ | 37,434 |
| $ | 35,808 |
| $ | 36,576 |
|
Gross profit from continuing operations |
| 11,791 |
| 8,711 |
| 8,100 |
| 9,701 |
| ||||
Income from continuing operations |
| $ | 2,954 |
| $ | 1,663 |
| $ | 471 |
| $ | 5,866 |
|
Income (loss) from discontinued operations |
| 98 |
| (2,121 | ) | 686 |
| (383 | ) | ||||
Net income (loss) |
| $ | 3,052 |
| $ | (458 | ) | $ | 1,157 |
| $ | 5,483 |
|
Basic earnings per common share: |
|
|
|
|
|
|
|
|
| ||||
Income from continuing operations |
| $ | 0.17 |
| $ | 0.09 |
| $ | 0.03 |
| $ | 0.33 |
|
Income (loss) from discontinued operations |
| — |
| (0.12 | ) | 0.04 |
| (0.02 | ) | ||||
Net income (loss) per basic share |
| $ | 0.17 |
| $ | (0.03 | ) | $ | 0.07 |
| $ | 0.31 |
|
Diluted earnings per common share: |
|
| �� |
|
|
|
|
|
| ||||
Income from continuing operations |
| $ | 0.16 |
| $ | 0.09 |
| $ | 0.03 |
| $ | 0.32 |
|
Income (loss) from discontinued Operations |
| 0.01 |
| (0.12 | ) | 0.04 |
| (0.02 | ) | ||||
Net income (loss) per diluted share |
| $ | 0.17 |
| $ | (0.03 | ) | $ | 0.07 |
| $ | 0.30 |
|
2003(a) |
|
|
|
|
|
|
|
|
| ||||
Net revenue from continuing operations |
| $ | 37,496 |
| $ | 36,756 |
| $ | 34,941 |
| $ | 37,746 |
|
Gross profit from continuing operations |
| 10,707 |
| 9,374 |
| 7,984 |
| 9,554 |
| ||||
Income from continuing operations |
| $ | 1,871 |
| $ | 2,009 |
| $ | 665 |
| $ | 1,353 |
|
Income from discontinued operations |
| 185 |
| 287 |
| 181 |
| 74 |
| ||||
Net income |
| $ | 2,056 |
| $ | 2,296 |
| $ | 846 |
| $ | 1,427 |
|
Basic earnings per common share: |
|
|
|
|
|
|
|
|
| ||||
Income from continuing operations |
| $ | 0.11 |
| $ | 0.12 |
| $ | 0.04 |
| $ | 0.08 |
|
Income from discontinued operations |
| 0.01 |
| 0.01 |
| 0.01 |
| 0.01 |
| ||||
Net income per basic share |
| $ | 0.12 |
| $ | 0.13 |
| $ | 0.05 |
| $ | 0.09 |
|
Diluted earnings per common share: |
|
|
|
|
|
|
|
|
| ||||
Income from continuing operations |
| $ | 0.11 |
| $ | 0.11 |
| $ | 0.04 |
| $ | 0.08 |
|
Income from discontinued operations |
| 0.01 |
| 0.02 |
| 0.01 |
| — |
| ||||
Net income per diluted share |
| $ | 0.12 |
| $ | 0.13 |
| $ | 0.05 |
| $ | 0.08 |
|
(a) Earnings per share are computed independently for each of the quarters presented. Therefore, the sum of the quarterly per share amounts does not equal the total computed for the year due to rounding and stock transactions which occurred during the periods presented.
| Year Ended December 31, | ||||||||||||
| 2003 | 2004 | 2005 | ||||||||||
| Cash paid for interest and financing costs | $ | 14,145 | $ | 9,854 | $ | 33,169 | ||||||
| Cash paid (refunded) for income taxes | $ | 137 | $ | (2 | ) | $ | 275 | |||||
| Stock issued to directors or officers | $ | 1,018 | $ | 466 | $ | 1,338 | ||||||
| Restricted cash investing and financing activities: | ||||||||||||
| Proceeds from the sale of available for sale securities of the funeral and cemetery trusts | $ | 20,784 | $ | 21,236 | ||||||||
| Purchase of available for sale securities of the funeral and cemetery trusts | $ | 20,931 | $ | 22,510 | ||||||||
| Net deposits (withdrawals) in trust accounts increasing (decreasing) noncontrolling interests | $ | (878 | ) | $ | (2,123 | ) | ||||||
65
|
| Year Ended December 31, |
| |||||||
|
| 2002 |
| 2003 |
| 2004 |
| |||
|
|
|
|
|
|
|
| |||
Cash paid for interest and financing costs |
| $ | 19,153 |
| $ | 14,145 |
| $ | 9,854 |
|
Cash paid (refunded) for income taxes |
| $ | 300 |
| $ | 137 |
| $ | (2 | ) |
Stock issued to directors or officers |
| $ | 67 |
| $ | 1,018 |
| $ | — |
|
Restricted cash investing and financing activities: |
|
|
|
|
|
|
| |||
Proceeds from the sale of available for sale securities of the funeral and cemetery trusts |
|
|
|
|
| $ | 20,784 |
| ||
Purchase of available for sale securities of the funeral and cemetery trusts |
|
|
|
|
| $ | 20,931 |
| ||
Net deposits (withdrawals) in trust accounts increasing (decreasing) noncontrolling interests |
|
|
|
|
| $ | (878 | ) | ||
55
In January 2005, the Company issued $130 million of Senior Notes due in 2015. The proceeds from these notes were used to refinance all senior debt, bring current the cumulative deferred distributions on the convertible junior subordinated debentures and the TIDES, and for general corporate purposes. The Company’s bank credit facility was amended subsequent to year-end to permit the issuance of the Senior Notes. In addition, the Company entered into a letter of commitment with Bank of America, its lead lender, for a $35 million Senior Secured Credit Facility. The Senior Secured Credit Facility would mature five years from the closing date, would be secured by the Company’s assets (including certain funeral home real property) and would include financial covenants and limitations on stock redemptions, dividends and acquisitions. The commitment is subject to certain conditions precedent to closing and completion of definitive documentation.
In connection with the early retirement of the senior debt from the proceeds, the Company made a required “make whole” payment of $6.0 million in the form of additional interest and recorded a charge to write off $0.7 million of unamortized loan costs. These charges equal $4.2 million after tax, or $0.23 per diluted share, and will be reported in the first quarter of 2005.
The following table sets forth the consolidated capitalization as of December 31, 2004 on an actual basis and on an as adjusted basis to give effect to the $130 million offering of 7.875% of Senior Notes due in 2015 and the transactions paying off our senior debt and accrued interest.
|
| As of |
| ||||
|
| Actual |
| As Adjusted |
| ||
|
| (in millions) |
| ||||
Senior Debt: |
|
|
|
|
| ||
Existing Unsecured Credit Facility |
| $ | 25.6 |
| $ | — |
|
Existing Senior Notes |
| 70.5 |
| — |
| ||
New Senior Notes |
| — |
| 130.0 |
| ||
Acquisition Debt |
| 8.7 |
| 8.7 |
| ||
Capital Leases |
| 5.5 |
| 5.5 |
| ||
Total Senior Debt |
| $ | 110.3 |
| $ | 144.2 |
|
Subordinated Debt: |
|
|
|
|
| ||
Subordinated Debt to Affiliate (TIDES) |
| $ | 93.8 |
| $ | 93.8 |
|
TIDES Deferred Interest |
| 10.9 |
| — |
| ||
Total Subordinated Debt |
| $ | 104.7 |
| $ | 93.8 |
|
Total Debt |
| $ | 215.0 |
| $ | 238.0 |
|
Total Stockholders’ Equity |
| 116.4 |
| 112.2 |
| ||
Total Capitalization |
| $ | 331.4 |
| $ | 350.2 |
|
56
To Carriage Services, Inc.:
66
February 24, 2005
57
| Charged to | Balance | |||||||||||||||
| Beginning | Costs and | End of | ||||||||||||||
| Description | of year | Expenses | Deduction | Year | ||||||||||||
Year ended December 31, 2003: | ||||||||||||||||
| Allowance for bad debts and contract cancellations | $ | 2,844 | $ | 1,198 | $ | 2,235 | $ | 1,807 | ||||||||
| Litigation reserves | $ | 26 | $ | — | $ | 26 | $ | — | ||||||||
| Environmental remediation reserves | $ | 120 | $ | 18 | $ | 17 | $ | 121 | ||||||||
| Employee severance accruals | $ | 2,345 | $ | 82 | $ | 992 | $ | 1,435 | ||||||||
| Office closing and other accruals | $ | 1,404 | $ | — | $ | 565 | $ | 839 | ||||||||
Year ended December 31, 2004: | ||||||||||||||||
| Allowance for bad debts and contract cancellations | $ | 1,807 | $ | 1,968 | $ | 2,835 | $ | 940 | ||||||||
| Environmental remediation reserves | $ | 121 | $ | — | $ | 18 | $ | 103 | ||||||||
| Employee severance accruals | $ | 1,435 | $ | 395 | $ | 808 | $ | 1,022 | ||||||||
| Office closing and other accruals | $ | 839 | $ | — | $ | 507 | $ | 332 | ||||||||
Year ended December 31, 2005: | ||||||||||||||||
| Allowance for bad debts and contract cancellations | $ | 940 | $ | 2,215 | $ | 2,218 | $ | 937 | ||||||||
| Environmental remediation reserves | $ | 103 | $ | 110 | $ | 70 | $ | 143 | ||||||||
| Employee severance accruals | $ | 1,022 | $ | 355 | $ | 1,220 | $ | 157 | ||||||||
| Office closing and other accruals | $ | 332 | $ | 3 | $ | 265 | $ | 70 | ||||||||
67
Description |
| Beginning |
| Charged to |
| Deduction |
| Balance |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Year ended December 31, 2002: |
|
|
|
|
|
|
|
|
| ||||
Allowance for bad debts and contract cancellations |
| $ | 3,515 |
| $ | 1,018 |
| $ | 1,689 |
| $ | 2,844 |
|
Litigation reserves |
| $ | 26 |
| $ | — |
| $ | — |
| $ | 26 |
|
Environmental remediation reserves |
| $ | 523 |
| $ | — |
| $ | 403 |
| $ | 120 |
|
Employee severance accruals |
| $ | 2,364 |
| $ | 700 |
| $ | 719 |
| $ | 2,345 |
|
Office closing and other accruals |
| $ | 1,987 |
| $ | — |
| $ | 583 |
| $ | 1,404 |
|
|
|
|
|
|
|
|
|
|
| ||||
Year ended December 31, 2003: |
|
|
|
|
|
|
|
|
| ||||
Allowance for bad debts and contract cancellations |
| $ | 2,844 |
| $ | 1,198 |
| $ | 2,235 |
| $ | 1,807 |
|
Litigation reserves |
| $ | 26 |
| $ | — |
| $ | 26 |
| $ | — |
|
Environmental remediation reserves |
| $ | 120 |
| $ | 18 |
| $ | 17 |
| $ | 121 |
|
Employee severance accruals |
| $ | 2,345 |
| $ | 82 |
| $ | 992 |
| $ | 1,435 |
|
Office closing and other accruals |
| $ | 1,404 |
| $ | — |
| $ | 565 |
| $ | 839 |
|
|
|
|
|
|
|
|
|
|
| ||||
Year ended December 31, 2004: |
|
|
|
|
|
|
|
|
| ||||
Allowance for bad debts and contract cancellations |
| $ | 1,807 |
| $ | 1,968 |
| $ | 2,835 |
| $ | 940 |
|
Environmental remediation reserves |
| $ | 121 |
| $ | — |
| $ | 18 |
| $ | 103 |
|
Employee severance accruals |
| $ | 1,435 |
| $ | 395 |
| $ | 808 |
| $ | 1,022 |
|
Office closing and other accruals |
| $ | 839 |
| $ | — |
| $ | 507 |
| $ | 332 |
|
58
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
| ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
Under the supervision
68
We currently expect the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 will be effective for the Company for its year ending December 31, 2005. In order to comply with the Act, we are currently undergoing a comprehensive effort to document, verify and test key internal controls. During the documentation and verification phases, which are still underway, we have identified certain internal control issues which management concluded should be improved. However, to date we have not identified any material weaknesses in our internal controls as defined by the Public Company Accounting Oversight Board. Nonetheless, we are making improvements to our internal controls by revising or updating policies and procedures; training field personnel on procedures and best practices; improving segregation of duties when possible; enhancing information technology systems controls; and improving preventative controls. If additional internal control issues are identified by our continuing compliance efforts, management will address the matter in a timely manner.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
59
69
60
| Page | ||||
| Management’s Report on Internal Control over Financial Reporting | 29 | |||
| Attestation of Independent Registered Public Accounting Firm | 30 | |||
| Report of Independent Registered Public Accounting Firm | 31 | |||
Consolidated Balance Sheets as of December 31, | 32 | |||
Consolidated Statements of Operations for the Years Ended December 31, | 33 | |||
| 2005 | 34 | |||
| 2005 | 35 | |||
Consolidated Statements of Cash Flows for the Years Ended December 31, | 36 | |||
| 37 | ||||
| Page | ||||
| Report of Independent Registered Public Accounting Firm on Financial Statement Schedule | 66 | |||
Financial Statement Schedule II — Valuation and Qualifying Accounts | 67 | |||
|
| |
Exhibit No. | Description | |
3.1 | Amended and Restated Certificate of Incorporation, as amended, of the Company. Incorporated herein by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 1996. | |
3.2 | Certificate of Amendment dated May 7, 1997. Incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for its fiscal quarter ended September 30, 1997. | |
3.3 | Certificate of Amendment dated May 7, 2002. Incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for its fiscal quarter ended June 30, 2002. | |
3.4 | Certificate of Designation of the Company’s Series G Junior Participating Preferred Stock. Incorporated by reference to Exhibit C to the Rights Agreement with American Stock Transfer & Trust Company dated December 18, 2000, which is attached as Exhibit 1 to the Company’s Form 8-A filed December 29, 2000. | |
3.5 | Amended and Restated Bylaws of the Company. Incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1 (File No. 333-05545). | |
3.6 | Amendments to the Bylaws of the Company effective December 18, 2000. Incorporated by |
70
| Exhibit No. | Description | |
| reference to Exhibit 3.9 to the Company’s Annual Report on Form 10-K for its year ended December 31, 2001. |
61
| 4.1 | Certificate of Trust of Carriage Services Capital Trust. Incorporated by reference to Exhibit 4.6 to the Company’s Form S-3 Registration Statement No. 333-84141. | |
4.2 | Amended and Restated Declaration of Trust of Carriage Services Capital Trust, dated June 3, 1999 among the Company, Wilmington Trust Company, Wilmington Trust Company, and Mark W. Duffey, Thomas C. Livengood and Terry E. Sanford. Incorporated by reference to Exhibit 4.7 to the Company’s Form S-3 Registration Statement No. 333-84141. | |
4.3 | Indenture for the Convertible Junior Subordinated Debentures due 2029 dated June 3, 1999 between the Company and Wilmington Trust Company. Incorporated by reference to Exhibit 4.8 to the Company’s Form S-3 Registration Statement No. 333-84141. | |
4.4 | Form of Carriage Services Capital Trust 7% Convertible Preferred Securities. Incorporated by reference to Exhibit 4.10 to the Company’s Form S-3 Registration Statement No. 333-84141. | |
4.5 | Form of the Company’s Convertible Junior Subordinated Debentures due 2029. Incorporated by reference to Exhibit 4.11 to the Company’s Form S-3 Registration Statement No. 333-84141. | |
4.6 | Preferred Securities Guarantee dated June 3, 1999 between the Company and Wilmington Trust Company. Incorporated by reference to Exhibit 4.12 to the Company’s Form S-3 Registration Statement No. 333-84141. | |
4.7 | Common Securities Guarantee, dated June 3, 1999 by Carriage Services, Inc. as Guarantor. Incorporated by reference to Exhibit 4.13 to the Company’s Form S-3 Registration Statement No. 333-84141. | |
4.8 | Amendment No. 1 to Amended and Restated Declaration of Trust of Carriage Services Capital Trust. Incorporated by reference to Exhibit 4.14 to the Company’s Form S-3 Registration Statement No. 333-84141. | |
4.9 | Rights Agreement with American Stock Transfer & Trust Company dated December 18, 2000. Incorporated by reference to Exhibit 1 to the Company’s Form 8-A filed December 29, 2000. | |
4.10 | Indenture dated as of January 27, 2005 between Carriage Services, Inc., the Guarantors named therein, as Guarantors, and Wells Fargo Bank, National Association, as trustee. Incorporated herein by reference to Exhibit 4.1 to the Company’s current report on Form 8-K dated January 27, 2005. | |
| 4.11 | Registration Rights Agreement dated as of January 27, 2005 between Carriage Services, Inc., the Guarantors named therein, and the Initial Purchasers named herein. Incorporated herein by reference to Exhibit 4.2 to the Company’s current report on Form 8-K dated Janury 27, 2005. | |
| 4.12 | Credit Agreement dated |
71
| Exhibit No. | Description | |
| 4.13 | Amendment No. 1 to the Credit Agreement dated August 31, 2005 among Carriage Services, Inc., as the Borrower, Bank of America, N.A. as the Administrative Agent, Swing Line Lender and L/C Issuer, Wells Fargo Bank of Texas, National Association, as Syndication Agent and Other Lenders. Incorporated by reference to Exhibit 4.1 to the Company’s | |
|
| |
|
| |
|
| |
|
| |
| Amended and Restated 1996 Stock Option Plan. Incorporated herein by reference to Exhibit 10.24 to the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 1996. † | |
| Amendment No. 2 to 1996 Stock Option Plan. Incorporated by reference to Exhibit 10.2 to the Company’s Form S-8 Registration Statement No. 333-85961. † | |
| Second Amended and Restated 1996 Stock Incentive Plan. Incorporated by reference to Appendix C to the Company’s |
62
| ||
| 10.4 | Second Amended and Restated 1996 Director’s Stock Option Plan. Incorporated by reference to Exhibit 99.1 to the Company’s 2000 Schedule 14A. † | |
| 1998 Stock Option Plan for Consultants. Incorporated by reference to Exhibit 10.1 to the Company’s Form S-8 Registration Statement No. 333-62593. † | |
| Amendment No. 1 to the 1997 Employee Stock Purchase Plan. Incorporated by reference to Appendix B to the Company’s | |
| Employment Agreement with Melvin C. Payne, dated November 8, 1999. Incorporated by reference to Exhibit 10.11 to the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 1999. † | |
| Indemnity Agreement with Melvin C. Payne dated December 18, 2000. Incorporated by reference to Exhibit 10.20 to the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2000. † | |
| Indemnity Agreement with Mark F. Wilson dated December 18, 2000. Incorporated by reference to Exhibit 10.24 to the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2000. † | |
|
| |
| Indemnity Agreement with Ronald A. Erickson dated December 18, 2000. Incorporated by reference to Exhibit 10.27 to the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2000. † | |
| Indemnity Agreement with Vincent D. Foster dated December 18, 2000. Incorporated by reference to Exhibit 10.28 to the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2000. † | |
| Employment Agreement with George J. Klug dated May 7, 2002. Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for its quarter ended June 30, 2002. |
63
|
| |
|
| |
| Indemnity Agreement with Joe R. Davis dated May 13, 2003. Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for its quarter ended June 30, 2003. † | |
| Indemnity Agreement with Joseph Saporito dated May 13, 2003. Incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for its quarter ended June 30, 2003. † |
72
| Exhibit No. | Description | |
| Indemnity Agreement with James J. Benard dated May 13, 2003. Incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for its quarter ended June 30, 2003. † | |
| Indemnity Agreement with George J. Klug dated May 13, 2003. Incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for its quarter ended June 30, 2003. † | |
| Employment | |
|
| |
| *10.19 | Employment Agreement with Joseph Saporito dated November 4, 2005. † | |
| *12 | Calculation of Ratio of Earnings to Fixed Charges. | |
| 14 | Code of Business Conduct and Ethics. Carriage’s Code of Business Conduct and Ethics is available on the websitewww.carriageservices.com. | |
| 18.1 | Preferability letter from registered public accounting firm regarding change in accounting method dated August 1, 2005. Incorporated by reference to Exhibit 18.1 to the Company’s Quarterly Report on Form 10-Q for its quarter ended June 30, | |
* |
| |
|
| |
|
| |
| Subsidiaries of the Company. | |
*23.1 | Consent of KPMG LLP. | |
*31.1 | Certification of Periodic Financial Reports by Melvin C. Payne in satisfaction of Section 302 of the Sarbanes-Oxley Act of 2002. | |
*31.2 | Certification of Periodic Financial Reports by Joseph Saporito in satisfaction of Section 302 of the Sarbanes-Oxley Act of 2002. | |
* | Certification of Periodic Financial Reports by Melvin C. Payne | |
|
|
| (*) Filed herewith. | ||
| ( †) Management contract or compensatory plan or arrangement required to be filed as an exhibit hereto. | ||
(*) Filed herewith.
64
| CARRIAGE SERVICES, INC. | ||||
| By: | /s/ Melvin C. Payne | ||
| Melvin C. Payne | ||||
| Chairman of the Board, Chief Executive Officer, and President | ||||
|
|
| ||
| Signature | Title | Date | ||
/s/ Melvin C. PayneMelvin C. Payne | Chairman of the Board, Chief Executive | |||
| Officer, | March | ||
/s/ Joseph SaporitoJoseph Saporito | Executive Vice President, Chief Financial | |||
| Officer and | March 10, 2006 | ||
/s/ Terry E. SanfordTerry E. Sanford | Senior Vice President, Treasurer and Chief Accounting | March | ||
/s/ Joe R. Davis |
|
| ||
| Joe R. Davis | Director | March 10, 2006 | ||
/s/ Ronald A. Erickson |
|
| ||
| Ronald A. Erickson | Director | March 10, 2006 | ||
/s/ Vincent D. Foster |
|
| ||
| Vincent D. Foster | Director | March 10, 2006 | ||
|
|
| ||
| ||||
/s/ Mark E. Wilson |
|
| ||
| Mark E. Wilson | Director | March 10, 2006 |
74
65
| Exhibit No. | Description | |
| 3.1 | Amended and Restated Certificate of Incorporation, as amended, of the Company. Incorporated herein by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 1996. | |
| 3.2 | Certificate of Amendment dated May 7, 1997. Incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for its fiscal quarter ended September 30, 1997. | |
| 3.3 | Certificate of Amendment dated May 7, 2002. Incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for its fiscal quarter ended June 30, 2002. | |
| 3.4 | Certificate of Designation of the Company’s Series G Junior Participating Preferred Stock. Incorporated by reference to Exhibit C to the Rights Agreement with American Stock Transfer & Trust Company dated December 18, 2000, which is attached as Exhibit 1 to the Company’s Form 8-A filed December 29, 2000. | |
| 3.5 | Amended and Restated Bylaws of the Company. Incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1 (File No. 333-05545). | |
| 3.6 | Amendments to the Bylaws of the Company effective December 18, 2000. Incorporated by |
| Exhibit No. | Description | |
| reference to Exhibit 3.9 to the Company’s Annual Report on Form 10-K for its year ended December 31, 2001. | ||
| 4.1 | Certificate of Trust of Carriage Services Capital Trust. Incorporated by reference to Exhibit 4.6 to the Company’s Form S-3 Registration Statement No. 333-84141. | |
| 4.2 | Amended and Restated Declaration of Trust of Carriage Services Capital Trust, dated June 3, 1999 among the Company, Wilmington Trust Company, Wilmington Trust Company, and Mark W. Duffey, Thomas C. Livengood and Terry E. Sanford. Incorporated by reference to Exhibit 4.7 to the Company’s Form S-3 Registration Statement No. 333-84141. | |
| 4.3 | Indenture for the Convertible Junior Subordinated Debentures due 2029 dated June 3, 1999 between the Company and Wilmington Trust Company. Incorporated by reference to Exhibit 4.8 to the Company’s Form S-3 Registration Statement No. 333-84141. | |
| 4.4 | Form of Carriage Services Capital Trust 7% Convertible Preferred Securities. Incorporated by reference to Exhibit 4.10 to the Company’s Form S-3 Registration Statement No. 333-84141. | |
| 4.5 | Form of the Company’s Convertible Junior Subordinated Debentures due 2029. Incorporated by reference to Exhibit 4.11 to the Company’s Form S-3 Registration Statement No. 333-84141. | |
| 4.6 | Preferred Securities Guarantee dated June 3, 1999 between the Company and Wilmington Trust Company. Incorporated by reference to Exhibit 4.12 to the Company’s Form S-3 Registration Statement No. 333-84141. | |
| 4.7 | Common Securities Guarantee, dated June 3, 1999 by Carriage Services, Inc. as Guarantor. Incorporated by reference to Exhibit 4.13 to the Company’s Form S-3 Registration Statement No. 333-84141. | |
| 4.8 | Amendment No. 1 to Amended and Restated Declaration of Trust of Carriage Services Capital Trust. Incorporated by reference to Exhibit 4.14 to the Company’s Form S-3 Registration Statement No. 333-84141. | |
| 4.9 | Rights Agreement with American Stock Transfer & Trust Company dated December 18, 2000. Incorporated by reference to Exhibit 1 to the Company’s Form 8-A filed December 29, 2000. | |
| 4.10 | Indenture dated as of January 27, 2005 between Carriage Services, Inc., the Guarantors named therein, as Guarantors, and Wells Fargo Bank, National Association, as trustee. Incorporated herein by reference to Exhibit 4.1 to the Company’s current report on Form 8-K dated January 27, 2005. | |
| 4.11 | Registration Rights Agreement dated as of January 27, 2005 between Carriage Services, Inc., the Guarantors named therein, and the Initial Purchasers named herein. Incorporated herein by reference to Exhibit 4.2 to the Company’s current report on Form 8-K dated Janury 27, 2005. | |
| 4.12 | Credit Agreement dated April 27, 2005 among Carriage Services, Inc., as the Borrower, Bank of America, N.A. as the Administrative Agent, Swing Line Lender and L/C Issuer, Wells Fargo Bank of Texas, National Association, as Syndication Agent and Other Lenders. Incorporated by reference to Exhibit 4.5 to the Company’s Quarterly Report on Form 10-Q for its fiscal quarter ended June 30, 2005. |
| Exhibit No. | Description | |
| 4.13 | Amendment No. 1 to the Credit Agreement dated August 31, 2005 among Carriage Services, Inc., as the Borrower, Bank of America, N.A. as the Administrative Agent, Swing Line Lender and L/C Issuer, Wells Fargo Bank of Texas, National Association, as Syndication Agent and Other Lenders. Incorporated by reference to Exhibit 4.1 to the Company’s Quarterly Report on Form 10-Q for its fiscal quarter ended September 30, 2005. | |
| 10.1 | Amended and Restated 1996 Stock Option Plan. Incorporated herein by reference to Exhibit 10.24 to the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 1996. † | |
| 10.2 | Amendment No. 2 to 1996 Stock Option Plan. Incorporated by reference to Exhibit 10.2 to the Company’s Form S-8 Registration Statement No. 333-85961. † | |
| 10.3 | Second Amended and Restated 1996 Stock Incentive Plan. Incorporated by reference to Appendix C to the Company’s 2005 Schedule 14A. † | |
| 10.4 | Second Amended and Restated 1996 Director’s Stock Option Plan. Incorporated by reference to Exhibit 99.1 to the Company’s 2000 Schedule 14A. † | |
| 10.5 | 1998 Stock Option Plan for Consultants. Incorporated by reference to Exhibit 10.1 to the Company’s Form S-8 Registration Statement No. 333-62593. † | |
| 10.6 | Amendment No. 1 to the 1997 Employee Stock Purchase Plan. Incorporated by reference to Appendix B to the Company’s 2005 Schedule 14A. † | |
| 10.7 | Employment Agreement with Melvin C. Payne, dated November 8, 1999. Incorporated by reference to Exhibit 10.11 to the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 1999. † | |
| 10.8 | Indemnity Agreement with Melvin C. Payne dated December 18, 2000. Incorporated by reference to Exhibit 10.20 to the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2000. † | |
| 10.9 | Indemnity Agreement with Mark F. Wilson dated December 18, 2000. Incorporated by reference to Exhibit 10.24 to the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2000. † | |
| 10.10 | Indemnity Agreement with Ronald A. Erickson dated December 18, 2000. Incorporated by reference to Exhibit 10.27 to the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2000. † | |
| 10.11 | Indemnity Agreement with Vincent D. Foster dated December 18, 2000. Incorporated by reference to Exhibit 10.28 to the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2000. † | |
| 10.12 | Employment Agreement with George J. Klug dated May 7, 2002. Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for its quarter ended June 30, 2002. † | |
| 10.13 | Indemnity Agreement with Joe R. Davis dated May 13, 2003. Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for its quarter ended June 30, 2003. † | |
| 10.14 | Indemnity Agreement with Joseph Saporito dated May 13, 2003. Incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for its quarter ended June 30, 2003. † |
| Exhibit No. | Description | |
| 10.15 | Indemnity Agreement with James J. Benard dated May 13, 2003. Incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for its quarter ended June 30, 2003. † | |
| 10.16 | Indemnity Agreement with George J. Klug dated May 13, 2003. Incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for its quarter ended June 30, 2003. † | |
| 10.17 | Employment Agreement with James J. Benard dated January 1, 2004. Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for its quarter ended March 31, 2004. † | |
| 10.18 | Employment Agreement with George J. Klug dated March 30, 2005. Incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for its quarter ended March 31, 2005. † | |
| *10.19 | Employment Agreement with Joseph Saporito dated November 4, 2005. † | |
| *12 | Calculation of Ratio of Earnings to Fixed Charges. | |
| 14 | Code of Business Conduct and Ethics. Carriage’s Code of Business Conduct and Ethics is available on the websitewww.carriageservices.com. | |
| 18.1 | Preferability letter from registered public accounting firm regarding change in accounting method dated August 1, 2005. Incorporated by reference to Exhibit 18.1 to the Company’s Quarterly Report on Form 10-Q for its quarter ended June 30, 2005. | |
| *21.1 | Subsidiaries of the Company. | |
| *23.1 | Consent of KPMG LLP. | |
| *31.1 | Certification of Periodic Financial Reports by Melvin C. Payne in satisfaction of Section 302 of the Sarbanes-Oxley Act of 2002. | |
| *31.2 | Certification of Periodic Financial Reports by Joseph Saporito in satisfaction of Section 302 of the Sarbanes-Oxley Act of 2002. | |
| *32 | Certification of Periodic Financial Reports by Melvin C. Payne and Joseph Saporito in satisfaction of Section 906 of the Sarbanes-Oxley Act of 2002. |